Here’s the news story as reported by CBC:
Japan’s economy unexpectedly slipped back into recession as housing and business investment dropped following a sales tax hike, hobbling its ability to help drive the global recovery.
The world’s third-largest economy contracted at a 1.6 per cent annual pace in the July-September quarter, the government said Monday, confounding expectations that it would rebound after a big drop the quarter before.
The news cast a pall over financial markets: Japan’s share benchmark fell 3 per cent, and many others in Asia also declined. Shares were lower in early trading in Europe and Dow Jones and S&P futures were off 0.5 per cent, suggesting a dismal start for the week on Wall Street.
This Daily Signal article by respected economist Stephen Moore explains what led to this mess:
The tenets of Lord Keynes and his modern disciples have been put on trial in Japan, and the verdict is not a happy one. The rest of the world, not least of all the U.S., ignores these lessons at its own peril.
The engine of growth that created the Land of the Rising Sun economic miracle in the post-World War II era first began to falter in the early 1990s in large part because of a centrally planned industrial policy model.
The panicked response to the downturn was to flood the economy with a continuing series of Keynesian monetary and spending stimulus injections.
None of it has worked.
The collapse of Japan’s stock market tells the whole story. In December 1989, the Nikkei 225 index stood at a lofty 38,900. Today, almost a quarter-century later, the index stands at just under 16,000.
In 25 years Japan has experienced a nearly 3/5 liquidation of its financial wealth.
Japan has directed tens of billions of dollars into public works projects — “investments,” as President Obama calls them. This was paid for with debt. In the last two decades, Japan’s debt burden catapulted from 19% of GDP, among the lowest in the industrialized world, to over 142%, among the highest.
The government spending coincided with a monetary policy almost unprecedented in its looseness. From the late 1980s through 2000, the central bank’s balance sheet more than doubled — a precursor to the “quantitative easing” carried out by the U.S. Federal Reserve. And since 2000, the balance sheet has doubled once again.
Inflation rates in Japan are bearing down on 4% — a near-high among major competitors.
The result? The expected Keynesian “multiplier effect” from spending and a flood of yen into the market never arrived.
Housing starts in Japan are still lower than the level nearly 25 years ago. Unemployment, still low by international standards, is nearly twice the level of 1990, and wages have been flat.
Labor force participation continues to trend downward as well — falling by around 4 percentage points over the last two decades.
Yet, liberal economists have urged Japan to keep the stimulus coming. Last winter, the New York Times’ Paul Krugman exulted in Prime Minister Shinzo Abe’s expansionary fiscal and monetary policies.
“So, how is Abenomics working?” he wrote. “The overall verdict on Japan’s effort to turn its economy around is so far, so good. If Abenomics works, it will serve a dual purpose — giving Japan itself a much-needed boost and the rest of us an even more-needed antidote to policy lethargy.”
Japan, Krugman predicted, “may also end up showing the rest of us the way out” of stagnation.
Forbes magazine confirms leftist “economist” Paul Krugman’s detailed advice to Japan:
In the 1990s it was Krugman who most loudly championed Japan’s innumerable and reckless “stimulus” schemes, together with dozens of rounds of “quantitative easing” (fiat money printing). Japan followed his advice and ever since then has suffered a secular stagnation. Since 1990 Japan’s public debt has ballooned from 68% to 233% of GDP; its money supply is up 286%, while its industrial output is lower by 3.4% and its equity index is down by 73%. This is what Keynesians “stimulus” has done for Japan – and Krugman wants the same for the U.S.
Mr. Krugman repeatedly invokes the magic multiplier, the bogus claim that when we spend our own dollar we boost GDP by a dollar, but when the government takes it and spends it, GDP is boosted by $1.40. Wow. Fabulous. Government spending not only “pays for itself,” but more than pays for itself. On this view, were government to take everything we earned and spend it, the economy might well expand to the moon. Is it magic – or voodoo?
I notice that leftists at the BBC are calling the failure a “surprise“.
Where did Abenomics go wrong?
In the spring of 2013, Prime Minister Shinzo Abe launched an ambitious growth strategy that rapidly became known as Abenomics.
Its aim was to drag Japan’s economy out of 20 years of deflation and put it back on the road to growth. Billions of dollars were pumped into the economy through stimulus spending. The Bank of Japan went on an even bigger spree, printing hundreds of billions of dollars of new money and using it to buy government bonds.
And the leftist New York Times is calling it “unexpected“:
The surprise recession underscores the difficulties faced by Mr. Abe, who won power two years ago on a pledge to reinvigorate the economy and end his country’s long streak of wage and consumer-price declines. His agenda, dubbed Abenomics, has focused largely on stimulus measures, in particular an expanded program of asset purchases by the central bank. Yet its impact, economists say, has been dulled by the tax increase, which was approved under a previous government.
[…]Then, in early 2014, Mr Abe’s government took a calculated gamble. With the economy growing he could risk putting up taxes for the first time in nearly 20 years. Consumption (purchase) tax would rise from 5 to 8%. The tax rise was urgently needed to plug the giant hole in Japan’s public finances.
Why does anyone take economic advice from people on the left like Paul Krugman? Raising taxes, increasing debt and more government spending never helps the economy grow. Certainly not at the rate that pro-growth policies do.
We need to cut our corporate tax, which is the highest in the world. We need to cut spending and cut government duplication and waste. We need to privatize inefficient government programs. We need to reward work instead of dependency. We need to stop borrowing money and raising our national debt. We need to stop printing money, aka – quantitative easing. We need to raise interest rates and encourage saving instead of spending.
WINTERY KNIGHT 