The American political economy isn’t doing much better either. At least we’ve got multiple industries devoted to intellectual patrimony that brought us the ‘Reagan Revolution’. That much cannot be said of Japan’s ruling elite nor Shinzo Abe’s reforms. The complete utter lack of ‘R’epublican supply/incentive side macro policy is becoming obvious. So is deflation.
Japan’s second quarter took a dive, contracting 6.8%. Even though most of its citizens spend heavily during the first quarter, the newly minted ‘consumption tax’ is hurting. Hopefully the identical keynesian gnomes at the E.U. and the U.S. are watching how this VAT tax eats growth. In the coming years, we should watch as Japanese citizens move heavy purchases continually to the first quarter to avoid taxation.
How else to say it: Prime Minister Shinzo Abe’s decision on taxation will damage any emerging economic recovery. The problem is intellectual!! Let’s take a look. Japan’s been here before in 1997 when it increased consumption taxes to 5% wrecking an emerging recovery. HERE’S THE INTELLECTUAL FAILURE: JAPAN’S FAILURE TO REVIVE ITS ECONOMY WITH FISCAL STIMULUS (read taxation) KEEPS PROVING KEYNESIAN THOUGHT WRONG, BUT NEW JUSTIFICATIONS ARE ALWAYS FOUND ABSOLVING ITS POLITICAL CLASS FROM RESPONSIBILITY.
This is why elections matter. This is why the very best statesman develop talents outside the confines of orthodoxy. In other words, Abe needs to break from the suffocating, myoptic confines of Japanese Keyneisan orthodoxy.
Translation: he needs to grow a set of balls.
Abe has failed to deliver on promises to deregulate, undertake major domestic reforms, specifically on federal/state subsidies. He’s gone protectionist on Trans-Pacific Partnership. He’s also accelerated Q.E. to highten asset/stock price/earnings ratio’s, yet still, an indigenous recovery has proved ellusive.
The Japanese headwinds are severe, with falling consumption, depleted GDP, rising taxes, aging population, demographic decline and falling real wages.
Its a total crisis for the Japanese economy, something conservatives in the west are familiar with.
The debt trap that keynesian thought procured can only be smitten with pro-growth fiscal policies. The Japanese tax-spend orthodoxy must be taken straight-on.
Ditto for the macro gnomes in the west.