What about Japan? It's a question I often hear from advocates of fiscal expansion. Japan has huge debts and no crisis or inflation (so far). Doesn't that prove the US can borrow a ton more money painlessly? I offer two new points today: 1) Not every high debt country is so happy. 2) Just what did ...
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What about Japan? It's a question I often hear from advocates of fiscal expansion. Japan has huge debts and no crisis or inflation (so far). Doesn't that prove the US can borrow a ton more money painlessly?
I offer two new points today: 1) Not every high debt country is so happy. 2) Just what did Japan get for all its fiscal stimulus? Indeed, I will start asking "What about Japan?" Japan seems a tough case for those who advocate that fiscal stimulus will save us from secular stagnation, or that huge spending programs bring prosperity in other dimensions.
1. Picking and choosing
Here, fresh from the April IMF Fiscal Monitor is the list of top 30 countries sorted by debt to GDP ratios. I boldfaced larger countries.
Yes, Japan is up there at 256% of GDP. The champion is Venezuela however. Sudan and Eritrea are not particularly known for economic prosperity. Greece and Italy are not held up as examples to follow either. Serial defaulter Argentina is behind the US already.
If Japan is sustainable, that doesn't mean all large debts are sustainable. It means there's something different about Japan than the other countries on the list -- or ones now lower down on the list because they already defaulted or had crises.
2. So what did Japan get for all that debt anyway?
Those debts come from deficits, of 5-10% of GDP every year. Since 2006, the US has been behaving a lot like Japan, or more so. We only have less debt because the US ran surpluses through the 1990s.
Japan has had perpetually low GDP growth, low inflation and zero interest rates since the 1990s. I view it as low "supply" growth, but it ought to be the poster child for "secular stagnation" fans.
So I turn the question around: If massive deficits, including lots of "infrastructure" are going to boost the US economy, why did they not do so for Japan?