ABENOMICS: HAVE THE GOVERNMENT CREATE A MESS AND THEN SPEND MONEY CLEANING IT UP

9/13/13

Japanese Prime Minister Shinzo Abe has apparently decided to go ahead with the first increment in the increase of Japan’s sales tax; consequently, the national sales tax in the Land of the Once, and Maybe Again, Rising Sun will increase from 5% to 8% in April of next year.   If further increments are implemented, the sales tax will rise to 10% in October, 2015.  (See my 6/7/13 post, JAPANESE GROWTH RATES:  THE ONLY PLACE INTHE WORLD NOSTALGIC FOR THE ‘70s for my last ruminations on Abenomics.)

Mr. Abe and his allies, however, fearful that such a tax increase will hurt Japan’s still nascent economic recovery, have proposed a stimulus plan to offset the deadening impact of the sales tax increase.

Hmm…

One not trained in the more advanced theories of economics, or perhaps too lethargic of mind to understand the deeper aspects of that discipline, might ask a perhaps simplistic question, to wit…

Rather than embarking on a stimulus program to dull the desiccatory impact of a yet to be enacted tax, why not dispense with both the tax increase and the stimulus program and call it even?

One can come up with two possible answers to the above question.   First, Mr. Abe and his braintrust buy into the puzzling Keynesian presumption that a dollar miraculously multiplies when it passes through the government’s hands but goes into the economic equivalent of a coma when it stays in private hands.   Therefore, the government’s spending money is ALWAYS more salubrious for the economy than having the people who earned it decide what to do with the fruit of their labors.  Since Mr. Abe is a politician, and those he hires are, at least to a certain extent, in all likelihood political toadies and hangers-on, this is always a possibility.

Second, money that passes through public hands and is spent according to the designs of politicians provides those public servants with not only greater avenues for rewarding campaign contributors but also more control over our lives.  Therefore, there is no debate in the mind of the typical politician; it is ALWAYS better to spend money rather than let said money remain in the hands of the taxpayers.  The job of their economic braintrust is to come up with some theory, no matter how hare-brained, that will justify, or at least rationalize, this political predilection for “stimulus” programs.  This is true, to varying extents, in every nation on the planet.

The second explanation answers our question so effectively that one wonders how one conducts one’s life, or finds the answers to any public policy question, without a seemingly bottomless store of what yours truly calls realism but which others insist on calling cynicism.