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Archive for the ‘Japan’ Category

I’ve looked at some of the grim fiscal implications of demographic changes the United States and Europe.

Now let’s look at what’s happening in Asia.

The International Monetary Fund has a recent study that looks at shortfalls in government-run pension schemes and various policies that could address the long-run imbalances in the region. Here are the main points from the abstract.

Asian economies are aging fast, with significant implications for their pension system finances. While some countries already have high dependency ratios (Japan), others are expected to experience a sharp increase in the next couple of decades (China, Korea, Singapore). …This has…implications. …pension system deficits can increase very quickly, limiting room for policy action and hampering fiscal sustainability. …This paper explores how incorporating Automatic Adjustment Mechanisms (AAMs)—rules ensuring that certain characteristics of a pension system respond to demographic, macroeconomic and financial developments, in a predetermined fashion and without the need for additional intervention— can be part of pension reforms in Asia.

More succinctly, AAMs are built-in rules that automatically make changes to government pension systems based on various criteria.

Incidentally, we already have AAMs in the United States. Annual Social Security cost of living adjustments (COLAs) and increases in the wage base cap are examples of automatic changes that occur on a regular basis. And such policies exist in many other nations.

But those are AAMs that generally are designed to give more money to beneficiaries. The IMF study is talking about AAMs that are designed to deal with looming shortfalls caused by demographic changes. In other words, AAMs that result in seniors getting lower-than-promised benefits in the future. Here’s how the IMF study describes this development.

More recently, AAMs have come to the forefront to help address financial sustainability concerns of public pension systems. Social insurance pension systems are dominated by defined benefit schemes, pay-as-you-go financed, with liabilities explicitly underwritten by the government. …these systems, under their previous contribution and benefit rules, are unprepared for population aging and need to implement parametric reform or structural reforms in order to reduce the level or growth rate of their unfunded pension liabilities. …Automatic adjustments can theoretically make the reform process politically less painful and more likely to succeed.

Here’s a chart from the study that underscores the need for some sort of reform. It shows the age-dependency ratio on the left and the projected increase in the burden of pension spending on the right.

I’m surprised that the future burden of pension spending in Japan will only be slightly higher than it is today.

And I’m shocked by the awful long-run outlook in Mongolia (the bad numbers for China are New Zealand are also noteworthy, though not as surprising).

To address these grim numbers, the study considers various AAMs that might make government systems fiscally sustainable.

Especially automatic increases in the retirement age based on life expectancy.

One attractive option is to link statutory retirement ages—which seem relatively low in the region—to longevity or other sustainability indicators. This would at the very least help ameliorate the impact of life expectancy improvements in the finances of public pension systems. … While some countries have already raised the retirement age over time (Japan, Korea), pension systems in Asia do not yet feature automatic links between retirement age and life expectancy. …The case studies for Korea and China (section IV) suggest that automatic indexation of retirement age to life expectancy can indeed help reduce the pension system’s financial imbalances.

Here’s a table showing the AAMs that already exist.

Notice that the United States is on this list with an “ex-post trigger” based on “current deficits.”

This is because when the make-believe Trust Fund runs out of IOUs in the 2030s, there’s an automatic reduction in benefits. For what it’s worth, I fully expect future politicians to simply pass a law stating that promised benefits get paid regardless.

It’s also worth noting that Germany and Canada have “ex-ante triggers” for “contribution rates.” I’m assuming that means automatic tax hikes, which is a horrid idea. Heck, even the study acknowledges a problem with that approach.

…raising contribution rates can have important effects on the labor market and growth, it would be important to prioritize other adjustments.

From my perspective, the main – albeit unintended – lesson from the IMF study is that private retirement accounts are the best approach. These defined contribution (DC) systems avoid all the problems associated with pay-as-you-go, tax-and-transfer regimes, generally known as defined benefit (DB) systems.

The larger role played by defined contribution schemes in Asia reduce the scope for using AAMs for financial sustainability purposes. Many Asian economies (Hong Kong, Singapore, Australia, Malaysia and Indonesia) have defined contribution systems, …under which system sustainability is typically inherent.

Here are the types of pension systems in Asia, with Australia and New Zealand added to the mix..

