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Sunday, Oct. 12, 2003


Spending needs sensible tax policy


In the Oct. 1 letter "Whose policies are confused?" John Malott criticizes my view in a Sept. 20 article that Japan's economy needs pump-priming. He rehashes the standard view that says more spending on public works is not needed since in the past it did little to help the economy. But this is like arguing that because a wheelchair has failed to cure an incapacitated patient, it too is not needed.

The economy is incapacitated by the chronic lack of private domestic demand, a fact clearly shown by the extraordinary level of private financial assets -- almost 1.4 quadrillion yen, or around $100,000 for every man, woman and child in Japan. Public spending helps to sustain the economy by filling some of this demand gap. Any form of public spending helps, but public works happen to provide more trickle-down effects and greater economies than most other forms of public spending.

Japan's problem is that it has financed too much of this spending by deficit bonds rather than sensible tax policies, and has not done enough to discourage excessive savings and encourage sensible private spending. The claim that past pump-priming boosts in public spending failed to rescue the economy is demonstrably false. The postbubble record is clear: Twice these measures had the economy well on the road to recovery, in both 1996 and 2001. Each time the recovery was killed dead in its tracks by the fiscal-stringency policies of the Hashimoto and Koizumi administrations, respectively.

The opinions expressed in this letter to the editor are the writer's own and do not necessarily reflect the policies of The Japan Times.

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