Author: Jonathan

KQED’s Forum had a semi-interesting hour yesterday called Election in Japan. Their description:

Election in Japan

After 50-plus years of nearly unbroken rule, Japan’s conservative Liberal Democratic Party met defeat by the more liberal Democratic Party in the recent election. With record joblessness and an aging population, what challenges and opportunities might the new Japanese government face?

Host: Michael Krasny

Guests:

• Daniel Okimoto, chairman of the Sterling Stamos Global Institute and director emeritus of the Shorenstein Asia-Pacific Research Center
• Michael Zielenziger, journalist, visiting scholar at UC Berkeley’s Institute of International Studies and author of “Shutting Out the Sun: How Japan Created Its Own Lost Generation”
• Sheila Smith, senior fellow for Japan studies at the Council on Foreign Relations

However, you’ll no doubt have noticed the red-flag phrase “record joblessness and an aging population” in the program’s description. Conveniently, Dean Baker (who else?) knocked down similar nonsense a day earlier. It’s a pity that Krasny and his guests didn’t read it, or any of the many other posts Baker has done on the general subject.

Is Japan Suffering from an Aging Population?

This is very fashionable to say in all the news coverage on Japan (a “worrying rise of the world’s oldest population,” A), but it’s not clear what it means. The concern is that Japan will not have a large enough workforce to support its dependent elderly population. There is no evidence of that problem at present, when the unemployment is a historically high (for Japan) unemployment rate of 5.7 percent.

As a more general issue, a relative decline in the size of the labor force would simply mean that the least productive jobs go unfilled. This could mean, for example, that jobs held by the pushers who shove people into Tokyo’s overcrowded subways may go unfilled. There may be fewer people working as parking lot attendants, custodians in office buildings and convenience store clerks. As an offset, this densely populated country, with very high land prices, will become less densely populated and have lower land prices. It will also be much easier for Japan to reduce its greenhouse gas emissions and other pollutants. It is difficult to see where the crisis lies.

Of course one reason that Japan has such an old population is that its life expectancy is so long. At 82.1 years its life expectancy at birth is four years longer than that of the United States. It is also worth noting that, despite a debt to GDP ratio of more than 180 percent, its annual interest burden is less than that of the United States.

—Dean Baker

James Galbraith in the Washington Monthly, reviewing David Wessel’s In Fed We Trust: Ben Bernanke’s War on the Great Panic.

Did Ben Bernanke really save America’s financial system?

…
Thus, in the phrase that forms the second subtitle of this book, “the Federal Reserve became the fourth branch of government.” And the system survived.

Or did it?

…

The first question is: Did the system actually survive? It is true that checks still clear, that incipient runs on small banks and money markets were stopped, that neither the dollar nor the euro collapsed, and that the major commercial banks were not nationalized. But does all this add up to survival of finance capitalism as we knew it? Can we expect, with moderate passage of time, that households will resume borrowing, banks will resume lending, and that before long we will pick up the pattern of our economic lives as before?

Or does the fact that the Federal Reserve was prompted, in the heat of the crisis, to issue trillions of direct loans to private institutions fundamentally strip away the capitalist character of the system? Are we left with a system of large institutions of doubtful solvency, state dependent, unable to function without an implicit public guarantee, and therefore also needing government approval for their actions? If so, how is this system different from that in, say, the People’s Republic of China? Wessel notes that Chinese observers described the result as “socialism with American characteristics.” It’s not necessarily a joke.

You remember back in December we looked at a graph of the then-collapsing Baltic Dry Index? Just out of general interest, here’s an update. (Click it for a larger view.)

I’ve had a post from Matthew Yglesias lying around for several months. I’m not sure what to make of it all, except that much of our impression of economic “progress” for the last decade or so is illusory, most intriguingly productivity. This has implications beyond my depth.

The post comes from a presentation by Michael Mandel of Business Week.

But if the gains from Internet Decade productivity growth didn’t go to labor and didn’t go to capital, then where did they go? His thesis is that it largely didn’t exist at all. The extra money went into increased costs of health care (while wages have been flat, “total compensation” has gone up because employer-side health insurance premiums are higher) but health care isn’t actually dramatically better than it was ten years ago. Mandel doesn’t put it this way, but you can understand the situation as real, but modest, productivity gains being essentially offset by the decreasing productivity of the health care sector. Instead of really growing, we’ve just been borrowing from foreigners who were willing to invest on the theory that America was going to produce awesome innovations in the IT and biotech sectors that never really panned out.

