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The following article was published in our article directory on September 1, 2010.
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Keynesians Can Not Save the Japanese Economy

Article Category: Business

Author Name: xia zihui

The current global economic recovery is heavily dependent on the largest feature in the Government. Global financial crisis to "Keynesian" return again, he praised the "required state intervention in the economy to expand government spending, the implementation of the economic deficit, government spending needs to become part of the market is conducive to the growth of smooth, economic fluctuations brought down." Then time as a weapon against the crisis. Keynesian really can save the economy? Japan's 20 years of economic stagnation could probably provide the best lesson.

Since the creation of the classic western economics since Keynes, the total output or total income on the decision of the theme of the macroeconomic split into two parts, first to explain why the total output in the short term cyclical recession and expansion, two to explain the level of potential output growth, the former is known as the economic cycle theory, which was to become "economic growth" theory. As Keynes that potential output level is reached before the changes in aggregate demand, especially investment demand to total output changes play a decisive role, he is used to explain changes in aggregate demand fluctuations in the economic cycle, so it is called Keynesian as demand management, Keynesian demand management is considered good policy response to the crisis.

2008 outbreak of the financial crisis will mire the Japanese economy into recession, in response to the crisis, Japan's efforts to implement an unprecedented economic stimulus package, increased borrowing efforts, however, expansionary fiscal policy of large-scale Japanese long-standing problem of financial fragility increasingly prominent, leading to an accumulation of sovereign debt risk. Financial crisis, Japan introduced four consecutive stimulus plan, the scale of the total expenditure of 75 trillion yen, accounting for about 5% of GDP.

In the real economy in recession, private sector credit and demand contraction process, the public sector's anti-cyclical policies, and monetary policy easy to have a "liquidity trap", fiscal policy to curb the economic recession You output decline , lower asset prices, credit crunch and the impact of, for shortening the duration of the recession is indeed quite plausible, but also its enormous apparent negative resistance: This is equivalent to the Government originally scattered in various economic entities (such as financial institutions ) focused on the government a risk to spread the risk of the balance sheet increased as the concentration of assets and liabilities of the government sovereign risk, the direct result of the deficit and its financing costs increase the level of the public balance sheet continued to expand.

Japan's dependence on either government bonds or debt indicators have deteriorated sharply. As of the end of fiscal 2009, an increase of Japan's national debt balance of about 24.9 trillion yen, a record current total debt of about 871.5 trillion yen of debt dependence was 52.1%, compared with fiscal 2008 increases by 12.9 percentage points.

Unlike other countries, the Japanese deficit is cumulative, both cyclical deficit, a structural deficit, and these deficits and debt and deficit financing in Japan is closely related to long-term implementation, can be said that Japan called Keynesian deficit financing model. Deficit financing as a demand management policy, and its function with short-term aging. Once the expansionary fiscal policy a long-term, it will cause serious economic consequences.

Of the 20th century the early 90s, asset bubble Japanese economy hit hard. "Bubble economy" has been in the Japanese economy since the collapse of asset price contraction, as a large investment in equipment during the bubble reduction in the capital stock of the economic system needs to be adjusted. To save the economy, the Japanese government between 1992-1998 through tax cuts, increased public investment, purchase of land, etc., intensive Tuichu fiscal stimulus plan and injection Chaoguo GDP of 15 percent, about half as public investment. Ten years after 1992, Japan has carried out dozens of economic prosperity policy, and its size is growing. However, these economic measures did not make the Japanese economy into a dependent endogenous demand-led growth path, on the contrary Queshi financial and economic growth increasingly dependent on debt.

Protracted fiscal stimulus beyond the financial constraints the Government of Japan, not only did not achieve the intended purpose, instead due to the huge fiscal deficits boost interest rates, private investment has serious "crowding out", the actual GDP and potential GDP (full use of 1 can be produced from domestic GDP) gap is always high, resulting in lower per capita output. Japan's financial situation also makes a serious deterioration of the total national debt continue to rise over the past decade Japan has increased by 200 trillion yen. As the Japanese government deficit financing or through tax or through debt financing, or financing by the central bank increased the money supply. It is not hard to understand why the Japanese economy has been plunged into debt deflation model, that is "low growth, low inflation, low interest rates, high debt," the state has.

Indeed, Japan's debt situation is worst in developed countries. If we look at the proportion of GDP, total debt, total debt in 2009 Japan had reached a record 871.5 trillion yen, accounting for GDP, 174%, the highest in the OECD. With debt growing faster than the pace of economic recovery, weak growth in personal assets, Japan's national savings rate has dropped from 10.5% in 1998 to 2008, 3.3%, IMF is expected within a few years the Japanese savings rate turned negative trend is Inevitably, the capital and liabilities will be increasing the gap, the Japanese government's national credit will be hard hit, for many years supported by national savings model unsustainable debt, insolvent from the day of Japan's close.

Europe, Japan once again deep mire of debt so that we rethink the anti-crisis mechanisms, "deficit financing" as a demand management policy, and its function with short-term aging. "Deficit financing" should not be a long-term, once the expansionary fiscal policy, a long-term, it will cause serious economic consequences, weakening the regulatory function of fiscal policy. In the long term, to fundamentally overcome the economic downturn, we must shift from the traditional demand management to promote long-term growth of supply management policies, improved economic structure defects, in stimulating economic growth and balance the economic development between the search for new ways to .

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