Last week, Prime Minister Fumio Kishida announced a ¥29 trillion economic package to fight inflation, centered mainly on the energy sector, that will supposedly save every household in Japan about ¥5,000 a month on their utility and gasoline bills. As part of this plan, the government said it would expand its existing subsidies to gasoline wholesalers and others in order to check the price at the pump, thus effectively placing the administration’s carbon neutral policy on hold, though, according to an Oct. 30 article in the Nihon Keizai Shimbun, no one has actually come out and said this, including bureaucrats in the Ministry of the Environment and most mainstream media outlets.
As the Nikkei reporter, Junya Iwai, points out in the article, inflation aligns with the ministry’s fundamental carbon neutrality policy, since higher prices for gasoline would compel consumers to shift away from internal combustion engines to electric vehicles and other forms of transportation that don’t use fossil fuels. However, the current administration is worried about falling support rates and thus believes it has to be seen as doing something about inflation, especially given that imported oil is subject to exchange rate fluctuations and the yen’s value has been historically low in recent months. The subsidies are meant to reduce retail gasoline prices and thus bolster consumer confidence, and since the Cabinet as a whole has promoted these measures, the environmental ministry has to go along with them, even if they go against their own fundamental policy. The new environmental minister, Akihiro Nishimura, has said virtually nothing about the matter.
The gasoline subsidy plan, in fact, was supposed to end last March, but it has subsequently been extended several times. As a result, fossil fuel consumption has increased, thus confounding the environmental ministry’s aims. Iwai says that there are bureaucrats within the ministry who are very critical of the government’s continued use of gasoline subsidies to increase public support for the administration, since they think the longer the subsidies last, the longer it will take for Japan to reach its carbon-neutral goals. Iwai himself comments that subsidies like the one being used to bring gasoline prices down usually are only implemented on a temporary basis because the end game is predictable. However, as the subsidies continue to be renewed and even expanded, there’s a danger they will become “normalized.” As it stands, the budget for the gasoline subsidies has already reached ¥3 trillion. In contrast, the environmental ministry’s budget for subsidizing carbon neutral policies at the local level is only ¥20 billion on an annual basis. Moreover, the ministry’s request for money to fund home insulation improvement and further energy conservation measures has hit a wall of passive resistance in the government.
But the negative ramifications of the gasoline subsidy are not limited to its effect on the environment. The same logic bolsters the overall ¥29 trillion economic package, which, as already mentioned, is focused on the energy sector. On his blog, former Asahi Shimbun reporter Hiroshi Samejima unpacks the economic plan, which initially was only ¥25 trillion until certain forces within the ruling Liberal Democratic Party insisted on more in order to convince the public the government was doing something about rising prices. Samejima’s complaint is that the LDP is simply resorting to the same solution it always uses, which is to throw money at the problem in the hopes that it will go away. Usually, such economic countermeasures involves what is facetiously known as “helicopter money,” meaning cash that is tossed down on to the public from the sky. Here, however, the allocation of funds is done in an even more traditional way, by distributing cash “upstream,” whether to oil wholesalers, electric power producers, or natural gas providers, the idea being that these companies will use the money to reduce prices that will be felt by end consumers. The specificed goal in the case of the new package is to reduce the amount of money the “average household” spends on electricity and gasoline by ¥45,000 between January and September 2023.
Samejima, who has covered politics for decades, is knowledgeable enough in the workings of the government to be suspicious of this figure, since no data was released to support it. Nevertheless, the mainstream media has “dumped” it onto the public without qualification. But what the media really overlooks is the fundamental economic flaw in the plan. At least when the government gives money directly to consumers, the economy as a whole can be expected to grow at least a little bit, since, depending on the income levels of the recipients of the cash, they will spend it and it will thus circulate in the economy. But that isn’t the case here. The ¥29 trillion is going to large corporations that are expected to reduce their costs and thus their prices. It is an indirect public subsidy, a strategy that Samejima characterizes as the LDP’s classic m.o.: Invest in industry and say it’s for the sake of the public. Of course, what always happens is that the recipients at the top of the industrial food chain keep some of this money for themselves, and as the perceived savings trickle down, more middle men do the same thing, which means by the time the funds’ effect reaches the consumer, that effect has been reduced.
And the math isn’t complicated at all; even a child schooled in basic arithmetic can see the problem with this strategy. Samejima esimates that if the government just divided that ¥29 trillion among every person living in Japan—not every household, but every human being, even infants—each one would receive ¥200,000. Compare that to the ¥45,000 each household will “save” under the proposed subsidy package. The majority of people would spend that money freely, and not just for their energy needs. Consequently, the proverbial boats would float on the rising waters for a wider cross-section of businesses, not just energy companies.
But this isn’t saying the LDP is stupid. They’ve been playing this game forever. The idea is to give the money to vested interests who, in turn, give it to lower-level but equally important vested interests, which then recycle at least part of it back to the ruling coalition in the form of campaign contributions. Bureaucrats who come up with these strategies benefit, too, since these vested interests hire them when they retire. As to the complaint that if you gave the same amount of cash to everyone, you’d be giving money to some who don’t actually need it, meaning rich people. But the proposed subsidy plan theoretically does the same thing, since rich people can easily pay the increased prices for gasoline and home electricity—and maybe they should. After all, what’s the point of boosting a market economy if you don’t do what the market says? What Samejima is trying to say, and what the mass media understands but chooses to ignore, is that the ruling coalition isn’t really thinking about consumers. They’re only thinking about their image among consumers. The people they’re really serving are the companies and organizations that give them money.