Cavity in your soul hollows out your wealth - and vice versa

Saturday, November 17 2012 @ 11:01 AM JST

Contributed by: Y.Yamamoto

Production is thus at the same time waste or destruction of material, financial and human resources, and consumption is at the same time negative production.
- Words from Critique of Political Economy by Karl Marx (1857) paraphrased by this blogger.

I am a humble blogger who has lived for almost 77 years and is now dying in dire poverty. I am well aware most of you think I am Aesop's fox because I seem to have walked away from the bunch of grapes with my nose in the air, saying the grapes must be sour.

But nothing is farther from the truth. I've never said grapes are unripe here. Instead I'm always saying I can tell from my experience that they are worm-eaten all over.

Besides, earlier in my life, I've had fine moments when I had a lot of sweet grapes before worms ate into them. There's no reason I have to look around for a fairyland where quality of life hasn't eroded yet.

Given this perception gap between us which seems almost unbridgeable, it's all the more annoying to hear empty-headed ideologues in the U.S. talking about the future of Northeast Asia under the guise of political analysts.

Sometime last year, Gordon G. Chang had to revise his 10-year-old forecast that China would collapse by 2011, saying, "I was wrong, but only by one year." Now as the end of 2012 draws near without seeing imminent signs of his prophecy coming true, Chang must be sweating a lot over how to ask his patrons and followers to give him another reprieve. Learning no lessons from his repeated failure to predict what's happening in this region, he wrote on in September 9, 2011 that Japan would once again overtake China as the world's second largest economy by 2013. Chang's disciples are too nice with their guru to ask him this simple question: "What yardstick are you going to use to figure out GDP of the nation which will have disappeared one year earlier?"

These unprincipled guys arbitrarily single out GDP, or sometimes sovereign debt, when talking about the wealth and health of nations as if they are talking about the Olympic games. Worse, the only thing these makeshift economists can tell about GDP is that the abbreviation stands for Gross Domestic Product. It's about time you should stop being distracted by their amateurish arguments about how soon China catches up with the U.S. GDP-wise, whether or not Japan overtakes China in the foreseeable future, etc.

From 1955 through 1959 I majored in economics and industrial relations at Keio University. Before we went on to study macro- and micro-economics, we had to get familiarized with the tricky rules of debits and credits. I was a dull-witted freshman. So I failed to grasp the principle behind the modern accounting method invented in 1494 by the Venetian genius named Luca Pacioli. It was only after I became a corporate financial manager 10 years later that I understood why income has to be posted on the credit side along with debt, and expenses have to be recorded on the debit side as if they were assets.

Since Pacioli's principle isn't just about debits and credits, it really adds up only when you take a look at it from a much broader perspective. It all comes down to this: Everything has two or more different aspects in the real world. To put it differently: Goodbye to ideological delusions and delusive ideologies.

Karl Marx observed that a producer produces a new product by consuming existing one and a consumer, in turn, consumes the product to produce a newer one. In that sense, he echoed Pacioli's principle while trying to adapt it to the post-Industrial Revolution era.

And this is exactly where the flyblown brains of these self-styled economists like Chang stop to work. And that is why they keep talking about nations' wealth and health so lightly. I even suspect those of you who are well-educated but have little experience engaging in an actual process of production of wealth think the accounting equation is something for number crunching nerds and has nothing to do with your own life. As a result you always end up scratching the surface of things even when you address your own problem. You self-righteously think problems are always for someone else to solve.

In the last five centuries since Pacioli, valuation of assets and liabilities have been an everlasting challenge for professional accountants in and outside FASB (Financial Accounting Standards Board) or IASB (International Accounting Standards Board). Especially in recent years, the hottest topic among them has been how to deal with intangibles such as intellectual property. I have no interest, whatsoever, in how these vultures flocking around paper money are measuring their imaginary wealth. But I am still deeply concerned about how these accounting experts bring up to date the way to value and revalue man's tangible and intangible wealth.

So I became a sophomore and then a junior without really understanding the basic principle of economy. In subsequent years, I skipped almost all classes primarily because not a single professor lectured on his own theory tested against the reality of the Japanese economy. As anywhere else in this country, these incompetent teachers kept talking about foreign ideas borrowed from the likes of François Quesnay, Adam Smith, David Ricardo, Karl Marx, and John Maynard Keynes.