For what it’s worth, I would put Australia in the “defined contribution” grouping. Yes, there is still a government age pension that serves as a safety net, but there also are safety nets in Singapore and Hong Kong as well.

But I’m nitpicking.

Here’s another table from the study showing that it’s much simpler to deal with “DC” systems compared with “DB” systems. About the only reforms that are ever needed revolve around the question of how much private savings should be required.

By the way, even though the information in the IMF study shows the superiority of DC plans, that’s only an implicit message.

To the extent the bureaucracy has an explicit message, it’s mostly about indexing the retirement age to changes in life expectancy.

That’s probably better than doing nothing, but there’s an unaddressed problem with that approach. It forces people to spend more years working and paying into systems, and then leaves them fewer years to collect benefits in retirement.

That idea periodically gets floated in the United States. Here’s some of what I wrote in 2011.

Think of this as the pay-for-a-steak-and-get-a-hamburger plan. Social Security already is a bad deal for workers, forcing them to pay a lot of money in exchange for relatively meager retirement benefits.

I made a related observation about this approach back in 2012.

…it focuses on the government’s finances and overlooks the implications for households. It is possible, at least on paper, to “save” Social Security by cutting benefits and raising taxes. But such “reforms” force people to pay more and get less – even though Social Security already is a very bad deal, particularly for younger workers.

The bottom line is that the implicit message should be explicit. Other nations should copy jurisdictions such as Chile, Australia, and Hong Kong by shifting to personal retirement accounts

P.S. Speaking of which, here’s the case for U.S. reform, as captured by cartoons. And you can enjoy other Social Security cartoons here, here, and here, along with a Social Security joke if you appreciate grim humor.

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When I warn about the fiscal and economic consequences of America’s poorly designed entitlement programs (as well as the impact of demographic changes), I regularly suggest that the United States is on a path to become Greece.

Because of Greece’s horrible economy, this link has obvious rhetorical appeal.

But there’s another nation that may be a more accurate “role model” of America’s future. This other country, like the United States, is big, relatively rich, and has its own currency.

For these and other reasons, in an article for The Hill, I suggest that Japan is the nation that may offer the most relevant warning signs. I explain first that Japan shows the failure of Keynesian economics.

…ever since a property bubble burst in the late 1980s, Japan’s economy has been in the doldrums, and its politicians deserve much of the blame. They’ve engaged in repeated binges of so-called Keynesian stimulus. But running up the national credit card hasn’t worked any better in Japan than it did for President Barack Obama. Instead of economic rejuvenation, Japan is now saddled with record levels of debt.

In other words, Japan already is a basket case and may be the next Greece. And all this foolish policy has been cheered on by the IMF.

I then highlight how Japan shows why a value-added tax is a huge mistake.

Japan’s politicians also decided to impose a value-added tax (VAT) on the nation. As so often happens when a VAT gets adopted, it turns into a money machine, as legislators start ratcheting the rate higher and higher. That happened in Europe back in the 1960s and 1970s, and it’s happening in Japan today.

And regular readers know my paranoid fear of the VAT taking hold in the United States.

But here’s the main lesson in the column.

The combination of demographic changes and redistribution programs is a recipe for fiscal crisis.

…the biggest economic threat to the country is the way Japan’s welfare state interacts with demographic changes. It’s not that the welfare state is enormous, particularly compared with European nations, but the system is becoming an ever-increasing burden because the Japanese people are living longer and having fewer children. …America faces some of the same problems. …if we don’t reform our entitlement programs, it’s just a matter of time before we also have a fiscal crisis.

To be sure, as I note in the article, Japan’s demographic outlook is worse. And that nation’s hostility to any immigration (even from high-skilled people) means that Japan can’t compensate (as America has to some degree) for low birth rates by expanding its population.

Indeed, the demographic situation in Japan is so grim that social scientists have actually estimated the date on which the Japanese people become extinct.

Mark August 16, 3766 on your calendar. According to…researchers at Tohoku University, that’s the date Japan’s population will dwindle to one. For 25 years, the country has had falling fertility rates, coinciding with widespread aging. The worrisome trend has now reached a critical mass known as a “demographic time bomb.” When that happens, a vicious cycle of low spending and low fertility can cause entire generations to shrink — or disappear completely.

Though I guess none of us will know whether this prediction is true unless we live another 1750 years. But it doesn’t matter if the estimate is perfect. Japan’s demographic outlook is very grim.

