A post by Edward Harrison
Recently, I wrote a post which examined three different reasons the savings rate in the US could have been falling over the last year. Rebecca Wilder thinks this is a meaningless exercise:
Edward Harrison at Credit Writedowns is theorizing why the saving rate is falling when it should be rising, as households scram to deleverage their balance sheets. My reaction to this is twofold: first this is a meaningless exercise; but second, and worse yet, there’s likely something very "unhealthy" going on here.
Meaningless: The BEA conducts a comprehensive revision of the NIPA tables every five years. The saving rate is usually revised upward, and by a fair amount, as was the case for most of the 2000s.
So in "roughly" 5 years from 2009 (it’s not uniformly 5 years between each revision), you will see a higher saving rate than you do today. As I said in July, the
"BEA has "found" that households have been in fact saving roughly 1% more of their disposable income per quarter since 1995, 0.9% per quarter in 2008."
They will "find" it again.
The thing is that we are not looking at savings rate levels but changes in those levels. I have seen the NIPA revisions and I even mentioned the fact that some pundits feel the savings rates will be revised upward:
Note that some pundits believe the data are inaccurate and that the decline has been nowhere as large as the data now indicate. Time will tell.
I reckon that when the revision do come in, regardless of whether they are revised higher, they will show that the savings rate did in fact still dip precipitously from mid-2009. That IS indeed what we saw in the revisions in 2004 after interest rates were dropped as indicated in Wilder’s charts. The question is why.
Understanding why savings rates are dropping in the midst of a still severe economic shock, weak credit growth and sustained high levels of unemployment will tell you something about the durability of the policies used to goose GDP over the past three quarters. So, this is not meaningless in the least.
I have proffered three potential reasons why. Wilder offers another: the black market for labour:
With an employment-to-population ratio a shocking 58.5% in February (it was 63.4% as recently as March 2007), there’s got to be a growing supply of labor that is "working under the table" just to get by. This non-market income would flow through the spending accounts but not the income accounts. Therefore, you have official consumption going up with official income (doesn’t include non-market income) stalling, which reduces the saving rate.
Implicitly, what Wilder is suggesting is that the savings rate actually is not dropping, that what we will see later is that a revised savings rate will be relatively flat from 2009 to 2010. Obviously, I disagree. But as I stated above, time will tell.
However, more important in my analysis is the conclusions about stimulus one could reach. If I am right about asset prices being responsible for a downshift in the reported savings rate, we shall see that the withdrawal of stimulus leads to a fall in asset prices and a relapse into recession.
Moreover, in a post on the recent personal income data, I wrote:
The challenge the US faces is how to maintain consumption growth in the face of continuing pressure on income. Businesses are enjoying a huge resurgence in profit and this has contributed to their savings and low debt levels. Yet, households remain indebted. Moreover, after the 2009 stimulus shot in the arm, disposable personal income is not going anywhere.
Unless US policymakers solve this problem – the divergence in the benefits of economic policy for business and households, consumption growth will have to slow. If consumption does slow and asset prices stall, the US will be headed back into recession.
If you understand the financial sector balances approach, the increase in the government’s deficit must be balanced by a concomitant increase in the combined private sector and capital account surplus. Put simply, if the government goes into greater deficit, this increase must be balanced by an increased surplus of private sector savings or capital account inflows.
Clearly the aim of the deficits should be to increase household sector savings. But what I am stating rather clearly I believe is that this is NOT the aim of the deficits in the least. Nor is it the aim of monetary policy. Instead we have:
an industrial economic policy in the US which is predicated simultaneously on suppression of domestic wage growth and on consumption growth in order to boost corporate profits and increase asset prices.
In fact, the Federal Reserve’s low interest rates discourages household sector savings and promotes the accumulation of debt. The government may expand in order to induce an increase in net private sector savings, but fiscal expansion is a blunt instrument. The government cannot (in the short-term) determine where capital account or private sector surplus is directed or held. Right now, government deficit spending is increasing business savings and not household savings.
Moreover, having low nominal rates skews investment toward payoffs with long lead times (think telecom infrastructure or tech in the 1990s and property in the 2000s). Longer-term, much of this shows up as malinvestment. You can’t expect an adequate long-term return on capital when average nominal rates across the business cycle are low.
