This IMF report argues that Japan needs to cut its national debt (h/t to Warren Mosler).
I’ve been thru the report, and no reasons are given for for Japan cutting its debt other than a selection of catchy and fashionable phrases like “fiscal sustainability”.
Other fashionable phrases, all of which have been debunked in Modern Monetary Theory literature abound in this report: the confidence fairy is there, as might be expected.
There is no appreciation of the fact that if Japanese citizens are happy to hold this debt at very low interest rates (and it’s very largely Japanese nationals rather than foreign nationals who hold Japanese debt), that indicates a desire by Japanese nationals to hold a relatively large quantity of net financial assets. And if those assets are not provided, you get paradox of thrift unemployment.
So if Japan heeds the IMF’s advice and unemployment rises in Japan in the next five years, we know who to blame: the IMF.
As Bill Mitchell has said time and again, the IMF is not fit for purpose and should be closed down. (Coincidentally Bill’s post today is yet another of his broadsides against the IMF.)
This Times leading article is an inspiration. It claims that the solution for Britain’s economic ills is more investment.
As anyone who has got a quarter of the way thru a basic introductory economics text book knows, building a car plant capable of producing a thousand cars a week will not raise demand for cars by so much as one car per year. Though there are some apparent flaws the latter argument, which the gullible always fall for, as follows.
1. There is the fact that all investments are to some extent what economists call an “injection”, i.e. investments tend to increase aggregate demand. But raising demand is easy: just ask anyone who has got a quarter of the way thru a basic introductory economics text book.
2. There is the fact that really worthwhile investments can raise exports (cited by The Times). You knew that was coming didn’t you?
The problem there is that in this recession everyone else has had this brainwave. Obama thinks the U.S. can grow on the back of exports, and Germany is exhorting other European countries to be more like Germany and export more.
But you don’t even need to have OPENED a basic introductory economics text book to see the flaw in that one: it’s a zero sum game.
3. If the car plant is much more efficient than existing car plants, it will raise overall demand for cars, which might sound desirable. Trouble is that (apart from the above mentioned injection point) there is no reason to suppose aggregate demand rises in consequence. Thus the increased demand for cars will be at the expense of demand for other stuff. Net effect: zero.
In short, if inflation permits, why not just raise demand? Businesses invest when demand for their products warrants an investment. Businesses large and small do not need Times leader writers or bureaucrats or politicians to tell them when to invest and what to invest in.