Observed macroeconomic properties are subject to historical path dependence and inextricable from a country's relative technological attainment. As an economic periphery of the Dutch Republic in the 17th century, Japan experienced problems similar to Argentina's. But now, as a "core" economy---no doubt through its special relationship to the US--Japan's role in the global economy is wholly different.
The quip above comes from Simons Kuznets and I wrote a book attempting to find an explanation:
Just tell japan we could send some politicians over there to fix their issue.
Argentina's issue isn't a case study though. On one of the last auctions to print bills there were no bids because they were asking for an insane delivery date. We literally cannot print them fast enough.
The quote originally is about Japan and Argentina being outliers in development trajectory, Japan extremely rapidly developing after WW2 to one of the world's richest countries vs Argentina's decline from being one of the world's richest countries after WW1. Argentina stands apart in having been initially on similar track as the "developed" rich countries and then significantly deteriorated.
Inflation can be psychological: the workers want to resist inflation, the unions block the factories, the factory leaders pressure the politicians, the central bank say now currency divided by 2, salaries expand, prices expand, everything expand, factories restart for another year.
Look at how Brazil introduced their last currency, they understood this and had the balls to fix it. They created a virtual currency based on a fixed usd rate, they pretended was just for reference and printed prices in it for salaries, products etc with a floating rate against the normal currency refreshed everyday. People start to wrap their brain around having the shit currency with exploding inflation AND everything priced in a stable, trusted reference point. Then, they rug pulled the old currency and said "now this virtual currency is the real one, here are the banknotes, good luck", and it held because people did not expect that one to inflate all the time.
It's simplified but do not imagine nobody understand Argentina's situation: the only ones not understanding are the people there, unwilling to bear the cost of stabilizing and instead forever running away demanding their salaries expand to "resist inflation" when it is the very inflation they try to fight.
Each time I hear a little guy in a country saying he expect his x% raise because of inflation (and not, say, results), I know it's a red flag. People should not try to all virtually raise their salary, or what do they expect will happen ? Their salary will change not at all, but the currency will magically be worth less: after all, they did nothing special to deserve more.
One's previous life experiences also flavour perceptions of inflation. The Odd Lots podcast had an interesting episode a little while ago:
> Inflation is running hot these days. But, even when the official measures were considerably cooler, there were many people who were skeptical and insisted that inflation was running hot and rampant. It turns out, nobody really experiences inflation similarly, and one's own consumption and behavioral patterns will have a big impact on their outlook. On this episode, we speak with Berkeley professor Ulrike Malmendier, whose work has shown how one's behavior (where you shop) and history (what conditions were like earlier in your life) can inform views and perceptions of inflation for years.
> How do individuals form expectations about future inflation? We propose that personal experiences play an important role. Individuals adapt their forecasts to new data but overweight inflation realized during their life-times. Young individuals update their expectations more strongly in the direction of recent surprises than older individuals since recent experiences make up a larger part of their lives so far. We find support for these pre- dictions using 57 years of microdata on inflation expectations from the Reuters/Michigan Survey of Consumers. Differences in life-time experiences strongly predict differences in subjective inflation expectations. […]
It's not just "the little guy" in Argentina - it's everyone and everything. Everyone always demands increases to their flow of money in Argentina. It's no surprise that they get inflation.
but that's the problem. there isn't enough food and housing to go around. you can't fix it with fake raises. you have to add competition back into the market at the corporate level. but investors don't like competition.
Argentina did the same thing with their local currency tied to the dollar, it initially lowered inflation and a flow of capital came into their country and bringing higher growth. But then the capital kept flowing in because it was felt that they would never or could never break the link with the dollar. So the foreign debt piled up, and went inevitably into assets like property. When the Mexican default happened in the 90's all the money flowed out, the currency peg was broken and after the short deflation, inflation took over again. And thats the way its been.
> Look at how Brazil introduced their last currency, they understood this and had the balls to fix
And now we're throwing it all down the crapper...
I'm not sure, I was fairly young, but I'm pretty sure that when the "virtual currency" URV (Unidade Real de Valor) was introduced, it was no secret it was a step towards a new currency (the Real). We've had a few changes in currency before, it was nothing new. The difference with Plano Real is that we finally gave up on short-term solutions and realized that any change would take many years of consistent economic policies. And it worked.
