So I’ve written quite a fair amount about Japan and Abenomics. Here are the big five:

The first four were written back when Abenomics was being first implemented. The most recent I wrote after it became clear that Abenomics isn’t working. Unless you’re one of the camp that declares “Oh – but think of how bad it could have been without all that quantitative easing!” Which I think is a bit optimistic.

From what I’ve been reading/hearing, there are two main reasons for the failure:

  • Shinzo Abe’s decision to increase the sales tax
  • The curiousness of Japanese employment (thanks Slate Money!)

I mean – apart from the obvious QE shortcoming of the money not getting through to the consuming class, which I talked about here and here.

But before I get there, here’s an infographic summary of what Abenomics was meant to be (thanks Zerohedge):


And here are the problems that we’ve seen since:

Sales Taxes Do The Opposite Of Stimulate Spending

If you’re trying to get people to spend, then this should be obvious. Rather tax wealth directly. Even if that type of tax system is harder to administer – at least it aligns with the overall goal.

I mean – just look at what happened in Kansas (read “The Laffer Curve: invented on a napkin – should have stayed there“). Governor Sam Brownback dropped direct taxes on businesses and individuals, and compensated for the lost revenue by increasing the sales tax. This was meant to be stimulative.

What happened?


Thanks again

Most of the consuming class were able to consume less.

But in some ways, this is perhaps less of an issue compared to:

The Prevalent Impermanence of Japanese Labour

The statistics on this seem to vary – but this research article suggested that only a third of the Japanese labour force are permanently employed, due to extraordinarily protective labour laws.

This implies two things:

  • In an economic downturn, firms are more likely to cut the wages of permanent labour than they are to lay people off.
  • Two thirds of the labour force have fixed terms contracts and no job security.

In that type of labour environment, does it not make sense that there is a general obsession with saving up money?

Those with (too much) job security have no wage security.

And everyone else has no job security. With almost no hope of ever having it.

It’s just not productive.

For more, here’s an article from the Economist.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at