Herewith three of Mandel’s slides:

If I were more ambitious, or at least had more time on my hands, I’d look for data going back a little farther, 1950, say, or at least 1970. Stories about productivity growth have had great explanatory value. If they’re wrong, then we need new explanations.

This is a whole lot longer than I’d ordinarily be willing to quote entirely, but I feel justified because Ms Smith is obviously channeling me here.

Seriously, it’s a long, depressing list, and I can’t find anything in it to disagree with.

Yves Smith: Is This the Start of the Big One?

I don’t believe in market calls, and trying to time turns is a perilous game. But most savvy people I know have been skeptical of this rally, beyond the initial strong bounce off the bottom. It has not had the characteristics of a bull market. Volumes have been underwhelming, no new leadership group has emerged, and as greybeards like to point out, comparatively short, large amplitude rallies are a bear market speciality.

In addition, this one has had some troubling features. Most notable has been the almost insistent media cheerleading, particularly from atypical venues for that sort of thing, like Bloomberg. Investors who are not at all the conspiracy-minded sort wonder if there has been an official hand in the “almost nary a bad word will be said” news posture. Tyler Durden has regularly claimed that major trading desks have been actively squeezing shorts. There have been far too many days with suspicious end of session rallies.

The fall in the markets overnight, particularly the 5.8% drop in Shanghai, seems significant in combination with other factors:

More bank woes. We may be two thirds of the way through the losses, but it could also be as little as half. And despite the stress test baloney, the banking system is undercapitalized by a large margin. Even if the remaining writedowns are smaller in absolute terms than what is, past, they dig deeper into depleted equity bases. Colonial Bank, a $25 billion bank taken out last Friday, was deemed well capitalized until recently. We noted its much bigger neighbor, $140 billion Regions Bank, similarly deemed to be well capitalized, has effectively said it is insolvent How many other banks are broke save thanks to overly permissive accounting? And as we have noted before, the IMF in a study of 124 banking crises, found that regulatory forbearance, which is econ speak for letting the halt and lame limp along rather than taking them out, is far more costly, both in terms of lost growth and size of the ultimate bank recapitalization, than earlier action.

Consumers tapped out. The lousy retail sales report was a reminder of a rather central fact most have chosen to forget.

Foreclosures set to rise. We are not having a housing bounce. Some markets may be close to a bottom, but foreclosures grind on. Even if some local markets are at their nadir, there is so much overhang, between continuing mortgage stress and pent up sales, that much appreciation near term is unlikely. The record of past severe financial crises is that real estate takes over five years to bottom.

Fed in a box. Some e-mail chat pointed out a key fact: the term structure of US funding has gotten very short term. We have become in some ways like a massive bank, borrowing short and lending long. This means the idea of allowing rates to rise on the short end, which has to happen unless we stay in Japanese ZIRP land indefinitely, will be more disruptive than the Fed seems to appreciate.

More AIG losses, I am told more AIG losses are in the offing. There is still unused money out of the total alloted to the rescue, so any eruptions here may not require further official action, but it would have a bad impact on the collective mood, and further taint any efforts to shore up the financial system.

Lack of political leadership. The health care fiasco is going to be a defining event for Obama, in a negative way. His inability to respond effectively to simply absurd distortions of his plan and of the record of public supported programs overseas (including that many are government funded but still privately run, for instance) may dispel the illusion that he is or can be an effective leader. His banking policy, which is vital to recovery, became hostage to Geithner and Summer’s deep loyalty to the industry, and his lack or interest in rocking any boats. All Team Obama has done on the banking front is write a lot of blank check, hold some bogus “stress tests” in lieu of doing the real thing, and raise a stink on a few symbolic issues to try to paper over the failure to embark on real and badly needed reforms.

Ed Harrison has called him a black Herbert Hoover. If the economy takes another down leg, it will further confirm his inability to do anything other than compromise and try to spin it as success. The confidence game worked when he was a new President, but nice talk and not much action is already wearing thin. We could use someone at the helm who is willing to plot a course and stick with it, and instead what we have is someone long on charisma and short on resolve.