> Look at how Brazil introduced their last currency, they understood this and had the balls to fix it.
This was the topic of a recent HN posting, IIRC, but I can't remember the discussion article. In any event, for those watching at home a relevant Wikipedia link to begin your spelunking: https://en.wikipedia.org/wiki/Unidade_real_de_valor
Ha! I remembered commenting in that old thread (it was a good one) and was going to go digging too when I read your "but I can't remember", but you found it. :)
Wow! If only you hadn't beaten them to it, countless PhD economists around the world could've gained a Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for this. Now you will get it instead.
> _nobody_ in this country (And, very likely, in the whole world) can explain our inflation.
What? The explanation is simple, Argentina spends more money than what they make, and the only measures they do to "fix" the economy are raising taxes, getting foreign debt to pay common expenses and printing more money.
Nowadays, foreign debt interest is super high for Argentina, and it's on the brink of default (yet again), so the only thing the government is doing is printing money and raising taxes (yet again, for the nth time).
The reason why Argentina has inflation is just very inconvenient to central bankers. If the pool of money increases in size, prices go up, end of story. Central bankers like to think that they can use sophisticated measures to control the economy, but it looks like they can't beyond a few simple things. Print money and you raise prices, end of story.
Central banks can't print money nor can they influence the quantity of money in the economy. The best they can do is raise the interest rate which denies people the ability to borrow.
I think this is entirely dependent on the country in question because rules around central bank operations are very different in different parts of the world. Some can directly create money and some can even seize assets.
Note that if Central bank digital currencies are allowed then Central banks will most certainly be able to influence the currency in circulation with much more power than they currently do.
Beside the demographics, another aspect is that even with low birth rates, salaries in Japan don't seem to have much growth over the past say 20 years, and you are starting to see trends to have companies work lower hours -- which likely will see either flat GDP or potential lower GDP. Japan has been hit with a ton of competition in many big industries by their neighbors like China, South Korea, Taiwan, and others. So I don't personally have any information, but I could guess that with those prevailing forces / trends being well known in Japan, I wonder if many brands are willing to accept smaller margins to avoid passing on costs to consumers, or something similar? Would be great if anybody knew more details -- like if you produce some goods in Japan, do you see that costs are rising, but do not want to increase prices?
This is assuming that lower work hours will decrease GDP. Japan is basically the poster child for work cultures that value you sitting at your desk doing nothing useful for sometimes insane durations.
Not sure if it's exactly what you're asking for, but a tweet a while ago:
> Dean looks at GDP per capita. But Japan's aging population means that you really want to look at GDP per working-age adult. And by that measure Japan's growth has been essentially the same as America's 2/ [FRED graphic]
It really does expose a reality that is both inconvenient and repressed by the ruling class, inflation is (among other things) used to defraud common people and also artificially inflate the value of the affluent's hard assets. It is precisely why the Fed pushes inflation to both eat away at the debt of the affluent, largely at the cost of institutional (pensions) investors, foreign nations, and tax payers. We are also entering, if we have not already entered a negative feedback loop where it is not only not in the interest of the affluent to suppress inflation, it is actually beneficial/profitable for them to drive inflation up … at least until the music stops.
IDK why everyone on HN thinks that the affluent have debt, when in fact, the bottom 50% of Americans hold less that 4% of wealth because most of them are in net debt, largely to entities owned by the affluent.
Maybe it's because inflation is actually bad for the moderately affluent who made a disproportionate share of their income early in life and want to live off that nest egg while no longer working (which I assume to be overrepresented on HN).
For a lot of it this comes down to mortgages. Someone who has a $4million mansion with a $1million loan has more debt in an absolute nominal number sense than someone with no assets and a $10k credit card debt. That said as household debt increases (due to things like credit cards) we are having a shift whereby many people on net own less than zero. For this group higher inflation won't be as bad as the impact on wealth as far as the debt/assets side of things goes. However it will still likely be bad for the poorest because wages tend to lag behind inflation and if the poorest people need their wages to service their debts they might still be falling behind more as a result of inflation. As always inflation will still be bad for anyone who is attempting to save money. On top of all this we have things like the Cantillon effect, so I just don't think higher inflation is as good for the poor - even with their newfound indebtedness - as people might be claiming.