By the way, the problem of aging populations and misguided entitlements exists in almost every developed nation.

But I mentioned in the article for The Hill that there are two exceptions. Hong Kong and Singapore have extremely low birthrates and aging populations. But neither jurisdiction faces a fiscal crisis for the simple reason that people largely are responsible for saving for their own retirement.

And that, of course, is the main lesson. The United States desperately needs genuine entitlement reform. While I’m not overflowing with optimism about Trump’s view on these issues, hope springs eternal.

P.S. In yesterday’s column about Germany, I listed bizarre policies in Germany in the postscripts. My favorite example from Japan is the regulation of coffee enemas. And the Japanese government has even proven incompetent at giving away money.

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Remember Bill Murray’s Groundhog Day, the 1993 comedy classic about a weatherman who experiences the same day over and over again?

Well, the same thing is happening in Japan. But instead of a person waking up and reliving the same day, we get politicians pursuing the same failed Keynesian stimulus policies over and over again.

The entire country has become a parody of Keynesian economics. Yet the politicians make Obama seem like a fiscal conservative by comparison. They keep doubling down on the same approach, regardless of all previous failures.

The Wall Street Journal reports on the details of the latest Keynesian binge.

Japan’s cabinet approved a government stimulus package that includes ¥7.5 trillion ($73 billion) in new spending, in the latest effort by Prime Minister Shinzo Abe to jump-start the nation’s sluggish economy. The spending program, which has a total value of ¥28 trillion over several years, represents…an attempt to breathe new life into the Japanese economy… The government will pump money into infrastructure projects… The government will provide cash handouts of ¥15,000, or about $147, each to 22 million low-income people… Other items in the package included interest-free loans for infrastructure projects…and new hotels for foreign tourists.

As already noted, this is just the latest in a long line of failed stimulus schemes.

The WSJ story includes this chart showing what’s happened just since 2008.

And if you go back farther in time, you’ll see that the Japanese version of Groundhog Day has been playing since the early 1990s.

Here’s a list, taken from a presentation at the IMF, of so-called stimulus plans adopted by various Japanese governments between 1992-2008.

And here’s my contribution to the discussion. I went to the IMF’s World Economic Outlook database and downloaded the numbers on government borrowing, government debt, and per-capita GDP growth.

I wanted to see how much deficit spending there was and what the impact was on debt and the economy. As you can see, red ink skyrocketed while the private economy stagnated.

Though we shouldn’t be surprised. Keynesian economics didn’t work for Hoover and Roosevelt, or Bush and Obama, so why expect it to work in another country.

By the way, I can’t resist making a comment on this excerpt from a CNBC report on Japan’s new stimulus scheme.

Abe ordered his government last month to craft a stimulus plan to revive an economy dogged by weak consumption, despite three years of his “Abenomics” mix of extremely accommodative monetary policy, flexible spending and structural reform promises.

In the interest of accuracy, the reporter should have replaced “despite” with “because of.”

In addition to lots of misguided Keynesian fiscal policy, there’s been a radical form of Keynesian monetary policy from the Bank of Japan.

Here are some passages from a very sobering Bloomberg report about the central bank’s burgeoning ownership of private companies.

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year…. BOJ Governor Haruhiko Kuroda almost doubled his annual ETF buying target last month, adding to an unprecedented campaign to revitalize Japan’s stagnant economy. …opponents say the central bank is artificially inflating equity valuations and undercutting efforts to make public companies more efficient. …the monetary authority’s outsized presence will make some shares harder to buy and sell, a phenomenon that led to convulsions in Japan’s government bond market this year. …the BOJ doesn’t acquire individual shares directly, it’s the ultimate buyer of stakes purchased through ETFs. …investors worry that BOJ purchases could give a free ride to poorly-run firms and crowd out shareholders who would otherwise push for better corporate governance.

Wow. I don’t pretend to be an expert on monetary economics, but I can’t image that there will be a happy ending to this story.

Just in case you’re not sufficiently depressed about Japan’s economic outlook, keep in mind that the nation also is entering a demographic crisis, as reported by the L.A. Times.

