For a quarter century now the Japanese government has been printing new money and borrowing and spending in true Keynesian style, in a so far futile effort to reboot the economy following the burst bubble of the 1980’s. This hasn’t been pure Keynesianism because the government has also been raising taxes sharply along the way in every way it can.
Now the government plans to redouble these same policies and the Economist, a thoroughly Keynesian publication, says that it all makes sense “in principle” and is “justifiable.” It acknowledges that the government borrowing and spending has led to a national debt over 200% of GDP, a previously unheard of level, so that the country is really insolvent. But it does not mention that the politicians love the borrowing and spending because they can use the spending to reward their private sector backers. Insolvency, Keynesianism, and crony capitalism are natural partners, but they are a completely toxic combination. We in the United States ought to know. We are proceeding merrily along the Japanese path although not yet with such extreme tax increases.
None of this could be happening without the support of Keynesian quackery. Think about our own fiscal cliff deal. The Democrats agreed that only the top 1% can be taxed more and those people can’t fund the deficit. Since the Democrats oppose spending cuts, they are quite openly saying that they favor huge deficits far into the future. This would be indefensible without the idea of Keynesian stimulus from deficit spending, the very policy that has dug Japan into its deep hole and which has also made our own deeper since the Crash of 2008.