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Posts Tagged ‘Keynesian Economics’

Time for an update on the perpetual motion machine of Keynesian economics.

We’ll start with the good news. The Treasury Department commissioned a study on the efficacy of the so-called stimulus spending that took place at the end of last decade. As discussed in this news report, the results were negative.

…a scathing new Treasury-commissioned report…argues the cash splash actually weakened the economy and damaged local industry… The report, …says the…fiscal stimulus was “unnecessarily large” and “misconceived because it emphasised transfers, unproductive expenditure…rather than tax relief and/or supply side reform”.

The bad news, at least from an American perspective, is that it was this story isn’t about the United States. It’s a story from an Australian newspaper about a study by an Australian professor about the Keynesian spending binge in Australia that was enacted back in 2008 and 2009.

I actually gave my assessment of the plan back in 2010, and I even provided my highly sophisticated analysis at no charge.

The Treasury-commissioned report, by contrast, presumably wasn’t free. The taxpayers of Australia probably coughed up tens of thousands of dollars for the study.

But this is a rare case where they may benefit, at least if policy makers read the findings and draw the appropriate conclusions.

Here are some of the highlights that caught my eye, starting with a description of what the Australian government actually did.

The GFC fiscal stimulus involved a mix of new public expenditure on school buildings, social housing, home insulation, limited tax breaks for business, and income transfers to select groups. Stimulus packages were announced and implemented in the December 2008, March 2009 quarters and ran into subsequent quarters.

For what it’s worth, there are strong parallels between what happened in the U.S. and Australia.v

Both nations had modest-sized Keynesian packages in 2008, followed by larger plans in 2009. The total American “stimulus” was larger because of a larger population and larger economy, of course, and the political situation was also different since it was one government that did the two plans in Australia compared to two governments (Bush in 2008 and Obama in 2009) imposing Keynesianism in the United States.

Here’s a table from the report, showing how the money was (mis)spent in Australia.

Now let’s look at the economic impact. We know Keynesianism didn’t work very well in the United States.

And the report suggests it didn’t work any better in Australia.

…fiscal stimulus induced foreign investors to take up newly issued relatively high yielding government bonds whose AAA credit rating further enhanced their appeal. This contributed to exchange rate appreciation and a subsequent competitiveness… Worsened competitiveness in turn reduced the viability of substantial parts of manufacturing, including the motor vehicle sector. …Government spending continued to rise as a proportion of GDP… This put upward pressure on interest rates… this worsened industry competitiveness contributed to major job losses, not gains, in manufacturing and tourism. …In sum, fiscal stimulus was not primarily responsible for saving the Australian economy… Fiscal stimulus later weakened the economy.

Though there was one area where the Keynesian policies had a significant impact.

Australia’s public debt growth post GFC ranks amongst the highest in the G20. Ongoing budget deficits and rising public debt have contributed to economic weakness in numerous ways. …Interest paid by the federal government on its outstanding debt was under $4 billion before the GFC yet could reach $20 billion, or one per cent of GDP, by the end of the decade.

We got a similar result in America. Lots more red ink.

Except our debt started higher and grew by more, so we face a more difficult future (especially since Australia is much less threatened by demographics thanks to a system of private retirement savings).

The study also makes a very good point about the different types of austerity.

…a distinction can be made between “good” and “bad” fiscal consolidation in terms of its macroeconomic impact. Good fiscal repair involves cutting unproductive government spending, including program overlap between different tiers of government. On the contrary, bad fiscal repair involves cutting productive infrastructure spending, or raising taxes that distort incentives to save and invest.

Incidentally, the report noted that the Kiwis implemented a “good” set of policies.

…in New Zealand…marginal income tax rates were reduced, infrastructure was improved and the regulatory burden on business was lowered.

Yet another reason to like New Zealand.

Let’s close by comparing the burden of government spending in the United States and Australia. Using the OECD’s dataset, you see that the Aussies are actually slightly better than the United States.

By the way, it looks like America had a bigger relative spending increase at the end of last decade, but keep in mind that these numbers are relative to economic output. And since Australia only had a minor downturn while the US suffered a somewhat serious recession, that makes the American numbers appear more volatile even if spending is rising at the same nominal rate.

