Filing the following under general government “panic”, the Japanese government in the wake of a confirmed recession in 2014 (where only recovery was supposed to exist) is preparing more “stimulus.”
Analysts welcomed the size of the new package, saying it will support the world’s third-largest economy at least partially when the tax hike kicks in. The government estimates that the first sales tax hike in 17 years will increase the burden on households by ¥6 trillion in total, and analysts say the economy can’t avoid a contraction in the April-June quarter next year.
Actually, the above quote is the wrong reflection, as that was the “stimulus” package introduced in December 2013 to offset the tax hike that is being blamed for the recession. So in preparation for what was judged to be a minor disruption of the tax change, the government did what governments always do (though memories are short in the new Keynesian revival).
Following are some points of the programme, meant to support growth in the short term while curbing Japan’s huge public debt over time. The programme was announced by Prime Minister Shinzo Abe.
– The government will raise the sales tax to 8 percent from 5 percent in April, the first major fiscal reform since 1997.
– The stimulus package, worth about 5 trillion yen ($50.96 billion), will include some 1 trillion yen in tax cuts.
– The government will also decide in December whether to end a special corporate tax for earthquake reconstruction in April, a year earlier than planned, which would save companies 900 billion yen. This would effectively cut the corporate tax liability for a big company in Tokyo to 35.6 percent from 38.0 percent.
– Companies boosting their spending on factories and equipment will get a total of 730 billion yen in tax breaks in the fiscal year starting April 1.
– A tax break for companies that raise wages will be expanded by 160 billion yen.
– A tax break for home buyers will be expanded by 110 billion yen.
– The draft plan does not mention cutting the corporate tax rate, but parties in the ruling coalition separately agreed to consider the issue “promptly”.
– The plan includes public works spending for the 2020 Tokyo Olympics, which has been estimated at 1 trillion yen.
That list is what already took place (mostly) in the early months of 2014. Analysts overwhelmingly welcomed the package last year, but “support the world’s third-largest economy at least partially” not so much. The results are in and none of that had much of an impact, a shock to only orthodox economists and media commentary. “Stimulus” isn’t.
Of course, with the Bank of Japan already doing more of the same in recent weeks, the Abe government just announced plans to follow suit.
Economy Minister Akira Amari told reporters yesterday in Tokyo there’s a high chance of a stimulus package. Etsuro Honda, an adviser to Abe, said a 3 trillion yen ($26 billion) program was appropriate and should go toward measures that directly help households, such as child care support.
That was contained in a Bloomberg article somehow filed under the title Japan Seeks To Strengthen 2015 Growth After Recession Hit. Japanese policymakers have been “strengthening growth” for years, decades even, all of which leads to the fourth recession since 2008, and the sixth since 1997. Of course the “stimulus” claim is given the obligatory credentialed economist reassurance, somehow seriously suggesting:
“Household sentiment should be relaxed thanks to the delay in another VAT hike, helping improve spending attitude and facilitate consumption recovery,” Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo, wrote in a note to clients yesterday, referring to the sales, or value-added, tax.
Consumption recovery? I would say that it probably could not get worse, but history suggests not to give in to limiting assessments of economic damage and decay especially when in conjunction with so much “stimulus.”
Given all that has transpired, that economist projection is just pure nonsense and shouldn’t pass even the lowest editorial standards. Japan is awash in “stimulus”, over and over and over again, doing the exact same and expecting magic every time. It used to be that stock investors were rightly ridiculed for having the shortest attention span, but that dubious distinction has clearly passed into the economics profession. And in most cases that is intentional, as in economists think people are just that stupid as to ignore all prior “stimulus” to be “relaxed” about the 11th or 12th iterations of neat repetition.
Last December, Abe unknowingly hinted at the problem, and why all of this will keep failing no matter how many times they try (and how Japan is worse for every effort):
“With this package and other economy-supporting efforts, we can make sure we remain on track to exit deflation,” Mr. Abe said Thursday.
The orthodox mistake is embedded in that very Keynesian sentiment. The goal should not be “on track to exit deflation” but rather “on track to sustainable recovery.” Thinking that inflation = recovery is the original sin of all “stimulus”, fiscal or otherwise, as it comes down to activity for the sake of activity. In reality, generic aggregate demand = waste, the opposite of recovery and sustainable economic progress, which has been proven time and time and time again in Japan (which is why Japan’s full historical exercise should be more prominently placed in US attention). What Japan needs is reorientation away from those negative factors to be replaced by profitable enterprise born of, and borne to, organic processes. Since “stimulus” only produces repeated recession and disaster, at this point authorities can’t even make a case for not trying at least something especially different like capitalism.
It has become a broken record because all economics is now philosophically and practically limited to top-down due to mistrust or outright hatred of free markets and free individual decisions – technocracy does not have to be competent, as it is rarely, if ever, such. The “narrative” must live on even if that means never mentioning the past, but especially when “the past” hasn’t had a birthday yet.
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