Japan succeeds in inducing inflation

Every time Keynesianism fails, they say is evidence it was not done hard enough.

In Japan, they decided that this time they really would do it hard enough.  And it worked.

Rapid inflation ensued.  Employment and production did not.

I suppose Keynesians will be telling us that it is early days yet.

Superstimulus in Japan has definitely solved the problem of wages being sticky downwards.  Prices are up, wages are not.  This, however, is merely more efficient adjustment to a poorer, more backward, less technologically advanced, Japan.

Krugman is fond of telling us that “austerity” does not work.  By “austerity” he means raising taxes that are already far above the Laffer limit.  It is unsurprising that this does not work.

“Austerity” is always raising taxes, yet somehow, strangely, “stimulus” is seldom cutting taxes, and is never significant and substantial cuts in taxes on the rich, on the group most likely to respond to tax cuts.  If a “stimulus” cuts taxes at all, it cuts them primarily on the poor, on people likely to be below the Laffer limit.

In a society where markets are free, and government is small, and prices and wages are sticky due to the influence of custom and expectations, Keynesianism might well be true, or at least somewhat true, at least in the short run, until people’s expectations adjust.  In the great depression, prices and wages were indeed sticky, not because of custom and expectations, but because government forbade changes in prices and wages, thus Keynesianism was legislated into reality.

When, however, government is large and getting larger, eventually supply side effects are going to substantially outweigh Keynesian effects, supposing that there are any Keynesian effects in a society where government does not meddle too heavily in prices.

With the ever leftward movement, supply side economics has become true.  Thus, any cut in spending that makes things worse for government employees and people on welfare stimulates, and any cut in taxes paid by the private sector also stimulates.

It would also stimulate if we forced everyone on welfare or government employment to dig holes and fill them in again.  It would also stimulate if every woman who produces a fatherless child was publicly punished.

Conversely, any politically correct “stimulus” will cause stagnation.  If stimulated sufficiently, we get what is now happening in Japan, stagflation.

Reagan demonstrated that supply side economics was true.  If true then, much more true now.

It is often pointed out, against supply side economics, that the Bush tax cuts did not pay for themselves.  But the Bush tax cuts on the rich more than paid for themselves.  What did not pay for itself was substantially reducing the number of Americans who paid any income tax at all.

Leftism is always expansion of the state.   Leftists have realized that the expansion of the state is a problem, have retreated from socialism, cut taxes on the very rich, denationalized industries, but the logic of progressivism requires movement ever leftwards.  If they retreat in one area, they must advance in half a dozen others.  Thus, when cripples were the object of legislation, the government confiscated staircases and the best parking spots.  When cross dressers are the object of legislation, the government confiscates bathrooms, and guarantees free hormones.  That men and women do equal work requires a no lift policy. Thus every movement left suppresses the private economy, the economy on which modern leftism depends.   Economic stagnation is primarily an indication of the left singularity approaching.  The left no longer proposes outright nationalization, but regulations multiply endless, causing creeping nationalization.  Economic leftism, socialism and nationalization, has been abandoned, but every alternate left wing program creeps towards the same goal.  Giving up on anthropogenic warming, they double down on gays and cross dressers, which less directly and less drastically harms the economy – but still harms the economy.

29 Responses to “Japan succeeds in inducing inflation”

  1. Nick B Steves says:

    120 Yen still sounds like a deal for a hamburger.

  2. spandrell says:

    McDonalds has been rising prices for years already. They’re trying to get over the image of being too cheap. People would get a 100 yen hamburger and sit for hours reading manga.

    All the other fast food chains have been dropping prices lately. Not that Zero Hedge would tell you of course.

    • jim says:

      spandrell says:

      McDonalds has been rising prices for years already.

      Zero Hedge says this is the first McDonald’s price rise in five years, so looks like a reaction to general inflation, not brand repositioning.

      In most countries, McDonalds is a good indicator of the general price level.

      • Handle says:

        One price does not make a price level. Japan is not in stagflation.

        • jim says:

          I do not believe in the cpi any more than I believe in communist health and academic statistics.