All across Japan, aging villages such as Hara-izumi have been quietly hollowing out for years… Japan’s population crested around 2010 with 128 million people and has since lost about 900,000 residents, last year’s census confirmed. Now, the country has begun a white-knuckle ride in which it will shed about one-third of its population — 40 million people — by 2060, experts predict. In 30 years, 39% of Japan’s population will be 65 or older.

The effects already are being felt, and this is merely the beginning of the demographic wave.

Police and firefighters are grappling with the safety hazards of a growing number of vacant buildings. Transportation authorities are discussing which roads and bus lines are worth maintaining and cutting those they can no longer justify. …Each year, the nation is shuttering 500 schools. …In Hara-izumi, …The village’s population has become so sparse that wild bears, boars and deer are roaming the streets with increasing frequency.

Needless to say (but I’ll say it anyhow), even modest-sized welfare states eventually collapse when you wind up with too few workers trying to support an ever-growing number of recipients.

Now maybe you can understand why I’ve referred to Japan as a basket case.

P.S. You hopefully won’t be surprised to learn that Japanese politicians are getting plenty of bad advice from the fiscal pyromaniacs at the IMF and OECD.

P.P.S. Maybe I’m just stereotyping, but I’ve always assumed the Japanese were sensible people, even if they have a bloated and wasteful government. But when you look at that nation’s contribution to the stupidest-regulation contest and the country’s entry in the government-incompetence contest, I wonder whether the Japanese have some as-yet-undiscovered genetic link to Greece?

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Japan is the poster child for Keynesian economics.

Ever since a bubble popped about 25 years ago, Japanese politician have adopted one so-called stimulus scheme after another.

Lots of additional government spending. Plenty of gimmicky tax cuts. All of which were designed according to the Keynesian theory that presumes that governments should borrow money and somehow get those funds into people’s pockets so they can buy things and supposedly jump-start the economy.

Japanese politicians were extraordinarily successful, at least at borrowing money. Government debt has quadrupled, jumping to way-beyond-Greece levels of about 250 percent of economic output.

But all this Keynesian stimulus hasn’t helped growth.

The lost decade of the 1990s turned into another lost decade and now the nation is mired in another lost decade. This chart from the Heritage Foundation tells you everything you need to know about what happens when a country listens to people like Paul Krugman.

But it’s not just Paul Krugman cheering Japan’s Keynesian splurge.

The dumpster fire otherwise known as the International Monetary Fund has looked at the disaster of the past twenty-five years and decided that Japan needs more of the same.

I’m not joking.

The Financial Times reports on the latest episode of this Keynesian farce, aided and abetted by the hacks at the IMF.

Japan must redouble economic stimulus…the International Monetary Fund has warned in a tough verdict on the world’s third-largest economy. Prime minister Shinzo Abe needs to “reload” his Abenomics programme with an incomes policy to drive up wages, on top of monetary and fiscal stimulus, the IMF said after its annual mission to Tokyo. …David Lipton, the IMF’s number two official, in an interview with the Financial Times…argued that Japan should adopt an incomes policy, where employers — including the government — would raise wages by 3 per cent a year, with tax incentives and a “comply or explain” mechanism to back it up. …Mr Lipton and the IMF gave a broad endorsement to negative interest rates. The BoJ sparked a political backlash when it cut rates to minus 0.1 per cent in January.

Wow.

Some people thought I was being harsh when I referred to the IMF as the Dr. Kevorkian of the global economy.

I now feel that I should apologize to the now-departed suicide doctor.

After all, Dr. Kevorkian probably never did something as duplicitous as advising governments to boost tax burdens and then publishing a report to say that the subsequent economic damage was evidence against the free-market agenda.

P.S. The IMF is not the only international bureaucracy that is giving Japan bad advice. The OECD keeps advising the government to boost the value-added tax.

P.P.S. Japan’s government is sometimes so incompetent that it can’t even waste money successfully.

P.P.P.S. Though Japan does win the prize for the strangest government regulation.

P.P.P.P.S. By the way, here’s another example of the IMF in action. Sri Lanka’s economy is in trouble in part because of excessive government spending.

So the IMF naturally wants to do a bailout. But, as Reuters reports, the bureaucrats at the IMF want Sri Lanka to impose higher taxes.

