Gregory W. Noble wrote:

Has Prime Minister Noda really chosen a
disastrously unpopular policy? Raising taxes is always unpopular in the short run, but the effect on Noda and the DPJ seems if anything relatively mild...it is fair to say that the DPJ's prospects were already bleak no matter what Noda did about taxes...
RK;

This raises the question that I mentioned before: to what extent does someone's view of the "ought" skew their view of the "is."

Greg Noble thinks raising the consumption tax a la Noda's legislation is necessary and beneficial, and he finds the electoral costs to be minimal.
I think it's the wrong tax at the wrong time (I'll leave to another post what the alternatives might be), and I find the electoral costs to be very high.

Now, I think it's fair to say that Greg and I are both looking at much of the same data, both in touch with politicians, both capable of making sound interpretations, and both conscientious in striving to prevent our value judgments from skewing our perceptions and analyses. And yet we come up with opposite conclusions as to the political cost. I've not seen any good data, but I would not be surprised if there is a significant correlation between analysts'
and policymakers' views of the economic benefit or harm of the tax hike and their view of the political costs (however, there are certainly pro-tax DPJers who are now scared as hell). If so, then how do policymakers make "rational" choices about what is in their own self-interest when their perception of the costs of doing X or Y is skewed by their policy desires, social affiliations, etc. Certainly, key advisers Noda like Sengoku underplayed the costs because of their overconfidence that they could make a coalition with the LDP-Komeito with the DPJ as the senior partner.
Regardless, I truly believe Noda was willing to sacrifice his own career and the DPJ's electoral chances if that's what it took the get the tax hiked.

In judging Kan's unpopularity, Greg points to March
2011 and not the 2010 UH defeat. It is certainly true that, in the wake of 3/11, the media followed the bureaucrats' lead in accusing Kan of making things worse by meddling. I suspect that history will treat him more kindly.

In contrast, there is little doubt in my mind that the severity of the DPJ's defeat in the 2010 UH elections was largely due to Kan making the tax hike the centerpiece of his campaign. He came into office in early June and achieved approval ratings in the high 60s. People were glad to see the end of the Ozawa-Hatoyama regime. Then, Kan came out with the tax hike as his campaign centerpiece and his ratings dropped like a rock. He made history as the Prime Minister who took least time (just a few weeks) to plunge to fewer approvals than disapprovals. The election results were even worse for the DPJ than pre-election forecasts. Moreover, in the PR segment, the DPJ didn't lose votes to the LDP. Rather, both the DPJ and LDP lost votes to Your Party, which opposed the tax hike. Kan's stance repelled tax hike opponents, but didn't gain many additional votes from tax hike supporters. Kan himself said just after the election, "The results were far from what we sought. One major reason was that my remarks on the consumption tax left an abrupt impression to the public and my explanation was insufficient."

Yet, Greg's post never mentions the role of the tax hike or even the defeat of 2010. I have found many other pro-tax analysts discounting the tax hike's role in the defeat.

Should the DPJ do as badly as many DPJers fear (a mid-August Yomiuri poll showed it coming in third behind the prospective Hashimoto party in the PR segment), then I suspect many pro-tax analysts will blame factors other than the tax hike. Meanwhile, anti-tax analysts will blame the tax hike as one of the most important factors. All of this backs up earlier comments that social scientists not only have trouble predicting the future, they also have trouble predicting the past.

Add some other costs to the econmy as the DPJ sacrifices other policies to overcome the negative political impact of the consumption tax hike. Nikkei says a decision on TPP will be put off until next year.
Meanwhile, the press is reporting that the Noda administration may adopt the zero target for nuclear target by 2030 or perhaps some years later. That remains to be seen. Nonetheless, I believe Noda's brusque handling of the nuclear issue due to his fixation on taxes added to the existing public distrust--a distrust much higher than government officials realized. If Japan does adopt the zero nuclear option, some analysts think the impact on GDP growth will be negligible, while others say it could lower 2030 GDP by Y45 trillion from the baseline scenario. (I've found that the more pro-nuclear analysts find a larger impact on GDP than the anti-nuclear analysts, another case of the "ought"
skewing perceptions of the "is.") Yet, social security spending will already be almost Y40 trillion yen higher than now by 2025. If the more pessimistic GDP prognosis is correct, the negative impact on the budget deficit--not to mention people's living standards--could be greater than the gain claimed for the tax hike. (For more on this, Nikkei subscribers can look at
http://e.nikkei.com/e/ac/tnks/Nni20120824D24HH039.htm.)

Richard Katz
The Oriental Economist Report