In a sign of how worried it is about Japan’s economy, the International Monetary Fund is urging the country to resurrect a radical strategy once employed by former U.S. presidents Nixon, Ford and Carter — only in reverse.

It is called an incomes policy, and it involves the kind of direct government intervention in the setting of wages that many economists now abhor.

But rather than employing it to try to contain salary and price pressures — as U.S. leaders did in the 1970s — the IMF wants Japan to use moral suasion, tax breaks and, as a last resort, penalties to prod companies into granting bigger pay gains and thus promote higher inflation.

“We need policies to support wage increases in Japan,” Luc Everaert, IMF mission chief, said Aug. 2 after completion of the agency’s annual consultation with the world’s third-largest economy.

The IMF’s backing of such an unorthodox approach is an acknowledgment of how entrenched Japan’s “deflationary mindset” has become and how resistant it has been to a more traditional mix of policies.

It is also the lending agency’s answer to exhortations by some economists that Japan launch so-called helicopter money — direct central bank financing of the government’s budget deficit — a strategy Everaert said has “very large risks.”

The IMF call for more aggressive action to boost pay is being echoed in Japan. “It might be necessary to encourage a discussion throughout all ministries about a wage target policy,” Kozo Yamamoto, the newly named minister for regional revitalization, told reporters in Tokyo on Aug. 4.

Yamamoto, a staunch reflationist, has been an important influence in the development of Abenomics, the wide-ranging economic program championed by Prime Minister Shinzo Abe.

The experiences of Richard Nixon, Gerald Ford and Jimmy Carter in the 1970s offer a cautionary tale about the efficacy of government efforts to alter incomes. The three failed to rein in rampant inflation expectations in spite of steps ranging from wage and price controls under Nixon to Carter’s more voluntary guidelines.

“At the time I thought they were a good idea because of the alternative,” said Barry Bosworth, who was the director of the White House’s Council on Wage and Price Stability from 1977 to 1979 under Carter. “But it turned out they didn’t work so then we went to the alternative, which was a very severe recession. It worked but it cost a hell of a lot.”

Bosworth, who is now a senior fellow at the Brookings Institution in Washington, doubts that the IMF’s prescription for Japan will succeed.

“It will probably have little impact,” he said, arguing that companies will be loath to take on extra costs in a low-demand economy.

Everaert acknowledged that getting incomes up will not be easy. “This is probably a difficult policy because there are no clear policy tools in place to carry it out,” he said in an interview.

Normally, companies bid up wages and workers demand higher salaries as the jobs market tightens, a process IMF officials say has been short-circuited in Japan partly by a growing number of part-time employees with less bargaining power.

The fund is pushing an incomes policy as a fourth element in what it has called a reboot of Abenomics that also includes fiscal, monetary and structural measures, such as steps to enhance the standing of part-time workers.

Former IMF chief economist Olivier Blanchard and Peterson Institute for International Economics President Adam Posen have also called for a stronger Japanese push on pay.

They have urged the government to press for an immediate salary increase of 5 to 10 percent in the annual bargaining round between labor unions and corporate employers.

“What is needed is coordination between unions, firms, and the central bank” with the latter acting to maintain Japanese competitiveness by allowing the yen to depreciate as wages and inflation rise, Blanchard said in an email.

Abe has not been shy about calling on companies to boost worker pay. He has also pushed through repeated increases in the minimum wage, which he aims to raise to ¥1,000 per hour by 2020, up from an average of ¥798 last fiscal year.

Yet wages have moved only stubbornly. Cash earnings fell in the 12 months after Abe took office in December 2012, and made meager annual gains of 0.4 percent and 0.1 percent in the following two years. Real earnings adjusted for inflation and a sales-tax hike actually fell over the past four years.

In gross domestic product data released on Monday, total compensation for employees — including wages, bonuses and social security contributions made on their behalf — slowed to an increase of 0.3 percent in the second quarter from 1.1 percent in the previous three months.

“The expected growth rate is falling, the yen keeps getting stronger and stronger, developing countries are slowing down,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center. “So business spending and labor costs are both down. Unsurprisingly, when they don’t expect any growth, companies can’t raise wages.”

To promote bigger pay gains, IMF officials want Japan to employ the strategy it successfully used to coax companies into taking independent directors on to their boards. Under that so-called comply or explain approach, well-off firms would have to raise salaries by at least 3 percent per year or publicly say why they were not doing so.

The idea is “to shame highly profitable companies into giving more wage increases,” Everaert said.

If that does not work, Japan could broaden and enlarge an existing tax incentive program related to pay, he said.

Blanchard, now a senior fellow at the Peterson Institute, said that a wage-focused strategy is preferable to the launch of helicopter money because it targets what is ailing the country.

“Japan needs inflation, not an increase in aggregate demand,” he said.

While IMF officials admit the historical performance of incomes policies is mixed, they take comfort from another example in U.S. history.

Former President Franklin Delano Roosevelt employed an incomes strategy in 1933 that helped end deflation during the Great Depression, though how big a role it played is debatable.

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