From The Times of India:
Japan’s Abe unleashes stimulus plan to spur growth
AP | Dec 27, 2014, 06.53 PM IST
TOKYO: Japan’s cabinet approved 3.5 trillion yen ($29 billion) in fresh stimulus on Saturday for the ailing economy, pledging to get growth back on track and restore the country’s precarious public finances.
Prime Minister Shinzo Abe is wrapping up his second year in office hard-pressed to salvage a recovery that fizzled into recession after a sales tax hike in April.
The stimulus plan endorsed by the Cabinet includes 600 billion yen ($5 billion) earmarked for stagnant regional economies. It also lays out Abe’s vision for countering longer term trends such as Japan’s surging public debt and a declining and aging population.
“A strong economy is the wellspring of Japan’s national strength,” said a summary of the plan released by the government.
It pledged to restore vitality to local regions to enable young Japanese “to have dreams and hopes for the future.”
More at the original, which continues to note that Japan’s government debt is already twice the nation’s gross domestic product, and that Mr Abe’s government is promising to balance the budget by 2020. Just last year, Bloomberg reported that Mr Abe’s government had proposed a record budget, and record budget deficit, and that the sales tax increase then scheduled to being in April 2013 would increase government revenues, but “is forecast to push the economy into contraction.” The sales tax went into effect, and the economy, as predicted, contracted.
Japan’s economic problems are far worse than those of the United States, but, 5½ years after President Obama got his stimulus plan passed, our economy is still not doing particularly well. As we have reported several times before, the lowered unemployment rate, the U-3 “big number,” has masked the very large U-6 unemployment rate.1
With that in mind, I am going to refer back to what I wrote on January 28, 2009, on the old site:
One of the underlying notions concerning the stimulus proposal is the idea that the government controls the economy, but it quite simply does not. If the government could control the economy, we’d always have good times. But the very regrettable history is that the more control the government does exercise over the economy, the poorer that economy is: that’s why the Soviet Union is no more.
There are slightly more than 300 million people in the United States, and the vast majority of them, including children past the age of three or so, wind up being decision-takers of some sort in the economy. (Children three years old might not have their own money, but they can certainly plead with mommy to buy this cereal or that toy advertised on Barney.)
The government, which naturally thinks it’s smarter and wiser than the common people, would, in this case, borrow hundreds of billions of dollars, and try to direct it in ways that the government thinks wisest; you’ll pardon me if the fact that I’ve studied the Soviets’ various Five-Year Plans, and been impressed with the thought behind them but very unimpressed with the results. One thing is certain, if President Obama’s Five-Year Plan stimulus package is passed: the deficit will soar — again — and the national debt will rise.
The stimulus plan reminds me of a trip to the dentist. When the dentist has to do some drilling and gives you Novacaine, he isn’t preventing the pain; he’s just delaying the pain until he’s done with his work.
And so it is with this stimulus package. At some point, we’ll have to pay for it, and that’s the pain. I’m beginning to think that we’d be better off just going through the pain now, and getting it over with.
The voters elected Franklin Roosevelt because of the Depression, and our 32nd President put forward and got passed all sorts of alphabet soup government programs, but still, the Depression persisted. We got out of the Depression due to the stimulus package passed by Hideki Tojo and Adolf Hitler, creating massive employment opportunities in the Army and new armament industries, and creating a demand for many goods that were not used in the civilian economy and which were rapidly expended, creating even more demand for replacements. Somehow I don’t think we want to go to the extreme of having the Japanese attack Pearl Harbor again!
The question is: had World War II not arisen, when would the Depression have ended — and would the New Deal have hastened its end, or prolonged its length? There’s no control group we can use to measure the results.
What has government done in the past to deal with recessions? Ronald Reagan put a big tax cut in place, and we came out of the recession. The elder President Bush agreed to a big tax increase, and we went into a recession. But then President Clinton added another huge tax increase, and we came out of the recession. We went into recession again at the very tail end of the Clinton Administration, and the younger President Bush got a big tax cut, and we came out of the recession. But then, with those same tax cuts in place, we went into another recession in 2008.
Take your pick: both tax cuts and tax increases have preceded recessions, and both tax cuts and tax increases have preceded recoveries. Maybe, just maybe, changes in taxation have nothing to do with whether the economy goes into recession or recovers from one.
This recession was preceded by the same thing that struck in 1988: housing prices were bid up far in excess of inflation. The housing market collapsed, because people were afraid of losing their jobs and the prices had gotten so out of tune with the rest of the economy. It seems worse this time, because new financial instruments have spread around the pain of a falling housing market to a wider group of people.
That, friends, has nothing to do with the government; that has to do with the individual decisions of a couple hundred million economic actors in our country.
I honestly think — and remember, I’m in the construction industry — that we’d probably be better off doing absolutely nothing. Let the economy adjust, as the economic actors in the United States take their individual economic decisions concerning what’s right for them. There will be pain, but the economy will recover.
But, doing it my way means about a trillion dollars less, per year, added to the national debt. We can avoid that future pain, if we’ll take our medicine in the present.
I didn’t get my way, of course, and the Congress passed the 2009 stimulus plan. I had noted, in a comment on Sister Toldjah:
Am I the only one who thinks that maybe the best thing the government can do for the economy is to do nothing at all?
The economy will recover, because the economy always recovers; that’s just part of the business cycle. But President Obama would add spending programs that would push the deficits to above a trillion dollars a year, far as far as the eye can see. That can’t be good.
Let me put it very bluntly: I was right in January of 2009! The stimulus plan was passed, and completely failed to produce the results the Obama Administration claimed that it would. It was supposed to hold the U-3 unemployment rate to a maximum of 8%; U-3 unemployment hit 10.0% several months after the stimulus plan was passed. Our economy was supposed to be humming along in just a couple of years; even today, economic growth has been sluggish, with some decent quarters and some not so good quarters, incomes for working and middle class Americans have stagnated, and welfare rolls have increased dramatically. Despite what the official economic numbers might say, polls indicate that 72% of the public believe that we are still in a recession. Despite the wholly misleading official unemployment number, there are fewer full-time jobs than before the recession began.
We did just what the Democrats said we should do, and it failed! Now, Prime Minister Abe is going down the same road in Japan, and he will fail, too.
When The First Street Journal tells you something about economics, you should listen, because we have a record of being right.
- The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts “marginally attached workers and those working part-time for economic reasons.” Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week. And the “marginally attached workers” include those who have gotten discouraged and stopped looking, but still want to work. The age considered for this calculation is 16 years and over ↩