Dear Ryutaro: Get Serious
Buchholz, Todd G.
Dear. Ryutaro: Get Serious by Todd G. Buchholz Unless he wants to be remembered as the Herbert Hoover of Japan, Prime Minister Ryutaro Hashimoto needs to act to rescue his country's economy—and...
...Japan's relatively homogeneous society and flat income distribution (the country has no great rich-and-poor gap) would allow it to reap many benefits in efficiency, without setting off the political landmines that impede the flat-tax debate in the United States...
...4. The Bank of Japan should pump up the money supply, a symbol of the strangled banking sector...
...Japan has suffered...
...It certainly startled Americans in the 1980s when so many pundits declared the death of the U.S...
...The Hashimoto government should even consider adopting a flat tax...
...And include with that buyout invitation a guarantee that the government's regulatory bureaucrats will not scuttle the deals or entangle them in red tape...
...Shareholders are the ones who pick up the tab for those raucous nights in karaoke bars...
...But if Americans could survive, and thrive under, the Japanese purchase of Columbia Pictures, Pebble Beach, and much of Hawaii, Japan can easily live with some GE toasters—which would brown delicious bagels to go with Starbucks coffee...
...2. Reverse the consumption-tax hike...
...Ryutaro: Get Serious by Todd G. Buchholz Unless he wants to be remembered as the Herbert Hoover of Japan, Prime Minister Ryutaro Hashimoto needs to act to rescue his country's economy—and fast...
...Make no mistake: Despite the horrendous management of banks and real estate throughout the East, the current pan-Asian crisis is "Made in Japan...
...Below is a four-point program that would be both controversial and successful...
...Japan's 50 percent top personal-income-tax rate breeds inefficiency...
...management techniques, just as American firms deferred to Japanese know-how in the 1980s...
...Last April, in the midst of a seven-year recession, the Japanese hiked their consumption tax by 66 percent, shoving the economy into a dangerous dive, which in turn drained every last drop of confidence among the Indonesians and others...
...The government is in effect bribing executives—even those of bankrupt firms—to receive compensation in the form of (nontaxable) higher benefits...
...The three latter steps are public measures, but the first would require tricky behind-the-scenes diplomacy...
...Of these four steps, the first will strike the Japanese as most frightening...
...businesses like General Electric, Intel, and Citicorp to take over some of the Nikkei's crown jewels...
...The government's cynical one-time tax cut, announced in December, was far smaller than had been expected and precipitated a violent recoil in the markets...
...3. Cut income taxes—radically, permanently...
...These U.S...
...With prices falling 1 percent annually, real interest rates are 1.5 percent, too high for an economy that's been bobbing at sea since 1989...
...The Bank of Japan should in fact ignore interest rates and simply buy bonds until the money supply starts growing at three times its recent rate of 2.5 percent...
...When foreign investors realized how deadly the hike in consumption taxes would be, they pulled the plug, and Japanese institutions themselves started bailing out of stocks that had once held promise...
...Invite top-flight U.S...
...companies know how to create profits for shareholders, how to lop off decaying divisions, and how to energize new projects...
...So, how can Japan resuscitate itself, and what should the Clinton administration demand...
...There is now little time to spare and absolutely no room for another false start...
...The bank contends that its official discount rate already touches 0 percent (actually, it's 0.5 percent) and therefore cannot go lower...
...To which the response is: It certainly can, especially when there is deflation...
...economy and predicted that we'd all be flipping burgers for the Japanese (who, at some point, would surely gobble up McDonald's...
...1. Bow down to U.S...
...For years, many of us have urged Japan to cut taxes or suffer the consequences...
...In 1992, back in America, Alan Greenspan guided short-term rates below the inflation rate...
...If GE's Jack Welch announced that he was buying Sony, or Citicorp's John Reed took over the Bank of Tokyo-Mitsubishi, the world's investors would look at Japan in a dramatically different way...
...And cutting the consumption tax would have the added benefit of preventing the U.S.-Japan trade deficit from ballooning to record levels...
...Japan's Nikkei stock-market index began a 25 percent nosedive in June 1997, shortly after the April 1 tax hike and before the implosion of the South Korean market...
...Unlike American families, for whom shopping is a national sport, Japanese families have locked themselves in their homes—department-store sales were down 5 percent last year...
...Todd G. Buchholz, a hedge-fund adviser, is the author of From Here to Economy: A Shortcut to Economic Literacy (Dutton) and was an economic adviser in the Bush administration...
Vol. 3 • March 1998 • No. 25
