Monday, January 21, 2013

Japan’s leaders must see the need for sustaining a fiscal Big Bang

With Japan’s stock market surging even before Prime Minister Shinzo Abe unveiled his plans for economic stimulus, we would have expected the usual anti-stimulus critics to be silent, at least for a while. But no. Already we hear the usual complaints — more printing of money, more public debt, more baramake (waste) and so on.

Even the constructive comments are unappetizing. They support the Abe call for more quantitative easing and for the Bank of Japan inflation target to be lifted to 2 percent. But they downplay the fiscal policy side of the equation. Most assume that public debt levels should prevent any significant increase in government spending. Yet such spending is crucial for creating the demand this economy so desperately needs.

Take the inflation targeting policy, for example. There is no point setting targets unless the demand exists to cause the inflation in the first place. Similarly for monetary easing. The BOJ can release as much funds as it wants. But even at zero interest, they will end up mainly as savings unless there is the demand which encourages the productive investment needed to use those funds.

How to get that demand?

Structural reform, deregulation or developing new technologies and inventions are the usual recipes in Japan. Well, we saw a lot of structural reform and deregulation during the Koizumi era. The main result? Deflation, continued stagnation once the spike created by surge in import demand from the United States and China ended, and a ¥200 trillion increase in public debt.

As for the idea that new technologies and inventions can move an entire economy, I realized they were clutching at straws when former Cabinet minister Seiji Maehara told us how the Nobel Prize winning discovery of iPS cells would stimulate the economy.

Japan suffers a chronic inability to separate causes and results. Only when an economy is already moving can these desirable growth factors come into play. And to get the economy moving there is only one possible factor — a drastic increase in demand. Given the declining population, that increase can come through one of two routes — externally, via yen depreciation, or internally, via increased public spending. And as we saw from the sudden yen depreciation following Abe’s emergence, even that external prop to the economy was largely a result of expectations that something will be done to expand domestic demand.

Back to the public debt problem. In the short term, yes it will increase. But as any Keynesian can tell you, once an economy is moving, public demand is soon replaced by private demand as closets and piggy banks are opened to take advantage of new investment opportunities. Tax revenues increase and help repay the initial public debt increase.

Japan has long been a victim of the fiscal austerity disease now afflicting Europe and, for a while, the U.S. Somehow sane, sober policymakers and economists were able to convince themselves that cutting government spending would revive recession-hit economies. It would create greater confidence in the future and encourage more private spending, they insisted, even as both the confidence and private spending continued to decline before their very eyes. The U.S. Keynesian economist, Paul Krugman, has called it the “confidence fairy.”

In Japan especially, there seems to be an emotional revulsion against the waste and increased public debt involved when governments push funds into public works. But the U.S. Great Depression was only finally ended by World War II spending, and spending to go out and bomb other people is a lot more wasteful than building roads and bridges. But it did get funds flowing through the economy. And as the economy picked up so too did the savings needed to cover increased debt.

Keynesian economist Robert Skidelsky has pointed out how both the International Monetary Fund and the U.K. Office for Budget Responsibility (both infested with textbook economists, and the latter with confidence fairies as well) consistently overestimated hopes for European economic recovery because they consistently underestimated the downward multiplier effects from spending cuts.

As they saw it, a dollar cut from public spending would shrink the economy by only 60 cents — a multiplier of 0.6. Only now from bitter experience do they accept that the multipliers were double that figure or more. Even the IMF, long the home of austerity addicts, now has a chief economist who admits the European move to fiscal austerity was a terrible mistake. Keynesians could have told them that from the start.

In Japan until recently, both Keynesians and multiplier concepts have been rare. Indeed, the economic newspaper Nihon Keizai Shimbun once told us that Keynesian thinking was an anachronism. Fortunately Japan has since seen the emergence of what I call the rightwing Keynesians — economists who realize a big fiscal push is needed for the economic recovery that Japan needs to gain status as a military power. Some are close to Abe.

One of their strongest weapons is a graph showing the relationship between government spending and tax revenues in Japan over the past 30 years.

