The Truth About Japanese Stimulus

The Truth About Japanese Stimulus
Fiscal pump-priming can work to revive the economy.
By RICHARD KATZ

In one of his most famous quotes, John Maynard Keynes declared that even the most practical of men "are usually the slaves of some defunct economist." So, too, in Tokyo, the "practical men" of the ruling Liberal Democratic Party and Ministry of Finance are still stuck in the defunct debates of the 1990s, where one side calls any stimulus financially irresponsible and the other side uses the call for fiscal stimulus as an excuse for wasteful "bridges to nowhere."

With Japan entering a recession that threatens to rival 1997-98, this is not the time for ideological blinders. Even institutions and people normally resistant to fiscal stimulus, from the International Monetary Fund to Ronald Reagan's chief economist, Martin Feldstein, now agree this is the time for fiscal stimulus, including a hike in spending, by all major countries.

The need is even greater in Japan than in the U.S., because its export-dependent economy could end up suffering a worse slump and a more tepid recovery. After months of a slow slide, the Japanese economy seemed to jump off a cliff in November. The value of Japan's inflation-adjusted exports fell a record 19% from the prior year. Manufacturing output fell 13% over the same period. Many economists believe that GDP fell by an annualized rate of 8% in October-December, the worst quarterly decline since at least 1955, when comparable statistics begin.

Policy makers have been slow to respond because they're still hostage to several bad ideas. Let's look at some of the myths guiding Tokyo's policy makers and the contrasting realities.

原文全文連結 (The Wall Street Journal)