The economic policy pessimists are having a field day with Japan

As you may have guessed, this is not some special problem that only Japan has. The whole world is in the middle of that same demographic transition, in more or less dramatic forms. Productivity in the richest countries is growing more slowly than it did during the decades after World War II, which means that the world as a whole is not innovating as fast as it used to. Again, fiscal stimulus is not going to fix that. Fiscal and monetary policy can smooth temporary fluctuations in output. I’m less than convinced that they can, by themselves, improve our economic capacity. Oh, you can make a huge mess with really bad decisions: deflation, hyperinflation, nationalization, confiscatory taxation, and debt crises can have nasty impacts on your economic output that will outlive your macroeconomic mistakes. But ultimately, fiscal and monetary stimulus are better tools for managing temporary crises than long-term growth problems.

via The Limits of Good Economic Policy – Bloomberg View.

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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