Since the Tohoku earthquake and the Fukushima meltdown struck Japan earlier this year, the country’s economics and politics has been in turmoil. The Prime Minister Mr. Kan has been under a lot of pressure to resign, but he has asked for the passage of three bills as a “condition”:
a ¥2 trillion ($25 billion) supplementary budget to cope with the disaster; the issuance of bonds to finance the 2011-12 budget deficit; and an electricity initiative to broaden the scope of feed-in tariffs to encourage more use of renewable energy in the national grid.
Presumably, this is at least as much about Mr. Kan’s ameliorating (in his perception) his legacy post-Fukushima as it is about any intrinsic ideology or political patronage. The combination of statist environmentalism and asymmetrical Keynesianism (where are the Keynesians demanding that a surplus be run during boom times?) is dangerous to any country – but amongst developed countries, Japan with its high debt-to-economy ratio must be especially careful.
For the last two decades, Japan has been building redundant infrastructure (matching in uselessness useless bridges in Alaska or highways in Chinese Gobi Desert), the country has run a very loose fiscal and somewhat loose monetary policy, and yet the country’s politicians refuse to further liberalize sectors like agriculture and retail where Japan is relatively inefficient. If the retort here is “food security”, Japan can easily have “food reserves” just like many countries have “oil reserves”. But of course the real reason is the political economy of a few retailers and fewer still farmers holding to hostage an entire economy.
Similarly, another no-brainer in Japan’s context is allowing more skilled immigration – the country is heading towards a major demographic contraction; many of the government bonds have been bought by its own people (a positive so far), but they are about to retire and they will encash, no matter what.
Unless freer trade, freer markets, and freer immigration is not three additional conditions Mr. Kan is ready to emphasize, his legacy will be that of just another Japanese Prime Minister who had to go under the disgrace of disaster.
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