Friday, December 05, 2014

The Japanese economic recovery that wasn't

Inspired by the acolytes of Keynesian economics, Abenomics doesn't appear to be working out so well (Cato):

The government spending of tens of billions of dollars into public works projects — “investments,” as President Obama calls them–caused the Japanese debt burden to catapult from 19 percent of GDP, among the lowest in the industrialized world, to over 142 percent, among the highest.

Meanwhile Japan keeps printing money, as if it can devalue its way out of the crisis. From the late 1980s through 2000, the central bank’s balance sheet more than doubled — a precursor to the “quantitative easing” carried out by the U.S. Federal Reserve. And since 2000, the balance sheet has doubled once again.

But where is the promised recovery?

The expected Keynesian “multiplier effect” from spending and a flood of yen into the market never arrived.

Housing starts in Japan are still lower than the level nearly 25 years ago. Unemployment is still low by international standards, but wages have been flat.

It’s all a tragic story of economic playmaking that has gone all wrong. But don’t tell that to Paul Krugman of the New York Times, who predicted Japan “may end up showing the rest of us the way out” of stagnation.

Joseph Stiglitz, a fellow Nobel laureate of the Keynesian variety, advised American politicians to use the same strategy: “What we really need in the U.S. is expansionary policies that Abenomics is bringing into Japan.”

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