Japonia eta NMF (aka IMF)

Bill Mitchell-en IMF recommends that firms should increase real wage growth in Japan1

Sarrera gisa:

(a) NMF-ak dioenez, Japonian alokairu handiagoak behar dira (sic)2

(b) Alokairuak eta produktibitate hazkundea, batera joan behar dira3

(c) Nahi horrek aldatzen du gizartearen eta ekonomiaren erlazioa, neoliberalismotik at4

Mitchell gobernuaren enpleguaz5 eta gastu publikoaz6 aritzen da, ondoko NMF-ren txostena aztertzerakoan7.

Ukitutako zenbait puntu interesgarri:

(i) Ebidentzia: jaitsiera ekonomikoa pizgarri fiskalaren ez-nahikotasunari dagokio8

(ii) Politika fiskala eraginkorra da, bi norabideetan9

(iii) Txostena labur samarra gelditzen da10

(iv) Ebidentzia enpiriko interesgarria

Kasu, ondoko hau: “the empirical relationship between labor productivity growth and real
compensation growth for G7 countries” between 1995 and 2013.


(v) Txostenaren ondorioak linkean12

Mitchell-ek askotan aipatu du Krisi Fiskal Globalaren kausa bat hauxe izan dela: “the break between real wages growth and productivity growth”, 1970eko hamarkadan hasitako erreforma neoliberalarekin hasi zena , monetaristek politika bereganatu zutenean13.

Klase borroka zegoen, noski14

There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning

Lan merkatuaren liberalizazioa nonahi gertatu da15.

Ondorioak: errenta nazionalaren birbanaketa mozkinetara joan da16, exekutiboen alokairuak handituz joan dira17 eta errenta parte bat kasino ez-produktibora, finantza merkatuetara joan da18.

Hurrengoan gertatu zena ezaguna dugu: Chicagoko eskola eta merkatuen liberalizazioa eta banku sektorearen ikuskapenaren murrizketa19, finantza sektorea eta espekulatzaile globalaren handitzea20

Errealitatean, alta, transakzio espekulatiboak ez-produktiboak dira21, sozializatutako galerak erraldoiak ziren, kasinoak kolapsatu zuenean22…, sektore pribatua zorpetu zen bitartean23.

Eta, orain NMF (aka IMF) dator albiste onarekin, alokairuak direla eta, Japoniarako proposaturiko aldaketa giltza da neoliberalismoarekin bukatu ahal izateko24.

2 Ingelesez: “… the IMF extolling the virtues of higher wages in Japan. What? Yes, you read (…) correctly. The IMF considers that an essential new policy element (a “fourth arrow”) is required in Japan in the form of real wages growth outstripping productivity growth by around 2 per cent. It wants the government to legislate to ensure that happens.”

3 Ingelesez: “In general, the IMF solution for Japan is in fact one of the key changes that nations have to do bring in to restore some sense of stability into the world economy. Governments around the world has to ensure that real wages growth, at least, keeps pace with productivity growth and that workers can fund their consumption expenditure from their earnings rather than relying on ever increasing levels of credit and indebtedness.

4 Ingelesez: “This will of course require a fundamental change in our approach to the interaction between society and economy. It will require increased employment protection, larger public sector employment proportions, decreased casualisation, and legislative requirements imposed upon firms to pass on productivity gains. It’s no small order, but it is one of a number of essential changes that we will have to do introduce as part of the abandonment of neoliberalism.”

5 Ingelesez: “What do you think would happen if the government in any nation announced that they would employ anybody who wanted to work and that such people should simply turn up at some designated address to commence their jobs? I predict millions of people around the world who are currently wallowing in unemployment would immediately take up the offer and start earning income and spending it.”

6 Ingelesez: “What do you think would happen if the government in any nation announced that they were intending to improve public transport, improve the hospital system, improve the education system, and engage in large-scale environmental restoration projects? How much non-government interest would you expect there to be in the subsequent public tenders to provide capital and labour services to support this strategy? I predict there would be substantial interest among firms who currently have idle capital and poor sales outlooks.

We could give any number of examples where government spending would immediately stimulate non-government sector activity and bring idle productive resources back into use.”

7 Ingelesez: “… an IMF Working Paper (No. 16/20) – Wage-Price Dynamics and Structural Reforms in Japan – published on February 10, 2016.”

8 Ingelesez: “The research evidence is that “part of the protracted downturn” in Japan is due “to insufficient fiscal stimulus” in the 1990s.

When the the property bubble burst in the early 1990s in Japan, the Japanese government ramped up public expenditure growth to maintain real GDP growth. In 1993, total tax revenue fell by 3.7 per cent and fell again in 1994 by 1.6 per cent.

