The Economist has a similar take on Japan’s GDP statistics, but unless you are arguing that the GDP deflator doesn’t measure deflation correctly, I don’t really buy it. Simply put, if my income rises by 5%, and prices fall by 2%, my purchasing power has risen by 7%. The same goes for economies.

I guess this also puts that other weird Dutch statistic - the longtime 2% unemployment rate -in a bit more perspective.

Que?

The official Dutch statistics from
http://statline.cbs.nl/StatWeb/table.asp?LYR=G2:0,G1:0&LA;=nl&DM;=SLNL&PA;=70173ned&D1;=7,9-11&D2;=a&D3;=a&D4;=a,!0-14,!25,!38&HDR;=T&STB;=G3

since feb. 2001 the lowest was 3.2% and the current unemployment figure is 6.1%.

I have never seen a figure of 2% let alone a longtime rate of 2%.

I mean that statistic is seriously weird.

Two percent unemployment rate in the Netherlands? That is new for me. In general we do as bad as the German economy does.

Sorry, I should have been clearer. This number was knocking around several years ago, it may have been even 2.5%, my memory isn’t infallible. The point was that these numbers seemed to not allow for a lot of people who were on long term invalidity benefits. Things like that. I will see if I can dig out some old references.

Ok here is my source: Olivier Blanchard

This is the piece I was thinking of:

“In the Netherlands, the unemployment rate, which
had reached 11% in 1983, has steadily decreased since, and is forecast to fall below 3% in 2000……….Such apparent miracles” (as these two declines are often called) naturally raise doubts about their reality. But in neither case does the decline since the mid 1980s have much to do with statistical artifacts. It is often stated that there has been a large increase in part{time employment in the Netherlands, suggesting a shift in the distribution of work rather than a true increase in employment. Part{time employment has indeed increased, but this has been more than matched by an increase in the participation rate of women. It is also often mentioned that the number of o±cially disabled workers is suspiciously high in the Netherlands, hiding what should in fact be called unemployment. This is indeed true, but the proportion has declined since 1983, and so this cannot be the source of the decline in unemployment.”

Griliches Lectures
Lecture 1. Shocks, factor prices, and unemployment.

You can find the paper here:

http://www.nes.ru/public-presentations/Papers/zvi1.pdf

So Blanchard is referring here to the unemployment ’miracle’ of under 3% in the Netherlands, and this is what came into my mind when I saw Fons thing about being the China of Europe with statistics. Also Fons common sense impression of what the unemployment has been like in the Netherlands may well be nearer the reality (not now, I mean late ninetees 2000/2001) than the figures which were going the rounds. Funny thing, it must be a couple of years since I read it, but it had stuck in my mind.

Just googling around, this gives the rate for 1999 as 2,1%

http://www.statistik.admin.ch/stat_int/eint_nl.htm

and, excuse me:

“Lowest rates were registered in the Netherlands (2.2% in November), Luxembourg (2.5%), Austria and Ireland (4.2% each), Portugal (4.3%), and Denmark (4.4%). Spain’s 12.9% remained the EU’s highest rate.”

European Commission Econ and Social affairs Dec 2001.

http://europa.eu.int/comm/employment_social/news/2002/feb/031_en.html

These sorts of numbers were being claimed.

I rest my case. Phew!

OK Mathew, now it’s your turn…..

But seriously I saw that Economist article, and was even so outraged I mailed Buttonwood.

Perhaps the stupidest point in the article is this one:

“But this measure is almost certainly overstated. The GDP deflator reflects the prices of a basket of goods and services, the contents of which change over time to reflect evolving patterns of spending. When the price of a good falls, people buy more of it; hence this good assumes a larger weight in the basket. The GDP deflator thus gives more weight to goods (such as capital goods) whose prices are falling the fastest. Other indicators suggest deflation isn’t getting worse, even if it is slow to get much better.”

I mean this guy doesn’t seem to understand the first thing about index number theory, I mean have you ever heard anyone say the inflation numbers understate inflation because a weighted index means people buy less of the things which rise more. This is what economics is all about.

The writer of this article doesn’t understand much about deflation, or about Japan’s entrenched problems either.

What we have here is wishful thinking, and a big headline 7% growth. This is the level of the Sun, not the economist, where people should know something about the intricacies of statisical interpretation, and how not to make a big deal out of something extraordinarily complex.

I’m not arguing that the deflator doesn’t measure correctly or otherwise, I simply accept that it measures as well now as three months ago (more or less) and that it has got worse. This deterioration has produced a statistical quirk, which you rightly say means you can buy more with the same money, what I am questioning is the significance you put on this.

With consumption flat, and capacity growing rapidly, this could well imply that the deflation is about to get even worse.

Remember, the Chinese just increased industrial output some 18% in the last quarter with all that equipment the Japanese are sending them, and no economy to my knowledge is growing at that rate, so down the prices come.

What I am complaining about is the *significance* attributed to the number. Japan, I assure you, is not on the verge of a major recovery.

If it is, I promise, I’ll eat my hat.

Can we see a picture of this hat ? :)

(Not that I’m betting against you…)

Your right about the percentages.
So never trust statistics. There is a difference between the Dutch statistic and the number according to ILO (International Labour Organisation) standards. The latter is lower, and is used within the EU.

But wether it was 2 or 3 percent, the unemployment in 2000/2001 was extremely low in the Netherlands.