Sometimes I think if the economic faculty of Keio University had had a class on Wassily Leontief's input-output analysis in which macroeconomics converges with microeconomics、I mightn't have skipped it. The Russian-born economist had already defected from the Soviet Union, but it was only 14 years after my graduation that the Royal Swedish Academy of Sciences awarded the Nobel Prize to Leontief. That is the only reason I missed the opportunity to learn his economic model which, in essence, was derived from Marx's analysis of production-consumption chain.

Outside these boring classes, I read many books written by the likes of Max Weber and Karl Marx. But it was only after I got into the business world that I learned first-hand that the economic system actually in place here is neither capitalism nor socialism.

This is not to say, however, the bachelor's degree is the only thing I obtained at my alma mater. I acquired one thing which was much more important than the diploma. What I learned there and have never forgotten is the fact that the greatness of these great economists such as Adam Smith and Karl Marx lies with their principled way of theorizing on what man's economic activity is all about. They invariably based their theories on the premise that monetary, religious and secular values can be, or at least should be, defined univocally. To them value is value.

It was only after the Great Depression that Keynes, his followers collectively called demand-siders, and their opponent supply-siders derailed economics into a mere tool for financial institutions and governmental organizations to make a fast buck or manipulate markets.

As this blogger has repeatedly pointed out, people in America, and some other countries to a lesser degree, have lost the ability to conceptualize things which Thomas Jefferson and other founding fathers of the country used to have. These birds don't think they have to define words such as "value" and "change" when they tweet about them. In my definition of these words, you can't have a value without changing something.

Perhaps revolution, in the original meaning of the word, is the most effective way to change things. But it's useless to talk about revolutionizing status quo with these effete people. That's basically why I always focus on more "peaceful" way to create values in my blog. My message is that you don't have to be a revolutionary in order to be a change agent. Just create values, i.e. genuine wealth.

Another conceptual thing I want to stress here is that the creation of a value, or its destruction for that matter, is not a natural process. Values never generate themselves. The single most important driving forth in the value-creating chain is always people.

With all this in mind, let me talk about Gross Domestic Product for a moment. As you may already know GDP consists of the following four elements:
● Private Consumption
● Gross Investment
● Government Spending
● Trade Balance.
It's important to note human beings play the central role throughout all these elements.

Private Consumption normally accounts for the largest portion of GDP, typically at around 60%. But you can also see personnel costs, i.e. corporate investment in human resources, in other GDP components. For one thing, a good part of your salaries, bonuses, other "fringe" benefits, and "overhead" expenses are included in corporate investment in "inventories" of the goods. And Government Spending is always funded by taxes withheld or voluntarily paid from your paychecks.

There's no denying that GDP is one of the important indications of the quantitative values being created in a year. But since values, or potential values to be more precise, are all created by man, GDP tells us only part of the story about our pursuit of wealth. Let us be reminded of Marx's succinct words from his contribution to Critique of Political Economy. He wrote: "Consumption gives the product the finishing touch." This requires us to take a close look into the qualitative aspects of the production of wealth.

Once again let me take up the condoms for umbrellas and the fancy devices to auto-load them. A trivial matter though it may seem, I think the case helps you understand the distinctive feature of the production and consumption particular to Japan.

I have nothing against the idea that things have to be kept clean as much as practicably possible. And generally speaking, there's nothing wrong with producing these amenities and selling them with a modest amount of frills called Saabisu here, although I can't afford to have such nice-to-haves myself. But even if you don't have first-hand knowledge in economy through working experience, you can tell only with your commonsense that overdoing things like this is not only useless but also harmful. It always entails a prohibitively large amount of waste of material, financial and human resources. That's why I think these people with pathological obsession with perfect cleanliness are destroying values much more than they create them by developing, manufacturing and selling the special condoms.

Equally important, you can never expect a sound spending habit from these sick people.

Their salaries are always subjected to theft by the tax authorities. Needless to say, they pour the loot down the drain called "government spending" for bridges to nowhere, soldiers who never fight, weapons they never use in actual warfare, and public servants who only serve themselves.

And how are these people working in the condom companies spending their take-home income?