          • Handle says:

            Fair enough. But you believe in a “price level” since you talk about inflation and deflation. CPI has many problems, but using one price as a substitute is not convincing. Maybe some enterprising fellow has created a better metric of the price rise of a better basket of goods in Japan. I’m perfectly willing to look at that chart and be convinced of your thesis.

  3. Nick B Steves says:

    The overall point is about right though, Jim, despite my snark about the fair price of hamburgers.

    Looks like we got ourselves a nice modern experiment. Miseans vs. Keynesians No Holds Barred Smackdown. Jap Debt/GDP is like 2xx%, and it’s now going to go way higher. Krugman is teflon of course. We’ll only be able to tell whether he knows he’s wrong if his shrillness (shill… shillness?) goes up by about half and octave.

    I’ve really been trying to come up with a way of looking at, describing Keynesianism, specifically their dire warnings about “deflation” and “liquidity trap”, as some sort of mass psychological trick that governments can (sometimes for a long time, if they start out pretty rich) play on the great mass of their citizens. It has something to do with shortening mass time preference. Money is cheap, I can always get more. But the last one holding the diluted money (the trillion dollar zim dollar or the no-longer smokable cigarette) stands to lose the most, whereas the first owner got away just fine. Almost like its just another iteration of Who-Whom?

  4. Thales says:

    “But the last one holding the diluted money (the trillion dollar zim dollar or the no-longer smokable cigarette) stands to lose the most, whereas the first owner got away just fine.”

    AKA an asset bubble, but one imposed top-down instead of bottom-up (even though it can come from both directions as with the housing market.)

    I guess when all “stimulus” fails, just inflate the money supply to create fears of inflation so that people will try to get rid of their money as fast as possible. Of course, this doesn’t work because those who already spend 100% of their cash can’t spend any more, while those who safe will just bid-up the price of alternate forms of value storage (PM or other currencies). Further, any saver with brains is already properly hedged against inflation, so it’s not like you can steal a whole *lot* of his buying power to “redistribute” it to people lower on the food chain.

    All their rope-pushing attempts just make people more nervous, cause them to take less risk and thus further contract the economy.

    • Nick B Steves says:

      All their rope-pushing attempts just make people more nervous, cause them to take less risk and thus further contract the economy.

      Indeed that seems to have been Japan’s story for oh about 20 years. Will the latest double-down (quadruple-down) on dilution finally exchange mere nervousness for outright panic and get out and “spend”? Or will they just swap their for more Japanese “secure” treasury debt? It seems if the Yen start to swirl, they’re going to have a hard time containing it without the Volcker treatment. I cannot see how it cannot but end badly… but as I said they have a nice experiment going now. It’s outcome should be rather edifying. Politics will of course be blamed for any bad outcome, but politics is the one things that won’t be voted out.

  5. Nick B Steves says:

    ack my typing…

    … they’re going to have a hard time containing it without the Volcker treatment.

  6. Jake says:

    When is one of these nations going to take the liquidation way out, like Iceland did? It resets the systems with lots of pain for investors but less pain for everyone else.

    • RS says:

      My constant refrain is I’m an economics neophyte ; that claim accomplished, I’ll bet ‘everyone else’ in Iceland is a small and solidary group that was able to play the ‘who’. Other places, investors are too strong.

      • jim says:

        The international community proposed a bailout similar to the Irish bailout. The proposal was to turn the Icelanders into debt slaves forever as punishment for the excesses of their betters. The government agreed. The Icelander public got extremely cross. The government cried “but the alternative is bankruptcy”. To which the people replied “That is what you do when you are bankrupt”. After a short sharp struggle, the people got their way. This probably reflects, as you suggest, greater social cohesion in Iceland than in Ireland.

        • Nick B Steves says:

          It didn’t hurt that most of the people who were most fucked by Iceland’s non-bailout were foreigners. I’m absolutely shocked that Greece hasn’t gone full Nazi… tho they yet may. I guess it goes to the relative industriousness of Icelanders relative to Greeks. The latter are just to damn stupid or lazy to do the math. Icelanders occupy that sweet spot of being both good at math and not giving a fig about British banks.

  7. RS says:

    > All their rope-pushing attempts just make people more nervous, cause them to take less risk and thus further contract the economy.

    In other words regime uncertainty — though I think(?) that term has classically been applied to legislation more than monetary policy. About the same thing at bottom though.