Government spending growth increased by 6.4 per cent in 1993, 2.8 per cent in 1994, 4.1 per cent in 1995 and 4.8 per cent in 1996 – which was a combination of cyclical effects (automatic stabilisers) and discretionary decisions to stimulate growth.

The fiscal support that was provided allowed the Japanese economy to avoid any negative real GDP growth (on an annualised basis) despite the massive collapse in private spending after the property collapse.

That was a remarkable demonstration of the effectiveness of fiscal policy in offsetting fluctuations in private spending.

9 Ingelesez: “The problem was that the Japanese government succumbed to the ideological pressure and in 1997 introduced a sharply contractionary fiscal shift, which included sales tax increases and cutbacks in spending. Expenditure growth was cut by 0.7 per cent in 1997.

This shift was to satisfy the likes of the IMF!

The results were almost immediate and a palpable reminder that fiscal policy is effective in both directions. The economy, which was showing some signs of recovery given the fiscal support, nose-dived.

Moreover, the fiscal deficit expanded. Tax collections fell by 3.4 per cent in 1998 and a further 1.9 per cent in 1999.

It was only the application of further fiscal stimulus that saw the economy resume relatively robust growth in the early 2000s.

Please read … – Japan thinks it is Greece but cannot remember 1997 and Japan returns to 1997 – idiocy rules! – for more discussion on this point.”

10 Ingelesez: “The IMF paper uses a standard New Keynesian framework, which is limited at best. For example, to make the mathematics tractable it “presents a closed-economy model where consumer-workers and firms interact in the labor market and in the product market, and the central bank pursues a price stabilizing monetary policy”.

Japan is hardly a closed economy.

I have considered the limitations of these type of models before. Please read … – Mainstream macroeconomic fads – just a waste of time – for more discussion …

A detailed critique of both the formal (mathematical) and the logical aspects of these New Keynesian equilibrium models is also presented in my 2008 book with Joan Muysken – Full Employment abandoned.

So I won’t continue to eviscerate that aspect of the work. Any macroeconomist who uses the New Keynesian approach (Krugman, Simon Wren-Lewis) is wasting their brain power.

11 Txostenak dioenez, ingelesez: “… over the last two and a half decades productivity improvements did not lead to increases in real wages … As a consequence, the labor income share has declined markedly since the 1990s, from 66 percent in 1991 to 59 percent in 2007. (…)

workers’ bargaining power in Japan has been deteriorating since the early 1990s … [and] explains the fact that real wages have failed to keep up with productivity improvements and CPI inflation has hovered around zero over the last two and a half decades. On the one hand, Japan has been able to keep a low rate of unemployment despite the strong economic slowdown, but the unfavorable wage-price dynamics resulting from workers’ declining bargaining power have made price reflation even more difficult.”

12 Ingelesez:

1. “Everybody agrees: wages need to grow if Japan is to make a definite escape from deflation.”

2. “Full- time wages have increased by a mere 0.3 percent since 1995! For example, despite its record profits …”

3. “the labor market has continued to tighten and participation reached a historic high. By end 2015, only 3.3 percent of people looking for jobs were unemployed”

4. “Yet the current wage negotiations are hardly aggressive at all”.

5. “a fourth arrow needs to be loaded:

The government could replicate the success of the corporate governance reform by introducing a “comply or explain” mechanism for profitable companies to ensure that they raise wages by at least 2 percent plus productivity growth.

The authorities could strengthen existing tax incentives to raise wages.

Policymakers could even go a step further by introducing tax penalties for companies not passing on excessive profit growth.

Another option is to set the example by raising public sector wages in a forward looking manner.

13 Ingelesez: “I have long been arguing that one of the causes of the GFC and its extended aftermath has been the break between real wages growth and productivity growth, which was deliberately engineered by the neoliberal reforms that began in the 1970s as Monetarists took hold of the policy levers.”

14 Ingelesez: “We know better now – and increasingly the recognition, exemplified in 2006 by Warren Buffett’s suggestion that “There’s class warfare, all right … but it’s my class, the rich class, that’s making war, and we’re winning” (…), is that class is alive and well and in prosecuting their demands for higher shares of real income, the elites have not only caused the crisis but are now, in recovery, reinstating the dynamics that will lead to the next crisis.

The big changes in policy structures that have to be made to avoid another global crisis are not even remotely on the radar.

One of the defining characteristics of the neo-liberal period has been the relentless attack on the capacity of the workers to translate productivity growth into real wages growth.

I considered such distributional shifts in this early blog (2009) – The origins of the economic crisis.

