I like the Cabinet Office. A good source of economic statistics on Japan.
I pulled "21a1_en.xls" for Gross Domestic Product Account (Production and Expenditure Approach)(Excel:52KB)
I thought for a minute I might be able to compare the approaches to GDP-counting, as others have compared the "product" and "income" approaches for U.S. data. But the two GDP totals are equal in the Japan data, so I set that notion aside.
So then I just did my usual dollars-of-money-in-circulation compared to dollar-value-of-output graph, this time for the Japanese economy... in Yen:
Starts out low, ends up high.
Starts out low, but not by U.S. standards.Through the 1980s, Japan had 30 cents for every dollar's worth of output... or, 0.30 Yen for every Yen's worth. Anyway, it is something like three times what we had in the U.S. by the end.
Not that that matters for Japan. It shows that the U.S. number was really, objectively low. But for Japan, for both nations, what matters is continuity and context. Can't tell from the graph where things were before 1980. But given what the graph does show, Japan's M1 number was low in the 1980s.
But that started changing after 1990, with the money supply going uphill at a pretty good clip. There is a big jump between 2001 and 2002. The timing of this corresponds to the increase in base money Krugman shows. (See the two Krugman graphs in my previous post.)
By 2009, amazingly, the quantity of money in circulation is more than the GDP. It means money is hardly moving at all over there.
It also means I have to think about things some more. For thirty years I've been saying we need to increase the quantity of money in circulation (relative to nominal GDP). But I just wanted to get it back up from 10 or 12 cents, to 25 cents or so. In Japan, they now have the equivalent of a dollar -- a dollar in somebody's pocket for every dollar's worth of stuff they produce in a year. That's a *lot* of money, twice what the U.S. had at the end of World War II.
In my experience, M1 circulates. I get paid, and the money goes quickly. I'm lucky to have anything left when the next paycheck comes around.
So to my way of thinking, an increase of money in circulation means I have a chance to grab more of it. We have a chance to grab more of it. Maybe I can get a raise. Maybe business is expanding. Maybe more people can get jobs. Maybe things pick up some. Because the money is circulating.
But my experience is with a growing economy, or at least a pre-crisis economy. Over at Twenty-Cent Paradigms, Bill quotes Ezra Klein:
Keynes — and others who later elaborated on his work, like Hyman Minsky — taught us that although markets are usually self-correcting, they occasionally enter destructive feedback loops in which a shock to, say, the financial system scares business and consumers so badly that they hoard money, which worsens the damage to the system, which further persuades other economic players to hoard, and so on and so forth.
That's what happened. We are now in the post-crisis economy, as is Japan. No one any longer thinks what I think: that we can grow the economy. I think if we caught it early, we might have been all right. Ah, but there is no longer the urgency. Now there is the idiocy instead. Debt-ceiling, idiot-versus-idiot idiocy.
Sorry 'bout that. Anyway, in Japan they have more money than output, and still their economy does not grow...
If they have that much money in Japan and still their economy does not grow, then I'm wondering where the money is. If it is "circulating" then how can it be that the economy is *not* growing? They don't even have inflation over there!
So I'm thinking, maybe the money is all bunched up in too few hands.
For the U.S., based on my experience, I have always thought that if we had an increase in circulating money, it would be pretty well distributed, by default. The invisible hand, and all. Shipping containers full of hundred dollar bills is not really part of my experience.
But maybe it is necessary to force some distribution of the money by policy. Maybe only because we waited too long, or maybe it is the nature of the beast. I have to think about it more.
Or maybe, money is bunched up in too many hands. Look at me. Since the coffee-shop closed for lack of business, I've been saving my coffee money. Well, not saving. I stick small bunches under the mattress you know.
Next JAPAN post: 7-29-2011