Introducing Doraemon Economics
Why modern economics resembles the Japanese cartoon world of Doraemon.
In 1969, two Japanese comic artists created a comic series called Doraemon. Pronounced with four syllabus, ‘do-ra-e-mon’ is also the name of the blue, chubby robot that appeared in the stories as a key character.
Doraemon is a robot from the future, sent back in time by its owner to help his great great grandfather — Nobita Nobi — change his life for the better.
As a young boy, Nobita was weak in character and lazy. As a result, he landed up in great debt, which burdened his descendents all the way to the year 2112. Seeing no way out other than to change the course of history, his descendants decided to send a robot back in time to change their ancestor’s foolish habits.
Borrowing from the future to solve today’s problems
The plot behind each episode of Doraemon is simple and repetitive. The silly Nobita gets into some sort of trouble or suffers bullying. Doraemon comes to the rescue by whipping out some sort of incredulous gadget — from a magical pouch built into his belly — to solve the problem.
These gadgets are actually from the future that Doraemon came from, where technology has advanced to the point that invisibility cloaks and helicopter hats have become possible. But as the story goes, after the initial problem is solved, Nobita always ends up abusing the gadgets for his own pleasure or gains, creating an even bigger problem in the process.
However, comics being comics, the problem is always happily resolved at the end with a moral lesson learned.
So what is Doraemon Economics?
I call the economic policies we practice today Doraemon Economics — because it is driving our descendants towards the same fate as Nobita’s.
Well, by now it is common knowledge that since the credit crisis of ’07, governments around the world have been keeping interest rates aggressively low to stimulate the economy and keep it growing.
In fact, interest rates have never been this low for the last 700 years!
Keeping interest rates very low leads to two problems:
⚠️Those with cash find that keeping their money in the bank or safe assets yield very little; hence they flock to risky assets like stocks and venture capital.
Money has become so plentiful and ‘cheap’ that interest rates and bond yields have become negative in most of Europe and Japan. This literally means you are paying the bank or borrowers to take your money from you!
No wonder the rich have no better ways to invest their money than to keep chasing ever higher stock markets or punt in risky startups.
The debate over stock valuations is way over-written, so I shall not go into it. But most folks do not realize just how overflowing funds are in the venture capital world as well.
The money is so abundant that KPMG openly calls it “an embarrassment of riches” which the funds can “dispense for years to come”.
This excess of funds looking for startups to invest in has led to a lot of talents forsaking stable jobs to try their hands at being a founder. Many aren’t really passionate about their ideas. They’re just looking for an easy way to live off ‘Other People’s Money’ by touting ‘PowerPoint Valuations’.
(Read: Raise venture capital based on overly optimistic financial projections)
This has resulted in a lot of young and productive talents pursuing unrealistic or overlapping ideas. Like Nobita, they hope to use — or perhaps abuse — the ‘futuristic technology’ they tout to profit hugely or make life easy for themselves.
⚠️It becomes very easy and cheap for governments and companies to solve their financial problems by borrowing money.
According to the International Institute of Finance (IIF), global debt has surged to more than US$250 trillion — the highest it’s ever been in history. And just like stock markets, economists also think that this is not sustainable at all.
“Rising debt across the world has been a big concern for investors and has also been flagged as the next breaking point by a number of economists. Record-low interest rates make it extremely easy for corporates and sovereigns to borrow more money.”
— “Global debt surged to a record $250 trillion in the first half of 2019, led by the US and China”, CNBC, November 15, 2019
Even the guy in charge of the US central bank, the country with the highest proportion of global government debt, knows it.
On November 13, 2019, Federal Reserve Chairman Jerome Powell said to Congress:
“…the consequences of not addressing it (national debt) are just that we will be spending more and more of our kids’ and grandkids’ tax dollars servicing debt rather than on the things they really need… education, healthcare, security…”
Fed’s Powell: Debt is growing fast than economy, and that’s not sustainable
Federal Reserve chair Jerome Powell testified before the Joint Economic committee. Jamie Herra Beutler (R-Ark.)…
He also said he doesn’t know when or how to fix it…
Where’s our own magical pouch of gadgets?
Keeping interest rates artificially low was supposed to be a short-term fix to get our economies back on track during downturns. But despite our asset markets breaking record after record in the last few years, policy makers have persisted the low interest rates, while global debt levels continued to increase and increase.
Clearly we have become addicted to taking the easy way out.
Will our children end up like Nobita’s descendants? Burdened with so much debt that they figured they’ll never, ever get out of it unless they send a robot back in time to fix the problem at its root.
Perhaps like Nobita, most of us today want to shrug away the problem and rely on the magic of technology sent from the future to get us out of the mess we’ve created for ourselves… eventually.
But unfortunately our own chubby little blue robot hasn’t arrived yet.
We can keep hoping it does, or we can get realistic and start fixing the problem ourselves — today, in the real world.