Japan Is Having Its Own Heated Debate Over Modern Monetary Theory

Recently Yahoo Finance reported the following:

Yahoo Finance

Japan Is Having Its Own Heated Debate Over Modern Monetary Theory

Bloomberg Toru Fujioka and Enda Curran, Bloomberg Wed, Jun 5 6:00 AM PDT

 (Bloomberg) -- 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.

How Modern Monetary Theory Lets Politicians Think Big: QuickTake

The world’s third-biggest economy has been running budget deficits for two decades and selling a chunk of the resulting debt indirectly to its own central bank with interest rates at around zero. The lines that usually divide fiscal and monetary policy have blurred -– and MMTers say that’s fine.

But Japan’s rulers have been looking to trim their budget deficit for several years as they seek to address the world’s biggest government debt load at more than twice the size of the economy. The higher sales tax promised for October is central to their plan.

‘Not a Debate’

For Prime Minister Shinzo Abe’s government, and the Bank of Japan under Governor Haruhiko Kuroda, the argument that extra taxation might not be needed is viewed as heresy.

The tax hike is necessary to secure Japan’s welfare system and another postponement risks a credit ratings downgrade, Finance Minister Taro Aso said Monday, dismissing the views of an MMT advocate in parliament. “This isn’t a public debate, it’s a theory, though I’m not sure I should even call it a theory, it’s a line of argument,’’ Aso said.

The question came from a member of his own party, where some lawmakers think the government should be taking the opposite tack and spending more to shore up economic growth.

The issue of austerity versus fiscal support resonates well beyond Japan, where central bankers and finance ministers will gather for a Group of 20 meeting this week.

Solar System

Many of them are under heightened scrutiny at home. Low interest rates in advanced economies haven’t done enough to kick-start economic growth, lift wages or alleviate inequality. And that’s raising questions about whether the standard policy tools have outlived their use -- and fueled populist insurgencies that demand fundamental change.

Advocates of MMT say it’s time for a complete rethink of the economic solar system –- what money is, what taxes are for, and what government spending can achieve. They say there’s no need to fixate on deficit and debt metrics when there’s no sign of discomfort in bond markets, like in Japan. Yields on 10-year sovereigns have stayed below 1% percent since 2013 when the BOJ ramped up its buying spree.

Proponents say MMT isn’t like a switch you can turn on and off -- it’s a descriptive framework that applies to governments in full control of their currency, whether or not they choose to use all their options. Such countries don’t need tax revenue to balance the books, MMTers say, though they may use taxes to restrain demand when it overheats.

“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.

Still, a more conventional explanation for why Japan has avoided flight from bond markets is that around 90% of the national debt is domestically held -- something that separates it from peers like the U.S., which relies on China and other foreign creditors.

Mainstream economists, even when they’re generally supportive of more government spending to promote growth, warn that MMT risks letting public finances get out of control. Olivier Blanchard of MIT argues that it is only possible to finance large deficits by money creation without sparking inflation when interest rates are at zero.

For now, the BOJ is running low on ammunition, proving the case that a central bank can’t simply conjure up price-growth out of nowhere without the help of government spending.

Like Aso, Kuroda is dismissive of MMT. In April he described it as extreme, inappropriate, and entirely unrelated to what Japan has been doing.

Bill Mitchell, an MMT pioneer and co-author of a new macroeconomics textbook based on the theory, isn’t impressed.

"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.’’

Translation

日本對現代貨幣理論的爭論激烈

（彭博社） - 最熱門的經濟學說認為政府應該停止擔憂公共債務並學會熱愛它。日本比大多數人對它更放鬆 - 但快将出現的加稅顯示出這可能有变。

現代貨幣理論認為，控制本國貨幣的國家, 可以通過政府支出去尋求更強勁的經濟增長而不會有違約風險。對支出的唯一限制是通貨膨脹 - 這是東京的一個遙遠的前景希望，但目前首要任務還是避開通貨緊縮，2％的物價目標仍然遠遠不会成真。

現代貨幣理論是一個有爭議的想法，在世界範圍內有詆毀者和崇拜者，甚至可能在明年的美國競選活動中出現。日本經常被引用作為理論準確的證據。現在它正在擁有自己的現代貨幣理論的辯論版本。