What will happen instead is that firms like pension companies that have actuarial assumptions that are pegged to higher nominal returns will reach for return creating a misallocation of investment capital to riskier enterprises. Much of this will turn out to be a dead weight loss to the economy. You see this already with the returns in high yield bonds and the prevalence of payment-in-kind securities in leveraged finance deals to boost returns.
This is just an asset-based economic model predicated on ever-increasing asset prices. There is certainly something "unhealthy" going on here. Low rates are no panacea for slow economic growth. Nor is deficit spending in the absence of a purge of accumulated malinvestment. Trying to increase demand to meet excess supply simply doesn’t work, especially in an aging population. Just ask the Japanese.
A reader tipped me off to a recent FT article by former Daiwa Securities Chief Economist Tadashi Nakamae, "How Japan could lead the way back to durable growth," which points to excess capacity as a reason for Japan’s continued malaise. He makes good points that I have made about malinvestment previously. I especially like it when Nakamae says:
demand-side fiscal and monetary policies have served only to delay the much-needed elimination of excess capacity.
That is exactly what I have been saying. However, I do have concerns that his ‘solution’ of firing people en masse as he suggests leads to a deflationary spiral. More likely, it is better to allow marginal firms to fail.
As Wilder correctly states at the end of her piece, it is an increase in household income which will truly increase demand – sustainably. Wilder gives one example of how to increase income via a jobs program, something I have also broached and called unemployment insurance for the 21st century. See The consumption response to income changes from Vox for another take.
Also see Nakamae’s prescient remarks from January 2008 on the reluctance to write down debt in the banking crisis in the FT’s Japan’s salutary tale in banking crises.
Source
The saving rate paradox – Rebecca Wilder
36 comments
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Isn’t there a very easy answer to the question why consumption is up and savings are down? Wages are under extreme pressure, and inflation is creeping up in the things that people HAVE to buy. Food is up. Gas is up. Insurance is up. Energy, water, and sewer are up. Local and state taxes are up. Wages are down, if you have a job.
People downshifted as far as they could in the things that they purchased; now those things are going up in price. There isn’t any room for people to drop further, and they have to absorb the rise in price at their bottom line. People had been putting any additional money to paying down debt, but now there isn’t any extra money.
If you aren’t seeing an increase in food prices, you aren’t looking in the right places. Packages are smaller, sometimes very radically smaller and sometimes just a few ounces. Quality is lower. The price is the same or higher. It’s “stealth inflation.” It’s not so stealthy in the insurance and energy sectors.
That is certainly part of it. But, retail sales numbers show that consumption is increasing across the board including for non-essentials. So that doesn’t explain everything.
People are tapping into their reserves to continue the livestyle their are used to. Drawing from saving accounts or selling stuff they don’t need (or think that they don’t need).
Congratulatyions, mr. Edward harrison. Youre looking right for the american problem:
“In fact, the Federal Reserve’s low interest rates discourages household sector savings and promotes the accumulation of debt. The government may expand in order to induce an increase in net private sector savings, but fiscal expansion is a blunt instrument. The government cannot (in the short-term) determine where capital account or private sector surplus is directed or held. Right now, government deficit spending is increasing business savings and not household savings. ”
I only disgaree in the lack of government to change where the savings could be. In stead taxe the savings income (or capital gains from savings), government can do a good job for that. In stead give money to people buy a car and to be indebeted, government should be nerve to let failures companies close.
And that problem inst only american. A lot of western countries punish savers and incentive consummation. The problem is the State who asks for more money, power and thing to do. If you aloud, government bureaucrats will create fake needs to spend our money and justifify their employments. Thats a normal behaviour in all organizations. In the State too.
Congratulations, mr. Harrison, to tell the real problem. Thanks for your insight.
Some things to consider…
Those on longterm unemployment have the incentive to keep it as long as possible. Why? Because if an unemployed worker takes even a short term piece of work, he’ll ruin his opportunity to collect unemployment. The worst hit industry in this downturn is construction (26% last I checked). If he takes a short time project job, he’ll go off unemployment. When the job is done and tries to go back on unemployment, he’ll be denied. You therefore see a good many “under the table” jobs being taken for individuals to maintain their longer term income: unemployment checks. They don’t want to do this, but they honestly find themselves playing the government’s unemployment game.
