Excerpt from "the third analysis meeting on international finance and economy, inviting Professor Paul Krugman of the City University of New York" 22 March 2016.
.
Aso, Minister of Finance in Japan:
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During the 1930’s, I remember that in the United States likewise there was a situation of deflation. And the New Deal policies have been introduced by then President Roosevelt. As a result, it worked out very nicely, but the largest issue associated with it is that for a long pe...riod of time entrepreneurs and managers of companies did not go to make a capital investment by receiving the loan. It had continued up until the late 1930’s and that is the situation occurring in Japan too. The record high earnings have been generated by the Japanese companies but they would not spend in the capital investment. There are lots of earnings at hand on the part of the corporate in Japan. It should be used for wage hike or dividend payment or the capital investment, but they are not doing that. They are just holding onto their cash and deposits. Reserved earnings have kept going up. A similar situation had occurred in the US in the 1930’s. What solved the question? War! Because World War II had occurred during the 1940’s and that became the solution for the United States. So, let’s look at the entrepreneurs in Japan. They are stuck with the deflationary mindset. They have to switch their mindset and should start making capital investments. We are looking for the trigger. That is the utmost concern.
.
Dr. Professor Krugman:
.
The important point about the war from the macroeconomic point of view is that it wasa very large fiscal stimulus. That fact that it was a war is very unfortunate. It was simply something that led to a fiscal stimulus that would not otherwise have happened. In fact, the story in the 1930’s was that the New Deal, Roosevelt backed off the fiscal stimulus in 1937, because then, as now, there were many calls for balancing the budget.
.
That was a terrible mistake. It caused the major second recession. Yes, obviously we are looking for ways to achieve something like that without war. There has been a good deal of talk about using not just moral suasion which has already been done perhaps as an incentive to induce the private sector in Japan to raise wages. I have no knowledge of the institutional details about what might work but I am certainly in favor of trying such measures. That is one thing that can happen. Other than that, the linkage between corporate earnings and corporate investment has always been weak. There has never been much reason to expect companies that have high profits to also invest, unless they see reason to expand capacity. And what is happening is that they have the deflationary mindset. They believe that Japanese growth will be weak.
.
Clearly if we look at the behavior of wages, they expect, or at least fear, that Japan will slide back down towards very lower negative inflation. What is still needed is a shock to break that. That is escape velocity. This is part of what I mean by escape velocity by achieving enough. Escape velocity: the rocket that goes fast enough to not come down again.
..........................
Full Article in below links:
(Google Cache)
https://webcache.googleusercontent.com/search?q=cache%3A-kzOic1rp6kJ%3Ahttps%3A%2F%2Fwww.gc.cuny.edu%2FCUNY_GC%2Fmedia%2FLISCenter%2Fpkrugman%2FMeeting-minutes-Krugman.pdf+&cd=1&hl=ja&ct=clnk&gl=in
(PDF)
https://www.gc.cuny.edu/.../Meeting-minutes-Krugman.pdf
.
Aso, Minister of Finance in Japan:
.
During the 1930’s, I remember that in the United States likewise there was a situation of deflation. And the New Deal policies have been introduced by then President Roosevelt. As a result, it worked out very nicely, but the largest issue associated with it is that for a long pe...riod of time entrepreneurs and managers of companies did not go to make a capital investment by receiving the loan. It had continued up until the late 1930’s and that is the situation occurring in Japan too. The record high earnings have been generated by the Japanese companies but they would not spend in the capital investment. There are lots of earnings at hand on the part of the corporate in Japan. It should be used for wage hike or dividend payment or the capital investment, but they are not doing that. They are just holding onto their cash and deposits. Reserved earnings have kept going up. A similar situation had occurred in the US in the 1930’s. What solved the question? War! Because World War II had occurred during the 1940’s and that became the solution for the United States. So, let’s look at the entrepreneurs in Japan. They are stuck with the deflationary mindset. They have to switch their mindset and should start making capital investments. We are looking for the trigger. That is the utmost concern.
.
Dr. Professor Krugman:
.
The important point about the war from the macroeconomic point of view is that it wasa very large fiscal stimulus. That fact that it was a war is very unfortunate. It was simply something that led to a fiscal stimulus that would not otherwise have happened. In fact, the story in the 1930’s was that the New Deal, Roosevelt backed off the fiscal stimulus in 1937, because then, as now, there were many calls for balancing the budget.
.
That was a terrible mistake. It caused the major second recession. Yes, obviously we are looking for ways to achieve something like that without war. There has been a good deal of talk about using not just moral suasion which has already been done perhaps as an incentive to induce the private sector in Japan to raise wages. I have no knowledge of the institutional details about what might work but I am certainly in favor of trying such measures. That is one thing that can happen. Other than that, the linkage between corporate earnings and corporate investment has always been weak. There has never been much reason to expect companies that have high profits to also invest, unless they see reason to expand capacity. And what is happening is that they have the deflationary mindset. They believe that Japanese growth will be weak.
.
Clearly if we look at the behavior of wages, they expect, or at least fear, that Japan will slide back down towards very lower negative inflation. What is still needed is a shock to break that. That is escape velocity. This is part of what I mean by escape velocity by achieving enough. Escape velocity: the rocket that goes fast enough to not come down again.
..........................
Full Article in below links:
(Google Cache)
https://webcache.googleusercontent.com/search?q=cache%3A-kzOic1rp6kJ%3Ahttps%3A%2F%2Fwww.gc.cuny.edu%2FCUNY_GC%2Fmedia%2FLISCenter%2Fpkrugman%2FMeeting-minutes-Krugman.pdf+&cd=1&hl=ja&ct=clnk&gl=in
(PDF)
https://www.gc.cuny.edu/.../Meeting-minutes-Krugman.pdf
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