By every objective standard, Abenomics has been a complete flop. Household spending has plunged, wages have dropped for 23 months in a row, inflation is on the rise, the number of workers who can only find part-time jobs has ballooned to 38 percent, and most economists now expect 2nd quarter GDP to shrink to minus 4 percent or worse. So where’s the silver lining?
There isn’t one. It’s all hype. In fact, the only part of Prime Minister’s Shinzo Abe’s economic strategy that has succeeded has been the public relations campaign, which has bamboozled the Japanese people into believing that pumping trillions of yen into financial assets will lead to widespread prosperity. Good luck with that. We can see how well that worked in the US where stock prices have nearly tripled in the last five years, but the real economy is still flat on its back. So why would quantitative easing (QE) work in Japan when it hasn’t worked in the US?
It hasn’t, and it won’t. The whole thing is a farce. But political leaders like Prime Minister Shinzo Abe and their central bank lackeys continue to promote this absurd flimflam because it boosts profits for their constituents. That’s what this nonsense is all about; trying to find new ways to enrich the parasite class during a “self induced” long-term slump. The only problem is that everyone else is worse off than before, mainly because the silver spoon slackers at the top of the heap are getting a bigger and bigger share of the pie. That just leaves a few crumbs for everyone else, which is why economic activity has slowed to a crawl. It’s because the people who typically spend money and rev up the economy, have no money to spend. It’s that simple. Check out this blurb from the Testosterone Pit:
“The Abe administration is doing everything in the book to bolster the fortunes of Japan Inc.: offering tax cuts, more public works, and stimulus packages, snatching the Olympics by hook or crook, and cranking up inflation. In April, prices for all items soared 3.4% from a year earlier, and goods prices a confiscatory 5.2%. Yet wages were stuck in the mire, and adjusted for inflation, they plunged…
Then came the consumption tax hike, a broad-based tax that impacts consumers and businesses across the economy. The months before the effective date of April 1, consumers and businesses binged to save that extra 3% in taxes on big-ticket items, and businesses rang up sales faster than they could count.”Japan Inc.’s Worst Quarterly Outlook Since The 2011 Earthquake, Testosterone Pit
How do you like that? So, with the economy already on the ropes, class warrior Abe decided to squeeze working people even more by pushing through a regressive sales tax that put household spending into a nosedive. (Get a load of this ski-jump chart of household spending)
But while Abe has been raising taxes on the workerbees, he’s cutting them for his crooked corporate buddies. As part of his dubious “growth strategy” the Japanese PM has promised to slash corporate taxes from 35 percent to 29 percent, a move that will reduce revenues and increase Japan’s humongous public debt even more. (Japan’s debt is already a gargantuan 240 percent of GDP.) Many analysts think that Abe’s move could trigger a panic in the bond market if investors start to think he’s not serious about addressing the debt. Even so, that’s a risk that Abe’s willing to take as long as it saves his cheesy corporate friends a few shekels.
Of course the best way to pay down the debt, is through economic growth. But that can’t be done when wages are either stagnant or dropping as they are in Japan. Check this out from mni market news:
“Base wages, the key to a recovery in cash earnings, fell 0.2% on year, marking the 23rd consecutive decrease…. In real terms, total wages slumped 3.1% in April, showing the annual inflation rate above 1% is hurting household income in the absence of substantial wage growth and in light of the sales tax hike to 8% from 5% on April 1″. (Japan Apr Total Wages Post 2nd Straight Rise; Base Wages Down, MNI Market News)
The economy can’t grow when demand is weak, and demand is perennially weak in Japan because wages and incomes are shriveling. That means less personal consumption, less economic activity, and smaller GDP. Recently, the situation has gotten worse due to the Bank of Japan’s money printing operations which have increased inflation which has reduced worker’s buying power. Check this out form the Japan Times:
“Consumer prices climbed in May at their fastest pace in 32 years, swelled by the hike in the consumption tax and higher utility charges that are squeezing Japanese budgets as wage gains remain limited.
