Article;
http://krugman.blogs.nytimes.com/2011/06/01/1937-in-2011/
Comment;
Reading the paper one finds that committing to R2 raises the growth rate of the Japanese economy, while, R1 gives complete price stability. Committing to an inflation rate tells us that that economy wants to grow at a higher growth rate. In growth-economics we try to equalize natural growth rate with other rates of growth. To be clear, natural growth rate is the rate of growth at which the population and workforce increases. The paper completely neglects this aspect. Nevertheless, the rate of growth of Japanese population is 0.1%. Therefore we can expect that when the economy will grow it will grow as per its’ natural growth rate without any fiscal expenditure. And, if we add public expenditure to this state of affairs we calculate the actual growth rate of the economy, natural growth rate plus rate of growth of public expenditure. This is why the Japanese growth rate tumbled when it stopped its expansion program in 2000s. The same thing happened with the US in 1936. No body can underestimate the effects of monetary expansion, at-least mathematically.Nonetheless, the Japanese economy could grow at rate of 0.1 percent anytime, other fiscal expenditure constant. For now, it can be said that the reconstruction will improve the economic condition of Japan, both, mathematically and also in the real.
The actual solution for the US lies in the comparison of the population growth rate with Japan. Japan’s population growth rate is 0.1% where as of the US is 9.7 % and allowing for frictional employment to obtain actual growth rate, with which the economy can grow, for Japan is -4.9%(negative) and for the US it is 4.7% (positive). Frictional unemployment which Keynes said stands at 5% is a variant of natural-rate-of-inflation-and-unemployment. But if we add the effect of public expenditure in this scene it depends on the commitment of both the countries about the rate of inflation. If Japan wants an inflation rate of 0% it will have to add money supply, anyways, equal to 4.9% of its national income. On the other hand, the US can grow naturally, will grow, without any public expenditure by reducing money for the private sector, but not without quantitative easing (new money). Just to point out, in quantitative easing you do not tax others to pay your expenses, anyways, so the reserve for private investment does not reduce. Anyways, again, in the US demand is low and fiscal deficit is burgeoning so we do not want to affect them, atleast in the short-run. However, the need of the US economy is to grow atleast 9.7 percent to sustain income saving and consumption levels, with inflation at zero, in the long-run.
http://krugman.blogs.nytimes.com/2011/06/01/1937-in-2011/
Comment;
Reading the paper one finds that committing to R2 raises the growth rate of the Japanese economy, while, R1 gives complete price stability. Committing to an inflation rate tells us that that economy wants to grow at a higher growth rate. In growth-economics we try to equalize natural growth rate with other rates of growth. To be clear, natural growth rate is the rate of growth at which the population and workforce increases. The paper completely neglects this aspect. Nevertheless, the rate of growth of Japanese population is 0.1%. Therefore we can expect that when the economy will grow it will grow as per its’ natural growth rate without any fiscal expenditure. And, if we add public expenditure to this state of affairs we calculate the actual growth rate of the economy, natural growth rate plus rate of growth of public expenditure. This is why the Japanese growth rate tumbled when it stopped its expansion program in 2000s. The same thing happened with the US in 1936. No body can underestimate the effects of monetary expansion, at-least mathematically.Nonetheless, the Japanese economy could grow at rate of 0.1 percent anytime, other fiscal expenditure constant. For now, it can be said that the reconstruction will improve the economic condition of Japan, both, mathematically and also in the real.
The actual solution for the US lies in the comparison of the population growth rate with Japan. Japan’s population growth rate is 0.1% where as of the US is 9.7 % and allowing for frictional employment to obtain actual growth rate, with which the economy can grow, for Japan is -4.9%(negative) and for the US it is 4.7% (positive). Frictional unemployment which Keynes said stands at 5% is a variant of natural-rate-of-inflation-and-unemployment. But if we add the effect of public expenditure in this scene it depends on the commitment of both the countries about the rate of inflation. If Japan wants an inflation rate of 0% it will have to add money supply, anyways, equal to 4.9% of its national income. On the other hand, the US can grow naturally, will grow, without any public expenditure by reducing money for the private sector, but not without quantitative easing (new money). Just to point out, in quantitative easing you do not tax others to pay your expenses, anyways, so the reserve for private investment does not reduce. Anyways, again, in the US demand is low and fiscal deficit is burgeoning so we do not want to affect them, atleast in the short-run. However, the need of the US economy is to grow atleast 9.7 percent to sustain income saving and consumption levels, with inflation at zero, in the long-run.
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