Here’s the FT:
Shinzo Abe has demanded Japanese companies lift pay by three per cent next year as he uses his big victory in last week’s election to intensify his push to boost the country’s economy.
The Japanese prime minister’s decision to give a specific number marks a deepening of government interference in private sector wage settlements. Last year, Mr Abe simply called for pay rises at least as great as the year before.
Would higher wages be good for the Japanese economy? It depends. If the higher wages are achieved through more aggregate demand, then they might be associated with higher employment. If implemented via less aggregate supply (as Abe proposes), they will lower employment.
Consider the following two options:
If the BOJ adopts an expansionary monetary policy, boosting NGDP, then the demand for labor will increase. This will boost growth, increase wages, and employment will rise to point B.
If the BOJ does not boost NGDP but Abe pressures firms into raises wages anyway, then employment will decline to point C.
It’s very demoralizing that top officials in Japan the US and Europe continue to make the EC101 error of reasoning from a price change. Over and over again.
Why do we even bother teaching EC101 in colleges? What’s the point?
PS. Now that taxes are in the news let me agree with Jeff Flake, who is calling for tax reform, not tax cuts.
Tax reform would be one of the very best things the GOP could do right now. Tax cuts would be among the very worst moves they could make.
It’s often said that the modern GOP exists for one purpose only, to enact tax cuts. I don’t think people have fully internalized the implication of that truth. If and when the GOP does enact tax cuts and/or reform, it will no longer have a reason to exist. Tax reform might end up being a major achievement, or it might not. But either way the enactment of a major tax bill will mark the end of the modern GOP. They will no longer have a reason to exist.
I have no idea what will take it’s place. Perhaps a white nationalist Bannonite party. National socialists. But whatever it is, it won’t be the modern GOP—which will be dead.
PPS. On the graph, I forget to label points B and C as a 3% wage gain.