11-21-2016, 07:36 AM
(11-20-2016, 03:14 AM)Galen Wrote:(11-19-2016, 08:10 PM)Warren Dew Wrote:(11-19-2016, 03:23 AM)Galen Wrote: You have noted the negative effects of this policy on the young who also tend to be poorer and not hold equities. This has made wealth inequality greater than it otherwise would be just as it has in the US. I would also maintain that in addition to the taxes that fall more heavily on the poor, the decrease in purchasing power caused by inflation has fallen on the poor and the young. It seems likely that this is part of the reason why family formation and the lower birthrate has affected Japan more than it has in the US and Europe.
I really don't think you can say Japan continued with inflationary Keynesian policies after the crash. In the 1960s to 1980s, when they were trying to build exports to the U.S., yes, but since the beginning of the 1990s, inflation in Japan has been essentially zero, with the price index the same in 1992 as it is today:
http://www.tradingeconomics.com/japan/co...-index-cpi
(set the graph to "max" time period)
Fair enough but they have been trying to use Keynesian policies to create consumer price inflation which has not occurred. Inflation in the classical and Austrian sense is an increase in the money supply. They have been printing money and the government has been spending like a madman for nearly thirty years and it hasn't gotten them what they want. In this case nominal economic growth and price inflation which have yet to be seen.
The policies have been Keynesian with rather unexpected results.
While there has been some continued growth in the money supply, it was substantially lower in the 1990-2012 period than before or since.
http://www.tradingeconomics.com/japan/money-supply-m2
(again set graph to "max" time period)
The fact that price inflation was lower during that same period is exactly what would be predicted by monetary theory.
Now, Japan did run large deficits during that period. However, one thing neokeynesians seem to have forgotten about Keynesian theory is that Keynesian stimulus requires both large deficits and also that those deficits be monetized by the central bank through increases in the money supply. Without that monetization, the deficits induced by extra spending are counteracted by high interest rates and their accompanying drag on the economy. And of course, compensating for spending with tax increases instead of deficits is even worse.
In this case, Japan accepted the high interest rates because they catered to the large and growing class of retirees whose standard of living depended on high returns on investment. The result was that those still working got squeezed and many gave up.
What Japan should have done is run the deficits, but through massive tax cuts rather than increased spending, and with full monetization of the deficits. The retirees would have taken a hit since interest rates would have been lower and inflation higher, but people still working would have taken home more money, increasing the incentive to work and reducing the unemployment rate. The overall economy would have held up better.
The indicated solution for the U.S. is a bit different since our retirees get inflation adjusted social security; inflation doesn't help us with our boomer retirements. What we need is massive tax cuts to motivate and reward work, but with less monetization and perhaps a partial removal of inflation adjustments for social security and welfare benefits.