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Pragmatic Capitalism

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Getting economic growth in Japan

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Hi Cullen, so you’re probably already aware about Japan’s economic situation and Abenomics and all that. Their tax rate currently stands at a high 50.84%, an increase set in place since 2013. They also have an abysmal 0.01% bank savings rate, though the Japanese have a higher propensity to save. Correct me if I’m mistaken, but if one of the reasons why Japan’s economic growth is slowing or stagnant is because of “ageing” demographics (and I believe immigration is mostly out of the question to address this), wouldn’t an income tax cut help boost demand side growth and inflation? Instead the government has proceeded with a tax cut for businesses, reducing it from 40.69% in 2011 to 32.26% in 2016. But to start a business, one needs capital. Hows there going to be enough private capital to go around if theres high income taxes, low savings rate, depreciating currency, and banks still being extremely conservative with with their credit allocations?

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Posted by Incognito 7
Posted on 11/21/2016 6:24 PM
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Long term savings rate is about double digits. There’s a massive amount of private capital locked up in postal savings accounts. Basically what is needed is an ignition switch to get them to invest in riskier assets. That would take a multi-disciplinary approach. Only the young has such self-interest to forment a revolution and they certainly aren’t presently revolting in such a homogenous “save face” culture.

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Posted by MachineGhost
Answered on 11/26/2016 1:02 AM
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    Japan has a bigger demographic problem that is inherently deflationary. If Japan could print people that would help growth.

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    Cullen Roche Posted by Cullen Roche
    Answered on 11/26/2016 12:52 PM
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      I understand that, but why are income taxes so high? If most people’s income is cut by 50% before they even get to see it, then it’s not exactly going to increase their propensity to spend is it?

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      Posted by Incognito 7
      Answered on 11/27/2016 7:05 AM
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        Don’t confuse marginal with effective. No one literally gives up 50% of all their income. But it would be true that cutting marginal rates would be inflationary and competitive. Japan is/was a highly socialist, regulated economy and there’s still a lot of that legacy baggage to be undone, but Abe is/was trying to work on it. But I guess the bottom line is without people having sex and with a highly xenophobic anti-immigration policy, there’s just not enough zest for a dynamic future, hence no impetus to risk investment capital (at least domestically, the yen carry trade is exploited globally). It’s almost dystopian.

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        Posted by MachineGhost
        Answered on 11/27/2016 2:31 PM
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