>Someone who has a $4million mansion with a $1million loan has more debt in an absolute nominal number sense than someone with no assets and a $10k credit card debt.
You are completely ignoring equity and are therefore incorrect. I was speaking about net worth, not whatever concept you're talking about ('outstanding cash-denominated leverage?')
>we are having a shift whereby many people on net own less than zero.
Yes, c. 50% of Americans, all of whom benefit from (wage) inflation in that scenario
> it will still likely be bad for the poorest because wages tend to lag behind inflation and if the poorest people need their wages to service their debts they might still be falling behind more as a result of inflation.
Source? This chart [0] seems to run counter to your claim, wages for non-supervisory employees move pretty in-line with inflation...
>As always inflation will still be bad for anyone who is attempting to save money.
Inflation and savings account interest rates have a complex relationship. For example, you could get 8%+ on a CD in 1990[1], when inflation was at about 6% (2% real yield). In the famously low inflation 2010's, you could maybe get 2% (0.5% real yield).
>On top of all this we have things like the Cantillon effect, so I just don't think higher inflation is as good for the poor - even with their newfound indebtedness - as people might be claiming.
Poor Americans being in debt is not new and not related to inflation. An re:Cantillon, a lot of work on pricing has been done since then, but I'm assuming from the above it's not really worth getting into here.
> IDK why everyone on HN thinks that the affluent have debt, when in fact, the bottom 50% of Americans hold less that 4% of wealth because most of them are in net debt, largely to entities owned by the affluent.
The wealthiest people by definition have more equity than they do debt (which is why they are wealthy) but that doesn't mean that they don't hold debt. I think this is why most people think the affluent have debt obligations and frankly in the current markets there are incentives to have debt when real rates are this negative. Poorer people are also holding more debt, basically there's a lot more debt everywhere these days.
Regarding the chart CPI is not the same as monetary inflation but yet CPI is frequently used to make inflation-adjusted securities. And since CPI does all sorts of intellectually dishonest mental gymnastics with regards to "hedonic adjustments" these days its a less reliable metric than it was in the past of how cost of living has changed over time: https://wolfstreet.com/2019/12/05/what-worries-me-about-hedo...
The affluent are invested in companies. Maybe I’m wrong but I’m going to guess American companies have multiple orders of magnitude more debt then the bottom 50% you’re referring to; just not nearly as much relevant to their greater assets. Some percentage of each company value is linked to their ability to take cheap debt, use that for further investments/acquisitions, and have inflation mitigate the damage (directly) or risk (indirectly via bailouts).
None of the above conflicts with your point about wealth but they seem like completely different metrics that aren’t inherently related.
What is important is how much debt you have that cost you less than inflation.
Governments and wealthy individuals have tons of 2% interest (or less) debt. Inflation at 4% erodes that debt pretty fast.
The poor and middleclass have debt at 10-30% and inflation at 4% is doing not much to erode it.
That's not true. Regardless of the interest rate, all loans' principle is inflated at the same rate. You can argue that the poor are more likely to have their principle grow due to underpayment, but that's a separate point.
You say that but if your debt is on credit cards at 20%, believe me, you don’t feel like inflation is your best friend. If you’re the government, it’s a very different scenario.
Whats your idea of underpayment? If a student loan takes 20 years to pay off at allowed monthly payments, that's not underpayment, but lord that is a weight on your neck.
Didn't we just hear this whole story about how billionaires don't pay income or capital gains tax because all the dollars they keep on hand derive from low-interest fixed-rate loans taken out against their shares?
When someone is poor, they're really limited in how much debt they can take on. Credit cards and payday loans have massive interest rates that make inflation irrelevant, and fairly low absolute limits anyway. (This can still be very hard to escape at a low income level but it's not likely inflation will help, because with a debt trap, that high-interest debt is being drawn to pay bills and buy consumer goods, not invested in assets).
The majority of debt that people outside of the 1% are likely to hold is probably mortgage debt, and that only applies to homeowners, who are still likely the wealthier contingent and will benefit from inflation (as long as interest rates don't rise).