Sri Lanka will raise its value added tax and reintroduce capital gains tax…ahead of talks on a $1.5-billion loan it is seeking from the International Monetary Fund. …The IMF has long called on Sri Lanka to…raise revenues… These are likely to be the main conditions for the grant of a loan, economists say.

P.P.P.P.P.S. On a separate topic, the British will have a chance to escape the European Union this Thursday.

I explained last week that Brexit would be economically beneficial to the United Kingdom, but independence also is a good idea simply because the European Commission and European Parliament (and other associated bureaucracies) are reprehensible rackets for the benefit of insiders.

In other words, Brussels is like Washington. Sort of a scam to transfer money from taxpayers to the elite.

Though I wonder whether the goodies for EU bureaucrats can possibly be as lavish as those provided to OECD employees. I don’t know if the bureaucrats at the OECD get free Viagra, but they pay zero income tax, which surely must be better than the special low tax rate that EU bureaucrats have arranged for themselves.

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Maybe future events will require a reassessment, but right now the biggest danger to the western world isn’t terrorism. Nor is it climate change. Or Zika. Or even Donald Trump.

The real threat is demographic change.

America’s population profile already has changed, but the future shift will be even more dramatic.

But demographics changes are neither good nor bad. The real problem, as I pointed out last month, is when you combine an aging population with poorly designed entitlement programs.

…even a small welfare state becomes a problem when a nation has a population cylinder. Simply stated, there aren’t enough people to pull the wagon and there are too many people riding in the wagon.

That’s a recipe for a crisis.

Here are some sobering details from a story in Business Insider.

The world is about to see a mind-blowing demographic situation that will be a first in human history: There are about to be more elderly people than young children. …And these two age groups will continue to grow in opposite directions: The proportion of the population ages 65 and up will continue to increase, while the proportion of the population ages 5 and under will continue decreasing. In fact, according to the Census Bureau, by 2050 those ages 65 and up will make up an estimated 15.6% of the global population — more than double that of children ages 5 and under, who will make up an estimated 7.2%. “This unique demographic phenomenon of the ‘crossing’ is unprecedented,” the report’s authors said.

Here’s the chart that accompanied the story.

And as you look at the numbers, keep in mind that entitlement programs mean that a growing population of old people means more spending, while a shrinking number of children means fewer future taxpayers to finance that spending.

Let’s now look at a nation that is the “canary in the coal mine” for why changing demographics is a recipe for fiscal crisis.

A story from The Week highlights the grim demographic outlook for Japan.

Japan is us, and we’re Japan. …Japan has a…serious problem on its hands: The country is literally dying. According to current projections, by 2060 the country will have shrunk by a third, and people over 65 years old will account for 40 percent of the population. Already, the country is selling more adult diapers than infant diapers. To say this is unsustainable is a euphemism. The country is quite simply dying. …Demography is not destiny, exactly, but it is close to it. …the impending collapse can no longer be denied, as is the case in Japan and Germany. …The extinction of a people and culture is always a global tragedy. It’s time for Japan — and the West — to wake up.

A wake-up call is needed. It’s not just Japan. The entire developed world faces a demographic problem.

The good news is that there is an understanding that something needs to change.

The not-so-good news is that many of the responses are misguided. Cheered on by the OECD, Japan has been boosting the value-added tax in hopes of financing an ever-expanding burden of government spending.

That won’t end well.

And I’m not overly enthralled by some of the other proposals.

Why not just pay people to have children? …If you lower the price of something, you will get more of it. Over the past two decades, Japan has spent trillions of dollars on mostly wasteful pork-barrel spending projects. It seems to me that the country would be better off today if that money had been spent on bonuses for second and third children instead.

For what it’s worth, I agree that giving money to parents would have been better than the various Keynesian spending binges (some of which are downright nuts) that have taken place in Japan.

But I’m not confident that child subsidies are an effective or desirable long-run solution to the nation’s demographic situation.

The one option that would work is to reform entitlement programs. Hong Kong’s demographic outlook is even more challenging than Japan’s, yet it is in much better long-run shape because it has a more sensible approach to entitlements, including a private Social Security system.

P.S. Every so often, a celebrity from the entertainment world has an epiphany about greedy and corrupt government. It definitely happened for Jon Lovitz, Will Smith, and Rob Schneider. And it might be happening for George Lopez.

Newsbusters has the details.

