(Ginza, Tokyo)"Signs and Wonders May be Done"
(Keynes' Expectations)
An Angel told me the other day that a certain company was too simplistic and infantile, so that I stopped to expect anything fruitful from that company though the company is not in Ginza, Tokyo...
SECTION I: Economist Mr. Heizo Takenaka
Mr. Heizo Takenaka, the notable Japanese economist and ex-minister of State, recently wrote that expectations for economic recovery and more business chances would be heightened among Japanese investors and consumers, if realignment in politics is triggered among political parties.
He seems to think that the present major ruling party LDP and the major opposition party DPJ should be split and spin-out groups should form a new ruling party with a common policy of reformation of the Japanese economic and administrative systems.
However, what took my attention is the term "expectations."
Mr. Heizo Takenaka seems to be politic enough to realize that not only real economy but also economics is based on expectations in the market.
(Therefore only a restricted part of economics can be regarded as science…)
SECTION II: Economist Mr. Paul Krugman
There is an interesting blog titled "Truth about Japan - Correcting distorted information about Japan."
(The blog seems to be managed by a patriotic Japanese who can use decent and reasonable English in his writing.)
It also extends its interesting view on economist Mr. Paul Krugman.
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Krugman is not known for consistency, but his comments on Japan's "lost decade" are remarkable. These are his advices:
Article in 1998: If the Bank of Japan adopts the inflation target of 4 percent for 15 years, it can create inflation expectation and escape from deflation.
NYT blog in November 2008: No matter how much Japan increases the monetary base now, expectations of future money supplies won’t move if people believe that the Bank of Japan will move to stabilize the price level as soon as the economy recovers.
…
NYT blog in March: once you’ve pushed the short-term interest rate down to zero, money becomes a perfect substitute for short-term debt. And any further increase in the money supply therefore displaces an equal amount of debt, with no effect on anything.
…
In American media, he denies the effectiveness of the inflation targeting, but he insists on inflation targeting in Japanese media. Does he talk different economic theories in English and Japanese?
http://ianfu.blogspot.com/2009/04/paul-krugmans-contradictory-advices-to.html
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Yet Mr. Paul Krugman might be keen enough to understand the difference in national fundamentals between Japan and the United States.
However, what took my attention is the term "expectations."
Mr. Paul Krugman seems to be politic enough to realize that not only real economy but also economics is based on expectations in the market.
(Therefore only a restricted part of economics can be regarded as science…)
SECTION III: John Maynard Keynes
John Keynes claimed that there is a level of interest rate a majority of players in market would regard as "normal" in line with economic situations.
If an actual interest rate is higher than the "normal" level, more people will expect the rate to drop than those who expect it to further rise.
Accordingly, the needs for bonds will be increased as a whole in the society. It means a decrease in the needs for money.
This thought is one of major pillars of the John Keynes’ economic theory. However, it is apparently too simple. And, when you formulate a simple theory, you have to study various cases where the theory does not work as expected, since reality is right and an economic theory can be always wrong.
(If interest rate increases, stock prices are expected to fall in a basic theory. And, if stock prices fall despite interest-rate reduction, it simply tells the real situation is not so simple.)
Japan in late 1990’s was in such an exceptional case. Japanese cannot be such fools as cannot understand the basic economic theories most of American economists solely relied on as they tried to harm the reputation of Japan.
There have been more profound factors in Japan in the era called the "lost decade." And, almost no American and British economists can comprehend existence of those factors.
One example of those factors is the state of the Japanese political circles. You may catch a glimpse of this meaning if I remind you of the relationship between the War on Terror and the existence of a special political faction in Washington D.C. around the Bush Administration. It is so, since America looks like having performed worse in the War on Terror than Japan in its struggle in the lost decade, since the Obama Administration is now going to tackle the War on the Taliban for real though seven years have already passed since 2001.
Anyway, the key to early recovery of the global economy is expectation of not only active players in the world financial market but also consumers in Japan, America, Europe, and all the other nations. The setting of the "normal" interest rate would help both have expectations of favorable financial circumstances.
But, as John Keynes realized, expectation has a deep root in the domain of ethics.
You cannot say to people, "Be bad as much as possible to boost economy!"
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In the Great Depression era that started in 1929, the total of 10,000 banks went bankrupt in the United States, taking away expectations of early recovery from consumers living around those banks.
Today, there are 7,000 small and medium-sized banks in the United States; most of them mainly deal with commercial mortgages and real loans.
Therefore, the U.S. Government must be careful in handling these smaller banks so as to foster expectations for economic recovery among American consumers living on the same street as those banks operate.
In Japan, some major financial institutions were virtually forced to go bankrupt as part of a governmental policy in late 1990's. But, such a landscape gave a negative impact on Japanese consumers in terms of psychology.
When people abandon any expectations of a change for the better, a real depression must start.
The situation might now enter the phase of psychological warfare, here and there.
Act 4:26 The kings of the earth stood up, and the rulers were gathered together against the Lord, and against his Christ.
Act 4:27 For of a truth against thy holy child Jesus, whom thou hast anointed, both Herod, and Pontius Pilate, with the Gentiles, and the people of Israel, were gathered together,
Act 4:28 For to do whatsoever thy hand and thy counsel determined before to be done.
Act 4:29 And now, Lord, behold their threatenings: and grant unto thy servants, that with all boldness they may speak thy word,
Act 4:30 By stretching forth thine hand to heal; and that signs and wonders may be done by the name of thy holy child Jesus.