While one can easily suggest seemingly desirable policy measures that befit ongoing economic conditions, it is far from easy to find a desirable set of economic policy measures and implement them in a timely manner.

For successful management of the economy, one has to go through a complicated and sometimes agonizing process. First, you have to analyze the status quo of the economy correctly. One has to determine for example, with the help of economic theory and proper observation, what the real causes of the present economic stagnation are.

Is it the continuously declining price level, which no modern economists have assumed in building their economic theories? Or is it the public’s worries about the future that are forcing them to save more and spend less? What else? It is no use just labeling the economy as a “deflationary situation.”

Second, one must decide on the priority of the different policy aims. People have different views and different tastes. Some prefer to see a high growth rate now, even though it implies a high tax burden in the future, for example. Others want to avoid creating additional tax burden at any cost. Some say that the returns on financial assets, such as the interest payments on bank deposits, should be higher even though it can only be possible with a higher rate of inflation. And so on.

Since you can’t satisfy all desires at the same time, you have to seek the agreement of the people on what the priority of economic policy aims should be. To do that, you have to go through discussion, debate, argument, and intellectual combat. It is an agonizing process that requires strong political willpower to be successful.

Third, one has to determine what the best set of policy measures is to realize the chosen policy aim. If it is agreed that the top priority aim should be stabilization of the price level, which means under the present circumstances to increase it, then a set of policy measures that, as a whole, are effective for achieving the goal with the least side effects should carefully be chosen.

One may well argue that a continuous increase in the money supply by the central bank, combined with measures to decrease uncertainty in the future, such as a clear-cut road map for improving the already deteriorating budget structure and a credible program for strengthening the financial system, should be the answer.

At the same time, however, those policy measures that are desirable for attaining other policy aims but counterproductive for the policy aim with the higher priority should either be revised or discarded. A strict observation of the timetable for writing off the bad assets at commercial banks, for example, should be given second thought if it proves to be frustrating price stability — the highest priority.

After agreement on policy aims is reached, the policy measures should be implemented in a timely manner, the realization of which might not be easy.

It is rather interesting to note that these three actions, which are correct analysis, decision on priority, and choice and implementation of desirable measures, suggest that three different sectors of the country should properly carry out their entrusted roles in order to successfully manage the economy.

Academics should analyze the status quo correctly, politicians should pick priorities from the different policy aims, and bureaucrats should choose and implement a desirable set of policy measures.

Only when those three different groups work together, each respecting the expertise of the other, can we succeed in getting the economy back to normal, which is in the benefit of Japan and the rest of the world.

The present complications in our economy do not allow us time to fuss about the roles and responsibilities of others.

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