I cannot emphasize this enough. Mortgage debt is offset by equity and generally has a positive impact on peoples' net worth calculations (house prices are at an ATH).
If you want to walk through the NY Fed's data on this happy to, but the bottom 50% are in student debt, credit card debt, and auto debt. Full stop.
I don't think that's inconsistent with what I said, so as much as you can emphasize it with a full stop, I think it's somewhat tangential to my point. I agree that homeowners will benefit (as long as rates stay low). But they're in the asset-owning class. The more hard assets you have, the more you'll benefit, and those who can draw low-rate lines of credit against their appreciating hard assets will benefit the most. But that does not describe the bottom 50%.
Inflation is definitely not going to help anyone who is struggling with credit card debt, for reasons that should be obvious. It might help those who have student debt, but likely only for one contingent because tuition will probably continue to outpace wage growth as it has for years. It might help some people repay their old auto loans, but not today's buyers when automobile price growth is outpacing inflation.
>The majority of debt that people outside of the 1% are likely to hold is probably mortgage debt
This is a demonstrably false statement [0] The bottom 50% hold 57% of the outstanding credit debt. [1] The bottom 50% hold 33% of all other liabilities.
I don't know how to make it more clear to you that the average balance sheet of the bottom 50% is no assets, many liabilities. Sorry if the full stop hurt your feelings.
> I don't know how to make it more clear to you that the average balance sheet of the bottom 50% is no assets, many liabilities.
... Yes? Again, I think we agree on this fact. You're stating a lot of facts as though they were things that I argued against, when in fact, they support my thesis.
> The bottom 50% hold 57% of the outstanding credit debt
But that wasn't what I was disagreeing with. Your link also states that the bottom 50% hold only 32% of all liabilities. While the bottom 50% does have most of the credit debt (which I agreed with), a much larger overall liability is mortgage debt (2.6x larger), which they have very little of (22.5%). You say mortgages aren't "net debt" but that seems hardly relevant to the question of whether someone benefits or loses from inflation, because their debt is fixed while their assets float.
Edit: maybe you think that I'm arguing that affluent individuals have negative net worth? I'm certainly not saying that. I'm saying that they have a large quantity of mostly fixed-rate debts, backed by an even larger quantity of assets that appreciate with inflation.
Again, I can't emphasize this enough, the bottom 50% holds 32% of liabilities and nearly 100% of NET liabilities.
We just are clearly at an impasse on that though. You can sell a house to pay off a mortgage so it's not harmful debt because it is OFFSET BY ASSETS THAT ALSO INFLATE (In fact, the brief period where that wasn't true caused the largest financial crisis of our lifetimes). What do you sell to pay off credit card loans/student loans/etc.?
(Further response just to clarify): by "the wealthier contingent outside the 1%", I am of course referring to the 50% to 99% percentile, who do collectively hold almost three-quarters of all mortgage debt, and that mortgage debt also comprises the vast majority of their debt.
The bottom 50% don’t count their future labor / income as wealth. However the top 10% do count as wealth future cash flows from business which is dependent on the bottom 90%’s labor. So once you setup an equation between future income and wealth, the situation is not so bleak for the bottom 50%. Their future labor is worth much more than their 4% wealth + some amount of debt in mortgages / student loans / credit cards.
> Maybe it's because inflation is actually bad for the moderately affluent who made a disproportionate share of their income early in life and want to live off that nest egg while no longer working (which I assume to be overrepresented on HN).
But I am guessing that group has equities, which are somewhat inflation proof (especially if growth focused).
Only some equities are inflation proof. Other equities will be crushed by inflation because inflation will put pressure on higher interest rates and companies with high debt loads will get crushed by higher rates.
High debt loads are relatively easier to carry as inflation spikes. Inflationary pressures on interest rates will only hurt companies who need to roll over their debt. Most companies will realize that going to the market by issuing new stock is a cheaper cost of capital.
>But I am guessing that group has equities, which are somewhat inflation proof (especially if growth focused)
Trust me, with my own portfolio, I wish that were true, but future expectations of inflation force you to discount future cash flows more, making (all else equal) growth worth less.
The real problem the 'HN rest and vest' crowd has with inflation is that while wages have shown a great ability to adjust (upward) to match inflation, stock market returns are less likely to do so.
