Well written. though it often is not worth getting into all this it pains to read Keynesian vilification when it is not even properly applied especially when laffer goes scott free.
piezoe... you are an economic evil genius. it takes solid understanding to distort economic history so much and in such a stealthy manner. 1. First of all raising taxes slightly on the lower tax brackets was not part of supply side economics... it was part of a tax act negotiated with democrats to clean up the tax code. Real Estate shelters got whacked and really hurt the upper middle class and up. (sadly we already showed this to you.) 2. Your next comments puts your genius on display... with one of you red herring specials. "As if Keynes was ever an advocate for inducement of bubbles in good economic times" We all know that Keynes was smart, but Keynesians never follow his advice during good times. That does not eliminate the problem of cronies being protected with govt and central bank spending as cheerleaders like Krugman say spend more to bailout too big to fail zombies. 3. I do agree we should of cut taxes on the working class. I think a tax raise on the upper class is unnecessary until we find out how much money the Fed is really creating. As the reserve currency... there really may be no reason to have income taxes in the united states. I suspect the deficit spending of the US govt... would probably match up with the Fed money creation. 4. However, if you insist on raising taxes on the upper class... we should eliminate taxes on the lower classes and only put a progressive tax on the top .05% with a special open your crony mouth 100 percent tax if you currently are battling the IRS over taxes.
From second largest Fed apologist on the entire forum (Martin being the first) this isn't a surprise. You're partially right, but since there aren't really ANY governments anywhere that save when times are good (they use good times to spend even more), this is as close as we come - and what is typically taught as Keynesian. Perhaps it should be Krugmanian. Incidentally, this was discussed on the first and second pages of the thread. Did you even read the thread? Pento defines the OP as "Defined as the belief that a country can tax, spend, devalue and inflate its way to prosperity". That's essentially what Japan has been doing, though one can argue that the tax portion could be debated. But the crux of the argument that Martinghoul has been making (that you agree with) is that Abenomics has been working. Care to share why you believe this is so? Otherwise known as taxing the rich and spreading the wealth around, or a piece of Socialism. Much as you've advocated on the politics forum time and again. Sick the poor on the rich. We get it.
My resposes to Tsing Tao's post are in italics: From second largest Fed apologist on the entire forum (Martin being the first) this isn't a surprise. You're partially right, but since there aren't really ANY governments anywhere that save when times are good (they use good times to spend even more), this is as close as we come - and what is typically taught as Keynesian. Perhaps it should be Krugmanian. Incidentally, this was discussed on the first and second pages of the thread. Did you even read the thread? I read your dialogue with Martinghoul, the lead article you posted, and just enough of the remainder to realize I'd read it all before. This is a good rundown of what happens when you try to cut spending or increase taxes in a recession: http://www.nytimes.com/2011/12/30/opinion/keynes-was-right.html?_r=0 Pento defines the OP as "Defined as the belief that a country can tax, spend, devalue and inflate its way to prosperity". That's a gross misrepresentation of what Keynes advocated! That's essentially what Japan has been doing, -- If so then they are not paying attention to what Keynes recommended. ...though one can argue that the tax portion could be debated. But the crux of the argument that Martinghoul has been making (that you agree with) is that Abenomics has been working. Care to share why you believe this is so? What Abenomics has been able to do is stop deflation and get some inflation going. Inflation hit a 23 year high in April. So yes there have been some successes coming from initiatives under Abe. I gave Abe's government too much credit, however, when I said they were inexpertly applying Keynesian economics. They've taken some monetary measures, more quantitative easing, pushed the yen down, etc. QE is a helpful adjunct to Keynesian remedies, as the money for stimuli has to come from somewhere other than taxes on the middle class. QE provides money without pressure on interest rates, but by itself isn't the kind of stimulus that Keynes suggested would get demand growing. Japan, under Abe, has tried fiscal stimulus, but needs to do much more. When the private sector is hunkering and leveraging down, hoarding cash, and not buying, the government's job is to leverage up and temporarily replace the lost private sector demand. Abe's government hasn't done enough of this and the sales tax hike threatens to undo what progress they have made. It seems the Japanese don't understand Keynes much better than you do! Otherwise known as taxing the rich and spreading the wealth around, or a piece of Socialism. Much as you've advocated on the politics forum time and again. Sick [sic]* the poor on the rich. We get it. You don't get it at all, as it turns out. You're referring of course to my suggestion that the U.S. should significantly lower the tax rate in the lower brackets and pay for it, at least