P.S. The U.S. numbers improved significantly between 2009 and 2014 because of a de facto spending freeze. If we did the same thing again today, the budget would be balanced in 2021.

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I’m glad that Donald Trump wants faster growth. The American people shouldn’t have to settle for the kind of anemic economic performance that the nation endured during the Obama years.

But does he understand the right recipe for prosperity?

That’s an open question. At times, Trump makes Obama-style arguments about the Keynesian elixir of government infrastructure spending. But at other times, he talks about lowering taxes and reducing the burden of red tape.

I don’t know what’s he’s ultimately going to decide, but, as the late Yogi Berra might say, the debate over “stimulus” is deja vu all over again. Supporters of Keynesianism (a.k.a., the economic version of a perpetual motion machine) want us to believe that government can make the country more prosperous with a borrow-and-spend agenda.

At the risk of understatement, I disagree with that free-lunch ideology. And I discussed this issue in a recent France24 appearance. I was on via satellite, so there was an awkward delay in my responses, but I hopefully made clear that real stimulus is generated by policies that make government smaller and unleash the private sector.

If you want background data on labor-force participation and younger workers, click here. And if you want more information about unions and public policy, click here.

For today, though, I want to focus on Keynesian economics and the best way to “stimulate” growth.

The question I always ask my Keynesian friends is to provide a success story. I don’t even ask for a bunch of good examples (like I provide when explaining how spending restraint yields good results). All I ask is that they show one nation, anywhere in the world, at any point in history, where the borrow-and-spend approach produced a good economy.

Simply stated, there are success stories. And the reason they don’t exist is because Keynesian economics doesn’t work.

Though the Keynesians invariably respond with the rather lame argument that their spending schemes mitigated bad outcomes. And they even assert that good outcomes would have been achieved if only there was even more spending.

All this is based, by the way, on Keynesian models that are designed to show that more spending generates growth. I’m not joking. That’s literally their idea of evidence.

Since you’re probably laughing after reading that, let’s close with a bit of explicit Keynesian-themed humor.

I’ve always thought this Scott Stantis cartoon best captures why Keynesian economics is misguided. Simply stated, it’s silly to think that the private sector is going to perform better if politicians are increasing the burden of government spending.

But I’m also amused by cartoons that expose the fact that Keynesian economics is based on the notion that you can become richer by redistributing money within an economy. Sort of like taking money out of your right pocket and putting it in your left pocket and thinking that you now have more money.

Expanding on this theme, here’s a new addition for our collection of Keynesian humor. It’s courtesy of Don Boudreaux at Cafe Hayek, and it shows the Keynesian plan to charge the economy (pun intended). You don’t need to know a lot about electricity to realize this isn’t a very practical approach.

Is this an unfair jab? Maybe, but don’t forget that Keynesians are the folks who think it’s good for growth to pay people to dig holes and then pay them to fill the holes. Or, in Krugman’s case, to hope for alien attacks. No wonder it’s so easy to mock them.

P.S. If you want to learn more about Keynesian economics, the video I narrated for the Center for Freedom and Prosperity is a good place to start.

P.P.S. And if you like Keynesian videos, here’s the famous video showing the Keynes v. Hayek rap contest, followed by the equally entertaining sequel, which features a boxing match between Keynes and Hayek. And even though it’s no longer the right time of year, here’s the satirical commercial for Keynesian Christmas carols.

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In the world of fiscal policy, there are actually two big debates.

  1. One debate revolves around the appropriate size of government in the long run. Folks on the left argue that government spending generates a lot of value and that bigger government is a recipe for more prosperity. Libertarians and their allies, by contrast, point out that most forms of government spending are counterproductive and that large public sectors (and the accompanying taxes) undermine economic performance.
  2. The other debate is focused on short-run economic effects, and revolves around the “Keynesian” argument that more government spending is a “stimulus” to a weak economy and that budget-cutting “austerity” hurts growth. Libertarians and other critics are generally skeptical that government spending boosts short-run growth and instead argue that the right kind of austerity (i.e., a lower burden of government spending) is the appropriate approach.