  8. RS says:

    Anyway Kyle Bass says they are f*. Where’s the precedent for these levels of debt:GDP, or what Bass likes better and I think holds to be more aptly measurable, tax revenue : debt.

    (Not sure if he usually uses state debt or all debt as the latter term in the latter ratio.)

    As Bass says, near-zero central bank interest rates are locked in when govs (whether Jap, Euro, US) are deep in hock: after all they can scarcely afford to jack up their own interest obligations by 100s of $B. How are you gonna pay for that, end affirmative action? Not likely. –Besides, it’s interest, a ‘renewable (negative) resource’ — so what gets cut next year, after affirmative action is already gone?

    I wouldn’t be the one to be able to explain how central bank interest rates exert a big/close effect on private credit market interest rates, but apparently they pretty much do — and very low private interest rates means there won’t be much private investment in your country’s private economy, ’cause where’s the incentive.

    Krug says: interest rates are so low, printing money is free anyway! — Bass says, ja but we are stuck like this permanently, or rather, until some highly aversive denoument.

    • Nick B Steves says:

      Borrowed money is only any good to anyone ever if they can earn more than the interest rate with it by putting it to productive use. If you have *NO* productive use for the money (except to buy US Treasury debt), then it won’t matter WHAT the interest rate is, the additional debt cannot make anyone richer. In fact, only the opposite. If you’re only going to buy Slim Jims & Licorice Ropes with it (i.e., consume it), you still have to pay it back in the future and it therefore becomes a drag on future prosperity. And no one is going to get rich except for Slim Jim & Licorice Rope makers. Thus it seems to me that ZIRP has decreasing marginal returns to the economy as a whole and we very far along in the diminishment region. Japan is nearly a generation further along.

      • jim says:

        You are attempting to do macroeconomics. Macroeconomics is akin to psychohistory. It is hard.

        My theory is a regulatory apocalypse plus the underclass apocalypse: That even as the left turned away from outright nationalization, it was unable to restrain itself from stealth nationalization through ever more regulation. This made it impossible to invest, so people invest in government paper, creating an enormous bubble in government paper.

        At the same time, the government, to get the votes for its ever leftwards movement, created an ever larger, and thus ever more expensive, underclass on welfare and in government employment, which has reached the point where underclass votes plus single woman votes outvote producers.

  9. asdf says:

    100 yen = $1. That’s dollar menu right there.

    BTW, Japanese big macs are delicious compared to American big macs. They actually try to cook things right over there.

  10. SOBL1 says:

    Top policy makers on the left realized socialism was a losing economic bet earlier than the ground troops, but it took 3 consecutive presidential election losses for them to turn around their econ ship. They now operate under the “parallel agenda” to quote their pope, Robert Rubin. The parallel agenda is deregulation, globalization and balanced budgets combined with expanded social welfare, education, health services, etc. In effect, it is a policy for the rich, but with sops to the bottom of their barbell coalition.

    • jim says:

      They may well intend de-regulation, much as they intend balanced budgets, but what we are seeing is an uncontrollable, extraordinary, and utterly unprecedented explosion of regulation and budget imbalance.

      • SOBL1 says:

        True. The current phase (’09-present) is the end of the financial-government regime where they paper over the errors and fail to make the changes necessary. They are buying off their voters while still keeping the banking technostructure in place. I’d even argue that now that the banking oligarchy is in place after Rubin’s government policy and the bankign consolidation efforts after ’92, that the new regulation is to choke off competition and entrench the biggest banks even more.

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  12. Mike in Boston says:

    Leftism is always expansion of the state.

    In history this has not always been so. Neither in pre-revolutionary Russia, nor in Pilsudski’s Poland, just off the top of my head, was leftism expansion of the state.

    Now, if this had read “Today, leftism is everywhere expansion of the state,” I would be inclined to agree, with a question mark next to some East Asian societies.

    • jim says:

      Pilsudski’s career was making war on communism, and creating a federal system in which power was dispersed. So he was the right, and communism the left. I am pretty sure that communism was for expanding the state.

      In pre revolutionary Russia, leftism was the Bolsheviks at the far left, and Czarist do gooderism at the moderate left, both of them expanding the state.

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