In a recent radio interview for BigBoyTV, comedian George Lopez let us all know that he’s endorsing Senator Bernie Sanders, while paradoxically, making it known he doesn’t want to pay any more taxes.

Here’s what he specifically said.

I endorsed Bernie Sanders. But really just to… I mean it’s cool. I can’t pay any more taxes, it’s ridiculous. But, so, we’ll figure it out.

Huh?!? He’s getting pillaged by the tax code yet he’s supporting a candidate who wants giant tax hikes. I guess his epiphany needs more clarity.

P.P.S. I admit these examples are all sarcastic, but Obama could have a Hollywood career after leaving office.

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It’s very hard to be optimistic about Japan. I’ve even referred to the country as a basket case.

But my concern is not that the country has been mired in stagnation for the past 25 years. Instead, I’m much more worried about the future. The main problem is that Japan has the usual misguided entitlement programs that are found in most developed nations, but has far-worse-than-usual demographics. That’s not a good long-term combination.

As I repeatedly point out in my speeches and elsewhere, a modest-sized welfare state can be sustained in a nation with a population pyramid. But even a small welfare state is a challenge for a country with a population cylinder. And it’s a crisis for a jurisdiction such as Japan that will soon have an upside-down pyramid.

To make matters worse, Japanese politicians don’t seem overly interested in genuine entitlement reform. Instead, most of the discussion (egged on by the tax-free bureaucrats at the OECD) seems focused on how to extract more money from the private sector to finance an ever-growing public sector.

But the icing on the cake of bad policy is that Japanese politicians are addicted to Keynesian economics. For two-plus decades, they’ve enacted one “stimulus package” after another. None of these schemes have succeeded. Indeed, the only real effect has been a quadrupling of the debt burden.

The Wall Street Journal shares my pessimism. Here’s some of what was stated in an editorial late last year.

Japan is in recession for the fifth time in seven years, and the…Prime Minister who promised to end his country’s stagnation is failing at the task. …Mr. Abe’s economic plan consisted of three “arrows,” starting with fiscal spending and monetary easing. The result is a national debt set to hit 250% of GDP by the end of the year. The Bank of Japan is buying bonds at a $652 billion annual rate, a more radical quantitative easing than the Federal Reserve’s. …The third arrow, structural economic reform, offered Japan the only hope of sustained economic growth. …But for every step Mr. Abe takes toward reform, one foot remains planted in the political economy of Japan Inc. In April 2014, Mr. Abe acquiesced to a disastrous three percentage-point increase in the value-added tax, to 8%, pushing Japan into its first recession on his watch. More recently, he has pushed politically popular but economically ineffectual spending measures on child care and help for the elderly. …only 25% of the population now believes Abenomics will improve the economy. Reality has a way of catching up with political promises.

You might think that even politicians might learn after repeated failure that big government is not a recipe for prosperity.

But you would be wrong.

Notwithstanding the fact that Keynesian economics hasn’t worked, Japanese politicians are doubling down on the wrong approach.

According to a report from Bloomberg, American Keynesians (when they’re not busing giving bad advice to Greece) are telling Japan to dig a deeper hole.

Paul Krugman urged Japanese Prime Minister Shinzo Abe to…expand fiscal stimulus to revive the economy.

Reuters filed a similar report.

U.S. economist Paul Krugman said on Tuesday he advised Japan’s Prime Minister Shinzo Abe to…boost fiscal spending… Krugman’s advice was the same as that which fellow U.S. economist Joseph Stiglitz gave Abe last week.

Indeed, there apparently was a consensus for bigger government.

Every one of the economists that Prime Minister Shinzo Abe has invited here for a series of meetings with policymakers has recommended that Japan let loose government spending… When Abe asked why consumer spending has remained feeble since the 2014 consumption tax increase, the U.S. academic suggested the answer lies in expectations that fiscal stimulus will end. …Abe’s government…appears to be seeking to rally the G-7 for aggressive fiscal policy.

So why did the Japanese government create an echo chamber of Keynesianism?

Perhaps because politicians want an excuse to buy votes with other people’s money.

With an upper house election looming in July, ruling coalition lawmakers also are eager to dole out massive public spending.

And it appears that Japanese politicians are happy to take advice when it’s based on their spending vice ostensibly being a fiscal virtue.