partially, with an increase in the two highest brackets, after creating an additional upper bracket. What you fail to recognize is that this is nothing but an undoing of the supply-side tactics that briefly collapsed our progressive tax structure to nearly that of a flat tax and played no little role in getting us to where we are. Krugman thinks that tax cuts are less effective than other Keynesian measures as far as spurring demand goes, but here I think he has temporary amnesia and has forgotten the peculiar circumstances the U.S. finds itself in after 30 years of destructive, supply-side economics. We have, we hope inadvertently, redistributed wealth from the middle class upward to the wealthy class. At this juncture, and in the specific case of the U.S., a substantial middle class tax cut would be thoroughly Keynesian, and effective in getting the consumer demand ball rolling. It would help compensate for the ill effects of 30 years of falling real wages. No wonder we are suffering from stagnant demand. No one, least of all me, is suggesting taking from the rich and giving to the poor. It is ridiculous for you even to suggest that. I'm proposing that we continue to do what we have nearly always done since the income tax was introduced. And that is to tax each dollar earned at exactly the same rate for everyone, regardless of their wealth. In a fair and equitable tax arrangement, everyone pays the same rate on the first taxable dollar earned, the second taxable dollar earned, the third, the fourth, etc., on up to however many taxable dollars each tax payer has earned. In a progressive tax arrangement, the amount of tax on each dollar earned is gradually adjusted upwards so that the rate paid on the millioneth dollar earned is different, of course, than the rate on the first dollar earned. But everyone pays exactly the same rate on their first dollar earned, on their second dollar earned... on their millioneth dollar earned, etc. Why would you charge different people different rates on the same dollar earned? THAT WOULD BE FRAUDULENT! Naturally the rate on the latter dollars earned must never be so high as to dampen the incentive to work hard enough to earn them. Once demand has returned, we are at full employment, and the economy is firing on all cylinders, The Fed can use the inevitable inflation as an opportunity to shrink its balance sheet and edge up interest rates. By then we will have thrown the Republican supply-siders, along with the deficit hawks, the austerity loonies, and the deflation-is-wonderful-crowd under the bus, and our always wise Congress will have adopted a suitable mix of tax rates and fiscal restraint to allow the accumulated debt to be paid down. ________________________ *I apologize for being rude, but you presented me with just too good an opportunity to use both meanings of the word "sic" simultaneously.
Are you playing for an audience here using the third person like that? We get it already. It's been pointed out by Ricter, agreed to by me, agreed to by Jem, pointed out by Martin and now you several weeks late to the party that Pento isn't describing Keynesian policy entirely correctly. How much more do you want to rehash this? I'll say it again (it's getting tiresome) but no government on earth follows Keynes to the letter, because none of them save when times are good. In fact, most spend even more. So many things wrong here. 1. QE provides money without pressure on interest rates? You may want to rethink that. 2. Yes, when stimulus doesn't work, the call is always for more. It wasn't enough. Never consider that what was being done wasn't actually reaching the greater economy, right? 3. Abe's government hasn't done enough levering up 230% debt to GDP isn't enough? When is it enough, Piezoe? 4. It seems the Japanese don't understand Keynes much better than you do! Actually, it seems your reading comprehension skills are non-existent. How many times do I have to agree with you that Pento's choice of title isn't exactly accurate regarding Keynes? You're a typical leftist moonbat - instead of debating the important thing - as to whether or not Abenomics is working for Japan - for it's people, you'd rather argue semantics until you are blue in the face, even when everyone has long since agreed with you! Get over it already. Oh, I get it just fine. I just think you're completely wrong on just about everything you say. You know, "as it turns out". You argue for substantial tax cuts on the poor and middle class, yet you constantly ignore the greatest hidden tax ever - inflation. You advocate the stimulating of this inflation at every juncture, when it is the greatest impact to stagnant demand out there. Then I misunderstood you. What you said was increase taxes for the rich, lower them for the poor. If you had just said something akin to "a flat tax for everyone" at the same rate, or "fair tax" or whatever, we could have avoided a misunderstanding. But given your strongly left leaning political commentary in the P+R forums, when you say "is substantially lower the income tax rate on the lower two brackets, and pay for this by bifurcating the top bracket into two, and raising the rates, progressively, on both" that sounds a lot different than your last explanation of it. And we can all ride unicorns under the rainbows and dance with fairies and no one will ever go hungry again and all wars will be ended. What a wonderful story. Now, if your academic lecture nonsense on the ghost of Keynes is done, maybe we can get back to discussing whether or not Abenomics is actually working for Japan or not.
