The MMT and Japan Myths
10 November 2016 | Pago Pago, American Samoa
Many argue modern monetary theory remains only theoretical and unproven.Others claim MMT is just nonsense. Yet others claim it is a prescription for disaster. All cite Japan as the failed MMT experiment and a country of lost decades. All of this is contrary to clear facts and are myths promulgated by the financial press and Wall Street mavens.
Consider first the claim MMT is unproven or nonsense.. The US has $22 or $120 trillion in public debt depending on how it is counted (pd/gdp = 125 on first number) and Japan's public debt to GDP ratio is way higher than that of the US (pd/dgp = 229). The debt of both countries is still double A rated (not AAA because of internal political instability caused by trouble makers). (Try those numbers on a household budget.) Now here is the point. Neither country has collapsed or had a problem with its public debt when it, first, was 1/3 as high; second, 2/3 as high; or third, as high as it is now. That is proof MMT, in its broad outline, is not only theoretically possible but that it is also demonstrably true. People ignore all empirical data to hold to their visceral prejudices.
Now lets look at the related myth that Japan has lost decades of growth, many say because of its high public debt. That too is wrong. Look at Japan's per capita real growth in income and forget much of the financial media nonsense many thrive on. Real per capita income in Japan was $5000 in 1960 and 35,000 in 2008, an increase of seven fold. See charts. We haven't done so well. We were at about $5000 in 1920 and didn't reach $35,000 until about 1995, much slower growth in the US than Japan. Try to find Japan's lost decades of growth in its chart. We should be taking about the US's lost decades of growth if anyone's.
That both countries are still suffering from the effects of the 2008 great recession, created by the financial sector, is undeniable. The Japanese government is trying much harder for its core population now to do something about it whereas the Fed and US government doesn't give a damn about its core population and isn't trying to help or do anything. ergo, Trump.
To be sure, Japan is now facing some demographical problems we aren't. It has an aging population with many older retirees where as the US has many male retirees going back to work out of necessity, many older women who have not retired and the US has a huge millennial population bulge. This will have future consequences as will the fact the US has 94 million adults not in the labor force and unemployed. Both countries have looming problems but not because of MMT or high public debt. In Japan's case, they are demographic.. In the US, they are because of bad or no economic policies.
While more and more people consider themselves to be competent when it comes to economics, the truth is economic illiteracy is on the rise as several sources point out and this article demonstrates. More people are interested, but more people get too much wrong.