Addtionally, the rise in retail is often going to (falsely)look positive because (correct me if I’m wrong) comparisons are being made from same store sales. For example, Circuit City went out of business during the crash. Best Buy has survived. If former Circuit City customers want to buy the latest gadget, they have to head to Best Buy to do so. So the headline figure for retail: Best Buy sales are up, so things are getting better. Does this mean, in the aggregate that customers are back in force at the mall? No. Does it mean more discretionary expenditures in the aggregate are being made? No. And don’t forget to took at the horribly low trough numbers we’re using for comparisons in the first place. Credit (cards, housing ATM, etc) is being cut, not increased.
Another 7 million homes (at least) need to be foreclosed; that will free up monthly income (which the poor and middle class look at more than asset values). this will help, but as the reader above notes, more of that “increased income” simply means he has more to spend on the requisite spending increases on food (have you been to a grocery store lately?) and energy (oil = $85.00 today) and health care (doubling in the last decade and not about to get better, regardless of Obamacare). So yes, the foreclosure nightmare beeds to happen to write off and down all of the debt hangover out there, but like my grandparents’ generation, a much more somber look is going to be taken coming out of this crash. Will everyone change their spending abits? Of course not. Human nature indicates no. But human nature also has a habit of instilling a huge amount of fear into people- the kind of fear that gripped and grips this country. This kind of fear leads to more conservative behavior, less not more reckless spending. Banks are seeing to that in the form of reduced credit to customers.
The poor spend up what the government gives them. The rich spend because they have moeny to spend. The evaporating middle class is pinched because they’re trying to live “the American Dream” of ownership on the credit care- which they can no longer do.
Yes, “time [may] tell” but count me living in the camp that says there will be a permanent shift in savings patterns- more of what little income is made will be forced into higher bill payments. More of what little is made will be forced into savings in the form of paying down mortgages, forced into retirement savings (i.e. Soscial Security, mandatory 401k, etc).
My 2 cents.
Also I don’t know if it would show up, but a lot of people with money are buying up things left and right because everything is on sale. If you were planning on buying something over the next few years, there might not be a better investment than just buying it now and sticking it in the attic.
Edward, thanks for another terrific post. I think your point that, “an industrial economic policy in the US which is predicated simultaneously on suppression of domestic wage growth and on consumption growth in order to boost corporate profits and increase asset prices” is key.
The kicker is that this policy has been in place for a generation and a half. Married family households (the largest consumers) have responded since the 1970’s by (1) relying more on dual earners and (2) increasing their debt load. #1 hit a wall in the late 1990’s, only so many women can work and still manage the household (this is not a statement of gender bias, rather a well documented statistical pattern). With stagnant household incomes and an extraordinarily high debt load, households simply cannot accumulate more debt. Basically, consumption for these households cannot increase at this point without “burning the furniture” (as I suspect some have been forced to do).
As for the Personal Consumption data that shows robust consumption. I simply do not believe that BLS or Census is measuring what they think they are measuring. And the unexamined bias is becoming embarrassing. Specifically, I believe they believe the universe has remained the same, so they extrapolate from their sample to a population of retail outlets that is no longer nearly as large as it was in 2008. I don’t know this of course, but with the Fed showing continuing declines in credit and employment in the toilet, it is inconceivable that consumption is now at the levels we say back before the global financial crisis. — That is, unless people are in fact burning the furniture to stay warm.
Edward, what you’re alluding to sounds like the two-income family trap, something that Elizabeth Warren has written a book about.
And I agree we are fast reaching ‘terminal debt.’ Likely, consumption growth will be slow for years as we deal with this problem.
Not being an economist, I struggle to understand the social benefit of near-zero interest rates.
If you’re up to your neck in debt, yes, the monthly interest payment is smaller, but the debt level itself is likely a weight that will eventually crush you. People shouldn’t have to get into that much debt to fund their goals. It’s a social malady that needs to be repaired at the level of social institutions across the board.
If you’re a business, then any kind of expansion project that makes sense with 5% short-term rates but doesn’t at 0.5% probably doesn’t make sense. Period. If it only works at 0.5%, then it’s not a real business and not a good idea.
Savers get royally screwed. They are forced to be speculators. And the income from savings is unavailable to finance general consumption.
Predictably, banksters make multi-million dollar bonuses when rates go to 0%.
Government of the banksters, by the banksters and for the banksters. That’s what we’ve got, it seems.
Good comment on the core problem. Low rates are seductive to a number of stakeholders, while the long-term costs you describe are well hidden.