Equities of "quality" companies are inflation proof. Exclusively growth focused companies tend to die out during the next recession. That's why value investing outperforms the market over the long term and underperforms it over the short term.
Debt of the affluent... It's strange how the visibility of a simple mechanism of a hugely complex machine makes people unable to understand what is really happening. Poor people hold money and cash so inflation erodes their savings... That is the basic theory people come up with and it makes sense to them because they can feel it. They can't feel all the jobs that were created by that inflation. They can't feel all the income they earned thanks to that inflation.
Come on. What you are writing doesn't make any sense. If the rich are net debtors, that means the poor are net creditors. The rich have none of the money, the poor have all of it. How does that make any logical sense? Why would the poor be poor if they have money?
If the rich are net creditors, then it's pretty obvious that they want low inflation and high interest rates.
By creditor I just mean people holding onto liquid credit, not that the money was lent out.
If inflation is persistent then congratulations, you are now in an economic boom and everything will be great. I honestly don't believe that inflation will stay.
He's saying rich people have assets with large intrinsic value that won't be hurt by inflation, like houses and stock shares, while poor people just have a little cash on hand and cash flow from their jobs.
I have no comment/insight into the rest of the statements though
Is one of the feedback loops for high inflation that companies don't want to increase wages, so you go into a recession because people stop buying things because everything starts costing too much?
People not spending money decreases the velocity of money, which effectively reduces the money supply, causing deflation. Similarly, the drop in demand itself acts as a counter pressure to inflation by simple supply and demand.
Not only does this not make sense as a feedback loop, but until the 1970s, the economic consensus was that it was impossible to have both high inflation and a recession at the same time. This view was only overturned when it happened, and the phenomena came to be known as stagflation.
Seems like velocity of money theory doesn't take into account that the rich and poor (and businesses) have different spending or investing habits.
In my opinion the velocity of money for consumer and retail products is more or less constant because a large portion of the population doesn't (or can't) save a significant percentage of their income, while the 'asset money' category like real estate and stock market is hugely affected by velocity of money driven by falling interest rates.
There are boring institutional investors and fancy equity investors who buy treasury bonds. The latter do it because they want dry powder during a recession. QE takes treasury bonds out of the system without issuing more bonds, meanwhile banks get central bank reserves that they don't want. Nobody is borrowing, no money is issued. Everyone is worse off. As yields go to 0%, those institutional investors simply hold cash in bank accounts which drags the velocity of money down.
The unfortunate news is that most macroeconomic theories (including mine), especially the neoclassical variety, are kind of useless in the real world because of inability to actually implement policies 1:1 in the real world. The modeling errors are also quite significant. Nobody is really trying to solve NRAs(non reproducible assets) or monopolies. Everyone just assumes you can harvest more bananas or colonize a second planet.
A theory I heard is that Japan has a fixed idea of what things should cost, and if anything ever costs more or less, there needs to be a good reason. Using price as a market signal is culturally unacceptable. Conveyer belt sushi still costs ¥100 for the cheap stuff, and ¥200 for the higher-end shops. Even things that are overpriced have remained overpriced for the last 30 years. Video games have always cost ¥7800 yen, about twice as much as in the US, and music CDs cost ¥3000, again about twice as much. And don't even get started on what it costs to own a copy of a TV show.
Once the culture has decided what a price should be, it can never go up or down. If you change the MSRP, it's a sign that you're trying to cheat people. Either the customer, if you're raising prices, or the business community, if you try to lower them and undercut competitors.
It's a cute theory, but Japan had serious inflation after the war, averaging 5%/year for decades and peaking at 25% during the 1970s oil crisis. The current zero to negative inflation era only began after the Bubble burst in the 1990s.
Yeah but it's somewhat right what op said: because of that crisis, all they are willing to do now is save. Save save save. They'll spend nothing at all, too hungover of the bubble burst.
You can double the supply, they ll double their stash so you ll have very low circulation. And they wont borrow, too afraid of defaulting, so banks dont know what to do with all this stash. So in effect they burn the money supply, and any attempt at changing this must first tap deep into this fundamental fear.
