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The Japanese Political Economy: An Expatriot's Point of View
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18032 |
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MODERN THOUGHT
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| Issue
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5 / 1990 |
5,548 Words |
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Martin Bronfenbrenner
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As a teacher of conventional, or "mainstream," economics, I can convince undergraduates (at least temporarily) that the sum of the three differences below must be Zero. If anyone of the three is positive, at least one of the others must be negative; if any one is negative, at least one of the others must be positive.
These three differences are as follows:
1. The difference between investment (purchase of the current output of investment goods, such as machinery and raw materials) and its saving (including the bidding-up of the prices of existing assets) in a country's private sector.
2. The difference between receipts (taxes less transfer payments, such as relief and public pensions) and expenditures (for the current output of goods and services) in the country's public sector. In other words, the total deficit of all the country's governmental units taken together.
3. The difference between the country's exports of its own current output of goods and services and its imports of the foreign current output of goods and services. In other words, the current account balance of the country, which includes but is not limited to its balance of commodity trade.
Bare Economics
I can also show students that a country's current-account balance must equal the sum of two other differences:
1. The difference between the country's net purchases of nonmonetary foreign assets (foreign real estate, foreign securities, foreign collectibles) and foreigners' net purchases of the country's own nonmonetary assets. In other words, its capital exports less its capital imports, or its capital-account balance.
2. The difference between the country's purchases and its sales of international reserve assets, meaning gold and convertible foreign currencies. In other words, its balance of payments.
This equation shows that the United States has a negative balance on current account because Americans save less than they invest, both as private citizens and as government bodies. At the same time, Japan has a positive current balance because the Japanese save so much more than they invest at home, despite their own public-sector deficits. These are overall balances with the rest of the world, but since these two countries are both economic giants and important trading partners, it is no surprise that the bilateral balance between them is likewise negative for the United States and positive for Japan. (It would be remarkable if it were otherwise!) Such a bilateral balance is often called "favorable" to Japan and "unfavorable" to the United States, because net exports tend to increase the national income and employment, while net imports usually reduce them.
The equation also shows that the Japanese preference for foreign assets over either foreign current output or international reserves has resulted in a sharp increase in Japanese ownership of foreign assets, including American real estate and government securities. And finally, it shows that the American
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