Drawing on an interview with Koichi Hamada, this article argues that Japan’s decades-long deflation stemmed from media-driven policy errors, particularly Asahi Shimbun’s influence and the 1990 credit controls. It recounts a suppressed warning and explains why the author writes The Turntable of Civilization with conviction.

2016-02-02

The following article, found on page 7 of the January 31 issue of the Sankei Shimbun, caught my attention.

(Emphasis in bold except for the headline, and the passages marked with asterisks, are mine.)

Koichi Hamada Speaks
Interview by Editorial Writer Hideo Tamura

Japan’s economy faces troubles both at home and abroad.
In a discussion with Koichi Hamada, Cabinet Office advisor and professor emeritus at Yale University, known as Prime Minister Shinzo Abe’s mentor, we examined the future of Abenomics.

— Given persistent deflationary pressure and the deepening China crisis, I believe the prime minister should decide to cancel the planned consumption tax hike scheduled for April next year.

“If Prime Minister Abe makes such a political decision, it will likely succeed. Weak consumption is not only due to the current consumption tax being high, but also because consumers are weary, wondering whether another hike will come again. In that sense, your way of thinking holds. However, assuming that fiscal resources can be used later, there is also some merit to the pro-tax-hike argument that says consumers must accept another round while believing that taking bitter medicine now is unavoidable.”

“Japan’s corporate tax rate is too high, and unless it is lowered, foreign investment will not increase. Capital will continue to flow out of Japan. In that respect, we must rely on indirect taxes like the consumption tax. Regarding the next tax hike, if it can be stopped, that would be best, but like a doctor, I would prefer to decide after observing the patient’s condition until the very last moment.”

— In their co-authored book 2020: The Winners and Losers of the Global Economy (Kodansha), Professor Paul Krugman of Princeton University strongly urges the Abe administration not only to cancel the consumption tax hike but also to abandon austerity and expand fiscal spending.

As I have repeatedly stated, it was Asahi Shimbun that created Japan’s long deflation lasting more than twenty years. From the very beginning, the only ones who continued to say essentially the same things as Paul Krugman and John Stiglitz were myself and Peter Taska. It is no exaggeration to say that Japan and the world were unfortunate because I was a complete unknown, and because Peter Taska likewise had virtually no voice in Japan’s intellectual circles. The only place where he could speak was the Japanese edition of Newsweek, which even today has a circulation of merely 100,000 copies in Japan.

Moreover, it goes without saying that Asahi Shimbun was also responsible for pushing the total credit controls—an administrative directive imposed by Japan’s Ministry of Finance on financial institutions in March 1990—which constituted the fundamental cause of Japan’s long-term deflation. I myself was directly affected by this policy. I immediately recognized both the fatal damage it would inflict on Japan’s economy and the fundamental flaw in its underlying logic—a way of thinking that deviated from capitalism and resembled that of a communist state.

At the time, I asked the advertising director of the Nikkei’s Osaka headquarters—who regularly visited my office to hear my views—to run a full-page nationwide advertisement. The cost was said to be approximately 35 million yen. There was no problem for my company at the time, so I agreed immediately. The copy was extremely concise. One might recall Yoko Ono’s full-page “Imagine” advertisement that appeared (probably) in The New York Times after 9/11—mine had slightly more text, but the idea was similar.

However, after repeatedly postponing the placement month, they eventually responded that the space was filled with major corporations’ financial announcements. I immediately understood that they could not publish such an advertisement. From that moment on, I never allowed him to step into my company again.

My views did not resonate throughout Japan; they could not even be conveyed. I am convinced that this, too, was one of the true causes of Japan’s prolonged deflation.

I did not write “The Turntable of Civilization” lightly.

The continuation of the opening article will be introduced in the next chapter.