Japan and the Limits of Keynesianism

The Atlantic ^ | Dec 28, 2010 | Megan McArdle

[neverdem]

Japan's budget is in a truly terrifying state.  Reading about the government's behavior reminds me of the worst accounts of compulsive spenders on the verge of personal bankruptcy--a sort of "What the hell, we're screwed anyway, so let's not think about it and maybe go to Cabo for the weekend."  The budget's structural position is what is known technically to economists as "completely hosed"; borrowing now exceeds tax revenue, and debt service costs now eat up almost half of the tax revenue the government collects.  "Unsustainable" is too weak to describe the situation; I don't know how they're doing it now.

To be sure, a lot of people have been awaiting the inevitable collapse of the Japanese government's finances for the better part of a decade.  I know all the arguments for why this isn't such a big problem:  their debt is financed domestically, much of it through the postal savings system that pays little for its borrowing, and the Japanese are extremely patriotic about their nation's financial needs.  That may shift the locus of the problem, but it doesn't actually solve it; eventually, no matter how patriotic they are, the Japanese are going to want to use some of those savings to support themselves in their old age.  Some sort of crisis virtually has to ensue. 

When I was starting out as a journalist, I frequently had Japan used to illustrate Adam Smith's precept that "there's a lot of ruin in a nation"; any time someone was tempted to get hysterical about government borrowing in America or elsewhere, someone else would inevitably point out that Japan's debt burden was well over 100% of GDP, and the country still hadn't collapsed.  But while there is a lot of ruin in a...

[snarkbait]

We exported Keynesianism and liberalism hidden in the ‘made in japan’ consumerism of the 80’s and early 90’s.. and destroyed their economy.

[GeronL]

Sounds like Kalipornia

[ex-snook]

No economic theory can overcome the problems caused by trade deals that export jobs, factories and Treasuries.

[familyop]

Japan lacks natural resources—raw materials.

[UnChained]

It seems like “The Great Day of Reckoning” might come quicker to the US even thought our debt is a smaller share of GDP. The US debt is mostly foreign held and Japan’s is a domestic mom and pop type of savings debt.

[FreeKeys]

"completely hosed"

That's an esoteric term used by advanced graduate-level economists. I looked it up.

';^D

[FreeKeys]

“This is the end of Keynsianism. Keynesianism has been with us for 75 years and it’s failing.”- Ron Paul

[dsc]

“send child-care payments soaring, including payments to families who don’t need the money.”

That doesn’t sound like the Japan I lived in for 20 years.

“the country has no major ethnic or political rifts.”

Why do so many people think they understand Japan after nothing more than reading an in-flight magazine? How long has it been since there was a fistfight in the American legislature?

“Demographics is obviously a big contributor to that slow growth, and there are a whole host of secondary factors one could nominate, but whatever the reason, they have now had two decades of anemic growth, which they have fitfully attempted to address with stimulus. Maybe not enough stimulus, maybe badly designed, but they’ve certainly tried to follow the basic Keynesian playbook: borrow money and spend it when times are bad, in the hopes that you can bring back growth.”

How about this: Keynesian economics has never worked, and could never work. Shorter, I think.

[M-cubed]

an esoteric term used by advanced graduate-level economists <<

Yup...They were completely hosed by an Alpha male in their youth....
Why do u think they became accountants...Whoops!...I meant economists...

[DJ Taylor]

How about this: Keynesian economics has never worked, and could never work.

When John Maynard Keynes was reminded that in the long run all the debt incurred by his economic theory would have to be paid back, he replied, "In the long run we'll all be dead."

That one sentence answer went further in explaining Keynes' theory than anything else. In short, borrow as much as it takes to live comfortably during your lifetime, and leave it to your children and grand children to pay your debts.

[dsc]

“In short, borrow as much as it takes to live comfortably during your lifetime, and leave it to your children and grand children to pay your debts.”

Not, of course, that John Maynard Sodomite expected to have children himself...