With Japan's stock market surging even before Prime Minister Shinzo Abe unveiled his plans for economic stimulus, we would have expected the usual anti-stimulus critics to be silent, at least for a while. But no. Already we hear the usual complaints — more printing of money, more public debt, more baramake (waste) and so on.
Even the constructive comments are unappetizing. They support the Abe call for more quantitative easing and for the Bank of Japan inflation target to be lifted to 2 percent. But they downplay the fiscal policy side of the equation. Most assume that public debt levels should prevent any significant increase in government spending. Yet such spending is crucial for creating the demand this economy so desperately needs.
Take the inflation targeting policy, for example. There is no point setting targets unless the demand exists to cause the inflation in the first place. Similarly for monetary easing. The BOJ can release as much funds as it wants. But even at zero interest, they will end up mainly as savings unless there is the demand which encourages the productive investment needed to use those funds.