Washington - "Everybody knows" that you can't get rich from
just printing money, except for the part where sometimes you can.
Take Japan. Its unemployment rate has fallen to a 22-year
low of 2.8 percent - yes, you read that right - due in large part to all the
yenit has created the past four years. Money might not grow on trees, but it
can get spit out of a central bank's computer.Let's back up a minute.
How did Japan get to the point where it needed to give
itself the economic equivalent of a defibrillator? Well, back in the early
1990s, it was the first country to go through the boom, bust and stagnation
cycle that the United States, Europe and most of the rest of the world have
gotten to know and hate so well.
Japan managed to avoid a full-fledged depression thanks to
all of its infrastructure spending, but it couldn't escape a "lost
decade" - a fancy way of saying that while it did grow, it didn't grow
much. As economist Brad DeLong points out, Japan didn't just stop catching up
with the United States for a few years, but for the last 25.
This is both better and worse than it sounds. Better,
because once you adjust for the fact that Japan's working-age population has
been shrinking, it has grown at least as fast as we have in per-capita terms
over the past 15 years. But worse because even then it never made up any of the
ground it lost. It had become permanently poorer.
This wasn't supposed to happen anymore. Economists, as Nobel
Prize-winner Robert Lucas put it in 2003, thought that the "central
problem of depression prevention" had been "solved."
They had supposedly learned enough from the 1930s to keep
the economy from entering another doom loop of debt, deflation, and default.
Until, that is, Japan showed that they hadn't. It had a problem that had not
existed for 60 years: It couldn't keep its prices from falling even with zero
interest rates.
Now, I know this sound like the kind of thing only an
economist could believe - how could lower prices be a bad thing? - But think
about it like this: Falling prices would mean falling wages, but not falling
debts, so they would become harder to pay back.
In the best case, the economy would get stuck in a cycle of
low consumer spending leading to low business investment leading to low hiring,
and then even lower consumer spending. And in the worst, everyone would go
bankrupt.
That's why Japan has put so much emphasis on getting its
inflation rate back above zero. It wants to get into the opposite cycle of
higher prices leading to higher wages leading to lower debt burdens leading to
more consumers spending and then more business investment. In other words, a
self-sustaining recovery.
Abenomics
That has been the whole point of "Abenomics."
That's the shorthand for Prime Minister Shinzo Abe's three-pronged plan -
fiscal stimulus, monetary stimulus, and structural reforms like getting more
women into the workforce - to get Japan's economy back to where it should be.
And while there have been stops and starts, and debates and doubts, the reality
is that it is working, emphasis on those last three letters.
Which is to say that while Japan might not be where it wants
to, it is getting there. Maybe the best way to tell isn't its super-low
unemployment rate, but rather its super-high employment rate. That, as you can
see below, has shot up since the start of Abenomics to an all-time high of 83.5
percent, making our own 78.3 percent rate look downright measly in comparison.
And it means that Japan's unemployment rate hasn't fallen
for the bad reason that people have given up looking for work, but for the good
one that almost everyone who isn't drawing a pension has found one. It's what
unfinished progress looks like.
What's behind this boom? It can't be the fiscal or
structural parts of Abenomics, because they've barely been tried. Indeed,
Tokyo's budgets have actually had more austerity than stimulus the past few
years, and its attempts to shake up the country's sclerotic norms and
institutions, while making a little headway, have run into quite a bit of
resistance from entrenched interests.
No, it's the monetary part - Japan's promise to print money
for as long as it takes prices to start rising again - that has done the most. But
it's still not everything they wanted. Inflation, after all, has only recently
crept above zero and is still well below their 2 percent target.
The oil crash and an ill-timed sales tax increase kept it in
negative territory for a long time. More important than that, though, is the
fact that this hasn't made Japan's central bank give up. It has before. Up
until Abenomics, you see, Japan would do just enough to avert the worst, and
nothing more. It was one half-measure after another, none of which added up to
a whole.
What they needed, a then-Princeton professor named Ben
Bernanke told them, was the "Rooseveltian resolve" to keep trying
things until one of them worked. And now they're listening. All their
money-printing seems to have given businesses the confidence - and the cheaper
currency - they needed to expand a little more.
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That's because what had been holding companies back, until a
few years ago, was that the government had been doing less than everything it
could to support the economy.
So now Tokyo is saying it will do whatever it takes, and
unemployment has finally fallen so far that businesses should have to start
fighting over people by offering bigger raises - potentially giving the economy
the push it needed to get into a virtuous circle. And all it would have taken
was printing a few trillion yen, which actually isn't that high a price to pay.