Alex Klein wrote:

>Has there ever been a Prime
>Minister in Japan that the public considered to have
sufficiently
>explained his policy?...Prime Ministers could probably
spend 24/7
>talking about policies and the Japanese "public" would
still feel
>uninformed.
>
>
>
I'd be curious to see how Noda's is worse than, or just the same as, most previous PMs. In any case, the time when a PM could be successful without being able to communicate with the public are gone. Since the
2005 and 2009 LH elections, voters are far, far more volatile and place a higher priority of voting for a national party than on returning their local Diet member. Formerly safe SMD seats (ones won by the double-digit
margins) were lost by the carload. And the PM makes a big difference in the party vote.

Noda could speak 24/7, but what does he say? When he says of TPP, "We will protect what should be protected," what the hell does that mean?
When his negotiators tell the US that all items are on the table but at home tells people that he hasn't decided yet on joining TPP, what does that mean?

In reply to Greg Noble:

I think there are two separate issues: 1) is doubling the consumption tax in the next few years a good idea for the economy? and 2) Can Noda get it done?

Regarding the second question, if I understand it Greg's reasoning correctly, he seems to be saying that, because a tax hike is necessary and urgent, Tokyo will find a way to get it done. I don't think politics always works that way, at least not in the short-term.
I would argue that, whatever one's view of nuclear energy in the long-term, it's a really bad idea to shut down all the nuke plants without a viable, affordable alternative. And yet, distrust is so high, that there are only two left on and even Edano says that all will be shut down this summer. That could mean a 20% cut in electricity in the Kansai area.

Another political wrinkle. The court has just disallowed the most incriminating evidence against Ozawa, elicitied in the interrogation of one of his aides. There are serious questions as to whether the prosecutors used improper methods and therefore whether the deposition was an accurate reflection of the aide's true thinking and memory. This increases the chances of Ozawa's acquittal. That makes the internal DPJ politics around the consumption tax much more dicey. A senior member of the Ozawa group told the Yomiuri: "He [Ozawa] will be acquitted in April, the suspension of his party membership will be lifted and then he'll prepare for the party leadership election in September. If Prime Minister Noda sticks to passage of bills related to the consumption tax hike, we won't hesitate to oust him during the current Diet session."

Greg wrote:

>As a native of
>California, I can attest that it is also difficult to
raise taxes on
>real estate.
>
I'm not suggesting a general increase in real estate taxes. On the contrary, I'm just suggesting that fake farm land be rezoned and assessed and taxed appropriately and that this be combined in changes in land use laws. Moreover, Japan's real estate taxes provide perverse incentives. The taxes on holding property are very low while capital gains taxes are high. So, one can let property lie fallow and there is no penalty, but take a risk and improve it and the MOF takes too much.
Japan should lower the capital gains taxe on property (not just land) while lowering the capital gains tax.
This would raise revenue by raising investment and GDP.

GN wrote:

>Richard's proposal to wait until growth is firmly
under way before
>embarking on fiscal consolidation makes sense for the
US....In Japan,
>waiting for the ideal time all too easily could become
yet another
>excuse for inaction, and further fuel anxiety about
Japan's future.
>
My proposal is to pass a law NOW imposing a tax hike in the future, but rather specifying a specific year, specify benchmarks of recovery for its actual implementation.

Now as to the first question, the economic advisability of a near-term doubling of the consumption tax, GN
wrote:

>In practice, the current proposal to implement
increases in stages,
>beginning in two years, would probably coincide with
Richard's proposal
>to wait for an upturn in the economy.
>
I hope you're right, but you may not be. Back in 1997, the MOF claimed the upturn was sufficient and the US Treasury warned that the tax hike was premature. In balancing the risks, which is the worst risk. Right now, I'd say it's a premature tax hike.

Noda's main argument is the need to "reassure markets"
so as to avoid another Greece via capital flight. We have been through at least three major, long-lived crises in the last few decades because multinational authorities who were allied with financiers imposed draconian cuts on assorted economies to "reassure markets" and get every last cent of debt paid back. The Latin America debt crisis of the 1980s, the Asian financial disaster of 1997-98, and now the Eurocrisis.

The Latin America crisis didn't end until the US accepted "Brady bonds"
(really Miyazawa bonds), in which banks finally agreed to take a haircut (just as they do in bankruptcy cases for individual companies). In the Asian crisis, the IMF-Treasury imposed draconian fiscal cuts and high interest rates to "reassure foreign investors" so as to reverse capital flight. In reality, it sent countries that had not known a single-year of negative growth in decades into deep recesions, sometimes double-digit drops in GDP. In reality, as then-World Bank chief economist Joseph Stiglitz warned in advance, the recession would make it even harder to pay bank debts, excerbating the crisis and capital flight. Not until the IMF reversed course did Asia recover. The IMF later
said: if we had known the recession was going to be so bad, we wouldn't have imposed such severe fiscal austerity. Excuse me, if the IMF had not imposed such severe fiscal and monetary auserity, the recession would not have been so bad. Now, in Europe, we have the myth of "expansionary contraction," the notion that fiscal tightening will promote growth by restoring confidence to investors. The presitigious "International Economy Magazine" just ran a debate among global movers and shakers on whether the medicine is killing the patient.

There is no question that Japan's high debt levels are hurting potential growth rates and causing all sorts of other problems. Worse yet is the trajectory. It needs to be addressed. But, as we've seen time and again in assorted countries, doing the right thing at the wrong time and in the wrong seqence is wrong. It yields terrible calamities.

Richard Katz
The Oriental Economist Report