April 21, 2024

New Twist On Stimulating Economies – Work Less

Desperation Produces Silly Suggestion yen

Governments worldwide are obsessed with pushing consumers to spend more.  From Japan we now have a new twist on how to stimulate spending.   Government bureaucrats (with obviously too much time on their hands) are mulling the stimulus  impact on Japan’s economy if workers were forced to take more vacation time.    Consider the logic as described in Businessweek:

Some 92% of Japanese workers don’t use up their vacation time, a recent global survey by travel site Expedia found. On average, they use 7 of an allotted 15 days each year. Prime Minister Taro Aso’s administration says the vacation law could spur $121 billion in spending and generate 1.5 million jobs. Critics say it may hurt struggling companies—and fail to loosen up outlays for leisure. Many Japanese “live to work,” says Toshihiro Nagahama, senior economist at Dai-ichi Life Research Institute, “and wouldn’t know how to enjoy more vacations.

Whether the Japanese are workaholics or simply like to spend time away from home is up for debate.  The issue not up for debate is whether this silly proposal will create new jobs.  Companies do not conduct new hiring to make up for employee vacations, and economies produce less wealth when there are fewer people productively employed.   The Japanese government simply seems to be out of intelligent options after attempting to stimulate the hell out of Japan for the past two decades with little success.

Big Picture

The Japanese bureaucrats are missing the big picture.  The Japanese worker (as in many other countries) does not need more vacation time to spend money they don’t have; they simply need more income.   The Japanese saving rate as a percentage of income has been high by necessity.  With real estate and stocks prices lower than they were 20 years ago, the Japanese cannot rely on asset inflation to increase their net worth.  Savings can only come from incomes which have been stagnant for decades and now dropping sharply due to the recession in Japan.

Bloomberg — Japan’s wages dropped at the steepest pace in more than six years in March as manufacturers slashed overtime pay to cope with a collapse in exports.

Monthly wages, including overtime and bonuses, dropped 3.7 percent from a year earlier, the most since July 2002, the Labor Ministry said today in Tokyo.

Overtime payments slid an unprecedented 20.8 percent as manufacturers cut extra working hours by a record 49.5 percent, the report showed. The government has been tracking the figures since 1990.

Governments Shooting At The Wrong Target

Governments world wide are obsessed with pushing customers to borrow and spend.  They are all shooting at the wrong target.  The borrowing and spending will come naturally to most people if they are confident in their job security and confident of increases in real wages.  Right now their is scant confidence for either outcome with job losses in the millions and widespread salary reductions or freezes.

Making matters even worse for the thrifty Japanese is that the interest earned on their savings is virtually zero at the short end and a paltry coupon of 1.3% on 10 year Japanese government bonds.   Savers like to see their savings increase every year and the only way to accomplish this is to save more and spend less.  Bringing rates to virtually zero to help the over leveraged has ironically resulted in punishing the savers who theoretically provide capital to borrowers.

Japan’s economic mess will not improve  without addressing the lack of real growth in incomes and jobs and the low return on savings.  Fix these problems and the rest will take care of itself.