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Monday, May 8, 2006

JAPANESE PERSPECTIVES

In search of Galbraithian wisdom for Japan's woes


John Kenneth Galbraith died last month. He was arguably one of the most influential economists of our time. One wonders what his comments would have been, had he been asked to say something about the course of the Japanese economy during these past few months.

Always the master of the driest of humors, he would surely have had a quotable word or two to leave us.

"The Affluent Society," the title of Galbraith's best-selling book of 1958, would certainly be a good way to describe Japan's case in a nutshell. The economy with the highest level of net savings in the world could not be called anything less than affluent. Many of the anxieties and traumas experienced by this most affluent of affluent societies are precisely the kind that concerned Galbraith as he pondered the consequences of rising consumerism in the early years of the latter half of the 20th century.

"Money: Whence It Came, Where It Went," written in 1975, would not have been at all out of place as a cry from a victim of the bubble years in 1990s Japan. The same words could equally be attributable to a bewildered Takafumi Horie, a couple of years from now, perhaps.

And of course, "The Age of Uncertainty," a 1977 title of world renown, would precisely have caught the mood of this nation as it traveled through the first decade of the 21st century.

But it may be "The Economics of Innocent Fraud," which only came out in 2004, that best captures the kind of mechanics that permeates not only Japan, but throughout most affluent societies of the globalized world.

Intentional fraud will always be uncovered. As Galbraith points out so extensively and graphically, however, it is the unintended deceits, the innocently held beliefs of the good-natured masses, that are the real danger.

In that respect, even Takafumi Horie could well be counted among the innocents. Or indeed Prime Minister Junichiro Koizumi, who so firmly seems to believe that the widening gap between winners and losers marks the triumph of economic efficiency over conscientious policymaking.

One of the most widely quoted of Galbraith's sayings is: "Politics is not the art of the possible. It consists of choosing between the disastrous and the unpalatable."

This paraphrase of the all too famous Bismarckian utterance was contained in a letter to President John F. Kennedy in March 1962. Japan in May 2006 could well be one of the most difficult places in which to tell the difference between the disastrous and the unpalatable.

Would it be a disaster for Japanese interest rates to be freed from the last remaining vestiges of abnormality at the earliest opportunity? Or is it the unpalatable truth of the matter that however uneasy it makes Treasury officials and politicians feel, the time is more than ripe for consigning zero-interest rates to history.

Would Mr. Koizumi be justified in smugly thinking, as he seems to, that widening income disparities are an unpalatable necessity in market-fundamentalist Japan, concerning which policy has no relevant part to play?

Or is there a disaster waiting to happen should policy refuse to address the consequences of the fundamental changes globalization has wrought upon this affluent society, with its uncertainties and incidents of innocent fraud.

"The bland leading the bland" was what Galbraith feared and warned against in 1958. The political landscape of Japan in 2006 tempts one to fear a case of the blind leading the bland.

That would be truly chilling. That is a combination that must be fiercely rejected if we are to avoid disaster and confront the unpalatable.

Noriko Hama is an economist and a professor at Doshisha University Graduate School of Business.


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