Edward,

“This deterioration has produced a statistical quirk, which you rightly say means you can buy more with the same money, what I am questioning is the significance you put on this”

I believe what he’s trying to say is that real (deflation adjusted) output is rising, and so the real standard of living must be rising. That is, the nominal growth number is anemic, but after accounting for rapidly declining prices the average Japanese consumer is not having a rough time of it. This ignores the other nasty effects which widespread price distortions have and will bring down on their heads, but I don’t think the basic point is invalid.

Bernard Guerrero

“Correspondent”, (no “a”!) guys. A typo’s ok in a comment, but in a heading, a misspelling just keeps glaring at you.

Ok Ty, thanks for being observant. Typo corrected. I’m a hopeless speller, I readily admit. Good job I’m better at economics :).

Still it gives me something to agree with conventional journalists about, to put them at their ease: some bloggers can’t spell.

Can we see a picture of this hat ? :)

This one should do.

http://www.edwardhugh.net/about.html

BTW, I’m also on a promise to wear sackcloth and ashes should the German economy have the scale of recovery that the German government are predicting.

So it could be a hard year for me if things go right (for the people on the receiving end of these economies that is). Mind you on this one even the Commission seems to be increasingly on my side - post to come next week.

“real (deflation adjusted) output is rising”

Oh I’m sure this is true, but real living standards if you don’t have things like mortgages, shares and debts, have probably been doing OK all through the recession, that is why some people have been saying that deflation isn’t so bad.

Of course, if you start to look into things like the indebtedness of the government, or the non performing loans in the banking system, things start to look very different.

No my complaint against the economist (or rather one of the journalists at the economist, since I am sure there are others there nearer my view) is this - it is pure rose tinted glasses stuff:

“A NEW economic force is rising in Asia. Growing at an annual pace of 7% in the last quarter of 2003, it left both the old guard of Europe and the big shot, America, for dust. With its exports surging by 17.9% (at an annualised rate) in the three months from October to December, its monetary authorities are struggling to keep its currency down. Meanwhile, its firms are scrambling to add capacity to meet the demands of customers at home and abroad: investment in fixed capital grew by 22% in the final quarter of 2003 (again, at an annualised rate).

This new force is not China, the aggressive upstart, but Japan, the forgotten giant of Asia. Its GDP figures for the fourth quarter, released on Wednesday February 18th, were its best for over 13 years.”

I’m sorry, I’m going to say it: I think you have to be extremely silly to write spin like this in a purportedly intelligent economics magazine. But the proof here will be in the eating: wait until the spring Bandini.

Bernard, perhaps I should make clear here is that one of the things that got me into blogging and the internet was preoccupation with what was happening in Japan, and what implications it migh have for all of us here in Europe.

I have a page on my website on the topic:

http://www.edwardhugh.net/japan.html

and I used to maintain a separate Japan blog:

http://www.japanjapan.blogspot.com/

Japan unfortunately is dying. The problem is demographic, and they don’t accept immigrants with any relish at all.

Well we’ll see. I note anecdotally that almost all What Car magazine’s cars of the years (in varying sectors) were Japanese.

But also although you are right about the ageing population, this is true (less severely) for all economies, and Japan has two advantages a) a relatively small propotion of its population at work (so it can increase it relatively easily) and b) a large current account surplus.

“a relatively small propotion of its population at work (so it can increase it relatively easily)”

More difficult than it seems Mathew, the large scale reductions in welfare benefits assumed by the reforms throw the biggest weight onto Japan’s female population to do the care. Now most ’solutions’ to the ageing crisis assume that participation rates will rise, of course there is little evidence anywhere to really back up this hypothesis, even in the US they are falling right now, as long term invalidity rates rise (see my ’obesity’ post). And of course in Japan the strength of the family ties is seen as a great advantage of their social system.

Well let me tell you from my own personal experience (my wife) it is simply not possible for a woman to work and care for an aged parent with say Alzheimer. Of course, here in Spain, everyone has recourse to cheap illegal labour from Ecuador or Columbia to fill the gap, labour which effectively can never be regularised since most of the people contracting them simply could not afford the minimum wage and social security contributions. But in Japan, as a much more regulated society, even this is not possible.

So here 2 plus two cannot equal six, and I do not buy the growing participation rates at the same time as a reduction in state welfare.

The balance of payments surplus is of course valid, but then we need to examine how Japan runs a two sector economy: internal and external, and how internal inefficiencies effectively are the other side of highly competitive external prices. So what they call strategic ’torrential rain exports’ (I don’t suppose you remember the old UK motor cycle industry in the 60’s, and don’t anyone dare in this context tell me jobs don’t migrate) effectively are paid for by pricing distortions internally.

So what happens is that the non performing loans keep piling up. Now when there is inflation this is no particular problem since you can sweat them off, but with deflation, the weight of the debts keeps rising. One more problem not mentioned in the Economist.

In fact, would you really go so far as to call the Japanese economy a capitalist one? Many well-informed Japanese commentators call it ’financial socialism’. The banks will at some stage have to be nationalised, then it will become official.

Then there is the ideas of all these greying, balding people pioneering a great productivity revolution in an era of dramatically accelerating technical change, and globalised R&D labour markets (of course some European economies like Germany have the same problem, I agree, but two wrongs don’t make a right). I’m afraid in the end I don’t buy any of this ’rose tinted’ view, and I will only be convinced by thorough and coherent analysis (I’m not talking about you here Mathew) and not by cheap 7% growth headlines.

What was it Vian said: ’froth on the daydream’.

Unfortunately I’ve been thinking about this problem too much. I only wish I hadn’t. I think I had better get back to ’India Shining’.