Japan is considering yet another inane policy decision to combat deflation. Please consider Japan May Ban Manufacturers From Hiring Temporary Employees.

Japan may ban manufacturers from hiring temporary workers, Health and Labor Minister Akira Nagatsuma said, as Prime Minister Yukio Hatoyama seeks to fulfill a campaign pledge to shift more employment to full time.

The government is preparing legislation “that will stop manufacturing firms from employing temps and encourage them to hire full-timers,” Nagatsuma said yesterday on a business program broadcast by public network NHK.

Japanese companies have cut jobs to remain profitable in an economy struggling with deflation and as a strengthening currency erodes export earnings. Unemployment rose to a postwar high 5.7 percent in July, while the yen has gained 2.8 percent against the dollar in the past three months.

Deputy Prime Minister Naoto Kan said last month the government will ease conditions under which employers can receive subsidies to keep people on their payrolls. The government has also pledged to create 100,000 jobs by March.

Boosting employment is a priority of the stimulus package Hatoyama is to unveil this week to protect the economy’s rebound from its worst post war recession. Third-quarter profits at manufacturers including auto and electronics makers decreased 69.3 percent from a year earlier while sales fell 21.2 percent, a Finance Ministry survey showed last week.

Younger people aren’t reaping the benefits of the improved labor market. The proportion of college students with job offers tumbled 7.4 percentage points from a year earlier to 62.4 percent, an Education Ministry report showed last month, the steepest drop since the survey started in 1996.

The ruling Democratic Party, which took power in September, criticized the former government’s policy of letting companies hire temporary workers to adjust payroll size in line with production, and during the election campaign pledged to ban it.

Nagatsuma said yesterday a bill to end the practice may be submitted to a regular parliament session that starts in January.

Note that Japan is complaining about “high” unemployment that peaked at 5.7% earlier this year and is now fallen to 5.1%. The rest of the G-7 would be singing praises at that rate.

One of the things making the low rate possible is horrible demographics. Japan’s population is both aging and shrinking. Yet profitability is down so making businesses take on needless expenses is hardly a solution to anything. Nor are government subsidies to companies to keep needless employees on the payroll.

Government subsidies have to come from somewhere, either higher taxes or increasing government debt. Japan already has the highest debt-to-GDP ratio of any major industrialized country at 170% of GDP heading soon to 200% of GDP.

I talked about that at length in U.S. Faces Second Lost Decade “Because” of Misguided Stimulus.

Illusions of Stimulus

My friend “HB” has the following thoughts I wish to share.

There is nothing, absolutely nothing, that government intervention can achieve in terms of ‘fixing’ the economy. The choice was in either abandoning the unsound policy and the unsound investments it produced, or careen toward a complete destruction of the currency system.

Once again, I stand amazed at how people can look at this, and look at Japan, and look at the housing bubble/bust sequence, and still believe that monetary pumping and deficit spending are viable tools of economic policy when a bust occurs. It really boggles the mind, reminding me of Einstein’s definition of insanity, ‘doing the same thing over and over again and expecting a different result’.

Cause and Effect

Final analysis shows the U.S. Faces Second Lost Decade “Because” of Misguided Stimulus, not as a result of pulling stimulus too early as Koo, Krugman, and Romer suggest.

If that sounds wrong then just take a look at how we got here: Hoping to end the recession of 2001-2002, the Fed slashed interest rates, held them too low, too long, we had the mother of all housing/credit booms and the global economy crashed.

The US has nothing to show for all that stimulus other than a wrecked economy, massive debt that needs to be written off, and extremely wealthy parasite bankers bailed out by consumers after contributing to these problems.

Path of Self-Destruction

Japan remains on a path of self-destruction and all it will take to set off the time-bomb is higher interest rates on long-term government bonds.

Amazingly, the US marches down the same destructive path of misguided Keynesian and Monetarist stimulus efforts. Please see How “Something For Nothing” Ideas Become Policy for why this happens.

Mike “Mish” Shedlock
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