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1 Japan growth below forecast (BBC) Japan’s economy grew less than expected last year, despite forecasts it would benefit from a jump in spending ahead of a sales tax increase in April. Gross domestic product rose by 1% on an annualised basis in the three-month period to December, compared to market estimates of a 2.8% expansion. This was due to weaker private consumption and capital spending, as well as lower export figures. However, this is Japan’s fourth straight quarterly expansion.
The latest data underscores the questions about Japan’s economic recovery, and whether the government’s policy of ‘Abenomics’ is working. Prime Minister Shinzo Abe has implemented an aggressive stimulus program aimed at weakening the value of the Japanese currency. The Japanese yen lost about 18% of its value against the US dollar last year, but the boost to exports has been limited.
Mr Abe also pushed through a controversial sales tax increase last year, in an attempt to raise funds to reduce the country’s large public debt. However, Japan’s GDP is forecast to shrink in the April-to-June period because of the increase in the consumption tax to 8% from 5%.
2 US amnesia about the economy (Robert Reich in San Francisco Chronicle) Why has America forgotten the three most important economic lessons we learned in the 30 years following World War II? Before answering that question, the three lessons were: First, America’s real job creators are consumers, whose rising wages generate jobs and growth. If average people don’t have decent wages, there can be no real recovery and no sustained growth.
Second, the rich do better with a smaller share of a rapidly growing economy than they do with a large share of an economy that’s barely growing at all. And third, higher taxes on the wealthy to finance public investments – better roads, bridges, public transportation and basic research, plus world-class K-12 education and affordable higher education – improve the future productivity of America. All of us gain from these investments, including the wealthy.
In those years, the top marginal income tax rate on America’s highest earners never fell below 70 percent. Under Republican President Dwight Eisenhower, the top marginal rate was 91 percent. Combined with tax revenues from a growing middle class, it was enough to build the interstate highway system, dramatically expand public higher education and make American public education the envy of the world. We learned, in other words, that broadly shared prosperity isn’t just compatible with a healthy economy. It’s essential to it.
But then we forgot these lessons. For the last three decades, the American economy has continued to grow, but most people’s earnings have gone nowhere. Since the start of the recovery in 2009, 95 percent of the gains have gone to the top 1 percent. Many of us bought the snake oil of “supply-side” economics, which said big corporations and the wealthy are the job creators – and if we cut their taxes, the benefits will trickle down to everyone else. But nothing trickled down. Meanwhile, big corporations were allowed to bust labor unions, whose membership dropped from over a third of all private-sector workers in the 1950s to under 7 percent today.
Perhaps because wealth is also relative. How rich someone feels depends not just on how much money they have but also on how they live in comparison to most other people. As the gap between America’s wealthy and the middle has widened, those at the top have felt even richer by comparison. Although a rising tide would lift all boats, many of America’s richest seem to prefer a lower tide and bigger yachts.
3 Swiss slam their door (Eric S Margolis in Khaleej Times) Democracy can be so inconvenient. Take Switzerland, the closest thing the world has to a perfect democracy. Switzerland’s eight million citizens vote by referendum on all major issues. The Swiss cantons have made key decisions this way for over 800 years. This month, Swiss voters decided by a razor-thin 50.3 per cent to begin limiting immigration from the European Union within three years, perhaps much sooner. The vote in non-EU member Switzerland sent shock waves across Europe and brought a storm of abuse down on the Swiss.
In recent years, the Swiss have signed a number of agreements with the EU harmonising Swiss law with Europe that allowed unfettered Swiss commercial access to the European Union. Now, 56 per cent of Swiss exports go to the EU. The Swiss grudgingly agreed to adhere to the EU’s basic tenet of free movement of citizens across the EU’s member states.
During the Renaissance, the Swiss battled ferociously against the Roman empire (Austria) and Burgundy to secure their independence. But then again, we just saw Swiss banks betray their clients by revealing their secret accounts to the US government. Since then, armed neutrality guaranteed Swiss independence. Threatened in the 1939-40 by invasion from Nazi Germany and fascist Italy, the Swiss mobilised 700,000 citizens soldiers, honeycombed the high Alps with hidden fortifications, and were ordered to leave their families behind and fight to the death from the mountains. The Germans and Italians wisely decided to leave the Swiss alone.
Switzerland has always had a labour shortage, particularly so for menial work and services. Today, around 25 per cent of Swiss residents are non-Swiss. So far, only the Swiss have had the courage to stand up and say “no more uncontrolled immigration”. There is nothing sinister about this: The US and Canada do the same. Swiss voters were right. There’s no more room in their Alpine paradise. More immigration threatens Switzerland’s democracy and admirable traditions. Still, it’s likely some sort of compromise on this issue will be worked out.
4 Banning the word ‘bankruptcy’ (The Telegraph/Sydney Morning Herald) The EU wants to banish the word bankruptcy from the English language because it is too stigmatising, according to reports. Officials in Brussels want to see the term replaced with a more neutral phrase, such as “debt adjustment”. The idea is part of wider reforms being considered to harmonise economic arrangements across the EU and make it easier for people who have run into financial problems to be given a second chance.
Riccardo Ribera d’Alcala, the EU’s Directorate General for International Policies, said use of the word bankruptcy was too potent and made it difficult for people to rebuild their financial reputation. But such a move would see the phasing out of a word that has been in common parlance in the English word for more than 500 years. It is thought the term derives from the Italian ‘banca rotta’ meaning broken bench, which refers to the ancient custom of breaking a money changer’s bench to signify his insolvency.
Tory MP Brooks Newmark, who is a member of the Commons Treasury Select Committee told the Mail on Sunday: “This shows just how intellectually bankrupt – sorry debt adjusted – the European Union has become.”