Asset Policy and Asset Redistribution

Lastly, importance of asset policy must be emphasized. Assets have become more and more important variables for economic stabilization policy and for distribution policy when the proportion of assets to GDP and national income has become very large. In Japan, the proportion of national asset value to GDP increased from 6.46 in 1960 to about 15 in 1995 as Chart 29 shows.

The proportion dropped when the bubble economy collapsed. However, it began to take an upward trend again. As the value of assets is so large, an increase or decrease of the prices of asset will have serious impacts on economic stability and distribution. As the value of national assets is 20 times as large as national income, 1% increase of national assets entails about ¥72 trillion of capital gain, equivalent to 20% of national income.

Econometric analyses suggest that both private consumption and investment are influenced by the fluctuation of national assets/GDP ratio. The analyses also suggest that one of the reasons why Keynesian economic policies have not been so effective in inducing recovery after the collapse of the bubble economy is the neglect of assets policy. For example, the following regressions suggest that national assets influence private consumption and private investment. For example, regression formula (4) suggests the national assets/national income ratio is an increasing function of private consumption.

Land prices and stock prices fluctuate most remarkably and influence economic fluctuations. It is of interest to note that land prices is large cities follow the fluctuations in stock prices in the preceding one to two years, as Chart 30 indicates.

It is more interesting to note that in other countries similar behaviour of asset prices in observed. For example, in Sweden stock prices and the real estate price index moved simultaneously with time lag (See Chart 30). These charts show that Sweden experienced a similar rise and fall of stock prices and real estate, though the fluctuations in real estate prices were not so large in Sweden compared with that of stock prices. Another important difference from Japan is that Sweden recovered quickly from a recession, while in Japan the recession has lasted since 1990. In Sweden, stock prices and real estate prices began to increase from 1993, while in Japan land prices were still decreasing or stagnant in 1996 and the behaviour of stock prices was not clear.

Why was there a similarity between the behaviour of asset prices in both countries, and why in Sweden did asset prices and the economy began to recover earlier than Japan ? Difference in asset policy may be one of the reasons. An interesting question for further research is to test the asset effects on consumption and investment, and to suggest possible asset policies.

Chart 31

Sweden is known as the country that first introduced Keynesian economic stabilization policies. Now a new economic stabilization policy is required to overcome the shortcomings of Keynesian policy. Both the Swedish and Japanese experiences of asset price behaviour and asset policy will provide helpful suggestions for economic stabilization policy in the 1990s, where the value of assets fluctuated wildly. The recent stock price fluctuations in the U.S. are an interesting case to study, too.

Market-oriented policies are favored in Japan, the U.S., and European countries. However, market-oriented policy tends to increase inequality of income and asset distribution. Just as social security and income distribution policies developed when Keynesian economic policy was introduced, asset distribution policies should be developed when asset demand management policy is introduced. These policies are required in order to counter-balance the unfavourable effects on income and assets distribution that will be caused by asset management policy.

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References

Castles, Francis G., The Impact of Parties: Politics and Policies Democratic Capitalist States, Sage Publications, 1982.
Kotlikoff, Laurence L. , Generational Accounting, The Free Press, 1992.
Felderer, Bemhard ed., Public Pension Economics, Springer-Verlag, Wien and New York, 1993.
Fukuyama, Francis, Trust, International Creative Management, New York, 1995.
Maruo, Naomi, The Japanese Model of Welfare Society (in Japanese), Japan Broadcast Corporation Press, 1984.
Maruo, Naomi, Economic Policy Management: A Japanese Approach, Chuo University Press, 1989.
Maruo, Naomi, Market Oriented Welfare Reform (in Japanese),Nihon Keizai Shinbun Sha, 1996.

Rose, Richard, Understanding Big Government : The Programme Approach, Beverly Hills, Calif. and London,: Sage Publications,1984.
Rose, Richard and Rei Shiratori, The Welfare State East and West, Oxford University Press, 1986.
Wilenski,Harold, The Welfare State and Equality, Structural and Ideological Roots of Public Expenditures, University of California Press, 1975.

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