A new adviser to Prime Minister Yoshihide Suga says a stimulus plan being drafted now should be more than double the size expected by investors if it is to prevent mass job losses and thousands of suicides.
Yoichi Takahashi, one of Suga’s six new economic advisers, says the government needs to spend ¥40 trillion ($384 billion) in its third extra budget to stop a surge in unemployment and prevent the suffering that would come with it. A more modest aid package of ¥10 to ¥15 trillion is what bond traders are forecasting now.
“The number may surprise people but, theoretically speaking, it’s needed,” said Takahashi, a professor of economics at Tokyo’s Kaetsu University, in an interview this week.
“We need to put the fire out before it spreads to more rooms.”
That advice is likely to meet resistance from Finance Ministry officials who must manage the developed world’s heaviest public debt burden, even as the government tries to prevent rising waves of the coronavirus from derailing the recovery. Japan has already budgeted about ¥58 trillion to fight the crisis, more than many other governments relative to the economy’s size.
Still, Takahashi’s views could get some traction. He and the prime minister have met twice in person since Suga took over in September, and the prime minister phones him to ask for his views, according to the 65-year-old economist, who studied under Nobel Prize winner Paul Krugman at Princeton University.
Japan rebounded strongly from recession last quarter, but still only managed to claw back about half the growth lost since 2019. Record virus cases at home and overseas now threaten to cool the recovery. Tokyo and Osaka this week called on some businesses to close early, while Hokkaido asked hostess clubs in Sapporo to shut altogether and urged restaurants serving alcohol in the Susukino nightlife district to shorten their hours in order to stem the spread of the virus.
Takahashi says ¥40 trillion in stimulus is necessary because that’s how far demand has fallen below the economy’s productive capacity. The government’s estimate of this slack, known as the output gap, is at least ¥30 trillion. It suggests a smaller shortfall than Takahashi’s calculation, but still represents about 5.7% of pre-virus gross domestic product at a minimum.
For Takahashi, the numbers aren’t abstract. He says they translate into more job losses, more desperation, and, ultimately, higher suicide rates, which are already rising during the pandemic.
“The current output gap means over a million people will lose their jobs within six months” if nothing is done, he said. “The math shows that would lead to around 6,000 suicides.”
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