The deregulation in the labour markets not only created increased job instability and persistently high unemployment but also led to large shifts in national income from wages to profits.”

Ikus In Class Warfare, Guess Which Class Is Winning: http://www.nytimes.com/2006/11/26/business/yourmoney/26every.html.

15 Ingelesez: “A 2013 ILO Report written by Englebert Stockhammer – Why have wage shares fallen? A panel analysis of the determinants of functional income distribution – reported similar trends in other advanced OECD nations.”

16 Ingelesez: “… the wage share in national income has fallen significantly over the last 35 years in most nations. This is because real wages have lagged behind productivity growth. The redistributed national income has gone to profits.

17 Ingelesez: “… in the Anglo nations, “a sharp polarisation of personal income distribution has occurred”…, with the top percentile and decile of the personal income distribution substantially increasing their total shares.

The munificence gained at the expense of lower-income workers manifested, in part, as the excessive executive pay deals that emerged in this period.

18 Ingelesez: “It has also channelled income into the unproductive casino we know as the financial markets – the gambling chips have come at the expense of real wages growth.”

19 Ingelesez: “We know what happened next. Imbued with the, now discredited, efficient markets hypothesis, promoted by University of Chicago economists, policy makers bowed to pressures from the financial sector and introduced widespread financial deregulation and reduced their oversight on the banking sector.”

20 Ingelesez: “This not only led to a massive expansion of the financial sector, but also, set the stage for the transformation of banks from safe deposit havens to global speculators carrying increasing, and ultimately, unknown risks. The massive redistribution of national income to profits provided the banks and hedge funds with the gambling chips to fuel the rapid expansion of the ‘global financial casino’ expanded.

21 Ingelesez: “But the reality was different. The vast majority of speculative transactions that occur every day in the financial markets are unproductive, in that they are unrelated to the real economy and advancing our welfare.”

22 Ingelesez: “A substantial portion of the “wealth” generated was illusory and we subsequently discovered that the socialised losses were enormous as the huge, unregulated gambling casino collapsed under its own hubris, criminality and incompetence.”

23 Ingelesez: “The increasing private sector indebtedness – both corporate and household – is another marked characteristic of the neo-liberal period.”

24 Ingelesez: “The IMF solution for Japan is in fact one of the key changes that nations have to do bring in to restore some sense of stability into the world economy.

Governments around the world has to ensure that real wages growth, at least, keeps pace with productivity growth and that workers can fund their consumption expenditure from their earnings rather than relying on ever increasing levels of credit and indebtedness.

This will of course require a fundamental change in our approach to the interaction between society and economy.

It will require increased employment protection, larger public sector employment proportions, decreased casualisation, and legislative requirements imposed upon firms to pass on productivity gains.

It’s no small order, but it is one of a number of essential changes that we will have to do introduce as part of the abandonment of neoliberalism.

Iruzkinak (1)

