Remember Who’s the Customer Here : Trade: It will hurt us less not to buy things than it will hurt Japan not to sell them. Perhaps it’s time to stop talking and act.
I’ve never been an economist. I wouldn’t know John Maynard Keynes if I tripped over his headstone. But I used to be a businessman who had to meet a payroll and serve a bunch of clients, which is evidently something that the majority of economists have never done. I am also one of those rare Americans who helps with the Japanese trade imbalance. Japanese citizens read a lot of my books, and my publisher there pays top dollar for the right to reprint my work.
Japanese trade officials are now telling their American counterparts what is wrong with America. We pay our senior executives too much. We use too many credit cards. We don’t save enough. We should eliminate the interest deduction for home mortgages. All of a sudden a light flashed on in my head, the one that says: Now, wait a minute.
Unless things have changed greatly since the last time I checked, it is the Japanese who are selling things to us. And when I was in the insurance business, I never told a client he had to change his lifestyle in order to buy more insurance from me. I was never all that great a salesman, but neither was I ever that dumb or impolite or insulting. Of course, I was always dealing with real people, not U.S. government trade representatives.
There is much that is artificial about our relationship with Japan. Some aspects of that relationship make very little sense--unless, that is, you are not a businessman but one of those happy creatures blessed by an Ivy-League MBA and an intrinsic need to apologize for your country at the drop of a fax.
First of all, the nation we call Japan is itself one of the most unusual creations of human history. A horrendously overcrowded country, it has little-to-no natural resources. Early development of public-health skills, more than millennium ago, placed that country in a constant state of population explosion, which in turn forced development of a warrior caste, the samurai, who needed a near-constant internal war just to keep their own numbers down.
Any disparaging comment about the Japanese is deemed--by them--a form of “bashing,” but there are prominent voicesin Japan that are virulently racist. A prime minister even suggested that America cannot compete with Japan because of our mix of races.
There are currents of thought that see the Japanese as a kind of master race in much the same way that Hitler’s true believers viewed the Germans. The difference is that, were a German political leader to say that America’s problems result from too many blacks and Latinos in our population, he’d be hung from a lamppost, but a Japanese political leadercan say: “Oh, sorry; you see, I never meant for you Americans to hear that remark.” And all is forgiven. After all, this is America, and people can bash us all they want.
The Japanese lost World War II. They started a war of aggression, attacking our country without warning. They murdered more Chinese than Hitler killed Jews and garnered a reputation for barbarism unseen since Tamerlane. Their plan for winning the war was based on the racial-superiority myth that manifestly has yet to fade into history. Americans would never fight hard enough to defeat them--we’d never pay the price necessary to win the war. The Japanese were right, oddly enough. We never did pay the price they expected to inflict, since we inflicted losses of more than 10-to-1 almost every time we took them on.
They still want us to feel sorry for the nuclear-bomb attacks on Hiroshima and Nagasaki, forgetting the fact that the war was their doing. Under our protection after the war, they built shiny new factories on land cleared by the Boeing B-29. Their management techniques came from American teachers. We thought we did a better job than we actually did. Some aspects of their society resisted change much better than we acknowledge even now, but on the whole what we did to Japan may have been the best thing in their history.
The Japanese save more than we do. Well, that’s true, but why is it true? Japan’s actual standard of living is not consistent with the country’s material prosperity. Its wealthiest citizens live in dwellings that Americans characterize as “rabbit hutches,” and that cost on the order of half a million dollars. The Japanese do not spend much on consumer goods because even if they did buy the things they want, they would have no place to put them. As a consequence, consumer goods considered vital here scarcely exist there.
The Japanese themselves could change this. The size and price of housing depends on the availability of land, but land-use policy is so bizarre that it is regularly reported that the book value of xxxxxx
Tokyo real estate exceeds the book value of all the land in the United States. Now, with all due respect to that ancient and beautiful country, Japan ain’t that valuable. In fact the Japanese real-estate market is yet another example of an artificially distorted market gone mad, rather like the Tulip Boom in the Netherlands, and when that bubble bursts--as some day it must--the crash will resound across the Pacific. My point here is that the Japanese savings rate that we are told to emulate results from government policies that, if imposed here, would start the Second American Revolution and, if changed over there, would vastly improve the quality of life for Japanese citizens and do wonders for our trade balance.