That’s not too shocking, but the Keynesian scheme that’s being prepared is a parody even by Krugmanesque standards.

Japan’s government is considering handing out gift certificates to low-income young people in a supplementary budget for fiscal 2016 as consumer spending remains sluggish on a slow wage recovery, the Sankei Shimbun newspaper reported Thursday. Government officials believe certificates for purchasing daily necessities would lead to spending, unlike cash handouts which could be saved… The additional fiscal program would follow a similar measure for seniors and the ruling coalition would use it to gain voter support before the Upper House election expected in July, the daily said.

Maybe the politicians will succeed in buying votes, but they shouldn’t expect better economic performance. Giving people gift certificates won’t alter incentives to work, save, and invest (the behaviors that actually result in more economic output).

Indeed, on the margin these handouts may lure a few additional people out of the labor force.

The plan is foolish even from a Keynesian perspective. Since money is fungible, do these people really think gift certificates will encourage more spending that cash handouts?

By the way, another reason to be pessimistic about Japan is that there apparently aren’t any politicians who understand economics. Or at least there aren’t any that want good policy. The opposition party isn’t opposed to Keynesian foolishness. Instead, it’s leader is only concerned about who gets the goodies.

Katsuya Okada, the leader of the main opposition Democratic Party of Japan, said in parliamentary debate in January. “Elderly people are not the only ones who are suffering. Among the working generation, only a limited number of people are feeling the fruit of Abenomics.”

The bottom line is that Japan will become another Greece at some point. I’m not smart enough to know whether that will happen in five years or twenty-five years, but barring a radical reversal in government policy, the nation is in deep long-run trouble.

P.S. Though I have to give the Japanese government credit for being so incompetent that it introduced a giveaway program that was so poorly designed that nobody signed up for the handout.

P.P.S. And Japan also wins the prize for what must be the world’s oddest regulation.

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Remember the scene in Monty Python and the Search for the Holy Grail, when the Knights of the Round Table have to answer three questions before they can cross the Bridge of Death?

Sir Galahad is cast into the Gorge of Eternal Peril because he changes his mind when asked his favorite color.

I can sympathize because I would hate to be asked for a one-word description of government.

My first instinct would be say “stupid,” but that might not be the most mature response. So I’d probably say “wasteful.” But then I’d change my mind and say “corrupt.” As the bridge keeper was about to cast me to my death, I’d say “thuggish.” And my final choice as I fell into the gorge might be “incompetent.”

And I’d have lots of examples in mind for that final version, such as the time the Italian government appointed the wrong person to a job that shouldn’t even exist.

Or how about the British government being so incompetent that it created a new handout that was so poorly designed that nobody signed up.

I guess Japan’s government was inspired by the British counterparts, because Bloomberg reports that the Japanese government also is too incompetent to give away money.

Not a single Japanese company has applied for a government subsidy to encourage firms to promote women in the 17 months since the plan started. Under a labor ministry plan unveiled in April 2014, small and medium-sized companies that promote women are eligible to apply for a 300,000 yen ($2,500) payment per company, while larger firms can get 150,000 yen each. The ministry had budgeted 120 million yen to be distributed to about 400 companies.

So why didn’t companies want these handouts?

Probably because the government wanted them to waste a lot of time and energy and it simply wasn’t worthwhile.

The program requires companies to set their own numerical targets and achieve the goals within six months. Firms also need to offer at least 30 hours of training to educate their workforce about equal opportunity rights, according to the health ministry’s Megumi Kondo.

Needless to say, the right lesson to learn is that the government shouldn’t be trying to steer the market.

The profit motive and human preferences should determine how many women fill various positions in companies, not the arbitrary diktats of the political class.

Moreover, you would think Japan’s policy community would have more important things to worry about, such as the fact that  the IMF, BIS, and OECD all show the country on track for Greek-style fiscal chaos.

Or the fact that higher taxes are keeping Japan’s economy stagnant.

But I guess it doesn’t make sense to assume smart decisions by Japanese politicians. After all, they’re probably just as venal and short sighted as their American counterparts.

P.S. If I had to pick the most inane regulation on the planet, I’d probably select the Greek rule on stool samples. But, depending on my mood, the Japanese reg on coffee enemas might win the prize.

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