Japan Goes Full Helicopter-Ben: Prints "Free Gift-Cards" To Spark Consumption Since Ben Bernanke reminded the world of the existence of government printing-presses, echoed Milton Friedman's "helicopter drop" solution to fighting deflation, and decried Japan for not being as insane as it could be... it has only been a matter of time before some global central bank decided that the dropping of cash onto the populace was the key to economic recovery. Having blown their wad on QQE (and been left with a triple-dip recession), it appears Japan has reached that limit. As Japan's News47 reports, Prime Minister Shinzo Abe has instructed his cabinet to develop economic measures such as handing out 'gift certificates' to the poor to "support personal consumption directly." As Japan's News47 reports (Via Google Translate), Policy to revive the "housing eco-point" to grant the point in new construction and renovation of energy-saving housing. * * * As The Wall Street Journal adds, A surprise announcement early Monday that the economy contracted for a second straight quarter makes it “absolutely necessary to take countermeasures,” said Etsuro Honda, an architect of Mr. Abe’s economic policy Koichi Hamada, another close economic adviser to Mr. Abe, said in an interview the central bank should act “without pulling any punches” if the economy continues to show weakness over the coming months. Mr. Hamada said he supported cash handouts to “those who are struggling” because of a higher sales tax and a weak yen. * * * So it's absolutely necessary to take countermeasures against the implications of the policies you instigated in the first place? * * * And so while some might liken it to EBT cards in the US... it appears this is simply a hidden way to directly hand out free money to those that spend and thus... increase inflation... So no need for firms to raise wages after all!??! Well played Abe.
Overnight news tweets (some quite entertaining)... zerohedge @zerohedge 12h12 hours ago WaPo headline "Another austerity victim: Japan falls back into recession" 230% debt/GDP is now austerity? zerohedge @zerohedge 12h12 hours ago "Japan's GDP is so weak it is becoming a headwind for the ruling party at a general election" SMBC Nikko Securities zerohedge @zerohedge 12h12 hours ago !? AMARI: VIRTUOUS CYCLE IN JAPAN ECONOMY IS STARTING TO WORK zerohedge @zerohedge 12h12 hours ago ASO: JAPAN ECONOMY GROWING IF YOU LOOK AT SEPT. DATA. Which specific day? zerohedge @zerohedge 10h10 hours ago It's over when you have to defend the ponzi: HAMADA: WE HAVE DISCOVERED THAT MONETARY POLICY IS EFFECTIVE, HAMADA: ABENOMICS HAS NOT FAILED SNA Japan @ShingetsuNews 23h23 hours ago Your Party lawmaker Kota Matsuda: "Party support levels are practically nonexistent; we've totally lost the faith of the people." #Japan 1yr T-Bill auction yield negative 1st time ever!!!!! #Abenomics RANsquawk @RANsquawk 9h9 hours ago Yikes.....#Japan struggles to sell 20yr JGBs....bid/cover 2.878 vs. Prev. 3.589 ... 10yr JGBs drop 22 ticks in a reaction!!! #Abenomics Stalingrad & Poorski @Stalingrad_Poor 8h8 hours ago This is going to end well...... Abe $1 Trillion Gift to Stock Market Shields Recession Gloom http://www.bloomberg.com/news/2014-11-17/abe-s-1-trillion-gift-to-stock-market-shields-recession-gloom.html… Stalingrad & Poorski @Stalingrad_Poor 8h8 hours ago FTW: “On the question of whether Abenomics is working or not, it’s kind of working but we need to do more of it,”said Stewart Richardson Live Squawk @livesquawk 6h6 hours ago JGBs slump, extend losses after poor 20-year auction http://reut.rs/1EUkZ9b via @reuters Dick Darlington @Darlington_Dick 4h4 hours ago *ABE TELLS LDP LEADERSHIP HE'LL DELAY SALES TAX HIKE 18 MOS.:NHK MineForNothing @minefornothing 4h4 hours ago ABE TELLS LDP PARTY LEADERS HE'LL DISSOLVE JAPAN PARLIAMENT:NHK zerohedge @zerohedge 2h2 hours ago ABE: WILL RESIGN IF COALITION DOESN’T GAIN MAJORITY zerohedge @zerohedge 2h2 hours ago ABE: SALES-TAX INCREASE NEEDED TO PAY FOR SOCIAL WELFARE. Just tell retirees to BTFD zerohedge @zerohedge 2h2 hours ago YAMAGUCHI:AGREED WITH ABE NEED TO CONSIDER PEOPLE'S LIVELIHOODS. And it only took two years of abenomics
