Summary Report
Yukinobu Kitamura
Professor, Institute of Economic Research, Hitotsubashi University
Hitotsubashi University held the third Hitotsubashi University-Kansai Academia Forum titled Economic Outlook and Policy Responses: From a Financial Crisis to an Economic Crisis” at The Phoenix Hall (in the Nissei Dowa Sompo Phoenix Tower Bldg., Osaka) on March 7, 2009 from 1:30 p.m. to 5 p.m. Nearly 200 participants engaged in a lively discussion.
This Forum was hosted by the Global Center of Excellence (COE) program, the Research Unit for Statistical and Empirical Analysis in Social Sciences. Financial experts from Hitotsubashi University discussed the financial crisis, which has afflicted the global economy since last year. The discussion looked at a number of issues, including the nature of this crisis, and its macroeconomic implications, labor economics, and international coordination. The Forum is a follow-up of the “Forum on the Financial Crisis” (Summary Report [PDF: 178KB]) held at the Kanematsu Auditorium of Hitotsubashi University on November 19, 2008.
The panelists in the third Hitotsubashi University-Kansai Academia Forum were Makoto Saito and Etsuro Shioji, professors at Department of Economics, Daiji Kawaguchi, associate professor at Department of Economics, and Masahiko Takeda, professor at Department of Economics. The commentators were Wataru Takahashi, Director-General of the Institute for Monetary and Economic Studies, Bank of Japan, Fumio Ohtake, Director of the Institute of Social and Economic Research of Osaka University, and Yoshiyasu Ono, professor at the Institute of Social and Economic Research of Osaka University. Yukinobu Kitamura, professor at the Institute of Economic Research of Hitotsubashi University, served as a moderator.
The panel discussion was composed of two sections. In Part 1, Kitamura first cast a question to the panelists, and each panelist then presented their opinions. In Part 2, commentators offered remarks on the opinions of the panelists, and panelists and commentators then participated in the discussion mainly on the feedback from the commentators and questions from general audiences.
To the question “What is the nature of the financial crisis?,” Saito pointed out the significance of considering the causes of the crisis and its transmission mechanism and explained the lessons of the subprime mortgage loan problem, its transmission mechanism in Europe and Japan, and the outlook for the end of the crisis. Shioji discussed the economic recession and macroeconomic policy. After reviewing the relevance of a sharp decline in the macro economy after October 2008, he gave reasons why the economy had deteriorated at such a rapid pace and what fiscal and monetary policies could do. He claimed that the effect of these policies would be limited and that even if these policies would be implemented, the public spending should be designed based on a clear roadmap for the long-term growth. Kawaguchi overviewed employment conditions under the theme of “current employment problems and policy challenges” and examined whether an increase in non-regular employment was due to deregulation and structural reforms or to a self-selection of workers to choose a diverse way of employment. He also presented issues of how to absorb a short-term shock with policy instruments and how to address a long-term problem of economic disparity. Takeda discussed the financial crisis and international policy coordination as well as how to resolve the current financial and economic crises in the framework of international cooperation. Takeda explained that the current crisis had its origins in problems in the United States and that therefore a scheme to request a policy response in the United States would be necessary in light of the extent of the international spread of the crisis. He said that this issue should not be confined to policy discussions in the United States but that the rules should be standardized within the framework of international cooperation.
In Part 2, Takahashi first made comments on the background of the financial crisis and the direction of future responses and then took up an issue that the nature of the Japanese economy’s dependence on exports changed from the period between 2002 and 2004 to the period between 2005 and 2008. In particular, he explained that the type of exports shifted from direct investment to consumer goods such as automobiles. In addition, after describing the current account surpluses in East Asia and current account deficit in the United States and the United Kingdom in the context of the imbalance of the global economy, Takahashi pointed out that a sharp increase in the external credit balance of banks since 2003 and an increase in debt of European banks were at the root of the current crisis. From the view of “economic downturn and employment problems,” Ohtake explained that the current recession occurred not from lower productivity and institutional barriers in Japan but from apparent contraction in foreign demand and that the recession is global in scope, not limited to Japan. He then presented that reasons for the bust may well differ when looking at the bubble in Japan and that in the United States. With regard to labor adjustments, he pointed out that although the adjustment of non-regular workers is happening on a large scale, we could have anticipated this and should not regard this as a problem. The problem is that the increase in such non-regular employment will reduce lifetime income through lower investment in human capital and that the concentration of non-regular employment on a certain generation (young males) will cause the problem of poverty. He also pointed out that labor movements between industries would not be easy due to institutional rigidity, while acknowledging the benefits of deregulation to some extent. Ono raised a question about the financial crisis, namely whether the crisis would have happened without the subprime problem. In his view, bubbles will inevitably arise in a capitalist economy. With respect to fiscal policy, he suggested that the low multiplier effect is not a problem and that effective fiscal spending was necessary in any case. Finally, the panelists responded to the commentators on their arguments.
The following are some examples of questions from the audience with which the panelists and commentators discussed: Is international financial regulation necessary? Is an industrial structure able to shift to domestic demand-led growth? What would a prudent fiscal policy look like? When will the economy recover and what specific measures are needed to achieve that? The consensus emerging from the discussions was that although fiscal policy is unavoidable, a careful examination will be necessary to find a sensible approach to fiscal spending.
The financial crisis has been still under way, and an effective stimulus package has yet to be implemented. We hope to hold panel discussions as part of the Global COE program in a timely manner.