  • joseba

    Bill Mitchell-en IMF continues to tread the ridiculous path
    “(…) Last week, the IMF released its so-called – Fiscal Monitor October 2018 – and the mainstream financial press had a ‘picnic’ claiming all sorts of disaster scenarios would follow from the sort of financial situations revealed in the publication. At the time of the publication I was in London and the British press went crazy after the IMF publication – predicting that taxes would have to rise and fiscal surpluses would have to be maintained and increased to bring the government’s balance sheet back into balance. Yes, apparently the British government, which issues its own currency, has ‘shareholders’ who care about its Profit and Loss statement and the flow implications of the latter for the Balance Sheet of the Government. Anyone who knows anything quickly realises this is a ruse. There is no meaningful application of the ‘finances’ pertaining to a private corporation to the ‘finances’ of a currency-issuing government. A currency-issuing government’s ‘balance sheet’ provides no help in our understanding of what spending capacities such a government has.
    The IMF Fiscal Monitor carries the specific title “Managing Public Wealth” and starts with an unobjectionable statement:
    Public sector balance sheets provide the most comprehensive picture of public wealth. They bring together all the accumulated assets and liabilities that the government controls, including public corporations, natural resources, and pension liabilities.
    I say ‘unobjectionable’ in the sense of being harmless.
    We might be interested in knowing what ‘assets’ are held on our behalf in the public sector and what liabilities the government holds.
    Then again we might not be.
    It doesn’t matter much.
    What we know is that assets that are held in the public sector should be utilised to advance the well-being of the citizens and a currency-issuing government can always service any liabilities that are denominated in its own currency.
    That is about as far at it goes.
    If public sector assets are an important component of our wealth, then we should be very concerned with policies that liquidate that wealth – that is, privatisation.
    The IMF really get themselves caught up here – more below on that.
    But, any notion that the government is like a privately-owned corporation and that we should appraise it according to the indicators we might use to assess such a private entity, should be discouraged because it is totally inapplicable.
    It is another version of the flawed household budget analogy which dominates the way mainstream macroeconomics construct the fiscal affairs of a currency-issuing government.
    A currency-issuing government is nothing like a profit-seeking corporation. It cannot go broke for a start. And its purpose is to advance well-being for all not to enrich its shareholder elite.
    Anything such a government does should be appraised in terms of a social cost and benefit framework rather than the ‘private’ cost-benefit domain that is typically (and wrongly) applied to a private, profit-seeking firm.
    But the IMF clearly wants to construct the relatively meaningless concept of a national balance sheet in such a way that it can be used to serve an anti-government neoliberal agenda.
    The IMF try to link the ‘balance sheet’ numbers to fiscal flows from a reverse causal perspective.
    Clearly, in an accounting sense, if a government persists in issuing debt to match any fiscal deficits it might run, then the flow of net spending (the deficit) will accumulate into the stock of public debt (liability).
    That is just direct accounting logic.
    It doesn’t mean the debt-issuance is necessary in order for the government to spend. We know that.
    It just means that the accountants will accumulate the flow (deficit) into the stock (debt). It means nothing much.
    The outstanding public debt is just the past deficits that have not been returned in tax payments.
    But the IMF try to take this accounting reality into a causal world where the stock is posited to pose a constraint on future flows.
    The wheels fall off at this stage.
    They write:
    Most governments do not provide such transparency, thereby avoiding the additional scrutiny it brings. Better balance sheet management enables countries to increase revenues, reduce risks, and improve fiscal policymaking. There is some empirical evidence that financial markets are increasingly paying attention to the entire government balance sheet and that strong balance sheets enhance economic resilience.
    First, a currency-issuing government doesn’t need to increase revenues in order to expand spending.
    Raising taxes provides such a government with no extra financial capacity to spend.
    The government will likely need to raise taxes if it wants to expand the size of the public sector and the economy is already operating at full capacity.
    In this way, we understand from Modern Monetary Theory (MMT) that a major function of taxation is to create ‘fiscal space’ for the government, by depriving the non-government sector of purchasing power – that is, reducing the capacity of that sector to command real goods and services.
    The taxation creates idle resources in the non-government sector and the government spending brings those idle (private) resources into productive use in the government sector.
    That is the way taxation is related to government spending. There is no intrinsic relationship between the taxation receipts and the spending in any causal financial sense.
    Second, there is also no meaning to the claim that a strong government balance sheet enhances “economic resilience”.
    A currency-issuing government can respond to a decline in non-government spending so as to maintain high levels of employment irrespective of what its past fiscal position might be and irrespective of the flow implications of those past fiscal positions on the stocks (what the IMF calls the government balance sheet).
    The IMF also recognise that:
    The long-term aim of government is not to maximize net worth, but to provide goods and services to its citizens and possibly to create a buffer against uncertainty about the future.
    And fiscal policy is the most important macroeconomic tool at its disposable to fulfill those objectives.
    But to equate ‘net worth’ with “fiscal health” is a step too far.
    The fiscal balance is not a ‘living entity’. It makes no sense to say it is sick or in ill health.
    A rising fiscal deficit might, for example, signify a strongly growing economy with first-class public infrastructure investment. In what way is that a ‘bad’ outcome.
    Alternatively, a rising fiscal deficit might be associated with a collapse in private sector spending, rising unemployment, and lost sales, with the decline in tax revenue and rising welfare payments driving the fiscal balance.
