Yen still overvalued\Japanese "Keynsianism"

[Paul_A <paul_a@xxxxxxx>]

Jim writes:

>To see a structural deficit, there would have to be (1) legislated tax cuts;
>(2) legislated transfer-payment increases; and/or (3) increases in
>government purchases. Have these happened in a big way?

Yes.  In a very big way (especially #3).  And that is why it seems to be
such an amazingly overlooked story.  Sorry again not to have a wider array
of stats handy this week but let me try it a different way:

As % GDP			1994		2000
Govt Revenue			31 %		30%
Govt Expenditure		33 %		37%

Again GDP did not shrink (it slowly grew) so you can see these are marked
and policy driven shifts. Japan now has the highest budget deficit in the
OECD (I believe).  The share of govt in the economy is not quite double the
U.S. and comparable to the northern Europeans - although not as devoted to
social well being.  The last fact may be why we hear so little about it:
the struggle over Koizumi's vision for the budget is not mainly a fight for
social benefits but rather more between two versions of economic growth.
I wrote:
>> My recollection of Krugman's 'planned inflation' proposal and his analysis
>is vague.  I also see him as an aggressive part of the neo-Keynsian crowd....

Jim writes:
>He's a neo-Keynesian who, like Mankiw _et al_, tries shot-gun marriage of
>Walrasian general equilibrium and Keynes.

This is well put.  Have people pointed out that this seems much much more
like Hicks (pre-1965)?  [Now this is something Matthew can't claim not to
be a student of.]

>His liquidity trap theory is about the failure of monetary policy, not
fiscal policy. It's not a true liquidity
>trap à la Keynes: instead it refers to the fact that nominal interest rates
>can't fall below zero.
>
>>I saw his 'planned inflation' proposal as a backdoor incomes policy,...<
>
>maybe, but his explicit story is that planned inflation raises inflationary
>expectations which lowers the real interest rate which stimulates the
>economy (while combatting deflation).
>

Yes, but I recall that he also largely relied on anticipated rising prices
to force consumers to spend (whittling down those savings pools) and
businesses to buy up real estate, etc (whittling down the bad loan
problem).  Maybe I am stretching an analogy but usually the incomes policy
crowd are faced with restraining spending and resort to tax policy and the
like; Krugman was emphasizing using the 'inflation tax' to exhort and guide
spending.

Anyway the point is that the second largest economy in the world has
experimented with probably the largest "Keynesian" fiscal policy in history.
First the U.S. demanded it (Bush I and Clinton); now U.S. economists seem
to ignore it and even urge its abandonment.  Strange world.

Paul A.