現代貨幣理論如何讓政治家從宏觀構思：簡單說明

這個世界第三大經濟體已經持續了20年的預算赤字，並將一大筆由此產生的債務間接賣給了自己的中央銀行，利率大約為零。通常劃分財政和貨幣政策的界限已經模糊 - 而現代貨幣理論支持者表示這很好。

但日本的統治者多年來一直在尋求削減預算赤字，因為他們尋求解決世界上最大的政府債務負擔，其規模是經濟規模的兩倍多。 10月承諾了的提高銷售稅是他們計劃的核心。

'不是辯論'

對於日本首相安倍晉三的政府，以及日本央行行長黑田東彥，視可能不需要額外徵稅的論點為異端邪說。

財政部長麻生太郎週一表示，加息是確保日本福利制度和另一次推遲信貸評級下調的必要條件，並駁回了議會現代貨幣理論倡導者的觀點。麻生說 “這不是一場公開的辯論，這是一種理論，雖然我仍然不確定我是否應該稱之為理論，這是一種論說” 。

這個問題來自他自己黨派的成員，一些立法者認為政府應該採取相反的措施並花更多錢來支撐經濟增長。

緊縮與財政支持的問題引起了日本的強烈反響，並会帶到日本央行行長和財政部長將參加的本週的20國集團會議。

太陽系

他們之中許多人在國內受到更嚴格的審视。發達經濟體的低利率還沒有足以啟動經濟增長，提高工資, 或緩解不平等。這引發了人們對標準政策工具是否已經過時使用的疑問 - 並引發了民粹主義要求根本的改變。

現代貨幣理論的支持者表示現在是時候對經濟上的太陽能系進行徹底的重新思考 - 金錢是什麼，稅收是什麼，以及政府支出可以實現什麼。他們表示，在日本等債券市場沒有任何不適的跡象時，沒有必要關注赤字和債務指標。自2013年日本央行加大購買熱潮以來，10国債收益率一直低於1％。

支持者稱現代貨幣理論，不是一個可以打開和關閉的開關 - 它是一個描述性框架，適用於完全控制其貨幣的政府，無論他們是否選擇使用所有選項。 支持者表示，這些國家不需要稅收來平衡賬目，儘管他們可能會在消费過熱時使用稅收來抑制需求。

 “現代貨幣理論的想法沒有任何問題，”藤井聰（Satoshi Fujii）說，他曾擔任安倍晉三的經濟顧問六年。他呼籲推遲三年增加稅收和每年支出15萬億日元（1400億美元）的額外公共開支來推動通脹。

儘管如此，一個更為傳統的方法去解釋日本避免從債券市場撤離的是, 大約有90％的國債是在國內持有的 - 這與美國依賴中國和其他外國債權人的國家有分別。

即使主流經濟學家普遍支持政府用更多的支出來促進經濟增長，也同時警告現代貨幣理論可能會讓公共財政失控。麻省理工學院的奧利維爾布蘭查德認為，只有在利率為零之時，才能通過貨幣創造來彌補巨額赤字而不會引發通貨膨脹。

目前，日本央行可以使用的彈藥很少, 證明了如果沒有政府支出的幫助，央行不可能簡單地令物價增長。

像麻生太郎一樣，黑田東彥對現代貨幣理論不屑一顧。在四月份他將其描述為極端，不恰當，和與日本的做法完全無關。

比爾米切爾是現代貨幣理論的先驅，也是基於該理論而寫成的新宏觀經濟學教科書的合著者，他對麻生的說法不以為然。

澳大利亞紐卡斯爾大學教授米切爾說：“麻生太郎可以否認這一切。” 他又說事實上日本一直是“建立現代貨幣理論原則，以及不同財政和貨幣政策舉措的後果的實驗室”。

一本600頁的現代貨幣理論教科書已經售罄

來自安倍黨的立法者安藤弘對現代貨幣理論的態度不如他的領導者那麼負面。他為那些支持更大預算赤字的同事組織了學習課程，以便更多地了解這一學說。其中約有10人參加了5月15日的討論。

“如果你理解這個理論，你會得出結論 ”安藤說，“說日本的財政處於危急狀態是完全不真實的。”

Comments

       It is interesting to note that Japan has a deficit budget for two decades and sold most of the debt indirectly to its own central bank with interest rates at around zero. It seems that a risk of debt default is minimal as it is government guaranteed. But debts have to be repaid sooner or later, I think to increase taxation is a reasonable decision.