Back in 2009 and 2010, I wrote a lot about the Keynesian stimulus fight. In more recent years, however, I have focused more on the debate over the growth-maximizing size of government.

But it’s time to revisit the stimulus/austerity debate. The National Bureau of Economic Research last month released a new study by five economists (two from Harvard, one from NYU, and two from Italian universities) reviewing the real-world evidence on fiscal consolidation (i.e., reducing red ink) over the past several decades.

This paper studies whether what matters most is the “when” (whether an adjustment is carried out during an expansion, or a recession) or the “how” (i.e. the composition of the adjustment, whether it is mostly based on tax increases, or on spending cuts). …We estimate a model which allows for both sources of non-linearity: “when” and “how”.

Here’s a bit more about the methodology.

The fiscal consolidations we study are those implemented by 16 OECD countries (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Portugal, Spain, Sweden, United Kingdom, United States) between 1981 and 2014. …We also decompose each adjustment in its two components: changes in taxes and in spending. …we use a specification in which the economy, following the shift in fiscal policy, can move from one state to another. We also allow multipliers to vary depending on the type of consolidation, tax-based vs expenditure-based. …Our government expenditure variable is total government spending net of interest payments on the debt: that is we do not distinguish between government consumption, government investment, transfers (social security benefits etc) and other government outlays. …In total we have 170 plans and 216 episodes, of which about two-thirds are EB and one-third are TB.

By the way, “EB” refers to “expenditure based” fiscal consolidations and “TB” refers to “tax based” consolidations.

And you can see from Table 5 that some countries focused more on tax increases and others were more focused on trying to restrain spending.

Congratulations to Canada and Sweden for mostly or totally eschewing tax hikes.

Though I wonder how many of the 113 “EB” plans involved genuine spending reforms (probably very few based on this data) and how many were based on the fake-spending-cuts approach that is common in the United States.

But I’m digressing.

Let’s now look at some findings from the NBER study, starting with the fact that most consolidations took place during downturns, which certainly wouldn’t please Keynesians, but shouldn’t be too surprising since red ink tend to rise during such periods.

…there is a relation between the timing and the type of fiscal adjustment and the state of the economy. Overall, adjustment plans are much more likely to be introduced during a recession. There was a consolidation in 62 out of 99 years of recession…, while we record a consolidation in only 13 over 94 years of expansion. …it is somewhat surprising that a majority of the shifts in fiscal policy devoted to reducing deficits are implemented during recessions.

And here are the results that really matter. The economists crunched the numbers and found that tax increases impose considerable damage, whereas spending cuts cause very little harm to short-run performance.

We find that the composition of fiscal adjustments is more important than the state of the cycle in determining their effect on output. Fiscal adjustments based upon spending cuts are much less costly in terms of short run output losses – such losses are in fact on average close to zero – than those based upon tax increases which are associated with large and prolonged recessions regardless of whether the adjustment starts in a recession or not. …what matters for the short run output cost of fiscal consolidations is the composition of the adjustment. Tax-based adjustments are costly in terms of output losses. Expenditure-based ones have on average very low costs.

These findings are remarkable. Even I’m willing to accept that spending cuts may be painful in the short run (not because of Keynesian reasons, but simply because resources don’t instantaneously get reallocated to more productive uses).

So if the economists who wrote this comprehensive study find that there is very little short-run dislocation associated with spending cuts, that’s powerful evidence.

And when you then consider all the data and research showing the positive long-run effects of smaller government, this certainly suggests that the top fiscal priority should be shrinking the size and scope of government.

P.S. I mentioned above that Keynesians doubtlessly get agitated that governments engage in fiscal consolidation during downturns. This is why I’m trying to get them to support spending caps. The good news, from their perspective, is that the government’s budget would be allowed to grow when there’s a recession, albeit not very rapidly. The tradeoff that they must accept, however, is that spending would be limited to that modest growth rate even during years when there’s strong growth and the private sector is generating lots of tax revenue.

Honest Keynesians presumably should yes to this deal since Keynes wanted restraint during growth years to offset “stimulus” during recession years. And economists at left-leaning international bureaucracies seem sympathetic to this tradeoff. I don’t think there are many honest Keynesians in the political world, however, so I’m not expecting to get a lot of support from my leftist friends in Washington.

