The hottest economic doctrine around says governments should stop worrying and learn to love their public debt. Japan’s been more relaxed than most –- but a looming tax hike suggests it may be about to blink.
Modern Monetary Theory posits that countries which control their own currency can seek stronger economic growth via government spending, without risking default. The only limit on spending is inflation — a remote prospect in Tokyo, where steering clear of deflation is the priority and a 2% price target remains far out of reach.
It’s a controversial idea that has detractors and admirers worldwide, and may even surface in next year’s U.S. election campaign. Japan is often cited as evidence the theory is accurate. Now it’s having its own version of the MMT debate.
…..“There’s nothing wrong with the idea of MMT,’’ said Satoshi Fujii, who served as an economic adviser to Abe for six years. He’s called for a postponement of the tax increase and additional public spending of 15 trillion yen ($140 billion) a year over three years to jump-start inflation…..
…..”Aso can deny it for all he is worth,” said Mitchell, a professor at the University of Newcastle in Australia. In fact, Japan has been a “laboratory to establish the principles of MMT and the consequences of different fiscal and monetary policy initiatives,” he said.
A 600-Page Textbook About Modern Monetary Theory Has Sold Out
Hiroshi Ando, a lawmaker from Abe’s party, is less squeamish about MMT than his leader. He’s organized study sessions for colleagues who support bigger budget deficits to learn more about the doctrine. About 10 of them attended a discussion on May 15.
“If you understand this theory,’’ said Ando, “you will come to the conclusion that it’s utterly untrue to say Japan’s finances are in a critical state.’’