The Holy Grail of Macroeconomics, Essay Example

Hart- Landsberg describes Japanese economic development after WWII as scrap and build?  Why? What were the industries that replaced those that were scrapped?

In 1952, The United States provided Japanwith its formal independence as a sovereign state. Japan was free to conduct reconstruction of its economy by means of urbanization and industrialization.  Japan was able to realize revenues during the war by supplying military products for other nations. Japan had to start from the ground up due to the U.S. military’s destruction of all of its factories (Hart – Landsberg 107). Japan applied the money that it was able to borrow from the United States in order to reconstruct factories that had state of the art qualities. In 1952, the Japanese economic system was on the road to change and recovery. In the scrap and build cycle, the textiles were Japan’s primary exports were toys, textiles and basic electrical appliances (Hart – Landsberg 108).  While Japan was exporting these products it was improving its heavy metal and chemical industry. Japan demonstrated a market share among the world’s exporting nations of 6.6 percent in 1959. This figure represented a 100% increase in a seven year period with regards to exports. . Consequently, the United States placed restrictions on Japan’s importation of transistor radios and clothing into the United States. In the early 1960s, the second phase of the first scrap and build process began to take place. Japanese workers’ wages were very expensive for the industries and some of the operations that included the manufacture of textiles and the production of basic household appliances were relocated to East Asia. (Hart- Landsberg 110).  The efficiency of the economic transformation is manifested by the consistent and abrupt growth of the Japanese economy. In the years that spanned 1965- 1970, the actual GNP increased at a yearly index of fourteen percent (Hart- Landsberg 111).

The second scrap and build phase began after the conclusion of the Bretton Woods system of fixed exchange in 1971 (Hart – Landsberg 113). In addition, the soaring price of petroleum products in 1973 caused the Japanese administration to reconsider the export of its heavy metal as a primary source of revenue. The heavy metal industries were transferred to Indonesia,Philippines and Singapore. Th4e Japanese administrators began to focus upon precision machinery and televisions that applied semi conductors (Hart – Landsberg 114).

The new central industries caused Japan to increase itsexports and manufacturing sectors. These sectors experienced a sharp rise in the period of 1973 to 1980. The export of machines and components was accountable for 62.5% of Japan’s total exports in the beginning of the 1980s. The high end yen situation began shortly afterwards.  In the third scrap and build program, Japan directed its attention to the most advanced state of the art electronics and automobiles. Japan becomes an economy that was primarily reliant on its exports (Hart- Landsberg 119, 128). Subsequent to the third scrap and build economic program, the Japanese economy began to resemble more like the United States economy. The elevated level of production created a bubble economy at the end of the 1980s (Hart- Landsberg 120). In order to convert itself into an effective and mature capitalist economy, Japan was compelled to provide the market forces with greater liberty with regards to the allocation of capital, labor and land. In addition, the old fashioned socialist institutions were required to be abandoned. The outcome was that the Japanese economy resembled the United States economy (Hart- Landsberg- 121).

Koo argues that since the bursting of the bubble economy,Japan has suffered a balanced sheet recession. Explain what this means. What has been the role of fiscal and monetary policy in addressing the long stagnation and deflation in the Japaneseeconomy?

The balance sheet recession that initiated in Japan in the early 1990s was started by the devaluation of the stocks and the land assets. As a result, many of the Japanese firms went into debt. The Japanese corporations collectively part decreased the amount of credit that they were issued in order to compensate. This infers that the value of the assets that were being held was less than the value of the liabilities (Koo 2). The Japanese government attempted all sorts of economic policies that included zero interest lending rates in order to amplify the money supply in Japan. The Japanese organizations applied their own revenues in order to decrease their liabilities instead of borrowing to invest as the majority of firms. The corporate economic participation in the economy decreased by 22% from 1990 to 2005(Koo 20).

The Japanese organizations began to acquire the characteristics of being net savers insteadof being net borrowers. There was a substantial fiscal stimulus that was applied by the Japanese government that totalled ¥147 trillion. This economic stimulus initiative by the Japanese government was able to avert a U.S. category of depression in Japan. At the same time the gross domestic product in the UnitedStates decreased by 46%. The GDP decreased by anamount that is equivalent to the debt repayment and the non borrowed quantity of money. This left the Japanese government as the main remedy with regards to the injection of the stimulus (Koo 24).

The primary reason for the burst in the Japanese economic bubble was the banking issue (Hart-Landsberg 135). In Japan there was a slogan that was applied that was described as “No recovery without structural reform” (Koo 3). Many debate that the privatization of the organizations that maintenance and build the highways and the privatizing of the postal service were not contributing factors to the economic recovery that is presently being witnessed. Basically, the Japanese economywassufferingfrom n a demand deficiency. This information presents that in Japan there was sufficient supply of goods and services. The problem was that there was no demand in their domestic markets.  The economic recession that took place in Japan took place in underreverseconditions than the United States recession. In the great recession in Japan the short term interest indexes were maintained at zero percent (Koo 6).

In the United States under the economic recession that occurred during the era of Ronald Reagan’s presidency, the interest rates were maintained at 22%. The long term interest rates that would be applied in order to finance real estate were maintained at 1.5%. In the UnitedStates the long term interest rates for funds that would be applied in order to procure a home were mainatained at 14%. Japanesecircumstances were exactly the opposite of the United States ‘conditions during the credit crisis of the 1990s.  The decreasing value of Japanese assets that took place from 1990 – 2005 were the causal attributes of the bubble collapse. The bubble collapse eradiated more than ¥1, 500 trillion in Japanese capital (Koo 9, 16). This was attributed to the demand from the commercial erector declining by more than one fifth of the GDP- the Japanese has one of the highest levels of personal savings prior to the bubble collapse. Presently, 25% of Japanese households have no savings (Koo 3).

Works Cited

Koo, Richard. The Holy Grail of macroeconomics: Lessons from Japan’s great recession. Tokyo, Japan: John Wiley and Sons (Asia) Pte. Ltd, 2009. Print.

Hart-Landsberg, Martin. Development of mature Japanese capitalism. In P. Burkett and M. Hart- Landsberg (Eds.), Development crisis and class struggle: Learning from Japan and East Asia (pp. 123- 150). New York: Palgrave MacMillan, 2000. Print.

Hart-Landsberg, Martin. The Japanese miracle and its contradictions. In P. Burkett and M. Hart- Landsberg (Eds.), Development crisis and class struggle: Learning from Japan and East Asia (pp. 107- 121). New York: Palgrave MacMillan, 2000. Print.