Kyoto Report No. 2

This Tuesday report will provide some insights into life in Kyoto for a westerner in the age of Covid. Today, I report on stone fords across rivers, bears, monkeys, and more. All the before and after work action from Kyoto.

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British currency gyrations are about weak government not fiscal deficits

The British government has descended into high farce. It is rather embarassing to watch adults behave in the way they have conducted themselves in the last longtime. I also note that the usual suspects are out in force claiming (spuriously) that the economic turmoil that has beset Britain demonstrates categorically that Modern Monetary Theory (MMT) is deeply flawed and the real world is now teaching us that we should be discarded into the dustbin of history – or rather disgrace. These characters, which include so-called progressives think that hard core fiscal rules, like the British Labour Party took into the last election would have saved the day for Britain. I guess they are now mates with the IMF, who in their latest fiscal monitor – Fiscal Monitor – overnight (published October 12, 2022) – called for fiscal restraint. Also, central bankers who met in Washington over the last few days decided they had become the elected and accountable government making gratuitous threats that if fiscal policy wasn’t turned to austerity, they would punish citizens with further interest rate hikes. It is actually hard to find anything of sense in the current economic debate. It is despairing really.

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Zero trading in 10-year Japanese government bonds signals Bank of Japan supremacy

On July 21, 2022, the Bank of Japan issued this – Statement on Monetary Policy – which outlined that it would continue to use its capacities to implement ‘Yield curve control’, whereby the “Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank” and “will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent”. Further, the Statement noted that “the Bank will offer to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted”. The only dissenter on an 8 to 1 vote, wanted even more easing of monetary policy! The BOJ has been implementing its yield curve control since March 2021. In the light of global trends in central banking, the Bank of Japan’s decisions are a standout and show how a sophisticated understanding of the monetary economy coupled with a desire by the Government to improve the lives of ordinary citizens expose the fictions of mainstream economics, which dominates policy making elsewhere.

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Kyoto Report No. 1

This Tuesday report will provide some insights into life in Kyoto for a westerner in the age of Covid. The city is the old capital of Japan and was spared from the nuclear devastation that ended the Pacific War in 1945 because some US politician decided it was too culturally important to the Japanese (Source). It is a large city (1.5 million residents) nestled in a valley and surrounded by rather high mountains to the north, east and west. I am living near the Yoshida campus of Kyoto University, one of the best higher degree institutions in the world. My house is just near the – Kamo River – which runs north and south through the eastern side of the city.

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Two diametrically-opposed approaches to dealing with inflation – stupidity versus the Japanese way

Well things are going to get messier with the decision yesterday by the OPEC+ cartel to significantly reduce the oil supply and push up prices. On the one hand, when OPEC was first formed and pushed prices up, while there was significant disruption to oil-dependent nations, the substitution that followed (home oil heating abandoned, larger cars replaced by smaller cars, etc) was ultimately beneficial. So given that we need less cars on roads and less kms travelled by cars, one might consider the move to be fine. But given the way the central banks and treasury departments around the world are behaving at present, the short term impacts of the OPEC+ decision will be very damaging. How citizens endure whatever extra inflationary pressures that might emerge will depend on the fiscal and monetary policy responses. We have two diametrically opposed models: the one that most nations are following (hikes and austerity) versus the Japanese approach. I explain the difference below and predict that the latter will deliver much better outcomes for the people.

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Off to Japan I go

Today, I am skipping my Japanese language class and heading to the airport. I am taking up a position at Kyoto University under a JSPS Invitational Fellowship. I am working with the team in the Resilience Unit there on a project studying the design of fiscal policy for building national resilience using Modern Monetary Theory (MMT) principles. Resilience is an important part of the degrowth and deep adaptation agenda and I will spend some months there working on with other researchers. The – Japan Society for the Promotion of Science (JSPS) is ‘Japan’s sole independent funding agency dedicated to the advancement of science’ and is overseen by the Ministry of Education, Culture, Sports, Science and Technology. I am very privileged to receive one of the invitations. So from tomorrow I will be in Kyoto and depending on commitments my blog posts might be a little less regular although I think I will be able to continue the usual output. Now, it is time to put my Tuesday languages class into action – along with Google translate! Some travelling music follows.

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The Japanese wage problem

I read a lot about Japan. It has interested me since the early 1990s commercial property collapse and the subsequent fiscal and monetary policy measures that the Japanese government deployed to deal with it, which took policy settings outside the bounds that mainstream economists could cope with. These economists predicted the worst based on mindless extrapolations of their ‘theoretical’ models, which are really incapable of dealing with the real world in any meaningful way. Their worst didn’t come and some 3 decades later, with policy settings still at ‘extreme’ levels compared to the way mainstream economists think (and the policy makers are not budging it seems), Japan continues to demonstrate why New Keynesian macroeconomics is inapplicable and why Modern Monetary Theory (MMT) has traction. And while Japan provides first-class public transport, health and education systems, a viable housing policy, good urban systems, and has maintained low unemployment rates even during the GFC and the pandemic, there is one feature that is troublesome – the flat lining wages growth over the last 20 years. I have been very interested in learning the reasons for this phenomenon, which sets Japan apart from most other nations (who have also experienced low wages growth – but not that low). I plan to work on this aspect, in part, when I move to Kyoto next month for an extended stay.

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Why has Japan avoided the rising inflation – a more solidaristic approach helps

A few years ago, various policy makers, but mostly central bankers were keen to disabuse anyone of the notion that they were ‘doing’ Modern Monetary Theory (MMT). Some were aggressive in denial, such as US Federal Reserve boss Jerome Powell, who on February 26, 2019 announced to the US Senate Banking Committee that MMT was ‘just wrong’. There was a general pile on from other central bankers and commentators. No way, they were doing MMT. Okay, they were right, one doesn’t ‘do’ MMT, given it is an analytical framework (see below). But, curiously, now, the commentators are falling over themselves claiming that MMT is dead in the water given that it has been tried over the course of the pandemic to date and failed because inflation is out of control. Hilarious really. But what is interesting is Japan (as always). And I wonder whether any of these MMT critics now have considered why the Bank of Japan has not followed the lead of the other central banks that are rushing to exacerbate the temporary inflation spike by deliberately creating unemployment. It seems that there are different paths that policy makers can take within a capitalist monetary economy. They can allow corporations to profit gouge at the expense of the workers and then turn on the workers (creating unemployment) or they oversee a system where all parties (workers and corporations) take real income hits as a result of imported price pressures and wait it out. Japan is in the second category to its credit.

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