Yeah, but that has got to do with how the macroeconomic system works after the bubble and how the central bank was changed from working under the ministry of finance and into being an independent body
The book prices of Yen goes into great detail of the Japanese change from being a behemoth of industrial production pre-bubble and into its own current system today
An example: I heard a story about a Japanese popsicle company which had to increae the price of their product due to the cost of wood used for the stick. They created an ad on national TV explaining the change and apologising profusely: https://qz.com/656080/a-japanese-ice-cream-maker-deeply-apol...
Japan has been undergoing shrinkflation for the past decade because manufacturers are afraid to raise prices but have a need to cut costs. New packaging is often introduced, sometimes with a higher price but often a small volume.
The British should know how this feels with their toblerones.
In a slight parallel, there's a concept of "spoiling the market" in Singapore. There's cultural pressure to not drop rent or not increase wages by "too much" as that would "spoil the market." Anecdotally, I've seen landlords here in SG keep properties vacant for long periods of time rather than drop the rent.
That sounds quite similar to the U.S. commercial real estate sector, except that (IIUC) the structure of the loans in the U.S. would require a refinance if the nominal monthly return of the underlying property were ever lowered. So properties sit vacant with an ongoing business loss rather than realize a real loss.
We have that in the US too. Video games have been exactly $60 for 3 decades now. Of course the publishers have taken to supplementing that with micro-transactions and pushy sales tactics to get the "bonus edition" for $100. I wonder what the sushi places are doing to make up the difference?
The AAA game publisher are not supplementing anything with micro-transactions.
This is more profitable/predatory practice that earns them more money per title then they made selling that $60 game - all sport games are prime examples.
On macroscale, Japan do have some categories of items "overpriced" compared to the counterparts to the US, but same can be said for any country.
And no, they're not "fixed". I've noticed that music CD's price has been inflating for quite a lot, and I only started purchasing them for less than 10 years.
Some prices are hard to change. 100yen shops must set price 100yen + tax for most products. Arcade games can't set 110yen but can set 100 or 200 yen.
I admit Japanese tend to think price won't up without reason for recent two decades. It is called "deflation mindset". So some manufacturers do shrinkflation.
Note that 100yen shops used to be 100yen tax included before the consumption tax went from 3 to 5%. So overnight, prices there went from 100yen to 105yen.
Which is a source of frustration to no end given how annoying that extra 5 yen can be. You will always at minimum need to pay with 2 coins.
Not to mention awkwardly given back any multiple of 5 back if you pay in any multiple of 10. God help your coin purse (or pockets) if you end up with an unholy mix of 1, 5 and 10 yen coins.
No, it's quite simple. They are next to China. They have aging demographics, their real estate bubble popped and their "fiscal stimulus" attempts involved increasing consumption taxes... (Abenomics).
ok but at some point the japanese businesses who price their products in this manner will start eating losses, because many of the inputs to production are procured off the international markets, who follow more rational pricing mechanisms.
They are beyond bankrupt but their honour as a people means they won't default. They haven't balanced their budget since the early 1990s and are just paying the crushing amount of interest. Their tax payers pay significant money for literally nothing and thusly their politicians have a decision.
Do you cut services provided? They are so bankrupt that they basically have to shutdown singlepayer healthcare and education. Obviously no politician will ever make that decision. So what's the other option? High taxes. Japan's corporate tax rate is >30%. There's no other developed country with such a high corp tax rate. How about personal tax? Japan is >55%. There is literally only 2 other countries with higher taxes. Lets not forget the 10% sales tax.
Their total tax burden isn't 95%, but it's not far from it. No surprise at all that their country has serious economic issues and I dont see Japan ever turning this around. How do their people live off ~5%? You dont.
Why does everyone insist on taxing capital and labor? It would be more efficient to tax land. Where are all the hardcore free market capitalists shouting for less taxes for everyone except land owners? Is it perhaps because ... those hardcore free market capitalists are earning most of their money from land speculation?
Given that Japan is mysteriously inflation-proof, why doesn’t the government take advantage of that by monetizing the debt? Just directly pay government expenses with new money instead of selling bonds. There’s huge risks to doing that, of course, but they could start small.
Japan’s nominal GDP has barely grown over the past 30 years, and the debt-GDP ratio is huge. This would help in two ways: reduce the deficit, and increase nominal GDP.