Meanwhile, a bunch of delusional pseudo-scientists called economists provide intellectual cover for this pillage of the economy by the financial industry. It is now pretty obvious to any thinking person not captured by the perverse incentives this creates. Though hard to see anything to stop it, and we’re left watching the sad decline of a great nation.
Ed,
I tried to post this on your blog but was not successful. What do you think of the claim that the savings rate dipped because a much larger share of the income was in the form of govt. transfer payments that HAVE to be spent?
tyrasun, the conclusion that transfer payments must be spent and this is goosing consumption is another idea that makes sense. That’s something I will have to investigate. Thanks for the suggestion.
You can increase household income very simply by taxing less
but payroll tax holiday is too simple for idiot academics who advise politicians and Obama will never let people keep more of money they have earned
From my neighborhood perspective(subdivision built during the 2006 boom) I would say that the prudent are paying down their debt/mortgage while the flagrant are defaulting on the same mortgage obligations and spending the ensuing cash flow
A Layman’s view from the UK. Is this not an indicator of how much debt is being paid back – before saving can start? That’s where I am :( There is a small absolute-emergency pot(savings) otherwise EVERY available penny goes to debt repayments that reduce monthly outgoings. I have been doing this for nearly 2 years now.
Those with the ability to save are probably looking to the stock market. Some major/Blue Chip shares have been available just recently that return >5%. These are a huge temptation even with the accepted risks. Getting better that £6 / £1000 is not hard to do! You do not need to be a market guru to beat that!
Just thinking out loud as the UK and US positions are quite similar.
Tim
I think this is very simple, but then I’m not an economist or financial expert of any kind.
Some thoughts on why there is a fall in the savings rate…
1) people are trying to pay off their debts and credit card rates have risen,
2) many people have seen rate increases in their health insurance,
3) it seems like a “new normal” has been reached and although there is high unemployment there is the illusion of more stability… therefore those who have jobs are starting to spend again now that they are less freaked out (partly due to their 401K’s being in better shape thanks to all the market manipulation)
4) if/when the markets tank again or some other sort of financial instability becomes obvious, I predict savings rates will trend upward again
I can verify that stealth inflation is everywhere. Having had to go back to my (union) night stocking grocery job, I know the prices PER OUNCES.(I got laid off in Sept)Cereal by far biggest scam, 12oz box to 8-9oz.($2.50 USD) Dry dog food 40oz to 33oz, a 1oz reduction in canned tuna- the can being only slightly more slender. Most ice cream brands haven’t been 1/2 gallon in a long time.
My son’s state college tuition up to $8K/yr, health premiums up 10%/annual, gasoline up despite demand drop( refiners allowed to shut-in 35% of production!),water, utilities, all up, they just installed new meters/higher rates.
The Zero Interest Rate Policy only helps the banks and Primary Dealers. In fact, they are lining up to become PDs! MF Global even hired John Corzine, (ex-Goldman-duh) to lobby their application to become a PD, as they are allowed to speculate and bid up all (overvalued) assets. That’s what this bubble is, and it’s the biggest transfer of wealth in US history.
Agreed on the stealth inflation, and I should have added that to my list above. I have talked with friends and family about this and everyone has noticed almost all daily life costs going up while size/volume is often decreasing (or quality diminshes to keep price lower). However almost no one in the MSM talks about this simple little fact, and it is rarely mentioned in the econ and finance blogs I visit. Inflation is happening outside of the housing and related markets. But I guess it’s all in the power of being able to frame the definition of inflation to whatever convenient ends.
Thinking more about stealth inflation… what is so “stealthy” about it when your average citizen is very aware of it’s effect in their personal budgets?
Because joe 6 pack eats the dollar menu at MC’Ds (remembers $1 as the cost, even though you usually walk out $6 poorer after each visit).
But gas is the barometer for most. Nobody notices if the net weight of a $2.50 cereal box goes from 12oz to 9oz, but the difference between $50 and $67 to fill the tank cuts like a knife.
WTF??? I can see how comforting your stereotypes are to you… LOL…
Valissa,
Mostly, we needn’t submit to our overlords’s attempt at inflation during this era of plenty. One simply needs to adopt substitution as a virtue. Yes, gas is more pricey, drive less; services such as oil changes are more pricey, change your own oil; ice cream is more expensive, buy a $30 ice cream maker and make it yourself or eliminate it and lose those nagging 30 lbs; bread is pushing $3/loaf, buy a bread maker and get it for $0.45/loaf; boxed breakfast cereal sells for $0.65/bowl; buy bulk steel cut oats for $0.15/monster bowl; on and on I have transformed my life over the past 24 months.
