How to cure Japan’s deflation problem: give women more power

I gave a speech a few weeks ago to a group of Edinburgh fund managers alongside Gillian Tett, the FT’s very glamorous US editor. We both talked about trust in one way and another (see also my recent editorial from MoneyWeek magazine: A question of faith) and I touched on what I consider to be the strong chance that a double-dip recession will lead to a hugely stepped up programme of QE and eventually hyperinflation. (For more on this see Adam Fergusson’s When Money Dies – reviewed in this week’s magazine. If you’re not already a subscriber, subscribe to MoneyWeek magazine.)

The speeches went well – we got as many laughs as you could possibly expect for speeches on macro-economics. But at the end, one of the questioners – CLSA’s Russell Napier – threw us a blinder of a question. Had we noticed, he asked, that the UK had only been bothered by persistent inflation since the introduction of universal suffrage. Did we think there was a connection?

We moved on pretty quickly at the time. But later I realised that there probably is a connection. Why? Because politicians promise what they think voters want, and women voters, being society’s main carers, are most likely to be promised the things that most expand the state. Historically it has mattered – or been perceived by politicians to matter – more to women that they get help looking after the young, the sick and the disabled than it has to the men who don’t do so much of this kind of work.

So what do you do if you want the women of your constituency to vote for you? You promise them more schools and hospitals. You promise them child trust funds. You promise them universal university education. And you promise them happy and well-run care homes for their parents. All the things you know you can’t really afford.

And the more unaffordable things the state promises, the more likely it is to have to print money to pay for it – and the more likely inflation becomes. So it is entirely possible that giving women the vote in the end causes inflation (although that doesn’t make it their fault).

I mentioned this to John Stepek. Perhaps, he says, the same sort of dynamic can be blamed for the endless deflation in Japan. Women may be able to vote in Japan, but it remains a deeply misogynistic country, and they have little political power. Note that only around 2% of central government management posts are held by women. So the bribes offered by politicians tend to appeal to corrupt construction barons (think bridges to nowhere and pointless municipal halls) rather than to women.

That might mean the money multiplier doesn’t work quite as it might in our kind of welfare state – already-rich building bosses don’t spend in the same way as women, and the wives of construction workers, lacking confidence in a safety net, are more prone to hoarding than spending.

So it may be that shoving child benefit and endless welfare into an economy creates long-term inflation in a way that roads and bridges just don’t. Russell is as tempted by this idea as I am, so we are now watching Japan pretty closely. If the new-ish government continues with its family-friendly policies, deflation may one day just be a pleasant memory for the Japanese.

One sign that change may be years, not decades, away? When Russell and I were discussing this last week, he said that we’d see things change pretty quickly if a woman was appointed as head of the Bank of Japan. That hasn’t happened (obviously). But the bank has just appointed its first female branch manager in its 128 year history.

  • stefhen fd bryan

    This is exactly the argument I made in my book Black Passenger Yellow Cabs.

  • JAW

    The coalition government are considering changing the electoral system…. so he is a once in a generation chance for Merryn and other feminists to balance the power struggle between the male and the female in society?

    The only way to get more women into politics is to have two seats in every constituency, one for male candidates, the other for female candidates. Of course constituencies would have to enlarge, halve in total numbers, and that is easily done. But the result would be 300 women and 300 men in a 600 seat UK parliament.

    Would you fancy that Merryn? Could the nation withstand the resulting inflation?

    NB. Much of inflation is caused by printing money to pay for expensive wars. Do women start wars, or is it the penchant of men?

  • Alex

    Merryn you might also consider that the root cause of the extraordinary inflation in house prices also has the same root cause.

  • Roy T

    Whether it applies to the supply and demand of goods and services or to that of money itself, these factors are what have always governed inflation. One only has to look back to Henry VIII’s infamous debasement of coinage to witness the fact that inflationary cycles are nothing very new. And precious little to do with the specific activities of women. If recent UK statistics are anything to go by, women are probably less likely to ‘tribally’ vote for more inflationary ‘big state’ governments and more likely in terms of raising family savings to vote for a more conservative government; after all this gives their often more limited income greater purchasing power.