"Given that Japan is mysteriously inflation-proof, why doesn’t the government take advantage of that by monetizing the debt?"
It incentivizes moral hazard along with policies that could trigger hyperinflation or inefficent allocation of capital.
Why bother evaluating a project's risk if that risk can be magically waved away by printing fresh money?
Thats not to say that doing so guarentees these things _would_ happen in the same way that walking into a pride of lion's with pork chops hanging on your ears means you wont be eaten but there's precedent that such schemes don't work well in the long run.
Japan already has hysterically inefficient allocation of capital. Examples include the vast amounts of pork barrel spending to build highways, tunnels, bridges and bullet trains to nowhere, as well as building new housing with an expected lifespan of 20-40 years so it can be torn down and rebuilt afterwards.
> Japan already has hysterically inefficient allocation of capital. Examples include the vast amounts of pork barrel spending to build highways, tunnels, bridges and bullet trains to nowhere, as well as building new housing with an expected lifespan of 20-40 years so it can be torn down and rebuilt afterwards.
That "inefficient allocation of capital" results in Japan being one of the best countries to move around in (for both residents and tourists), with very affordable housing. I'd prefer if my country was a bit less "efficient" with their capital allocation.
The housing being torn down thing is a bit of a cliche at this point, but the biggest factor there was some seriously under-calculated earthquake risk that only got incorporated into the building code in the early 80s[1], so for buildings built before that cheapest to demo and rebuild.
Sure, nobody's judging investing in the Yamanote Line or the Tokaido Shinkansen. But is it really sensible to plow money into (say) the Hokkaido Shinkansen, on Japan's most rapidly depopulating island and not remotely competitive with flights in travel time or price; the Tsuruga extension to a city of 60,000; the greenfield Noto Airport that can't support two flights a day without heavy subsidies; and a million minor construction projects damming up rivers and coating the coast in concrete tetrapods? Japan is already struggling to pay the maintenance bill for what they have.
> But is it really sensible to plow money into (say) the Hokkaido Shinkansen, on Japan's most rapidly depopulating island and not remotely competitive with flights in travel time or price
Yes. Sapporo has a population of 2 million; many of the rest of people going to Tokyo from the rest of Hokkaido will travel via Sapporo Station regardless (I know I always did - multi hour bus or train ride to Sapporo station, then another train to New Chitose, then flight to wherever). The flight route is incredibly busy (from one source, "The route between Sapporo and Haneda was the busiest in Japan and the second busiest domestic route in the world in 2019"). Work trips will likely pay for train rather than flights, while tourists mostly use JR passes and will choose the train as it's "free". Carbon intensity of electric shinkansen is dramatically lower than the excessive number of flights going between Tokyo and Sapporo. It'll be 4.5 hours city centre to city centre, which is easily competitive with flights unless you happen to live in Chitose and be heading to Chiba or Yokohama.
> the Tsuruga extension to a city of 60,000
This is disingenuous: the extension is an intermediate phase connecting Nagano (low population but huge winter tourism) with Kyoto/Osaka (idk, 25 million? and massive tourist destination).
> the greenfield Noto Airport that can't support two flights a day without heavy subsidies
Per the wiki article [1], it seems like the airport has been reasonably even (ANA subsidizing airport sometimes, prefectural govt subsidizing at other times). A lot of local governments in other areas (including north america) also subsidize their airports to ensure accessibility for residents.
> and a million minor construction projects damming up rivers and coating the coast in concrete tetrapods
They aren't all tetrapodal! Their work in this area is pretty singlemindedly focused on reducing flood/tsunami risk, with 0 concern for environmental effects.
>as well as building new housing with an expected lifespan of 20-40 years so it can be torn down and rebuilt afterwards
As opposed to 60 - 80 year old wood-frame homes that are energy inefficient, falling apart, and barely worth the 750,000USD average selling price? Where you will either live with the design choices the previous owner made (regardless of how much or little you like them...nevermind efficiency or quality) or spend tens of thousands more doing renovations? And this is all considering that you don't get surprised with an electrical circuit or an HVAC layout that is not up to snuff for modern times.