I have literally removed $2,200 from my monthly expenses. All one need do is avoid anything advertised. It is great fun and very healthy…for the body, mind and family.
I agree with most posters. These economic experts and their theories make me laugh. If they want to know what is really happening and why, all they have to do is walk out the front door and ask people. For the last two years, everything I need to pay for (utilities, taxes, food, etc.) has gone up while my income has not kept pace. It doesn’t take a brain surgeon to figure out there is less to save. And the small amounts I manage to save are then eaten up by some new crisis like car repair because, as any of us knows, we own second-hand cars in order to own any car at all.
Edward Harrison you rock man!! Malinvestments caused by arbitrarily low interest rates lead to this recession. Real goods cannot be printed and created out of thin air. Super articulate and poignant post. Read mises.org for more on the malinvestment theory.
Regarding inflation, there is no asset/good class that is more expensive now than it was in June 2007 other than gold, the dollar, and t-bills. Yes, the tax-feeders have also increased their demands, but of those 4 just mentioned does anyone need those to survive? No, so thank goodness for deflation.
Read total money make over by Dave Ramsey if you are feeling like your personal income is giving you stress.
As Wilder correctly states at the end of her piece, it is an increase in household income which will truly increase demand – sustainably.
Ed,
Great article. Is it an actual increase in household income that will increase demand or would it not be more correct to say “increase in American business confidence” will increase income and henceforth demand? I say this in the context of being a self employed business person. I (individually) won’t move the meter much on GDP, but the needle can be moved substantially when coupled with the millions of other small business people. My cash investment into a new project is roughly $200,000.00 to $250,000.00 per project, and an additional equal amount in lender funds for a total of $500,000.00 investment. The project time line encompasses 6 to 8 months. I haven’t invested in a new project going on 24 months now. Why? Because I can’t justify risking my behind when I see what our friends in Washington are proposing and what is being published on sites such as yours.
Washington is NOT going to let the market take care of itself. It’s not politically correct. They are not going to let those who need to fail, fail, but they will let the small independent fail. I suggest that the small independent is being sacrificed for the good of a vote. A vote Ed. I further suggest that household income will not increase until the American investor and small business people perceive that it is safe to re-enter the waters. In closing, we could start this process if Washington truly realized the negative impact they have had and continue to have on our great Nation. But, then there is that damn vote Ed.
I think it is just because disposible income is declining. How can you have increased savings when it takes spending every penny just to get by, or even more then every penny to get by.
Think of disposible income to the economy as debt is to the household. You can get to a point where debt spirals out of control or flat because it is too high relative to disposible income.
Now apply that thought to the entire US population, savings isn’t going up because we are tredding the water as fast as we can just to stay afloat and there is nothing left over.
The reliance on fiscal and monetary stimulus are based upon a serious misunderstanding of macro economics . The use of stimulus is a an implicit admission that this si a crisis of subconsumption…. but still nobody wants to talk about the reason behind the need for that stmulus and the sources of subconsumption. I think that three decades of stagnating real incomes and a skewwd income distribution , including wealth can explain the enrmous indebtebness of mass consumers that kept the circle sqaured i.e. to maintian a healthy consumer with lower salaries ,,, which result in huge benefits of corporations !
Thisis the big Tabbo the establishment and main stream economist prefer to ignore since it is clear what are the policy recipes needed if you accept that analysis : a huge redistribution of wealth and income , higher taxation for high incomes ( A la FDR … with 90% mariginal incoem tax ) , endng off shores and other tools to avoid true taxation ….. not exactly the preffered dish among the economic and political elites . Unfortunately ” economists ” will keep on playing with “analytical” tools debatingon the size of the stimulus while the real issues are somewhere else
i used to be a hardcore saver ill tell you why my savings rate is now 0. I have cut my cash savings in half, agressivly refied house to cut payments in half, and have been doing some major purchases now while i know the value of my cash. Cash heavy is all your eggs in one basket, and i am not bothering to go back into the stock market those guys can choke on it.
