James Summers Co-Chief Operating Officer of Acom Alliance, in Tokyo has this to say:
“Governments can create and reschedule economic growth - it's not the most difficult thing to do. By introducing certain policies, governments can always reschedule growth - that's exactly what Japanese authorities have done. The Gross Domestic Production of an economy is a Keynesian creation which emphasizes on consumption. Since Japan has been witnessing a slump in consumption, it appears that a technical recession has emerged.”
Recently, the Japanese legislators announced a 3 percent hike in Japan's consumption tax.
James Summers continued: “To save themselves from having to pay increased taxes, Japanese consumers rescheduled their purchases. They did their purchasing ahead of the increase in the taxes.
This pushing of consumption led to an increase in growth. However, once the new tax structure was put in place, the Japanese citizens withdrew from purchasing. This led to the emergence of a false notion revolving around slow growth - this false notion is being read as recession.”
Keynesian economists are baffled by the changes in purchasing power of Japanese citizens only because they are not taking into account the role that the hiked taxes have played.
Japan's dwindling economy has been attracting the attention of economic pseudo-intellectuals from world-over who have been putting their limited knowledge of Economics to understand the decisions being taken by Japanese people every day. Their core approach is to study GDP as the indicator and solution of all problems ailing some of the world's biggest economies. These pundits are not willing to move beyond the notion of export-led growth and register any other variables as indicative of economic growth.
Megan McArdle, the famous journalist and blogger, recently claimed. “Better policies will not be able to save Japan from the recession. Japan is witnessing increased competition among exporters and this combined with country's demographics will make all policies pointless.” she says.
McArdle is not the first one to be confused by the concept of increased exports. Many economists, since long back, have been studying increased global production and growing exports as a sign of weakening growth. However, this is a flawed concept. As a matter of fact, increased global production and increased exports are good for closed world economies like Japan.
What McArdle and those of her ilk miss is the most important economic truth: things are produced to be consumed. Thus, there is an invariable connection between export and import to export is to import. When a country's exports increase, there is an automatic increase in the imports as well. This happens because with an increase in growth, people's gross income increases and hence, their purchasing power increases as well McArdle and her colleagues easily ignore this important fact.
They, instead, choose to believe that economies like China, which are registering an export-based growth, is full of people who are incessantly working to increase exports without worrying at all about their personal standard of living and that an increase in export has not contributed to the increased growth.
Summers summarized by saying: “Export-based growth and other such Keynesian enablers stand in stark contrast with the reality. As a matter of fact, if you observe real life, these concepts begin to appear unrealistic on their own. China is not an underdeveloped economy anymore - its cities are populated with shops that import and sell products from around the world, and its citizens are spending money to buy these products. The purchasing power of its citizens has increased sharply in the last few years. There was once a time when China and its people suffered - the conditions in which Chinese lived were horrendous. However, more recently, in China, colonies of homes and apartments have come up in every corner. The Chinese have been able to afford such a high standard of living owing only to their increased exports.”
Since being privately founded in 2003 by a group of Japan’s leading advisory and discretionary wealth managers, Acom Alliance has allied both preferred and corporate clients in one direction, successfully navigating being a full-service brokerage, wealth management and private equity investor specializing on emerging market opportunities in the region.