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Earlier this year, I criticized the Organization for Economic Cooperation and Development for endorsing an orgy of Keynesian spending.

Did my criticism have an effect? Well, the bureaucrats in Paris just issued a new report that bluntly suggests a reorientation of fiscal policy to achieve more growth.

…the global economy remains in a low-growth trap with weak investment, trade, productivity and wage growth and rising inequality in some countries. …a stronger fiscal policy response is needed to boost near-term growth and strengthen long-term prospects for inclusive growth.

Sounds good to me. I welcome sinners who want to repent. Is the OECD now recommending corporate tax rate reductions? A flat tax? Entitlement reform? Elimination of wasteful departments, agencies, and programs? A spending cap?

Don’t be silly. This is the OECD. Some of the professional economists are sensible and competent, but major policy initiatives almost always are determined by the high-level hacks who crank out proposals designed to give cover to politicians that want ever-more taxes and spending.

So when the bureaucrats in Paris suggest “a stronger fiscal policy response,” they’re actually advocating for more government. Which is exactly what they did back in February. And what they’ve been repetitively doing all during the Obama Administration. I’m not joking. Here are some further excerpts.

…this chapter emphasises the need for a fiscal initiative…to foster productivity in the medium to long term. Measures should be chosen depending on each country’s most pressing needs and could include not only raising soft and hard infrastructure or education spending… In many countries, such a package could be deficit-financed for a few years, before turning budget-neutral.

The OECD says that “stimulus” would be a good idea because nations now have more “fiscal space,” which is bureaucrat-speak for an estimate of how much additional red ink is supposedly feasible feasible given interest rates, existing debt levels, and other variables.

I’m more worried, for what it’s worth, about the level of spending. And on that basis, there’s less fiscal space. Here’s a comparison (based on the OECD’s own dataset) of the burden of spending before the great recession/global financial crisis and today. As you can see, government outlays are consuming almost 2-percentage points more of economic output.

Needless to say, there’s hasn’t been much “austerity” over the past decade (other than higher income taxes and higher VAT taxes, which means taxpayers have taken a hit but not bureaucrats and interest groups).

In any event, the OECD ignores all this evidence and thinks today is the perfect time for another spending binge. Here are additional details from the report.

OECD governments could finance a ½ percentage point of GDP productivity-enhancing fiscal initiative, for three to four years on average in OECD countries without raising the debt-to-GDP ratio in the medium term, provided the selected activities and projects are sound. Such an initiative could encompass high-quality spending on education, health and research and development as well as green infrastructure that all bring significant output gains in the long run. …the average output gains for the large advanced economies of such a fiscal initiative amount to 0.4-0.6% in the first year.

It’s laughable that the bureaucrats project more growth as a result of Keynesian “stimulus” even though we just suffered through the failure of Obama’s 2009 program (not to mention the repeated failure of Keynesian economics in Japan and elsewhere).

The only good news, if we grade on a curve, is that the bureaucrats apparently don’t think Keynesian “stimulus” would be that helpful for the American economy.

Though I’m worried this Table, buried four pages from the end of the report, won’t get much attention (just as other decent portions of the report, such as commentary about the damage caused by bad tax policy, also will get ignored).

If you think I’m being paranoid, check out these passages from a news report in the Wall Street Journal. The main takeaway from the OECD’s new publication, according to the reporter, is that politicians around the world have a green light for more wasteful spending.

Adding detail to earlier calls for a switch to budget stimulus from exhausted monetary policies, the Paris-based think tank said most governments have room to boost spending by half a percentage point of economic output over a period of three to four years without risking an increase in their already high debts. …The think tank calculates that an increase in spending on the scale it recommends would lift economic growth in the countries involved by between 0.4 and 0.6 of a percentage point, with an additional 0.2 percentage point boost if the effort were to be coordinated internationally. …If governments were to follow the OECD’s advice, it would mark a further turn away from the policies of austerity that were an immediate response to surging government debts in the aftermath of the 2008 financial crisis. …A slow shift toward a greater reliance on fiscal policy has been under way since last year, when Canada embarked on a fiscal stimulus, while the OECD noted that increases in spending are also under way in Germany, Italy and China. …“There is quite a bit more receptivity to the notion of using fiscal policy more actively,” said Ms. Mann.