The real problem is deindustrialization and globalism. Raise rates, that would make it harder to save. All laborers income would completely collapse. Massive poverty and eventually “concentration camps” of the poor. This leads to anti-capitalism and why the capitalists and bankers push for “stimulus”.
More about stealth inflation. I live 6 months in Europe and 6 months in the US, so I get to see price increases very clearly every time I return to the US. For example, between September 2009 and February 2010, I noticed my favorite loaf of bread at Whole Foods has gone up by $1.50 (from $4.50 to $6.00) while it clearly became smaller. The same goes for other items, such as milk, yogurt, cereal, fruits, and vegetables. I will be returning to the US again in June, and I expect the same bread to be over $7 a loaf. Other things have gone up as well, such as the price of a movie ticket, tolls on the interstate, etc.
And, btw, the cops seem to have gone nuts in the US now too, issuing tickets for the slightest moving or parking violation. It seems the best approach to fighting crime is to harass unsuspecting motorists on America’s crumbling highways. As if it wasn’t stressful enough trying to avoid getting your car stuck in crater-size potholes, now we also have to scan for unmarked police cars hiding behind every bush with a radar pointing at you.
I tell ya, America is rapidly becoming a real hell-hole…
Vinny
Don’t know about the rest of the planet but, I’ve just spent 75G on things I wish to have down the road (Tools) and have liquidated all investments of which processes have been converted to physical such as arable land with timber, flowing water, close to sea, etc.
After 8 figure sum in bank, I have reduced it to 4 and will no longer support their actions with my proceeds, I will not have my life’s toil converted to electrons of which they use as chains upon the greater population, in-order to satisfy their malignant pathological requirements.
Skippy…walk the talk or bow down to your new masters, angry words or enlightened speak are not a stick which to apply with force, a fight need not happen, just take way that of which they feed on.
Skippy,
Getting the tools, land, and access to resources you may need down the road is a very smart move. But how about guns? I suspect once this phony society crumbles and looting goes wild, a gun will be worth its weight in gold or more.
Vinny
Guns bah…over here it’s not like in the states.
Skippy…guns and gold may just get you killed in the long run…better strategies me thinks…knowledge, stealth, and a steady mind in conflict, has always been my friend.
Net savings went negative in 2008 Q2. Personal income excluding transfer receipts remains flat to declining. Remarkably, inflation adjusted PCE has recovered to 2007 Q2 levels. We are effectively borrowing to maintain spending.
Now that QE has supposedly ended, who is going to buy the debt?
I don’t know enough about monetary issues to comment, but your mentioning the savings rate reminded me that I had seen this. It was completely obscured in the US media by the health care bill.
“For the United States, “a higher public savings rate will be required to ensure long-term fiscal sustainability,” Mr. Lipsky (the number 2 official at the I.M.F.) said.”
(Beijing on March 20)
I.M.F. Gives Debt Warning for the Wealthiest Nations
http://www.nytimes.com/2010/03/22/business/global/22imf.html
There are two schools in Japan on how to get the economy above water. One is called the “reflation” school, which advocates fiscal and (mainly) monetary policy to stimulate the economy. The other is pushing for “structural reform” to promote private innovation. Nakamae is clearly on the latter side. He has insisted to vitalize the economy by reducing oversupply to match demand. How can you do that? He once suggested depreciating the yen and letting the capital flee from the country, hence raising the interest rates. In so doing, he hoped to get zombie companies out of business, bring teetering banks back to life, and increase interest income for savers. Well, in 2004, Japan depreciated its currency by buying massive dollars, which coincided with the slightly higher interest rates. Then, what happened? Japan helped the US interest rates lower by buying the US Treasury bonds through the accumulation of dollars, assisted the US subprime bubble, and deepened its tendency to depend on the exports by cheap yen. After the bubble burst, Japan was among the worst to be hit in the current recession. Dependence on external demand didn’t cushion the shock from outside, and widened the divergence of wealth between firms and consumers in favor of the former, hence exacerbating domestic demand.
I think that structural reform is politically infeasible. A few years ago, structural reform was a very fancy word in Japan. Everybody recited it. But harsh reality – massive bankruptcy, rising unemployment, and wage decline – has shunned people totally away from supply side reform. Now, structural reform is one of the most hated words in Japan. Japan’s current government won public support by attacking the structural reform. The presumption of supply side reform is that something new would emerge after old ones die. But what if nothing new would be on the horizon even after the old dies? That is now happening in Japan.