Professor Richard Werner
Professor Richard Werner Head of Business Studies late at Southampton University Now De Montfort University Leicester.is THE architect behind the Community Banking Project in the UK.
He is the Author of the World Famous Game Changing book “Princes of the Yen” which ALL today’s Modern Thinking Economists regard as their economic bible.
Richard IS NO MINOR ECONOMIST and has lived in Japan many years. His Wikipedia Entry points out that he predicted, in his 1991 discussion paper, “the imminent ‘collapse’ of the Japanese banking system and the threat of the “greatest recession since the Great Depression”.”
R.Werner proposed a policy he called “quantitative easing” in Japan during 1994 and 1995.” With phenomenal success.
NOT to be associated with the £375 Billion of “quantitative easing” released in the UK by the BOE which was disastrously given directly to the Private Banks instead of Productive Industries and cash starved Local Governments. Thereby fanning not dowsing the flames of austerity !
At the 2003 World Economic Forum in Davos, Werner was selected as a “Global Leader of Tomorrow.”
Partly in recognition for his work in saving the Japanese Economy a decade earlier. (he is still a financial hero over there).
The key observations in his Book “Princes of the Yen” are:-
Money and Credit are not just a neutral medium of exchange, they can help fund productive investments OR they can fund asset bubbles, depending upon how they are focused. If money is not created at an appropriate rate by the central bank, the absence of credit will needlessly convert an economic recession into a long depression, which the Bank of Japan’s “Princes of the Yen” did in Japan. (and the BoE are doing now.
This is an astonishing, timely and well-written book. Not only does it set out the Ministry of Finance/Bank of Japan investment credit creating policies that lie at the root of the Japanese economic miracle, but it also explains how the Japanese asset price bubble happened because of BoJ speculative credit creation. It discusses how the “lost decade” of the 90s occurred because the “Princes of the Yen” running the BoJ sat on their hands and did not create the credit that would have put an early end to that long depression. (as now in UK).
The “Princes” did that because the BoJ had the objective of “Structural reform” – of creating in Japan a US-style hire and fire economy, lowering average and median wages and prioritising profits, with privatisation and less welfare through reduced government spending – the entire inept and depression-creating neo-classical recipe for running an economy not for the benefit of the majority of its population. The book therefore corrects several prevalent misconceptions. Economists need to understand that money is not just a neutral medium of exchange, for the creation of money by the central bank is not neutral, it can be earmarked investment credit, stimulating productive investment and economic growth, OR it can be speculative credit, forcing asset and land prices up and creating a subsequent misery-creating recession, with the possibility of the central bank not creating the necessary credit creation that can end depressions.
Werner’s observation that “Princes of the Yen” through their inactivity in creating investment credit in the 1990s, applies with great force to the current and similar inactivity of the Bank of England in the UK, AND the ECB in Europe AND the Federal Reserve in the USA. The credit crunch has been and is being extended by the mistaken Western neo-classical mindset of nearly all the key players in the MEDIA, and POLITICAL, and BUSINESS and ACADEMIC establishments. The Western economies are about to lose the world to Asia, because China, Japan, South Korea and Taiwan all understand, and practise to different degrees, Shimomuran investment credit creation economics. THIS IS THE BEST REASON FOR BREXIT
Werner’s book argues that all central banks need to operate under democratic control and should not be independent, because if they are, they may (as the BoJ did) adopt and practise policies to the detriment of the economy and to all those who make their living by working in it.
Japan’s long 1990s depression was due in the first place to the BoJ following OECD/IMF flawed Western aims for structural reform of what was essentially a robust system and THEN their extended period of no growth following the recession was caused by them continue to follow more of the same.
Politicians, not central banks, should be in control of a country’s economic policy, for only they are democratically accountable
Werner accepts that the independence of the central bank is no guarantee of their practice of appropriate policies and that inflation control is not the only economic objective. He concludes that whatever the failures of politicians, they are the elected authority which has the democratic right to determine the country’s economic policy. Central bank independence is unlikely to deliver that objective, because adequate investment credit has never been created by an independent central bank. The post-war German-Japanese financial-industrial systems created great economic growth.
The Post-War success of Germany was due to the Bundesbank’s subsidiarity to the German Government
Werner shows how the Bundesbank was successful not because of its independence from the government, but because of its reduced independence compared to the unaccountable Reichsbank: the postwar Bundesbank was made accountable to parliament (Bundestag) and its more recent legislation, such as the stability and growth law of 1967 Bank independence has not produced comparable results. The American Federal Reserve is similarly not subject to any democratic accountability except for Alan Greenspan’s and his successor’s occasional discussions with Congress.
Werner has used Granger Predictive Causality analysis tests to “Prove” the links between BoJ investment credit and Japan’s growth, and BoJ speculative credit creation and Japan’s asset bubbles
He PROVES that investment credit creation is the predictive egg that precedes the subsequent chickens of growth, and thus provides calculations of the predictive causality about how bank-generated finance can create real growth or speculative asset bubbles.
(Sir Clive Granger, along with his colleague Robert Engle, was awarded a Nobel Prize for contributions to economics, perhaps for his development of Granger Causality Analysis, which tests the validity of predictive causative links between two items of economic data). Sir Clive taught at Nottingham University and in California died 2009.
Professor Richard Werner has spent all his academic life PROVING there is a direct, causative predictive link between the central-bank created investment credit and economic growth.. This is a major finding and towering achievement and politicians, bankers and economists should not ignore it. But they will, at least to begin with. Because the Western neo-classical mindset is a perfectly argued, logically consistent, and a great achievement of Western intellectual economic thought. It only has ONE MAJOR DEFECT – its assumptions of perfectly logical individuals acting on perfect information in perfect markets – does not relate to reality. – the idea that each individual, acting from the most selfish motives, maximises the commonwealth and the public good – does not apply to bankers.??