There has never been a single Keynesian success in any place at any time. David Stockman does a review of Japan as it goes into its third recession since the 1990s. But what is notable is that the Japanese seem incapable of learning from their mistakes.
In short, these Keynesian apparatchiks have created a straw man that suits the purposes of their political masters on the fiscal front by rationalizing the monetization of endless amounts of public debt; and it empowers the state’s central banking branch to engage in plenary manipulation of the entire financial system on the misbegotten theory that fiat credit and bubble wealth can cause real production, incomes and wealth to rise.
Stated differently, Keynesian fiscal policies and central banking regimes have buried the public sectors of most of the world’s major economies in unsustainable debt. Now they propose to double down on more of the same because an entire generation of politicians have been house-trained in permanent fiscal profligacy and endless kicking of the fiscal can down the road.
To be sure, in putting off Japan’s day of fiscal reckoning once again, this time until 2017, Prime Minister Abe is proving himself to be a certifiable madman. In short order, however, he will have plenty of company all around the planet.
That was the conclusion; now go read the rest.
You would think the Japanese would at least have absorbed the lessons from the catastrophic results of their first stimulus. Such was not the case so they tried another. Didn’t work again.
The economy of Japan, long stagnant, has taken a sharp turn for the worse: It contracted nearly 7 percent (annualized and inflation-adjusted) in the quarter ending in June. By way of comparison, consider that the U.S. contraction in the quarter ending in June 2009, when we were feeling the worst of the financial crisis, was 4 percent; the worst quarter of the 1982 recession saw a contraction of 2.6 percent. You’d have to go back to the 1940s to see a quarter with a 7 percent contraction in the United States.
As a kind of kiss of death, Paul Krugman was full of praise for the policies adopted, called Abenomimcs after the Japanese Prime Minister Shinzo Abe. This is what Professor Krugman said a year ago:
The really remarkable thing about “Abenomics” — the sharp turn toward monetary and fiscal stimulus adopted by the government of Prime Minster Shinzo Abe — is that nobody else in the advanced world is trying anything similar. In fact, the Western world seems overtaken by economic defeatism.
Another great victory for Keynesian stimulus. A few more victories like that and we will be at poverty levels not known since the 1930s. Possibly as remarkable as the outcome in Japan is that even the commentator at National Review Online doesn’t actually understand it himself. He doesn’t really know why these policies didn’t work and can only say something vague about the mathematisation of economic theory and the difficulties in applying policies that might work in one country to another.
Strangely, the policy adopted in Japan included increases in consumption taxes which I am incredulous that anyone would believe would lead to a recovery. Raising taxes in a recession is dead set dumb, as dumb as raising public spending. Next time they should try lower taxes and lower public spending to see how that works out for a change. I know it’s out of fashion, but you never know what might happen then.
I went to a seminar with an American trade negotiator today and what got to me was this incessant effort to get the Japanese to open their borders to American exports. I am not up on whatever passes for modern trade theory but even so it did seem a little self-serving. I therefore asked what was on my mind: since the point of comparative advantage is to show that both sides can benefit from free trade, who then is the loser if one of the parties doesn’t want to bother? Japan says it doesn’t want to lower its protection for its agricultural produce. OK, too bad for Japan. But what’s the difference to the US or Australia if they don’t want to buy food exports from us. Your bad luck. You’re the one missing out. We’ll go and trade around you ought to be the answer but somehow it isn’t. Given that everyone has a reasonable idea of their own self-interest, and given that self-interest is much more than just being able to buy more this year than last year, if the Japanese aren’t interested in cutting protection but the Americans (and Australians) really do want them to, just from this I can see there is something wrong with trade theory, or at least at that superficial level.
At the very minimum, the Japanese see no value in disrupting its rural sector. They manage to eat, no one is starving, they’re content with how things are, so why should we make a fuss? But of course we do because we want to sell because we think that’s good for us. From the nature of the conversation, and the persistence with which this is pursued, the Japanese would be doing us a favour in cutting tariffs and would be doing themselves harm. I’m very suspicious of arguments that are premised on this is for your own good.
While no one says it, I also think the Japanese are all too aware of – but much too polite to mention – the last time they took economic advice from the Americans. That was in 1993 just after Bill Clinton took over the White House. At the time, we were all coming out of the 1991-93 recessions. Clinton, because he wanted the Japanese to help the Americans with their own dull levels of activity, virtually demanded that the Japanese provided a stimulus to their economy. And so began the twenty year lost decade. Not that these sort of things happened to me often, but I happened to be sitting next to the Japanese Minister of Finance or something, when he was in Australia and being the economist was given the seat next to him. So I said to him that I thought it would be a mistake to try a Keynesian policy, and he said, “Don’t you care about the unemployed?” An exact quote which I have never forgotten. So off they went and did what they did but their economy has never recovered.
If you ask me, self-interested advice like that is something we can all do without.