What do you think about Central banks...and Japan ?

[Dindin]

Hi,
I just saw the film Princes of the Yen: Central Banks and the Transformation of the Economy
https://www.youtube.com/watch?v=p5Ac7ap ... freload=10

What do you think? I found it quite frightening...

I'm from Israel and we have a huge real estate bubble here....

Thanks, I would love to hear your thoughts.

i just watched this movie myself (a link was posted in another thread) the takeaway message seems to be if the central banks want into your country ..THEY GET IN... if they want to change your governments policy ..THEY MESS UP THE ECONOMY TILL IT CHANGES.. pretty scary stuff but i wasn't terribly surprised by it..

[Dindin]

Well, I was just wandering if Japan could go back (revert the laws) and handle their own economy as they did post WWII and prior to the mid 80's.
I couldn't really understand how the Central Banks made / persuaded the Japanese to change their excellent economy.... 

[stone]

I've not seen that film yet but I thought this  review of the book seemed interesting:
http://londonprogressivejournal.com/art ... ard-werner

It is one thing to propose that investment credit creation at the BoJ has a causative, predictive link running to the production of economic growth, as I and my co-authors have done for over 35 years. It is another thing entirely to show that there is a direct, causative predictive link between the central-bank created investment credit and economic growth, as Werner has done. This is a major finding and towering achievement and politicians, bankers and economists should not ignore it. But they will, at least to begin with. As I have discovered over many decades, the Western neo-classical mindset is a perfectly argued, logically consistent, and a great achievement of Western intellectual economic thought. It only has one major defect - its assumptions of perfectly logical individuals acting on perfect information in perfect markets - does not relate to reality. Smith’s hidden hand - the idea that each individual, acting from the most selfish motives, maximises the commonwealth and the public good - does not apply to bankers. Werner has also proven that interest rates have no Granger causation predictive link to economic growth, but that will not stop central banks acting as if they have, because that is what is meant to work according to neo-classical economics. The idea that it ought to do that, according to neo-classical economics, seems to have more influence than the observable and now-proven fact that there is no detectable relationship.

I guess it boils down to the time old conflict between the interests of capital and labour and between industrialists versus the FIRE (finance, insurance, real estate) sector. In the post WWII period, not only in Japan, but across the developed world, there was the opinion that we should have full employment policies with state support for maximum industrial output. At the time that policy had massive support because people could see how the 1930s depression had evaporated when the war effort mobilized everyone. People wanted war time full employment policies to be used in peace time.

Perhaps the UK went especially overboard in abusing that system and we had spectacularly wasteful and mismanaged industries being bowled along by the state apparatus and labour unions that were power drunk and so ensured legions of "workers" not doing anything worthwhile. Thatcher scrapped that system and had democratic support to do so. BUT there was a whole raft of pretty bogus economic theory swirling around the new approach and I think zealous application of that theory has been what messed the world up. Reaganomics and "the princes of the Yen" in Japan were part of the same worldwide movement.

Michal Kalecki wrote an amazing essay in 1943 where he basically predicated and explained how after WWII we would have a period of full employment policies, then a 1970s style stagflation and industrial unrest slump and then abandon the full employment policies. He also predicted that we would then have ever decreasing interest rates until we got stuck at zero rates.
http://mrzine.monthlyreview.org/2010/kalecki220510.html

As far as what can be done about it, IMO we would do better with a system where the interests of everyone were more aligned so that we worked together more constructively. Having more employee ownership and other aspects of economic democracy would help IMO.

I think a crucial part of the picture is that there is not just that conflict between the interests of capital and labour and between industrialists versus the FIRE sector within each country; there is also a conflict between countries to draw in capital flows from each other. If a country panders to the FIRE sector, then that can cause money to flow from other countries to that country. That can make the whole country MUCH better off at least in the short term. An unemployed industrial worker might get more unemployment benefit in that country than the employed worker's wages in the country that is supporting industry and full employment. That's all there is to the magic of Thatcherism IMO. It's a zero sum game between countries. If no country made anything and every country just had banks then we would have to try and eat money I guess.

[stone]

Dindin, I just saw the film; thanks for your recommendation. From what I can see Japan did much the same as the rest of the developed world though with slightly different timing but perhaps all with the same motivations.

BUT why is there a sea otter at 37min? 

I also thought this was an interesting article:

Depression is a choice
http://www.interfluidity.com/v2/3212.html

China over the past few years has I guess had an economy more like the system used in the developed world immediately after WWII.

[stone]

I thought this was an interesting comparison between how current central banks try and foist structural reform on countries and how the potato famine in Ireland was handled in the 1840s:
http://mainlymacro.blogspot.co.uk/2014/ ... emedy.html

Between 1846 and 1851 about a million died of starvation and epidemic disease in the Irish potato famine. The general consensus today is that although this famine began as an extraordinary natural catastrophe, its impact was made much worse by the actions (or lack of action) of the British government, headed by the Whig Lord John Russell. As Jim Donnelly describes here, there seem to be three ideologies that held the “British political élite and the middle classes in their grip, and largely determined the decisions not to adopt the possible relief measures.”? These were “the economic doctrines of laissez-faire, the Protestant evangelical belief in divine Providence, and the deep-dyed ethnic prejudice against the Catholic Irish.”? The system of agriculture in Ireland was perceived in Britain to be riddled with inefficiency and abuse. The British civil servant Charles Trevelyan, chiefly responsible for administering Irish relief policy, wrote that the famine was “the sharp but effectual remedy by which the cure is likely to be effected.”?

There is a debate about the humanity and personal responsibility of Charles Trevelyan. Yet his actions were hardly idiosyncratic. The Lord Lieutenant of Ireland, the Earl of Clarendon wrote a letter to Prime Minister Russell on April 26th, 1849, expressing his feelings about lack of aid from the British House of Commons: "I do not think there is another legislature in Europe that would disregard such suffering as now exists in the west of Ireland, or coldly persist in a policy of extermination." Henry Farrell notes that the Economist magazine strongly supported the laissez-faire line pursued by Trevelyan and Russell. Were the governing elite collectively evil, as they provided armed guards for the shipping of huge quantities of grain away from the same areas affected by the blight? We could just say people act in their own interests, but as Dani Rodrik argues, this underestimates the power of ideas and ideologies.

-------------------

Of course the Irish famine is different in degree and form to the difficulties being faced by many in some Eurozone economies. But the similarities should worry us. There is the widespread view that the inefficiencies and corruption that exist in these economies are a key factor in explaining the difficulties these countries are in. Worse still is the idea that severe austerity is necessary to ensure ‘structural reform’ takes place to reduce these inefficiencies. There is also a common belief today that various economic processes cannot be interfered with and contracts have to be upheld, which are not very different from beliefs held by the British government in the 1840s. When the ‘effectual remedy’ leads directly to suffering, the evidence that it does so is ignored, as the Lancet paper argues is happening in Greece today.

If you think that the problems in Greece and elsewhere are clearly self-inflicted, rather than the result of an act of God like potato blight, consider this. The Greek government borrowed way too much and concealed that fact, but this was hidden from the Greek people as much as anyone else. Just because politicians are elected, does that make the people as a whole responsible for everything they do? Are they more responsible than those who lent the government this money, or in the case of other Eurozone countries lent money to banks that were subsequently bailed out with no public discussion?

[Dindin]

Thank you Stone. I'll go ahead and read the articles you've recommended. Thank you for the explanation. It helped me understand. 

BUT why is there a sea otter at 37min? 

ha ha