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Home Publications Blogs Beat the Press NYT Isn't Sure Whether Abenomics Has Led to a Shortage of Workers or a Shortage of Jobs, but It Wants Readers to Think It's Bad

NYT Isn't Sure Whether Abenomics Has Led to a Shortage of Workers or a Shortage of Jobs, but It Wants Readers to Think It's Bad

Sunday, 15 December 2013 08:37

Japan's new Prime Minister, Shinzo Abe, is quite explicitly taking his country on an economic course that is 180 degrees at odds with the austerity policies being pursued in the United States and Europe. He is committed to major stimulus, which is increasing Japan's government debt, even though it is already almost three times as large relative to its economy as the U.S. debt. He also got the central bank to commit itself to raising Japan's inflation rate to 2.0 percent. Japan had been experiencing modest deflation, with prices falling at an annual rate of around 0.5 percent.

If Abe's path succeeds then it would suggest that the United States and Europe might be going in the wrong direction, with governments needlessly wasting trillions of dollars in potential output and keeping millions of people out of work. The data to date have mostly been positive. For example, Japan's employment to population ratio has increased by 1.1 percentage points over the last year. This would be the equivalent of 2.8 million additional workers in the United States. Its deflation has stopped and the country now appears to be experiencing a modest rate of inflation. And, contrary to what austerity proponents might have predicted, interest rates have not soared. The interest rate of 10-year government debt is still less than 1.0 percent.

In spite of these positive signs, the NYT seemed to be determined to highlight the negative in an article that focused on Saga, a small prefecture that is far from Japan's major cities. The article seemed to have a hard time getting its story straight although it does want readers to believe that Abenomics is bad news. The whole theme is that Abe's spending is just like the stimulus pursued by prior governments which have left Japan with a large debt burden. (Japan's interest payments are less than 1.0 percent of its GDP, so most of Japan's population would not be feeling this debt burden.)

At one point the article tells readers:

"Still, with no guarantee the spending bonanza will continue, even construction companies are hesitant to ramp up hiring or investment. A growing number of public construction projects are finding no bidders because of a shortage of workers and machinery."

Since there is a shortage of workers, then we might conclude that Japan has a fully employed economy, with the stimulus therefore having largely accomplished its goal. But that conclusion would be too quick. Later we are told:

"Saga’s ratio of job offers to job-seekers, a crucial employment measure, continued to stagnate at 0.77 in September. An almost 20 percent jump in construction jobs was not enough to offset a loss of jobs in other sectors, according to the local government. With a tepid labor market, wages have also remained stagnant, as have consumer prices, because of weak demand, according to a November report released by the Fukuoka branch of the Bank of Japan."

Okay, so now we have a tepid labor market, where there is not enough demand for workers. (By comparison, the ratio of job openings to workers in the United States is 0.36.) A policy that is leading to both too few workers and too many workers must be a really bad policy. As a practical matter, monthly data are generally erratic, which is why economists usually don't make too much out of monthly changes, especially in a small area like Saga. It would have been far more useful if this piece had presented year over year changes which are considerably more meaningful. 

It would have also been useful if this article followed standard practice in the United States and expressed growth numbers at annual rates rather than quarterly rates. The article told readers;

"Overall, growth for the quarter was revised to just 0.3 percent from the previous three months, down from an initial reading of 0.5 percent."

It is likely that many readers thought these numbers were annual growth rates. As such, these would indeed be low. However, they are in fact quarterly growth rates. Even after the downward revision, Japan's economy would still have been growing at a 1.2 percent annual rate in the third quarter. Since Japan's population is shrinking at a 0.1 percent annual rate, while the U.S. population is growing at a 0.7 percent rate, this means that even in this relatively weak quarter (which followed two quarters of strong growth), Japan's per capita growth rate exceeded the U.S. growth rate over the last three years. Readers who thought these numbers referred to annual growth rates would not be aware of that fact.

Comments (8)Add Comment
written by plantman, December 15, 2013 10:07
Baker incorrectly sees Abenomics as a battle between Austerians and Keynesians.

It is not. The Austerians are a straw man.

The real issue here is whether the fanatical-rightwing-militarist Abe's monetary policies are having a positive impact on the economy.

They are not. Wages have gone down 16 months in a row, although I don't see that in Baker's piece.

Rising inflation and declining wages are a toxic mix, which is why Abe has started begging Japan's big corporations to start raising wages which, naturally, the corporations are refusing to do. That means Japan's workers and retirees will eventually stop draining their savings to pay higher prices and reduce their spending, which they already have done judging by the sharp dropoff in 3Q GDP.

Growth, by the way, is in the toilet---just 1.1% annualized in 3Q, significantly lower than 2Q's 3.8% when Abe's fiscal stimulus was still working its magic. Now Abe wants more emergency fiscal stimulus because he knows that QE is a wealth-shifting farce that does nothing for the real economy. What QE does, is push up stocks and make the investor class much richer...which is the object.