The thing we keep forgetting is so basic that maybe it’s to be expected that our government cannot figure it out:
It is the Japanese who wish to sell products to us. Let me repeat that. It is the Japanese who wish to sell goods to us . Their profits depend on us as a market. When I was selling insurance, if people stopped buying what I was selling, I was in big trouble. My clients could, after all, buy similar products from someone else. Without clients, I was dead--I might even have to write books for a living. Please keep this in mind for a few minutes.
We have been involved in trade negotiations with them for more than 10 years now. We want them to open their markets for American foodstuffs. They decline to do this, even though we can fly live beef cattle to Japan and still beat their market prices. The only American products that are allowed to do well in Japan are those against which they cannot compete. Popcorn, for example, or Kentucky Fried Chicken. For products against which they can compete, their simple solution is not to allow them in under fair circumstances. In the case of products with which they cannot compete but wish to, they allow us enough access to get a feel for what they want, then slam the door when they can field their own products. We even help them to do so, as in the case of the FSX fighter aircraft, when Japan could have better (and less expensive) aircraft by buying them off the shelf from McDonnell Douglas or Grumman. In the case of foodstuffs, Japanese land-use policies have created an unusually (again, artificially) powerful farm lobby, which has decreed that it is in Japan’s strategic interest to be self-sufficient in rice and other food production.
The remarkable thing is that no American President or commerce secretary has ever suggested that it is in America’s national interest to be self-sufficient in auto, television or VCR production. To solve our trade disagreements with Japan, all we need is for one customs inspector (or perhaps a U.S. marshal) to meet one Japanese car-carrier at Baltimore’s Dundalk Marine Terminal and then to tell the ship’s master to refuel and sail home with his cargo. There would be a trade agreement before that ship reached the 100-fathom curve.
Why? Well, if they cannot sell those autos to us, then to whom will they be sold? If there were other markets, the Japanese would be there already. The Soviets perhaps? What will the Russians buy the cars with? What hard currency do the East Bloc countries have? Japan would have to sell the cars on credit terms. Since Japanese bankers are probably not any smarter than American bankers, this would ultimately amount to a fantastic foreign-aid windfall to Eastern Europe, and perhaps we should encourage it.
Could America be hurt by a trade war with Japan? Yes, but not as badly as Japan would be hurt. The reason is simple: It will hurt us less not to buy things than it will hurt Japan not to sell them. If we stop buying Japanese products, maybe we can improve our savings rate at a single stroke; based on the advice they so kindly give us, might they actually approve of our action? In the event of such a trade war, American companies would have to spring up to make products currently made in Japan. One would imagine that we still have it in us to make VCRs.
If we fight the trade war and win--as we should; it is our money that they want--the interests of the ordinary Japanese citizen also would be served. Just putting American food in the markets would release consumer funds to other areas; in breaking up the small and inefficient farm holdings, land would enter the development sector, land prices as a whole would drop (some short-term chaos would result, but they ought not to have bought those tulips in the first place), and the Japanese standard of living would leap.
In the debit column over here, maybe, just maybe, Congress would devote less time to making it illegal to smoke a cigarette on an airliner and devote more time to balancing the federal budget. This is a procedure that every household in America is able to do. Maybe you have to be an honors graduate of the Harvard Business School to understand why it makes sense to spend more money than you have. But that’s another story.
For the moment, it is enough to observe that, as Hans Christian Andersen’s youngster observed, the emperor is naked. The conventional wisdom of economics only makes sense to someone who has never run a business. This includes both academics and government bureaucrats, neither of whom could be trusted with running an insurance agency. Maybe they should try writing books, too.