Aside from daily necessities for them to stay alive aimlessly, they buy LCD TV sets, for instance. What for? To watch kiddies' anime, news programs filled with lies, and Waido-sho (variety shows). Also they allocate an average 34% of their disposable income for the education of their children. They make believe they don't notice these mentally neotenized parents and teachers can never help their kids grow into mature adults. Actually they are just reproducing the same stupidity from a generation to the next.

They also buy a personal computer. What for? To use it for Internet games, Buroguing (blogging) on their empty lives, or chatting on Mixi (Japan's largest social networking site). In other words, they are "using" the technologies of the 21st century for the same things their immediate and distant ancestors were doing without a computer.

An IBM consultant named Grant Norris once said: "Adaptive technologies move earlier technologies forward incrementally [while] disruptive technologies change the way people live their lives or the way businesses operate." He meant to say it's ridiculous to use a disruptive technology as if it were adaptive. That's the surest way to make a change-disabler out of the potential enabler of change.

Besides, practically every PC user installs in his computer an Internet security software such as the one from McAfee. These super credulous guys don't know, or don't want to know that all anti-malware software vendors, on the one hand, play the role of firefighters, and on the other, act as arsonists. Their business model is a typical example of what I call "negative production."

One of their typical behaviors when they get paid the biannual bonuses is to visit a local car dealer to purchase a Toyota or a Nissan. What for? Primarily to drive to their condom factories and adjacent offices. Another thing they often do is to take an overseas trip. Most of the time their destination is an outlet of these Duty-Free Shoppers. At a DFS, most of them purchase one of these luxury goods such as Louis Vuitton handbags.

According to a 2004 survey conducted by Merrill Lynch, Japan sale for highend marketers peaked at US$16 billion in 1996. After that, the sales somewhat slowed down, but in 2003, 3 years after the burst of the bubble economy, the Japanese people were still buying luxuary products worth US$10.8 billion, accounting for 40% of their worldwide sales. Chinese people may have temporarily caught up with Japanese in this respect, but it's astounding that the figure for 1996 was 7 times larger than Mongolia's GDP for 2005. This is an unmistakable sign that their unusually big appetite for values remains unsatisfied with industrial rubbish they can produce themselves.

Since the value-creating chain is open-ended, the same story can be told of employees of manufacturers of consumer electronics and automobiles. These are the "finishing touches" Japanese consumers can give to the industrial output. In short, the entire production-consumption chain of Japan has totally fallen apart.

According to IMF, Japan's GDP stood at $5,867 billion as of the end of 2011. But because of the broken chain, the world's third largest number means practically nothing. Japan's GDP is half-empty now, to say the least. This is a deliberate statement.

Some experts cite the huge accumulation of wealth, i.e. "household financial assets" which stood at 1,513 trillion yen as of 2009, as a proof that this economy is still sound. But values without substance will remain empty no matter how long they go through the process of fermentation.

Admittedly my economics remains an empirical theory because quality of life is an intangible thing. But sometimes intangibles can be measured quantitatively as some accounting experts have shown us. If I were an econometrician, I would certainly try to come up with the formula for something to be called a "cavity deflator" with which to gauge how far Japan's wealth has been eroded.

Actually I don't care too much about the emptiness of your life. At any rate it's none of my business. Throughout my first and second career, I did the best I could to make a difference to the shitty Japan Inc. There's nothing I could do anymore.

Maybe I will be a little better off if I know who I'm talking to on this website. It seems to me the American people have yet to recover from the election hangover. Mainstream Americans are still acting like fruitworms eating further into rotten grapes. Another group of people are saying grapes are too sour to eat with their signature cynicism as if they aren't dying for juicy fruit. A third group of people on the fringe are a little savvier. But they remain hesitant to leave the dead grapevines right away in search of a new vineyard. Instead they are untiringly warning grapes are pest-laden there. All these folks deserve the predicament facing them because none of them think about fixing, or better yet, revolutionizing the entire value chain with an unwavering resolve and down-to-earth, no-nonsense approach.

And if you are curious to know about the well-being of your Japanese friends, rest assured they are quite OK, living in happiness and peace with their stomachs filled with grapes infested with a swarm of caterpillars.

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