It would be nice if Baker had mentioned that instead of debating the issue with his straw man.
I wouldn't say Abe is completely committed to anti-austerity.
written by LSTB, December 15, 2013 10:25
For example, he did allow a consumption tax hike to go through, which cuts against the monetary expansion.

As for the BOJ's inflation-targeting, it hasn't budged core inflation much. A lot of it is energy prices.

(Caveat: According to Bloomberg October 2013, not in the data yet, saw the first positive core inflation reading at 0.3%.)

That's not to say that Abenomics has failed or that the rise in the emratio is trivial, or that the real GDP growth is illusory. I just think it's got a long way to go before I'm willing to say that it's decisive success for Keynesianism, as much as I want it to be.

My bigger concern is that Yellen will follow Bernanke and say that Japan is a special case because it was in deflation.
written by plantman, December 15, 2013 10:49
The only thing Keynesian about Abenomics is the fiscal component which is a one-shot $100 billion fix. The rest of it is the same-old monetary rigmarole that enriches the investor class.

Just to illustrate what a phony Abe really is, check out the way he passed the recent sales tax hike (which forces working people to pick up more of the cost of running the gov) and then quickly launched a plan for more fiscal stimulus when GDP tanked.

What a freaking phony! In other words, he KNOWS the QE stuff is baloney. When these guys get serious about goosing growth, they go fiscal...not monetary!

Baker should expose this fraud instead of praising it.
written by PeonInChief, December 15, 2013 2:29
Did they choose Saga for a reason? I wouldn't look at Saga as representative of the Japanese economy. (I only know about the place because I'm interested in pottery and Saga is a center for handmade ceramics.) I suppose that a comparable example would be looking at the US economy through the prism of Navajo rug weavers, interesting but not very representative of the larger economy.
Increase in EMRATIO is good, falling wages is bad
written by A Populist, December 15, 2013 3:27
The rise in EMRATIO is encouraging, and is one factor which will help domestic consumption and demand. And if the Emratio rises high enough, perhaps wages will eventually rise as well - one can hope that sufficient stimulus to do that is actually possible.

However, Plantman makes some valid points. Wages are still stagnating, or even still falling - which is a factor pulling domestic demand in the other direction (downward).

Just because "real debt" (as calculated by economists - by adjusting for *price* inflation) is decreasing - does not mean the debt *burden* on workers is decreased. On the contrary, if wages stagnate, debt is harder to repay - as less money is left after living expenses to pay down debt. And with stagnant wages, higher consumer prices make for less *real* consumption per capita.

A chronic surplus of labor, and lack of demand. Familiar story.

And what is the solution proposed by VSP's - including Bill Clinton? That Japan needs "more immigration" to solve it's ratio of retirees to workers! As if there were some shortage of labor to take care of the elderly... That is idiotic. Of course Japan is crowded enough, and any trend toward ZPG should be applauded, not met with hand-wringing. And if indeed higher birth rates *were* desired, maybe increasing wages and consumption to allow young workers to be able to get jobs, save, and *afford* to start families, would be another option. But, no. The VSP-proposed solution is simply to ship in immigrants - and the problems of unemployment, low wages, and debt will magically go away! Yes, in Europe, the VSP solution is that everyone should be like Germany, and cut wages and export their way to success - never mind that this won't work in aggregate. And the other VSP solution is that we should all immigrate our way to success.

The long term solution is for fewer hours per worker, and more consumption. Higher wages are a key ingredient to allow that to happen.

From Bloomberg:

"Abe last week began meetings with business and trade union leaders to press his case for wage increases, key to the success of his effort to spur growth under his economic policies dubbed Abenomics.

Salaries in July extended the longest slide since 2010, with regular wages excluding overtime and bonuses falling 0.4 percent from a year earlier, a 14th straight drop.

Rising prices in the absence of higher incomes have dented consumer sentiment, which could undermine consumption."

written by dax, December 16, 2013 7:01
Japan is no more Keynesian than the UK is austerian. Japan's policy is (and always was) competitive devaluation. When your currency goes down 20%, it's pretty natural to get a boost in GDP, which is denominated in the local currency. That's neither Keynesian or austerian - it's 1930ish.
Abe and Herbert Hoover
written by Squeezed Turnip, December 17, 2013 12:19
Wages are stable. Inflationary pressures will be driving the shinto this Spring. The rumors of the demise of Abenomics are greatly exaggerated. Has it been a slam-dunk? No. But pieces are slowly falling into place. A Populist's concern (above) about wages not following in lockstep with inflation is a bit chicken little-ish, given that a significant part of total wages won't be negotiated until Spring. Patience!

Krugman thinks abenomics is good
written by djb, December 18, 2013 8:54
He writes for "NYT"

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.