Consumer prices excluding fresh food but not energy, rose 3.4 percent from a year earlier, the Statistics Bureau said Friday…Household spending subsequently sank 8 percent, more than the forecast fall of 2.3 percent, separate data showed…
All 14 major gas and electricity companies raised prices from May to the highest level since the current pricing system began in May 2009, according to the Asahi Shimbun. Tokyo Electric Power Co. announced a price hike of 5.3 percent in May for households, reflecting the higher tax, rising energy costs and other factors.” (Prices climb most in 32 years as wages limp along, Japan Times)
So, with prices rising and wages stagnant, Japan is experiencing what most analysts anticipated when Abe first announced his plan to hike the sales tax, that is, household spending has dropped precipitously increasing the likelihood of another recession. Abe decided that pushing more of the government’s operating costs onto working people was more important than the health of the economy.
Naturally, Abe’s policies have had a catastrophic effect on the working poor. As we noted earlier, the number of part-time workers in Japan has grown dramatically over the last few years. According to Reuters,
“part-time, temporary and other non-regular workers who typically make less than half the average pay has jumped 70 percent from 1997 to 19.7 million today — 38 percent of the labor force.”
Abenomics has made life considerably harder for these people due to the higher taxes, soaring prices, and reduced welfare benefits. The data show that Japan’s poverty rate is “the sixth-worst among the 34 OECD countries” while “child poverty in working, single-parent households is by far the worst at over 50 percent, making Japan the only country where having a job does not reduce the poverty rate for that group.” (Japan’s working poor left behind by Abenomics, Reuters)
Abe’s attack on working people has intensified in the last few weeks as he’s unveiled parts of his “third arrow” of structural reforms. Along with cutting corporate taxes, Abe wants to take the Government Pension Investment Fund (GPIF), “the world’s deepest pot of savings”, and shove it in the stock market. George W. Bush wanted to do the same thing with Social Security but abandoned the idea after Lehman Brothers collapsed and the economy tanked. Now Abe is pushing the same loony plan which will put the long-term security of Japan’s elderly at risk just to boost profits for his voracious plutocrat friends.
Abe also wants to eliminate overtime pay, make it easier for corporate bosses to fire workers, and allow foreign workers to care for children and the elderly in a series of “special economic zones”. All of the so called “reforms” are just ways of extracting more wealth from labor by loosening regulations. None of them have anything to do with increasing productivity, boosting capital investment or sparking more innovation. They’re all about wringing every last dime out of the people who are already so broke they can barley keep their heads above water.
On top of it all, Abe’s easy money policies have ignited the same flurry of “irrational exuberance” they have in the US. As Marketwatch notes, “A greater number of investors are demanding increased dividends and share buybacks than (ever) before.”
Stock buybacks are a particularly execrable activity that pumps up stock prices without adding anything to productivity. It’s pure-unalloyed asset inflation prompted by insanely loose monetary policies. Here’s more from Marketwatch:
“Japanese companies … are sitting on a record amount of cash: about $3 trillion at the end of March …
A number of large Japanese companies, including Toyota, NTT Docomo and Mitsubishi Corp., have announced plans for big stock buybacks, which improve shareholder returns by increasing the value of the remaining shares outstanding.” (In Japan, dividends, buybacks take the stage, Marketwatch)
Yipee! Shareholders are getting richer on Abe’s idiot programs. Too bad they’ll be gone when the bubble bursts and the system plunges back into crisis.
What a screwball system.
Abenomics has nothing to do with prosperity, growth or even deflation. That’s all BS. The policy is designed to do exactly what it does, generate hefty profits for slacker speculators and corporate muck-a-mucks while everyone else faces higher prices, lower wages and a dimmer future.
If that’s not class warfare, then what is it?
MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at firstname.lastname@example.org.
(Reprinted from Counterpunch by permission of author or representative)