Japan: Keynesian Poster Child
show comments
  • Snorri Godhi

    “There was a time in the Japanese bubble years when the Imperial Palace grounds in Tokyo were said to be worth more than the entire state of California.”

    The way things are going in California, that might happen again.
    OK, please forgive the sarcasm, I could not resist.

  • thibaud

    “Japan has been the poster child for Keynesianism—and not in a good way”

    Not so. The “poster child” sneer is, as so often the case for VM, an over-the-top rhetorical flourish that has no connection to reality.

    In fact, despite Keynesian fiscal stimulus, Japan on the _monetary_ side of the house has ruthlessly pursued teh opposite approach, with a zero-inflation policy that has wiped out the positive effects of the stimulus.

    In other words, in pursuit of “price stability,” the Bank of Japan has crippled demand from recovering at every opportunity.

    There are various reasons for this schizoid approach, among them the political strength of the keiretsu that dominate Japan’s rotten banking sector, but none of these reasons have anything to do with Keynesian economics.

    In sum, it’s simply inaccurate to say that Japan has pursued Keynesian policies or that the persistence of low demand in Japan points to the failure of Keynesian stimulus. There are many reasons that Japan’s strange and inbred political system has not yielded the rise in domestic demand and prices that Keynesian economics produces. A pity that VM isn’t trying to discover those reasons via fact-based analysis.

    Economics is not a morality play. Complex world out there.

  • wanderer

    “But despite these gloriously Krugmanesque accomplishments, the economy isn’t really growing, and it hasn’t been for a very long time”

    And Mead goes for the cheap shot yet again.

    http://krugman.blogs.nytimes.com/2012/01/09/japan-reconsidered-2/

  • All societies are going to have to face the challenge of a stable or declining population sooner or later. Let’s see how Japan handles it. Here in America we are just putting it off.

  • Jacksonian Libertarian

    If Government spending could create jobs, and stimulate growth, then Japan would now be the strongest economy in the world. But in fact Govenment spending must first take all that money from the economy in order to spend it on wasteful Government that doesn’t produce anything of value.

    “There’s a reason it’s called Capitalism; it’s because Capital is what fuels it.” Jacksonian Libertarian

    There is a direct inverse correlation between the burden of Government and Growth rate in terms of GDP (as the burden increases the growth rate decreases). While there are many local factors which influence what level of Government burden an economy can bear for a specific Growth rate, it cannot be denied that lowering the burden increases the Growth rate. The burden of Government isn’t just the amount of taxes and fees it takes from the economy, it is also the capital it takes from the capital markets, as well as the costs of compliance with regulations.

  • ECM

    “In sum, it’s simply inaccurate to say that Japan has pursued Keynesian policies or that the persistence of low demand in Japan points to the failure of Keynesian stimulus. There are many reasons that Japan’s strange and inbred political system has not yielded the rise in domestic demand and prices that Keynesian economics produces. A pity that VM isn’t trying to discover those reasons via fact-based analysis.”

    Ah yes, the old “they’re doing it wrong”excuse as invoked by everyone from communists to socialists to Keynesians.

    Bravo! I haven’t heard that excuse in, God, at least a few days.

  • Eurydice

    In “people-speak” it seems “Keynesian” is used to mean “spend money blindly and hope the problem goes away”. But I don’t think Keynes or his followers ever said that monetary policy could solve deep structural problems. What Japan is doing deserves a whole new name.

  • Thrasymachus

    Did you mean to say *macro*economic changes? It’s been a while, but I don’t know that microeconomics can be changed all that much by traditional means.

  • Kris

    I’m sure you’ll all be fascinated to learn that I have just re-watched Rising Sun.

  • teapartydoc

    I’ve been watching the Japanese economy for over twenty years, and I’m afraid Thibaud is guilty of just that which he has accused VM of. Japan is now borrowing money in order to pay the INTEREST on the debt now owed by it’s government. Deficit spending in a downturn is by definition a stimulus according to macroeconomic theory. The problem is that there never seems to be the multiplier effect that was calculated in the model. If stimulus is the cure, I fear Japan will need a dosage exceeding the LD-50. (Look that one up, Thibaud).

  • WigWag

    Those poor Japanese; their economy is just so terrible. In April 2012 their unemployment rate was an awful 4.6 percent; dramatically lower than the U.S. unemployment rate and less than half the unemployment rate seen in much of Europe. The Japanese enjoy universal health care and they have the longest life span of any nation on earth. Their infant mortality rate is a fraction of the U.S. rate.

    Japan’s infrastructure puts America’s to shame and the Japanese are preternaturally hardworking and frugal. The average Japanese saves far, far more than the average American which is why the Japanese government needs to work so hard to stimulate the economy in the first place.

    In fact, as a percentage of GDP, while Japan’s governmentsl indebtedness is the highest of any developed nation, it’s total indebtedness (public plus private) is not that different from most of the world’s wealthiest nations.

    The dopes who wax eloquent about how Japan’s public debt is squeezing growth and will inevitably lead to default never manage to explain why the yen is as strong as it is (very strong) or why the Japanese Government can borrow funds on the international market while paying amongst the lowest rates in the world.

    When it comes to a question of whether to believe the financial markets or the youngsters who slave away for Professor Mead ( and Mead’s amen corner of government bashers in his comment section) I think I will go with the financial markets which have concluded that Japanese sovereign debt is amongst the safest in the world.

    Thibaud is right, monetary policy in Japan has worked against fiscal policy. Even with this said, Japan is a major economic success story when compared to most of the rest of the world. It’s certainly doing better than the economy lead by Professor Mead’s hero, Prime Minister Cameron.

    Given the frugality and the proclivity to save of the Japanese people, what do Professor Mead’s young staff members think the Japanese economy would have been doing the last two decades without the Keynesian stimulus?

    It’s time for Mead and the youngsters to rethink their approach to the Japanese economy. What they’ve offered up in this post is merely pabulum.

  • thibaud

    Nice try, doc, but you really need to ask Mr Google to look up “keiretsu” for you and start educating yourself on the real drag on the Japanese economy, the one that is the ultimate cause of the screwed-up BOJ monetary policy that has negated the effects of Japanese stimulus.

© The American Interest LLC 2005-2017 About Us Masthead Submissions Advertise Customer Service
We are a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for us to earn fees by linking to Amazon.com and affiliated sites.