On 30 August, Japan’s opposition party, the Democratic Party of Japan (DPJ), won a landslide victory in the Japanese election. Although there are signs that the Japanese economy is beginning to pull out of recession (see Green shoots as autumn approaches), deep economic problems remain. Unemployment is at record highs; it has the highest national debt as a proportion of GDP of any of the G8 countries (see OECD Economic Outlook Statistical Annex Tables; consumer spending remains subdued; deflation seems entrenched; exports have slumped; bureaucracy is deeply embedded in government; and it has a rapidly ageing population.
So what is expected of the new government and what can it do? The following articles address these questions.
Japan’s Hatoyama sweeps to power (video) BBC News (31/8/09)
New Japanese government seeks a strategy for growth The Nation (Thailand) (1/9/09)
Japan’s new leader faces tough task Radio Australia (1/9/09)
Hatoyama faces daunting economic task BBC News (31/8/09)
DPJ needs to reinvigorate domestic economy of Japan China View (1/9/09)
Analysts worry DPJ’s policies may be a bane to Japan’s economy Channel NewsAsia (31/8/09)
Hamish McRae: Post election, what do the Japanese really want to do with their country? Independent (1/9/09)
Japan’s Government: Five Ways to Fix the Economy Time (1/9/09)
The vote that changed Japan The Economist (3/9/09)
Questions
- Paint a brief picture of the current state of the Japanese economy.
- What policies are advocated by the new government and what difficulties lie in the way of achieving the policy goals?
- What supply-side policies would you recommend for Japan and why?
The early part of the current recession, dating from April 2008, had much in common with the Great Depression dating from June 1929. But the Great Depression lasted three years. So does this grim prospect await the world this time round? Or have we learned the lessons of the past and will the policies of giving economies a large fiscal stimulus, combined with bank rescues and quantitative easing, help to pull the world out of recession this year? The following articles look at the issues.
The recession tracks the Great Depression Martin Wolf, Financial Times (16/6/09)
A Tale of Two Depressions Barry Eichengreen, Kevin H. O’Rourke, Vox (4/6/09)
Economics: How the world economy might recover its poise Financial Times (15/6/09)
Weak recovery in sight but damage from crisis likely to be long-lasting, says OECD OECD (24/6/09)
OECD sees strongest outlook since 2007 Financial Times (24/6/09)
Press Release Board of Governors of the US Federal Reserve System (24/6/09)
You might also like to watch the following two videos. The first uses historical footage to examine the Wall Street Crash of 1929 and the Great Depression that followed. The second is an interview with Joseph Stiglitz about whether the recession of 2008/9 is heading for another Great Depression.
The 1929 Crash (1 of 6) Nibelungensohn, YouTube (27/2/09). Note that you can link to the other five parts of this from this link.
Joseph Stiglitz: ‘This is worse than the Great Depression’ NBC Nightly News (10/2/09)
Questions
- Why may the past be a poor guide to the present and future?
- What dangers are there from the policies of expanding aggregate demand through fiscal and monetary policies?
- Explain why the ‘race to full recovery is likely to be long, hard and uncertain.
US national debt has got so large that the national debt clock in Time Square has run out of zeroes and they have had to order a new one. UK national debt is also set to rise in the current financial crisis as government borrowing rose sharply in September. The impact of greater public spending and the part-nationalisation of the banks is all likely to lead to a rapid rise in public borrowing and therefore national debt, but is this sustainable for the UK economy?
How the bank crisis hits Britain’s public finances Guardian (14/10/08)
National debt clock runs out of zeroes – new larger clock ordered Guardian (9/10/08)
Banks’ bail-out: ‘The money’s being spent on buying bank shares, so it shouldn’t hit public borrowing’ Guardian (14/10/08) (podcast)
Rescue plan underlines likelihood of tax rises and spending cuts Guardian (9/10/08)
Darling must spend now Times Online (20/10/08)
Public borrowing hits record high Times Online (20/10/08)
Gordon Brown defends level of national debt Guardian (20/10/08)
UK borrowing hits a 60-year high BBC News Online (20/10/08)
Crisis ‘to double UK borrowing’ BBC News Online (22/9/08)
Deep pockets The Economist (9/10/08)
Questions
| 1. |
Explain the relationship between the level of public borrowing and the national debt. |
| 2. |
Examine the reasons why public spending has risen. |
| 3. |
Discuss whether this increase in aggregate demand will be sufficient to prevent the UK economy falling into recession. |