Feeds:
Posts
Comments

Posts Tagged ‘Japan’

Thanks to decades of reckless spending by European welfare states, the newspapers are filled with headlines about debt, default, contagion, and bankruptcy.

We know that Greece and Ireland already have received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most Likely to Appease the Political Class” Award.

But which nation will be the next domino to fall? Who will get the next direct bailout?

Some people think total government debt is the key variable, and there’s been a lot of talk that debt levels of 90 percent of GDP represent some sort of fiscal Maginot Line. Once nations get above that level, there’s a risk of some sort of crisis.

But that’s not necessarily a good rule of thumb. This chart, based on 2010 data from the Economist Intelligence Unit (which can be viewed with a very user-friendly map), shows that Japan’s debt is nearly 200 percent of GDP, yet Japanese debt is considered very safe, based on the market for credit default swaps, which measures the cost of insuring debt. Indeed, only U.S. debt is seen as a better bet.

Interest payments on debt may be a better gauge of a nation’s fiscal health. The next chart (2011 data) shows the same countries, and the two nations with the highest interest costs, Greece and Ireland, already have been bailed out. Interestingly, Japan is in the best shape, even though it has the biggest debt. This shows why interest rates are very important. If investors think a nation is safe, they don’t require high interest rates to compensate them for the risk of default (fears of future inflation also can play a role, since investors don’t like getting repaid with devalued currency).

Based on this second chart, it appears that Italy, Portugal, and Belgium are the next dominos to topple. Portugal may be the best bet (no pun intended) based on credit default swap rates, and that certainly is consistent with the current speculation about an official bailout.

Spain is the wild card in this analysis. It has the second-lowest level of both debt and interest payments as shares of GDP, but the CDS market shows that Spanish government debt is a greater risk than bonds from either Italy or Belgium.

By the way, the CDS market shows that lending money to Illinois and California is also riskier than lending to either Italy or Belgium.

The moral of the story is that there is no magic point where deficit spending leads to a fiscal crisis, but we do know that it is a bad idea for governments to engage in reckless spending over a long period of time. That’s a recipe for stifling taxes and large deficits. And when investors see the resulting combination of sluggish growth and rising debt, eventually they will run out of patience.

The Bush-Obama policy of big government has moved America in the wrong direction. But if the data above is any indication, America probably has some breathing room. What happens on the budget this year may be an indication of whether we use that time wisely.

 

Advertisements

Read Full Post »

Too bad the gift-giving season is already over. Thanks to this story about three men who were arrested by Japanese police for providing coffee enemas without regulatory approval, I now know that I could have purchased a “rectal infusion kit” for only $110. But since Senator Reid will still be around next Christmas, let’s focus on the public policy angle and ask ourselves why Japan’s government has licensing rules for coffee enemas?

In almost all cases, licensing rules are imposed by governments to protect politically powerful providers in a certain industry. The Institute for Justice has done heroic work on this issue, and they are always fighting to break up government-sanctioned cartels that limit competition, lead to higher prices, and make it hard for new providers to enter the market.

I’m sure these Japanese rules exist to unfairly enrich that nation’s medical profession. I can’t help but wonder, though, whether Japan’s bureaucrats have covered all the bases. Are tea enemas also covered by the regulations? What about if you use “fair trade certified” coffee from Starbucks? Are people allowed to buy toilets with built-in enemas? And what about bidets? Surely regular people can’t be trusted to operate such equipments without some sort of government involvement!

So many…um…fascinating questions to ponder. Anyhow, here’s a blurb from the story.

Police in Chiba Prefecture arrested three men this month on suspicion of violating Japan’s Medical Practitioners Law by providing coffee enemas without the proper medical qualifications, according to local media reports. Chikayoshi Hishiki (55) and two associates offered coffee-based enemas as a beauty treatment at their now-defunct alternative medicine clinics, according to leading daily Sankei Shimbun. The three suspects denied any wrongdoing, claiming they only provided the equipment and cleaned up afterwards, while the clients themselves administered the procedure, the report said. Some Japanese have become interested in filling their bums with java, believing they have discovered a secret dieting technique used by celebrities in the US and Europe.

CYA Disclaimer: Just because the Internet is a handy way of accessing information, that doesn’t mean that everything you read is true. So I make no claims that this story is 100 percent true, though governments are so stupid that I’m guessing it is accurate.