And I’m worried that this kind of bad advice may influence President-Elect Trump, who already has made worrisome comments about spending for infrastructure and entitlements.

P.S. But I’m semi-hopeful that Trump won’t be a fan of the OECD in general, if for no other reason than the head bureaucrat in Paris called him a racist and was remarkably open about favoring Hillary Clinton’s election.

Gurria tells UpFront’s Mehdi Hasan: “I would tend to agree with those who say that this is not only misinformed, but yes, I think the word racist can be applied. “I think that because the American public is wise, it will then act in consequence,” Gurria adds.

I’ve previously argued that ending American subsidies for the OECD (and its leftist agenda) is an IQ test for Republicans. In prior years, GOPers on Capitol Hill have failed this test. Maybe Trump, if for no other reason than Secretary General Gurria’s harsh attack, will finally end the gravy train for this parasitical bureaucracy.

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Since it’s very likely that Hillary Clinton will be our next President, I’m mentally preparing myself for upcoming fights over her agenda of bigger government and class warfare. But the silver lining to this dark cloud is that I don’t think I’ll be distracted by also having to fight against protectionist policies.

My tiny bit of optimism is based on the fact that hackers at Wikileaks got access to the secret speeches she gave to Wall Street and other corporate bigwigs and we learned that, when she can speak freely with no cameras and outside observers, she believes in “open trade.”

In other words, I was right when I said on TV that she was lying about being in favor of protectionism.

Since I don’t think bureaucrats and politicians should have the power to interfere with our buying decisions, I’m glad Hillary is a secret supporter of free trade.

That’s the good news.

The bad news is that she also is a genuine and sincere supporter of the perpetual motion machine of Keynesian economics (i.e., the theory that more government spending is a form of “stimulus” notwithstanding all the evidence of failure from the spending binges of Obama, Hoover and Roosevelt, and Japan).

Here’s what the Daily Caller is reporting about one of her secret speeches to a corporate audience.

Hillary Clinton argued that expanding food stamps and other safety net programs is essential to fuel economic growth at a speech to General Electric executives, according to an excerpt of the transcript made public by WikiLeaks Friday. “Economic growth will take off when people in the middle feel more secure again and start spending again,” Clinton said in her speech at General Electric’s Global Leadership Meeting in January, 2014. …Giving people income assistance, like the food stamps program, would help the economy because families on food stamps will have more money to spend, Clinton argued.

Wow, this is depressing. If this was an off-the-record speech to the Democratic National Committee, a George Soros group, or some other left-leaning outfit, I’d be tempted to dismiss her remarks as rhetoric.

But GE executives presumably aren’t big fans of income redistribution (other than to themselves, of course). So Hillary’s comments were not a form of pandering. She presumably really believes that Keynesian economics is some sort of elixir, that you actually can boost economic performance by taking money out of the economy’s right pocket and putting it in the economy’s left pocket.

Not only is this wrong, it’s backwards.

  • When the crowd in Washington spends money, much of it is lost to bureaucracy and waste. This may not matter to Keynesians since they just want there to be spending (no joke, Keynes actually did write that  it would be good policy to bury money in the ground so that people would get paid to dig it out). Sensible people, by contrast, understand that it matters for the economy whether money is spent wisely.
  • Moreover, redistribution spending tends to be especially harmful since it subsidizes people for not working or for having low levels of income, which is why research has shown that policies such as Obamacare, jobless benefits, and food stamps are associated with lower levels of employment. In other words, redistribution is bad for economic performance.

The bottom line is that we shouldn’t expect any sort of economic renaissance if Hillary is our next president. Just another four years of the kind of anemic performance we’ve experienced under Obama.

P.S. Click here to learn more about the failure of Keynesian economics.

P.S. If you want both substance and entertainment, here’s the famous video showing the Keynes v. Hayek rap contest, followed by the equally entertaining sequel, which features a boxing match between Keynes and Hayek. And even though it’s not the right time of year, here’s the satirical commercial for Keynesian Christmas carols.

 

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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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