The ultimate in central bank experiments -- even beyond Bernanke's --
occurred this week when the newly appointed Japanese Premier Shinzo Abe and
his willing sidekick, BoJ Governor Kuroda, have begun to print new money so
that there will be twice as much of it flowing in and around Japan's
economy in two years' time.
It's Japan's latest attempt to get out of the economic depression it has
been suffering from ever since 1990 -- when it had a standard of living
that we had just about reached when 2007 crashed around our ears. Unlike
the US or the UK, Japan hadn't tried money-printing (quantitative easing).
According to my own hypothesis (economics is driven by status), Japan is
not really suffering from a depression but from an entirely natural
steady-state in which most consumers are pretty full up with all the
consumer goods he will ever need or has the time, energy and skill to
enjoy, given that some might need replacing from time to time.
What Bernanke (US Fed), King (UK BoE) and, now, Kuroda (BoJ) are trying to
do is to boost the spending power of their country's consumers so that
they'll all go to the shops and spend. This is demand-side economics as
preached by Keynes for most of his life after repudiating Adam Smith's
"invisible hand"and the supply-side economics of J-B Say ("supply creates
its own demand" -- that it's only when a consumer sees a new product and
desires it very badly that he'll then work and save extra hard in order to
buy it.).
It was only in the last year of his life that Keynes realised he'd been
wrong. After a difficult meeting of Directors of the BoE in 1946 in which
the problems of the UK economy had been discussed Keynes confessed to a
fellow Director, Henry Clay that he couldn't rely on his own ideas to help
get Britain out of the terrible post-war mess it was in but he would need
Adam Smith again.
Keith
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