  • laehc

    It could be that when government and society start to care about citizens, the results include more gender equality and more inflation.

    When governments are intent on creating money I’d rather it went into something socially usefeul, or increased tax thresholds, than inflating asset prices and propping up banks.

  • nmw

    MSW makes a valid point, but depending on when you start your review of inflation, there are a multitude of external factors that create/affect inflation.

    Just for starters: Migration, social mobility, technology, transportation, fashion, education, medical breakthroughs, war, idealism, information, collective social conscience etc. etc.

    But why does MSW allude to the fact that inflation is good?

    Perhaps if everyone had nice careers being asked for their opinions and speaking in public, then all well and good, but what about the poor souls living in the real world ? (I do not include myself as I spend most of my time away with the fairies or reading Economic blogs on a Sunday morning) what about those struggling to keep up payments and feed children and pay exhorbitant insurance premiums et al.

  • WSA

    Inflation was around long before women got the vote. Any economist who remembers his economic history,( and 98% of them in the banking industry have forgotten theirs or we would not be in this mess),will tell you about empires in the past brought down by inflation, countries gone bust, savings rates ruined,(Weimar Germany), and last but not least going off the gold exchange standard and fighting too many wars and having to print money to pay for them.

  • Michael

    I read an interesting science journal back in the 1970’s regarding the falling fertility rates amongst British women. There is a great misconception that this is the result of contraception.

    What the article showed is that as women’s wages caught up with that of men’s the national fertility of women fell and that if this trend continued that by the year 2000. The fertility of the indigenous population of the UK would have fallen below replacement. In other words what the article was showing is that contraception has absolutely no affect on fertility and that the best contraceptive and most affective contraceptive was greater numbers of women in work.

  • Michael


    In the fifteen years to 1989 violent crime in the United States had increased 80% and the authorities were worried about an unprecedented crime wave by 1990. But it never came! What happened is that there was a sudden fall not only in violent crime, but just about every other type of crime. Analysis tried to look for a correlation in all the obvious figures and trends. And the only correlation that accounted for the fall in the crime wave was the abolition of the anti-abortion laws. (Taken from Freakonomics)

    The connection between fertility and economics is not one that gets a lot of coverage. But we have to admit that the greatest resource of China is people. And that as China grows wealthier as a nation we in the West all seem to be getting poorer, if only relatively.

  • amandamusing

    But it has been both men and women mistakenly believing that education, health and caring are about inflation stoking building of buildings at public expense. A sixth form college under construction locally looks like Stansted airport; one of the town’s empty dockside buildings nearby would have sufficed. All that new glass will not improve teenage minds, merely encourage cloud watching and require costly transporting to and from. The NHS [how I wish we had one, instead of a DCA – a Disease Control Agency] has been under the same shiny and glassy delusions. In the 1970’s I trained to nurse to phenomenally high standards of disciplined care in wards of upgraded Nissan huts, where evidence of a developing small pressure sore was severely frowned upon as a sign of poor nursing care and lack of attention to detail . It’s about people responding, not expensive buildings. It’s about paying attention, ‘Attention, Seekers.’

  • laehc

    Please correct me if I’m wrong as I’m no expert, but I have the impression that in the days of the gold standard, inflation generally alternated with deflation in a reasonably cyclical way. Many cases of non-cyclical inflation involved war: France after the expense of opposing the British in America, when they debased the coins then replaced coins with paper money; Confederate inflation after a blockade made cotton-backed bonds worthless; German hyperinflation in the aftermath of The Great War. Then the USA went off gold due to the expense of the Vietnam war.

    Each case resulted in inflation that was not just the usual cyclical inflation, quite obviously in the cases of hyperinflation. The critical factors are that big wars are expensive, states have always taken them seriously, and debt reaches a limit particularly for losers.

    These days, welfare is expensive and many states take it seriously.

  • laehc

    Regarding women, power and gender stereotypes, anyone who expected a touchy-feely government would follow the election of a female prime minister must have got a shock after Margaret Thatcher got the job.