Read Full Post »

Sometimes it’s not a good idea to be at the top of a list. And now that Japan has announced a five-percentage point reduction in its corporate tax rate, the United States will have the dubious honor of imposing the developed world’s highest corporate tax rate. Here’s an excerpt from the report in the New York Times.

Japan will cut its corporate income tax rate by 5 percentage points in a bid to shore up its sluggish economy, Prime Minister Naoto Kan said here Monday evening.Companies have urged the government to lower the country’s effective corporate tax rate — which now stands at 40 percent, around the same rate as that in the United States — to stimulate investment in Japan and to encourage businesses to create more jobs. Lowering the corporate tax burden by 5 percentage points could increase Japan’s gross domestic product by 2.6 percentage points, or 14.4 trillion yen ($172 billion), over the next three years, according to estimates by Japan’s Trade Ministry. …In a survey of nearly 23,000 companies published this month by the credit research firm Teikoku Data Bank, more than 44 percent of respondents cited lower corporate taxes as a prerequisite to stronger economic growth in Japan. …A 5 percentage-point tax rate cut is unlikely to do much to solve Japan’s woes, however. An effective corporate tax rate of 35 percent would still be higher than South Korea’s 24 percent or Germany’s 29 percent, for example. …Meanwhile, the government is trying to offset lost tax revenue with tax increases elsewhere, which could blunt the effect of reduced corporate tax burdens.

I suspect the Japanese government’s estimate of $172 billion of additional output is overly generous. After all, the corporate tax rate in Japan will still be very high (the government originally was considering a bigger cut). And foolish Japanese politicians will probably raise taxes elsewhere. But there will be some additional growth since the corporate tax rate is an especially damaging way to collect revenue.

But I’m not losing sleep about Japan’s economic future. I hope they do well, of course, but my bigger concern is the American economy. The U.S. corporate tax rate of nearly 40 percent (including state corporate burdens) already is far too high, particularly since America adds to the competitive disadvantage of U.S.-domiciled firms by being one of the few nations to impose an extra layer of tax on foreign-source income. Japan’s proposed rate reduction, however,  means the high tax rate in America will be an even bigger hindrance to job creation.

It’s also worth noting that the average corporate tax rate in Europe has now dropped to less than 24 percent, so even welfare states have figured out that a high tax burden on business doesn’t make sense in a competitive global economy.

Sometimes you can fall farther behind if you stand still and everyone else moves forward. That’s a good description of what’s happening in the battle for a pro-growth corporate tax system. By doing nothing, America’s self-destructive corporate tax system is becoming, well, even more destructive.

Read Full Post »

The news that China has surpassed Japan as the world’s second-largest economy has generated a lot of attention. It shouldn’t. There are roughly 10 times as many people in China as there are in Japan, so the fact that total gross domestic product in China is now bigger than total gross domestic product in Japan is hardly a sign of Chinese economic supremacy. Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom – which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. And the growth they have experienced certainly has not been enough to overtake other nations based on measures that compare living standards. According to the World Bank, per capita GDP (adjusted for purchasing power parity) was $6,710 for China in 2009, compared to $33,280 for Japan (and $46,730 for the U.S.). If I got to choose where to be a middle-class person, China certainly wouldn’t be my first pick.

This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation. Economic Freedom of the World ranks China 82 out of 141, just one spot above Russia, and the Index of Economic Freedom has an even lower score, 140 out of 179 nations.

Hopefully, China will continue to move in the right direction. As Jonah Goldberg notes in his Townhall column, it is good for America to have China become a more prosperous nation.

Yes, technically, China’s gross domestic product is now slightly ahead of Japan’s.

But GDP is a gross statistic. It doesn’t tell you nearly as much as you might think. In a very real way, China is still poorer than Japan. It’s also poorer than Tunisia, Ecuador, Gabon, Kazakhstan and Namibia.

…China still has enormous problems, many of which aren’t reflected in its GDP growth rates, and without democracy, a free press and the rule of law, we can’t know what all of the problems are until they explode (and neither can the Chinese).

But all of this misses the most important point. Economic “competitiveness” is a con. It assumes that when other countries prosper, America loses. That’s nonsense. If the average Chinese worker were as rich as the average Japanese worker, it would be an economic windfall for the United States.

Conversely, if China’s economy imploded tomorrow, we would “gain” competitively but suffer economically. The cult of competitiveness is just a ruse used to justify the ambitions of economic planners and the pundits who worship them.

Read Full Post »

%d bloggers like this: