Tuesday, January 15, 2013
Keynes, trains and automobiles
Shinzo Abe is running for the position of Prime minister in Japan and is running on a platform of revitalizing Japan's infrastructure. He announced is running for Prime Minister just days after the Sasago tunnel collapsed killing nine people. His platform is calling for about 150 billion dollars in government spending to update old infrastructure. The injection of government spending into the economy could have a very positive affect on getting their economy out of its recession. Japan already has a very large public debt that already is over 200% of the GDP so it is necessary to have a solid plan for the use of the funds so as not to waste the money and opportunity to turn the economy in the right direction.
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3 comments:
Does Abe's platform intend to raise taxes at all? Spending an additional 150 billion on top of the large amount of debt already incurred is difficult for me to understand. I believe increasing government spending is a must. However, an increase in taxes seems inevitable.
Japan's economy has problems with growth and deflation and this plan to renovate the infrastructure would inject a lot of money into the economy and may bring Japan's GDP growth to a desirable level. Japan has always been afraid of inflation, but if this plan does inflate the yen, then it will be beneficial to Japanese exporters. The economist article mentioned that "But if the cash is wasted on projects with no economic merit, it will add to a gross public debt without materially boosting output, raising a debt-to-GDP ratio that already exceeds 200%", which I strongly agree as high spending should be spent wisely on issues that really need attention. Perhaps there is a better plan to aid the Japanese economy.
An increase in taxes would depend on Shinzo's stance on the economy, which is in a recession. So I would assume that taxes would no be raised since it would have a contractionary affect on the already slow economy. But as the article said, if the money spent can go towards more efficient energy plants then the debt incurred from the spending might be dampened in the long run by saving money on energy bills.
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