March 28, 2002


OFF TO THE LAND OF THE RISING SUN: I leave for Japan early tomorrow morning. If it should become convenient, I'll blog from there, which would be really cool. Cato Institute trade analyst Brink Lindsey points out Martin Wolf's Financial Times column about Japan's economic woes. I'll be interested to see how obvious the deflationary super-recession is, i.e., if there are lots of empty buildings and such.

I must point out that Wolf's assertion that "chronically weak demand" has "generated price deflation" is a little non-sensical. The classical economists were right, and Keynes was wrong: supply creates demand, not the other way around.

Jude Wanniski (who's lunatic foreign policy theories have, unfortunately, taken precedence of late over his clear-eyed economic reasoning in his "Memos on the Margin") explained in 1998:

The Japanese economy is the equivalent of a log jam, where the removal of one log will get the other logs moving and soon break the jam up. The "bad log" is the capital gains tax on real estate. It can go as high as 57% if you sell a property held less than five years, 17% if held more than ten. Indeed, the so-called "bubble" that burst in 1990 occurred when the Japanese government raised the holding period of real property to ten years from five in order to get the lower rate. Because Japanese corporations have vast holdings of real property which they bought years ago and never marked to market, the high capgains rate caused a steady erosion of after-tax property values in these last eight years. This was reflected in the collapse of the Tokyo stock market, as the underlying values in real property declined.

I can't wait to check it out up close.

Posted by John Tabin at March 28, 2002 05:38 PM