Poverty in old age, stagnating incomes, high debts – Japan is not suitable as an economic model

Japan

In Japan, incomes are stagnating and many people are affected by poverty in old age.

(Photo: dpa)

Japan shows how it’s done, some observers think: national debt of 235 percent of gross domestic product (GDP) and still not broke? We still have a lot of room for improvement for 2021 with our 70 percent. The Bank of Japan’s balance sheet accounts for 140 percent of Japan’s gross domestic product. In order to get there, the European Central Bank (ECB) could easily double its total assets with further massive government bond purchases and thus reliably protect the states from rising interest rates.

A look at the inflation rates seems particularly convincing. Japanese inflation is just 2.6 percent, compared to 8.9 percent in the euro zone. It is obviously wrong to pay attention to money supply and national debt when pursuing economic policy, is the hasty conclusion of those who do not only want to protect the ECB from criticism.

In truth, however, Japan is a cautionary tale. In Japan, incomes are stagnating, wealth is declining, poverty in old age is affecting many Japanese, leading seniors to commit crimes to escape poverty and loneliness. Delaying problems instead of solving them also has negative consequences for economic policy.

After the real estate and stock bubble burst more than 30 years ago, Japan acted like textbooks: (bank) failures were prevented, cheap money was made available and debt-financed economic stimulus programs became permanent.

Top jobs of the day

Find the best jobs now and
be notified by email.

A depression may have been prevented in this way, but the country’s prosperity was not preserved. Added to this was the beginning decline in the labor force, which made it even more difficult to achieve economic growth.

Europe and Germany could repeat Japan’s mistakes

The persistently cheap money acts as a permanent subsidy for companies and promotes zombification, i.e. companies that continue although they are not actually viable. Government subsidies in many areas of life, while helping to curb inflation, result in persistent market distortion.

The author

Daniel Stelter is the founder of the discussion forum beyond the obvious, which specializes in strategy and macroeconomics, as well as a management consultant and author. Every Sunday his podcast goes online at www.think-bto.com.

(Photo: Robert Recker/ Berlin)

In a recently published study, Gunter Schnabl and Thomas Mayer from the Flossbach think tank of the Storch Research Institute calculate that the extent of these Japanese subsidies will have reached a whopping 18.5 percent of GDP in 2020.

Europe and Germany are well on the way to repeating Japan’s mistakes. The financial and euro crisis was delayed with the help of the ECB. The labor force begins to decline.

In view of the already high level of debt, the ECB cannot and does not want to react sufficiently to inflation, which is why politics in the EU will increasingly rely on subsidies and transfers to make inflation invisible. Energy price caps are just one example.

The destruction of prosperity is thus foreseeable. However, it is difficult to imagine that the heterogeneous population of the EU will accept this with the same stoicism as the Japanese has done since the 1990s. So if we want to learn something from Japan, it’s this: it doesn’t work that way!

More: Japan wins the chip world leader for a new plant and solves a supply chain problem

source site-11