It seems to me, Japanese Prime Minister Shinzo Abe, is both strangling his nation’s economy while he forces food down it’s throat. The Japanese Central bank’s decision to monetize their debt is a sure path to economic asphyxiation. The side of the road of history is littered with the wreckage of economies that have tried that hocus pokus. Abe is choking his economy with high taxes, and is planning on raising taxes even more, while he destroys their currency! Japan has endured a Keynesian driven depression for over a decade. Each political party more in love with the welfare state than the other. If Japan wants to remain an economic powerhouse, and thereby it’s standard of living, it must turn away from coddling super giant businesses, and unleash the dragon of entrepreneurship. That would save his economy and restore prosperity to Japan, or France, Ukraine, Greece, Argentina, Venezuela, etc…
It is like the ancient proverb about the old farmer. At the end of the day an old farmer came into the house covered with dirt. His son asked him where the Old Farmer had been all day. “I have been out helping the corn grow.” Replied the old farmer. The son ran out to find the old farmer had pulled up all his corn. Like the old farmer Abe is trying too hard to “help” his economy grow. Instead of printing huge sums of money for the government to spend, the Japanese central bank should be buying gold, strengthening their currency to protect the people’s wealth. Instead of following the example of Switzerland the Japanese are following the example of Argentina.
Argentina has gone through more than one episode of hyper inflation and are headed to another. The middle class in Argentina has been hollowed out by repeated rounds of economy crushing monetary calamity. They have monetized their debt which has always led to hyper inflation. Monetizing a nation’s debt is basically printing money for government to spend. It is usually done by the central bank buying it’s government’s bonds. This cycles the money through the crony banks on it’s way to the government’s checkbook.
Switzerland has always protected it’s currency and has always had a good standard of living coupled with low inflation. The Swiss middle class is healthy. On November 30 the Swiss are going to the polls to decide if they are going to force their central bank to buy gold and repatriate their expatriate gold. That would have the effect of increasing the level of gold backing of the Swiss Franc while also protecting the nation’s gold from third party adverse incentives. Japan would be well advised to strengthen their currency, keep it stable even to the point of deflation, than ruin the credit of the nation as a whole.
When Japan started down the rabbit hole of Keynesian deficit spending, they had a government surplus, now they have a decade of no growth and more than twice their GDP in government debt. Instead of squandering all that money on Keynesian demand side “stimulus” they should have spent it on funding supply side entrepreneurs. More businesses require more employees. The redundancy of labor among many smaller businesses drives up the demand for labor and thus wages. New products that flood into a society during times of rapid innovation, from many entrepreneurs adding to the economic aggregate, improve the standard of living of everyone in those societies. High and rising wages drives up demand, exponentially more than any government program, which can only take from someone who earned it, so they can’t spend or save it. The government then simply throws that hard earned money into the fire of inefficiency that is government spending.
Raising taxes in an already highly taxed nation is insane. Japan is the poster child for crony capitalism. It is highly taxed and regulated, suffocating entrepreneurs with regulations and taxes. All of which is done to protect super giant businesses from competition. Economy of scale is true when it comes to brute force manufacturing, but not in the creation of new products, ways of organizing a business or making existing products more effective. The ability of a small startup to get funding, operate with minimal government friction, (taxes and regulation), as well as operate in a standardized economic environment, are very highly correlated with the long term growth of that economy and a rising standard of living.
The Japanese government needs to cut taxes. Cutting taxes puts more money into the hands of people. It doesn’t matter if they spend that money, put it in a bank, invest it in equities or give it to charity, the money kept by the people will go miles further, per dollar, than it ever could being squandered by government. Allowing a little deflation wouldn’t be such a bad thing. Instead of taxing and spending, government could give back by allowing deflation, in an entrepreneurial society deflation allows innovators to do more with less. Deflation is like a pay hike to everyone in society. The only one who is harmed by deflation is an overspending government. The Japanese government should appoint a panel to find outdated and redundant regulations and laws that can be stricken from the books. Cull the regulations and laws as often as possible and as hard as politically feasible. These pro free market innovations would unleash terrific creative power, leading to well distributed societal wealth, than unlimited government spending on fifty thousand dollar hammers and solid gold heated toilet seats.