At least in Japan, you can get a home built to specification to your reasonable desires, with all modern amenities, without the baggage of the past-owner's taste -- all for the great price of around 350,000 USD.
This, by the way, supports an entire ecosystem of builders, architects, and suppliers who must keep up with the times and are constantly exploring new innovations in house-building.
> This, by the way, supports an entire ecosystem of builders, architects, and suppliers who must keep up with the times and are constantly exploring new innovations in house-building.
Just add the real: Houses aren't good unless you manually choose better one. Known one is that Japanese insulation standards are still quite bad. Aluminum single glass window is still allowed to use for new building. It's horrible to use a material for insulation that used for heat sinks. This is partially due to the window manufacturer is also a big aluminum manufacturer.
> Tumbling mobile-phone fees, driven by a government campaign against carriers, are pulling down the consumer-price index as a whole.
I can confirm this, I switched to a low cost carrier last year and it’s saving me a boat load.
I think about the situation here every time I see an inflation article on hacker news. As it turns out, economics is really hard, and I find that a global view gives the humility needed to avoid parroting the “obvious reasons”.
I am not familiar with the specifics, but when I lived there last year the cheapest nvmo plans would offer 20gb data for ~2-3k yen/mo, while main infrastructure carriers would be 2-3x that, but recently Rakuten has become rich enough to just build out their own network, and I assume combined with government pressure, within the last year they have all rolled out value plans that are around 20gb for ~3k yen.
And what immigration there is, is mostly under Japan's equivalent of the H1B, the "technical intern" program, except for less-skilled occupations, and in practice the immigrants are often used as severely underpaid factory workers who contribute negligible demand.
"The particulars of the Technical Intern Training Program are intended to form employment relationships between corporations, sole proprietors, and other businesses in Japan with technical intern trainees so that the trainees can acquire, master, or enhance Skills etc. that would be difficult to acquire in their home countries."
"In addition to debt related to recruitment fees and/or deposits, some respondents also reported wage withholding and compulsory savings programs. It was also reported that some Japanese employers, at times in cooperation with Chinese recruiters, withheld up to 70 percent of trainees’ wages for “compulsory savings” that would be forfeited should trainees leave their positions prior to completion of three years in the TITP. Some trainees reported threats of violence and deportation for advocating for themselves or failing to meet employers’ demands. Finally, trainees also described wages that failed to reach even half of the minimum wage, working hours above legal limits, poor living conditions, and hazardous working conditions." [emphasis added]
There's a pervasive believe that raising the minimum wage would increase inflation, you'd think that considering Japan has tried nearly everything else, they would try raising that. It's currently about $8 usd an hour.
There's a massive regional variation in the effective minimum wage - in Tokyo the average hourly wage for an arubaito (a part-timer with no job security) is 1,203 yen. The average in Fukushima is just 948 yen [2], and the national minimum wage is 930 yen.
Increasing the national minimum wage would do serious damage to local employers in underserved regional centers, and barely move the needle in Tokyo.
Thanks for that, wasn't actually sure on the specifics since I'm not from Japan. Why would it do so much damage to these employers? Why can't they just increase the cost of their goods?
If my income goes up by 10% and my expenses go up by 10%, am I better off or worse off?
If I had savings, I'm probably worse off. (Yes, I may get more interest going forward, but that won't make up for the value lost by my principal.) If my taxes go up by more than 10%, I'm worse off.
Are you arguing against inflation?
Because that's not what were talking about. Given that inflation is the goal, why is the answer always to give a lot of money to those who are well off vs. increasing the wage for the bottom end?
Japan also has very low unemployment and the average salaries are much higher.
Yet the government still faces opposition to raise the national minimum wage:
In the long term, inflation is driven by wages in relation to productivity. Also known as unit labor cost. Japan is basically the worst country in this regard. So yes, wages lag behind productivity. But just raising the minimum wage once doesn't work. The wages should properly increase every year - more than the productivity. If you want an inflation of 2%, wages should increase by productivity + 2%.
Sorta seems like we don't really understand inflation. Like how recently in the US, inflation got decoupled from money in circulation and nobody knows why.
Inflation as a concept is actually quite simple, but predicting it, let alone forcing or stopping it isn't. This is because part of inflation has to do with what people willfully choose to do with their money (as well as when).
