It would be pointless and boring to analyze now all of the vicissitudes of the Japanese economy in recent decades, but we will focus on (and this provides an excellent illustration of my point) Abenomics, the umpteenth and most recent attempt to stimulate the Japanese economy. Abenomics is an economic policy of more of the same. It takes its name from its sponsor, the Prime Minister of Japan, Shinzo Abe, who designated Haruhiko Kuroda, the Governor of Japan’s central bank, to implement what has been a failed attempt.
What does Abenomics consist of? As I have said, it consists of doing more, much more, of the same. If anything characterizes the economic policy of Japan, it is that it has used and applied – and with great enthusiasm and naivete – the entire arsenal of monetary and fiscal interventionist prescriptions contained in the manuals of monetarism and Keynesianism, but without achieving anything. In the last chapter of Abenomics, the Bank of Japan adopted an even more aggressive (if possible) and completely ultra-lax monetary policy. In fact, “unconventional monetary policies” originated not with the Federal Reserve, but, beginning in March of 2011, precisely with the
pioneering implementation of quantitative easing by the Japanese central bank. All of this was combined with an additional, even larger and more disproportionate dose of public spending, which caused the fiscal deficit to skyrocket. And this prescription of more of the same is what the Japanese authorities depended on to pull Japan out of its lethargy. Well, except for a short-lived economic “improvement” which stemmed from the depreciation of the yen and initially boosted exports somewhat, the lethargy again promptly returned. En short, nothing was achieved, except to make Japan’s economy the most indebted in the world.
In fact, Japan’s public debt is equal to 250 percent of its GDP. That is easy to say, but here in Europe, we are criticizing Portugal and Italy, whose indebtedness is between 110 and 130 percent, and Greece, with a figure of 170 percent. That is, these countries are roughly half as indebted as Japan is, at 250 percent of GDP. As for the annual deficit in the Japanese public accounts, it is not, for instance, the 3 percent established as a limit in the Eurozone, nor even 4 or 5 percent. The annual deficit in the Japanese public accounts is 6 percent, while economic growth has nearly flatlined. In other words, it is a case of clear economic lethargy and very low inflation (which we will discuss later): interest rates around zero or even negative rates, inflation of 1 percent, and seemingly “full” employment (with a very high volume of hidden unemployment and ongoing losses in productivity and competitiveness).
To use a military term, Japan has already used up all its available interventionist ammunition, and not only has it not achieved anything, but the result has been counterproductive and disappointing. Everything that could be tried has been tried, and no palpable goal has been reached. And now the key question is: Why has nothing been achieved? And the answer is clear: because in all these decades, there have been no structural reforms to liberalize the economy, to liberalize the labor market, to introduce deregulation in the midst of suffocating interventionism at all levels, to lower taxes across the board, to reorganize and balance the public accounts, nor even to reduce public spending.
And although this is a very pitiful result, the main message of my lecture today is that this Japanese economic illness or syndrome could easily be transmitted to other economies and cease to be exclusive to Japan. In other words, this Japanization scenario could unfold in any other economy in which the same conditions exist and are responded to in the same way – namely any highly rigid environment with no economic flexibility, in which entrepreneurs are unable to recover the necessary confidence because they are overwhelmed with the regulations, taxes, intervention, and harassment of the state, along with serious monetary and fiscal manipulation. But before we analyze whether or not a risk exists of this happening in the European Union, let us first make some analytical reflections which will enable us to better interpret what could happen (if it is not already happening). Specifically, what does Austrian economic theory have to say about this phenomena related to the Japanese economic illness, or the syndrome of economic Japanization?