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.”
About
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.
Contact
www.acomalliance.com
Contact
www.acomalliance.com