Right through to the “bubble years” of the late ’80s, government spending and tax revenues increased in close tandem. In other words the spending, even though much was wasteful, created the tax revenues needed to sustain it.

Then we move into the fiscal austerity policies of the Hashimoto and Koizumi regimes, and the economy sinks into recession. Government spending that was supposed to fall remains constant; it has to if the economy is not be plunged further into recession. Meanwhile, tax revenues plummet and the fiscal deficit balloons.

In short, the more you try to cut spending, the more you go into debt. In any other branch of human activity, the lesson would be realized: Stop digging yourself further into a hole. Japan seems to have been a bit slower in realizing these things.

True, the past two decades have seen spurts of short-lived stimulus policies. But trying to jump-start a depressed economy is not easy. BOJ monetary easings and increases in public spending were too brief, too tentative and too vulnerable to attacks from the fiscal hawks. To succeed, stimulus efforts have to be both strong and sustained — a fiscal Big Bang.

As some Western economists have noted, if the U.S. and Europe are now finally moving ahead that is because the fiscal hawks and conservative central bankers have been pushed aside by strong public commitments to spend and lend. In the words of U.S. Fed Chairman Ben Bernanke, only by promising to do “whatever it takes” do you inspire the confidence needed to encourage the re-emergence of badly needed private investment.

Hopefully Abe will remember those magic words and do whatever it takes.


 日本の株式市場は、安倍晋三首相が彼自身の経済刺激計画を発表する前から、すでに上向きに転じていたため、さすがにいつも聞かされる刺激政策批判も口を閉ざすかと思われた。ところがさにあらず。例のごとき不平不満― お札を増刷すれば、公的債務が増え、ばら撒き(無駄)が増える、云々― がすでにわれわれの耳に届いている。




 構造改革、規制緩和、あるいは新技術や発明を開発するというのが日本のいつものやり方だ。小泉時代には、構造改革、規制緩和は山ほどあった。だがその主な結果は? デフレーション、アメリカや中国からの輸入需要の盛り上がりが下降に転じた後の長引く不況、そして公的債務200兆円拡大、というものだった。 


 原因と結果を区別することが苦手なのは日本の慢性病だ。経済が動き出してはじめて、このような期待を背負う成長要因が力を発揮できるのだ。そして、経済を動き出させるのは唯一つの要因― つまり需要の劇的な拡大だ。人口減少を考えれば、その劇的拡大は次の二つのルートから来る― 対外的には円安を通じて、また国内的には公的支出の拡大によって。安倍の出現に続いて円が急に円安に転じたことからわかるように、その外国からの後押しでさえ、内需拡大のために日本で何か手が打たれるだろうとの期待から来る部分が大きい。





 彼らの計算では、公的支出1ドル削減に対して経済縮小は僅か60セント― 相乗率は0.6― としていた。今になって、苦い経験を経てようやく、相乗率はその倍あるいはそれ以上であったと認めている。長らく緊縮財政病の根城だったIMFでさえ、いまチーフ・エコノミストとして、ヨーロッパの緊縮財政への移行はひどい誤りだったと認める人物を配した。ケインズ派エコノミストなら最初からそう教えてくれたはずだ。

 日本ではこれまで、ケインズ派エコノミストも、相乗効果という概念も、まれな存在だった。実際、経済紙「日本経済新聞」は、以前「ケインズ流の思想は時代おくれ」といっていた。幸い日本は、その後、私が右派的ケインズ派と呼ぶ人々― 日本が軍事勢力としてステータスを獲得するために欠かせない日本経済の再生には大きな財政的プッシュが必要と認めたエコノミストたち― が出現した。そのメンバーの一部は安倍氏に近い人々だ。





 たしかに、過去20年、短命な刺激策はあれこれ噴出した。しかし沈滞した経済を離陸させるというのは容易ではない。日銀の金融緩和と政府支出拡大は、あまりに短く、及び腰で、財政タカ派からの攻撃に対して弱かった。成功するためには、刺激政策は強力で長続きするものでなければならない。― つまり、財政ビッグバンが必要である。