Friday, August 14, 2009

Unintended Consequences: Japan green subsidies erode savings. And: Lessons for Cash-for-Clunkers?

As if Japan doesn't have enough problems, what with both an aging and a declining population, overvalued Yen etc. From Reuters:
The splurge spurred by Japanese subsidies on energy-efficient cars and electronics risks depleting household savings so much that many consumers will have to cut spending next year, which may help push the economy into a double-dip.

The savings rate has already started coming down from 27 percent of disposable incomes at the start of the year as consumers lured by tax breaks and eco purchase points dip into savings to buy hybrid cars and flat panel TVs.

This temporary boost to consumption probably helped Japan's economy grow for the first time in five quarters in the April-June period, according to a survey before the release of the data on August 17.

The household savings rate is likely to fall to as low as 15 percent this year, according to Dai-Ichi Life Research Institute, as consumers front-load their purchases before the subsidies expire in March 2010.

Savings would then be so low that shoppers will lack the ammunition to spend much more, economists say.

"Incomes are low, so when you use subsidies to support consumption, the only choice is for the savings rate to fall," said Toshihiro Nagahama, an economist at Dai-Ichi Life Research Institute....MORE

A possible foreshadowing of cash-for-clunkers? From Environmental Economics:

Don't you just hate that let down after a good stimulus?

Are programs like Cash for Clunkers shifting expenditures from one sector to another and borrowing expenditures from the future? Some 'economists' think so:

The popular US cash-for-clunkers programme may be drawing money from other consumer purchases and could also undermine future car sales, US economists have warned....

With income flows very constrained and household balance sheets over- leveraged, any incremental increase is likely to weigh on non-automotive sales,” said Joshua Shapiro, chief US Economist at MFR, a consultancy, noting that fading interest suggests current car sales are borrowed from the future....MORE, including interesting comments