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sent 18 June 2003
Re: "
The Homeless in Japan Find A Place in Cities' Public Parks: Long Economic Slump, Tolerance Allow Shantytowns to Take Root," by Phred Dvorak, Staff Reporter of the Wall Street Journal, 18 June 2003.

Dear Mr. Dvorak, Staff Reporter of THE WALL STREET JOURNAL:

In response to your article, “The Homeless in Japan Find A Place in Cities' Public Parks

Long Economic Slump, Tolerance Allow Shantytowns to Take Root”, I have the following observations.
 

Japan was literally the world’s marvel economy of the 1980s, until government surpluses at the end of the decade threw the economy into a deep recession from which it still struggles to escape. Still, Japan is an immensely wealthy nation, with a high standard of living, highly educated and trained workforce, and factories that are among the most productive in the world. Unfortunately, its policy to-date has not been successful in eliminating unemployment or in halting growing poverty and homelessness, as you document. That policy has relied on conventional approaches, such as zero interest rates for half a dozen years and even some “Keynesian” public works pump-priming. There are some indications that the worst is over, as the government deficit of seven or eight percent of GDP pumps enough demand into the economy to make up for the high propensity to save on the part of worried households. 

But Japan could have taken a more effective approach. Why not offer jobs to all those who are ready, willing, and able to work? It is clear that Japan’s main problem is an inadequate supply of jobs, and it is abundantly clear that the private sector has not been able to generate a sufficient number for all those seeking work. Long term unemployment is the source of the problems you identify in your article—the Japanese are not lazy lay-abouts, they simply cannot find work. In addition to the social costs of unemployment, there is also a huge economic cost in terms of the output forgone due to the large demand gaps. The national government can offer jobs (not welfare!) to all those seekers who can’t find employment in the private sector, at a fixed but decent wage. This would not be inflationary, but in any case, Japan’s problem is deflation (a fixed base wage would put a floor to deflation). Further, there cannot be any question of the government’s ability to finance such a program. Japan is a sovereign nation that issues a currency in a floating rate regime. As such, it can always “afford” to buy anything for sale in terms of yen. Finally, the government’s deficit is and will be large in any case—which is not an economic problem but is believed to be a political problem. It can run a large deficit with stagnant growth and little tax revenue, or it can choose to run a deficit as it puts people back to work, jump-starting growth and generating tax revenue. With its aging population, and declining workforce, Japan simply cannot afford unemployment!


L. Randall Wray
Senior Research Associate
Center for Full Employment and Price Stability

University of Missouri-Kansas City
Economics Department; 211 Haag Hall
5100 Rockhill Road
Kansas City, MO 64110
tel.: 816.235.5687
fax: 816.235.6558
wrayr@umkc.edu

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