First posted 08/12/09

I made three edits to last night’s post about curve flatteners — the perils of blogging at the end of the day. For anyone new to blogs, it is considered good manners to make it clear when you have edited a post by crossing out the old text rather than deleting it (sadly this doesn’t work in the post titles on this blog site).
Anyway, there is an article about Japan in today’s FT that argues that the depreciation term in the GDP figure is likely to be smaller in future, because Japanese investment has fallen and overinvestment has come to an end. The author says that Japan’s high savings rate is a consequence of overinvestment and consequent high depreciation. If depreciation is lower, firms will have higher profits and more scope to increase wages, so the labour share of GDP will increase. This would in turn boost consumption. The article is here:

http://www.ft.com/cms/s/0/08a732de-e399-11de-9f4f-00144feab49a.html?nclick_check=1

My question is, why should we expect that firms will not return to overinvestment if the economy starts to pick up? Is this not a matter of culture and attitude? And why should we expect to see the labour share of GDP remain at its current high level if growth returns? I would have thought the latter figure had risen only because profits have fallen so sharply in the recession. With a declining population and aging workforce, a rising labour share of GDP seems an unlikely outcome in Japan. Any views out there?

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