"Mystery of the Unexpected" Explained; Japan Slides Into Recession Yet Again; Blue Ribbon Panel in Review -Mike Shedlock With two consecutive quarters of contracting Gross Domestic Product, Japan is officially back in recession. GDP shrank 1.6% annualized. Unadjusted for price changes, the Japanese economy contracted an annualized 3 percent, the Cabinet Office said. None of this was "expected". We will explore "why" in a moment. First consider some headlines. Bloomberg: Japan Unexpectedly Enters Recession as Abe Weighs Tax. Wall Street Journal: Japan Falls Into Recession. GDP Declines 1.6%, Setting Stage for Delay in [Another] Sales-Tax Increase. Time: Japan Sinks Into Recession (Again). Time Reports ... An unexpected contraction in quarterly GDP shows that Prime Minister Shinzo Abe’s radical economic program is badly broken. GDP in the quarter ended September shrank by an annualized 1.6% — far, far worse than the consensus forecasts. That followed a disastrous 7.3% contraction in the previous quarter. Speculation in Japan is that the bad results will push Abe to call a snap election only two years after taking office. Financial Times: Sales Tax Tips Japan Back Into Recession Financial Times Reports ... Japan is poised for a snap election after its economy tipped into a technical recession, increasing the odds that prime minister Shinzo Abe will delay plans to raise the country’s sales tax next year and appeal for a fresh mandate. Monday’s preliminary data for the period between July and September was far worse than markets expected, showing the economy shrank 1.6 per cent quarter-on-quarter on an annualised basis. Analysts had expected growth of 2.2 per cent. The dip is a blow for “Abenomics”, the most ambitious attempt to revive Japan’s economy since it fell into stagnation two decades ago. Expectation vs. Reality Expectation: Last quarter's huge plunge was a one-time affair. Expectation: 2.2% growth this quarter. Instead, Japan's economy shrank 1.6% and last quarter was revised lower from negative 7.1% to negative 7.3%. Blue Ribbon Panel in Review Flashback August 31, 2013: Japan Seeks to Hike Taxes then Waste Money on Stimulus to Make Up for Decline in Spending. My comment: "When you cherry pick a panel, and the panel has a pre-determined outcome, the answer always comes out the way you expect. Thus Abe's blue ribbon panel concluded tax hikes won't hurt. And for good measure, if by some chance they do, the panel suggested wasting those tax dollars on stimulus. Good grief!" Flashback April 30, 2014: Japan Output and New Orders Decline at Fastest Pace Since 2012; Abenomics in Review My Comment: "Abenomics said Japanese stimulus efforts would offset tax hikes. I disagreed. Although one month is not proof, Markit reports Japanese Output and New Orders Decline For First Time in 14 Months Following Tax Hike." Flashback September 8, 2014: Japanese Economy Contracts Bigger than Expected 7.1% in 2nd Quarter; Really Bad Theories My Comment: "By now it should be pretty clear that Abenomics is a complete failure. Abenomics did not spur lending, investment, hiring, or wage growth. It's one touted 'success' is that prices have gone up. And for cash-strapped consumers facing higher taxes, that alleged "success" is actually a disaster." In September, I also commented on "really bad theories". Really Bad Theories "Theoretically, there should be no impact from the consumption tax increase on corporate spending or long-term corporate planning, but a large number of Japanese corporations seemed to see a large impact from the hike on final demand," said Junko Nishioka, an economist at RBS Japan Securities in Tokyo. Good grief. Nishioka has theories, but they are as sound as a home foundation in a swamp. Here's an easy to understand explanation. Eight Point Explanation Japan's sales tax increased from 5% to 8%. Wages did not go up. Consumers have 3% less money to spend. Consumers with less money, spend less. Businesses faced with a slowdown in consumer spending reduce future plans. Abe plans to hike the sales tax again and businesses know that as well. Business sentiment sours. Japanese demographics are such that businesses already have substantial worries. What is it about those eight points that economist Nishioka fails to understand? Mystery Explained Why all of this is so "unexpected" is an apparent mystery. Sales tax hikes do not spur the economy, no matter how much of it government wastes. And it should not take a genius or an 8-point synopsis to figure that out. So why was this news so "unexpected" in nearly every quarter? I have two answers. Economists are the most optimistic lot on the planet. They believe what they want to believe. The average economist also believes in Monetarist and Keynesian fairy tales. Japan is living proof of the absolute stupidity of Abenomics (a combination of Keynesian and Monetarist stupidity), yet academia, let by economist Paul Krugman concludes "Japan did not do enough". Apparently, debt to the tune of 250% of GDP fighting deflation was not enough. 500% would not have been enough either, for obvious reasons. But don't expect any Keynesian or Monetarist clowns to admit that. They will never stop believing in fairy tales. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
No matter what your economic policy, you can can bend nature, but you cannot rule it. I think the SP500/US employment graph on page 6 speaks a few billion words. Economics is a derivative of nature. Is it not best to follow the seasons?
