Right now an interesting economic project is going on in the country for many associated with sushi, cherry blossom and a unique exotic culture. While the west’s finance ministers have thrown in the towels, Japan radically reforms in order to end the country’s 20-year wrestling match against deflation and sluggish growth. “Abenomics“, named after Prime Minister Shinzo Abe, consists of expansionary monetary policy via quantitative easing, which doubles the money supply, and by fiscal stimulus and public investment. For many years, the country empty handed, with an interest rate around zero and the political unwillingness to invest. The same pattern can be recognized in a Europe where the elected rather rely on bureaucrats at the central bank than take their own responsibility.
The Japanese experiment has been Keynesians rubbing their hands in glee over a policy that goes against the outside world austerity sick. When economists on the right flank warns of the dangers of growing debt, Paul Krugman writes an editorial in the New York Times that Japan’s success is a successful example of economic reform policies that work. Now there are no longer excuses for western politicians. In the first quarter, growth in Japan is at 3.5 per cent, mainly driven by household consumption. Even Christina Romer, professor of economics at Berkeley University and former adviser to President Obama, impressed by Japan and hoping for something similar in the west.
During the Depression in the United States in the 1930s elected President Franklin D. Roosevelt to turn his back on contemporary economic truths, the way forward was named instead “the New Deal”. In a speech at the Democratic convention in 1933, he explained that contemporary generation faced a “rendezvous with destiny.” Maybe it’s the same now.
Japan’s smart and progressive economic toolbox should get more people to understand that the response to lower demand is not reduced demand. Either find themselves left in accepting rules that shrinks policy leeway and cements an underprivileged class. Or perhaps policy nutrition to reforms that strengthen the whole community.