Jake's View | It's time for Japan to dump the failed Keynesian policies
Decades of monetary stimulus have merely inflated state debt and done little to help nation
"I am aware that critics say 'Abenomics' is a failure and not working but I have not heard one concrete idea what to do instead … are our economic policies mistaken or correct? Is there another option?"
Let's look at failure. Since the early 1990s, the Japanese government has tried to stimulate economic growth with heavy doses of easy money and fiscal deficits.
It is what they call the Keynesian model although I am not sure that John Maynard Keynes would have subscribed to all of it. Briefly stated, it says that in bad times you open the money taps and also have your government go on a big spending spree. This will bring good times back.
And this is what Japan did. For the past 20 years, the central bank discount rate has been less than 1 per cent and the short-term lending rate less than 2 per cent. As the first chart shows, over the same period government debt has also risen from 55 to 215 per cent of gross domestic product.
The debt figure now stands at 1,040 trillion yen. Help me here. What is a thousand trillion? A zillion? A gigajillion? Has anyone ever been there before?