Fisher Investments Editorial Staff

Politics as Usual

By, 11/14/2012

As the Revolving Door Turns

It seems Japanese lawmakers have reached a deal to pass this year’s debt financing bill and give Japan a respite from the annual brinksmanship these bills incite: They’ve agreed to authorize debt issuance through March 2016. The bill’s expected to clear the lower house Thursday, and opposition parties have agreed to support it in the upper house.

And with this key pre-election task now off his checklist, Prime Minister Yoshihiko Noda’s aides say he’ll dissolve Parliament on November 22 and schedule the snap election for December 16 (or January 20, according to some reports). With his approval rating at a paltry 20% and his party’s not much better, Japan could very well get its eighth prime minister in eight years.

Noda’s not going down without a fight though, and it appears his campaign’s central plank will be free trade—manifesto pledges include joining Trans-Pacific Partnership talks and completing the trilateral free trade agreement between China, Japan and South Korea. Freeing trade would likely bring tremendous economic benefits over time, but it may prove a tough sell in historically protectionist Japan. Meanwhile, likely challenger Shinzo Abe—former prime minister and current leader of the Liberal Democratic Party—is trying to capitalize on resurgent nationalism tied to Japan’s territorial disputes with China and South Korea. His recent tough talk on China and visit to Japan’s Yasukuni Shrine—the monument to Japan’s war dead that also honors the worst war criminals, including those responsible for the Nanjing massacre—likely help him curry favor amid rising anti-Chinese sentiment. 

Regardless of who wins, Japanese political uncertainty likely persists, with economic reform an unfortunate casualty. The last time Abe was in office, he barely lasted a year before resigning—then, his nationalist agenda proved out of step with voters’ focus on the economy. And with Japan teetering on the edge of its fifth recession in 15 years, should Abe win office, voters may prove similarly impatient. Meanwhile, should Noda pull off a victory, his fragile support within his Democratic Party of Japan likely makes his grip tenuous as best. Until Japan gets a strong leader with a firm mandate, much-needed economic reform may remain out of reach.  

This Tax Has Been Grounded

Tuesday, the European Union hit “pause” on a controversial plan to tax foreign airlines for carbon emissions emitted flying into European airspace—a plan EU climate change officials agreed to since a global carbon taxation initiative under the United Nation’s International Civil Aviation Organization (ICAO) is beginning to take flight (pun intended). However, we can’t help but wonder if it’s just because they finally realized the folly and myriad unintended consequences of such a tax.

Recall, the tax was calculated by the total flight miles to reach Europe from the point of origin. Meaning it’s effectively a tax on miles flown to reach Europe, not carbon use. And if you tax something, you’ll get less of it. Thus, the EU’s carbon tax was likely to primarily result in fewer flights directly to Europe. From there, it’s easy to conceive fewer direct flights means more layovers (before landing in Europe), and more layovers mean more total miles flown and thereby more carbon emitted, not less. Likewise, airlines probably pass increased costs (from the tax) along to consumers—which might mean fewer flights demanded by consumers who’d rather spend their money on things other than European carbon emissions.

But perhaps, too, it was the fact that many foreign airlines hadn’t paid a single red cent for their emissions to date. Recall, the US, China, India and a host of other nations protested the EU’s carbon emissions scheme earlier this year. China, for example, effectively barred its airlines from paying the tax. The US Senate also unanimously passed a bill shielding US airlines from paying for their carbon emissions on European flights.

All said, it’s fairly apparent the carbon tax wasn’t unfolding the way EU climate change regulators had envisioned. And maybe the EU’s baton-pass to the ICAO is more a tacit admission of the unintended consequences than a resolve for a more “global solution.”

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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