Japanese Juxtaposition

Friday August 31st, 2012   •   Posted by Craig Eyermann at 8:53am PDT   •  

We’re going to make a point today, simply by putting three very recent stories side by side by side! First up, Nobel prize-winning economist Paul Krugman’s reflections on spending and growth posted at his New York Times-based blog The Conscience of a Liberal, which we’ve excerpted in whole given their brevity:

First-quarter growth results are now in for the major advanced economies; they look like this:

Wait, what? Japan as star performer? What�s that about?

Actually, no mystery. From Bloomberg:

Japan�s economy expanded faster than estimated in the first quarter, boosted by reconstruction spending that�s poised to fade just as a worsening in Europe�s crisis threatens to curtail export demand.

So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.

There seems to be some kind of lesson here about macroeconomics, but I can�t quite put my finger on it…

Next, a brief summary of an interview Krugman had with Business Insider‘s Joe Weisenthal just less than two months later, on July 12, 2012, which puts his finger on what that macroeconomic lesson might be (emphasis ours):

In order to avoid a full-on depression, the U.S. government needs to ignore the size of the deficit and start spending to stimulate the economy, Nobel Prize-winning economist Paul Krugman tells us.

“Somebody has to spend more than their income, and, for the time being, that has to be the government,” says Krugman.

But what about the deficit, that so many people are concerned about? After all, Krugman was something of a deficit hawk during the Bush administration.

He notes two things: One is that the deficit spending under Bush was totally wasteful, and that that should have been time to pay down debts. But he also says he’s learned from watching the US and Japan that it’s much harder for a country to have a debt crisis than he previously appreciated.

“My thinking has evolved,” says Krugman. “If you haven’t updated your views in the face of new experiences, you’re not doing your job.”

The fact that the US has its own currency makes a big difference, as evidenced by the crisis in Europe, where the countries without their own currencies are getting into so much trouble.

He still thinks a debt crisis is theoretically possible, but the evidence of the last several years shows it’s much harder than he realized.

Two notes to consider for context before we juxtapose the third story:

  1. The Japanese government’s spending has far outpaced its revenue for decades, and especially so in recent times due in part to its post-tsunami reconstruction spending, with its national debt level currently projected to reach 239% of its GDP by the end of 2012.
  2. Japan, like the U.S., and unlike most countries in Europe, has its own currency.

Now, the news from Japan, today (August 31, 2012):

Japan plans to cut state spending, could run out of money in a month

Japan’s government is planning to suspend some state spending as it could run out of cash by October, with a deficit financing bill blocked by opposition parties trying to force Prime Minister Yoshihiko Noda into an early election.


“The government running out of money is not a story made up. It’s a real threat,” Finance Minister Jun Azumi told a news conference, making a last-ditch appeal for cooperation by opposition parties to pass the bill.

Funny that. It sounds just like a debt crisis!


Sahadi, Jeanne. “National Debt: Will the U.S. Be Like Japan?CNN. 24 May 2012.

The Telegraph. “Japan Plans To Cut State Spending, Could Run Out Of Money In a Month. The Telegraph. 31 August 2012.

Tenebrarum, Pater. “Japan – Land of the Rising Debt“. Acting Man. 27 December 2011.

Weisenthal, Joe. “KRUGMAN: The Government Has To Do More Deficit Spending to Avoid a Full-On Depression”. Business Insider. 12 July 2012.

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Source: U.S. Department of Agriculture

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August 2012