    It is not that the fiscal deficit is ‘bad’ in this case. Rather, it is the real economy that is failing and the rising fiscal deficit is just signalling that.
    The ‘balance sheet’ position of the government in both scenarios is irrelevant to our assessment of the state of the economy and the fiscal capacity of the government.
    It is false to say, as the IMF does, that “fiscal stress” is indicated by a declining public net worth.
    We might want to apply ‘stress tests’ to private banks to assess whether there are sufficient shareholder funds (capital) to meet likely situations (rising bad debts, etc).
    But to think of a currency-issuing government in those terms is ridiculous. It has no application.
    A private bank can go broke. A sovereign, currency-issuing government cannot.
    And what would surprise you less than two main British mastheads coming to the party and amplifying the ridiculous IMF loudspeaker.
    The Financial Times published an article discussing the IMF release (October 10, 2018) – UK public finances near bottom of IMF league table – which is a typical beat-up approach from the mainstream financial journalists.
    The FT article sensationalised the ridiculous IMF analysis by claiming that:
    Britain’s poor position follows waves of privatisation and mounting public debt …
    Britain is languishing close to the bottom of the international league table for the strength of its public finances … with only Portugal’s long-term position deeper in the red.
    First rule of thumb. Whenever a journalist writes an article comparing a currency-issuing government such as Britain and a currency-using nation such as Portugal as if there is no difference (that thus justifies the comparison), we can conclude that the rest of the article is likely to offer meaningless content.
    Second, the FT notes that the implications of the ‘poor’ ranking are that:
    Countries with deep negative net worth are likely to have to tax more heavily in future and run budget surpluses to bring assets back into line with liabilities.
    This is an unreconstructed lie.
    Britain will never have to run fiscal surpluses or “tax more heavily” as a result of the ‘balance sheet’ impacts of the last recession and the poorly policies that made it worse.
    The FT also quoted a New Zealand academic who claims:
    The UK went into the last crisis with a relatively weak balance sheet, and a decade on its position is twice as bad.
    This is pure hysteria.
    What exactly does ‘bad’ mean other than nothing in this context.
    Britain endured a massive, drawn out recession, mostly due to the obsessive pursuit of fiscal austerity, when all the indicators back in 2010 were pointing to the need for government to sustain a discretionary fiscal stimulus and be prepared to accept elevated level of the fiscal deficit for several years if not a decade.
    The IMF acknowledge this:
    The United Kingdom balance sheet expanded massively during the crisis, with balance sheet effects driving most of the movement in net debt — the main fiscal measure used in the United Kingdom … Most of the expansion in the balance sheet was the result
    of large-scale financial sector rescue operations that resulted in reclassification of the rescued private banks into the public sector and increased (non–central bank) public financial corporation liabilities from in 2007 to 189 percent of GDP in 2008, with similar movements in financial assets … These balance sheet effects drove most of the movements in net debt during the crisis period, as the government borrowed to inject funds into the banks. In the early crisis years when the major financial sector operations occurred, the contribution to net debt from balance sheet effects was comparable to that from the fiscal deficit …
    So the ‘balance sheet’ changes reflect what was happening in the economy.
    When we talk about the ‘bad’ state of the British economy we are considering the damage to the scope and quality of public services and public infrastructure that the austerity caused.
    Whatever the public ‘balance sheet’ impacts of those poorly conceived and executed policy choices caused are is beside the point.
    The accounting mirror of that policy failure (declining net worth) is not the issue. As noted above, it has no bearing on whether Britain can meet any future crisis – tomorrow or the next day.
    The FT was content to just leave the quote from the academic without any further analysis as to why “twice as bad” carries any meaning for anything we should be concerned about.
    And, the UK Guardian was not to be outdone.
    The UK Guardian article (October 10, 2018) – UK public finances are among weakest in the world, IMF says – also privileged the ridiculous IMF analysis in an uncritical manner.
    It used words, such as the IMF had conducted a “a health check on the wealth of 31 nations” as if the public sector accounting relationships are a patient that can be sick or healthy.
    This type of metaphorical construct is without application to the fiscal capacity of a currency-issuing government such as Britain.
    The journalist let himself down by writing:
    The tests are an effort by the IMF to show the balance of assets and liabilities in relation to a nation’s overall income to judge how well governments are prepared for economic shocks.
    This was in reference to the ‘stress tests’.
    The IMF balance sheet analysis tells us nothing about “how well governments are prepared for economic shocks”. That is a complete neoliberal lie.
    Here is the only ‘stress test’ that is relevant: Does the government issue its own currency?
    Yes: no stress.
    No: stress from risk of insolvency.
    Simplifying macroeconomics is fun.
    Further, the fact that the UK “… allowed private sector companies to extract North Sea oil reserves” in contrast to Norway is a distributional issue and has nothing to do with more or less fiscal capacity.
    And the journalists claims that the British government then “spent the tax revenues during the 1980s and 1990s” from the North Sea oil is pure fabrication.
    It might have looked like they did that.
    But the reality is that the government does not spend tax revenues. It spends currency into existence and the tax revenues come afterwards.
    I cite these two major British newspaper articles because there was not a critical comment within either.
    The journalists seem to have taken the IMF press release and summarised it to fit into their word limit.
    Oh, that is doing the FT a little injustice.
    They did seek out a couple of ‘experts’ to colour the hysteria.
    None of it helped.
    I applaud the on-going audacity of the IMF. It takes a thick hide to publish this sort of junk when they have been so categorically embarrassed on a systematic basis for years with the sort of material they put out.
    They should be defunded immediately.”

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