What is your point in this thread actually? I do not seem to follow. When you say someone is living beyond some means you mean the government correct? Not private households, right? I am asking because the Japanese consumer is stretched by any limit. Despite a savings cushion (that has actually been dropping as percentage of GDP over the past decade) most consumers have to count the yen in their pockets to make ends meet. Just wanted to clarify I understand you correctly. Getting back to the main point, how can any of this money printing be in the slightest useful? If anything then Japan has shown in the past 15 years that pumping money into the economy does nothing to invigorate growth. The only difference between then and now is that back in the days after the bubble burst the government build useless foot bridges in the countryside of Japan that nobody used but supported local construction and today it is the BOJ that keeps rates low. Related points: a) Fiscal and monetary stimulus (bridge building or low rates) does not solve structural problems. Japan is not in the situation the world was in 2008. Thus, BOJ can print as much money as they want, it will have no effect because it is not needed. b) Why does nobody take advantage of rock bottom mortgage rates, business loans? Because nobody trusts in stable future growth. People buy houses and businesses perform capital expenditures when they believe today's investments pay off in the future. Obviously not the case. c) Japan suffers from deflation. Excuse me? I could not disagree more. This is the most stupid argument I have ever heard coming from anyone in Japan trying to explain away stagnant growth. I can name you countless businesses whose share price has increased 10-fold and more over the past couple years. Take a look at companies like Uniqlo, some base material manufacturers, look at many of the niche electronics manufacturers. Look at many of the internet companies. You can't look at Sony and say Japan is suffering from deflation. No, Japan is suffering from old, lazy, and mostly uneducated and unintelligent managers. People who have no clue how to come to grips with their new powerful neighbor who seems to be doing everything right. They can't seem to move on from the fact that Samsung could easily swallow up Sony in terms of market cap (it may even be able to pay in cash for the entire purchase). They can't accept that women are needed in the workforce, including leading managerial positions (impossible without structural reforms to offer child care places). Japan is suffering from a stubbornly antiquated way of thinking that they are still better than the rest of Asia, that just because they come on time to work and leave late from work means nothing in terms of work efficiency and productivity. The problem is that corporates lack any sort of entrepreneurial and innovative spirit and mindset. That is why Japan is falling behind and that is why the US, Germany, and China are pushing ahead and leave everyone else behind. The problem really is not that hard to identify. d) Politics: Why is Abe calling for elections when he has firmly cemented his power. The delay of the sales tax hike did not in any way require a snap election. That has been confirmed by leading Japanese economists and lawyers. All that is needed is a 3-party talk and have the gentlemen sit at a round table and hammer things out. There is a reason nobody in Japan cares about politics and why imbecile sons and daughters of former politicians are almost guaranteed a political career. And how will the statement save Japan that the government intends to balance out its budget by 2020? Because they say it excludes interest paid on debt. Lol, how is that considered balanced? Interest alone on Japanese government debt has reached such astronomical numbers that Japan has no chance to survive. The only way possible would be to formulate far reaching structural reforms, encourage entrepreneurship and again aim to collect tax receipts and pray that dumb politicians will not again spend it all but reduce absolute debt levels. Certainly will inflating oneself out of debt not work. Good luck with that. Nor will a cheap currency ala usdjpy>150 work to solve deeply rooted structural problems that the Japanese society, economy, and culture is facing. Listen Martinghoul, I highly respect your views and thoughts, but on this I am afraid you are dead wrong. Japan is not the US. What the US needs is money for startups to get up and running. What the US already has is brilliant designers, engineers, and especially marketers who understand how to sell even shit (more so good products) to global consumers. Japan does not understand that. Building cars is not enough, building cars that are not uncountably many times recalled is not enough either, building electric/hybrid/hydrogen powered cars is not enough either, but building a sexy electrically powered car that people actually want to show off is what is needed. (Ask Elon Musk about it) . "Made in Japan" means nothing anymore, at least not enough to pull a country out of the malaisse Japan finds itself in.