Cheap and Tawdry

The current government of Aso Tarō is not having a good year. With the economy in critical shape, they're being forced by their coalition partner New Komeito to do a very impopular 12000 yen cash giveaway to every resident in Japan. The money will worsen the already critically bad public finances further, and the whole giveaway scheme has also been handled in a remarkably hamfisted way, dragging the government approval ratings further down as a result. The government has support in the 20% range; the economy - and unemployment, and homelessness - is steadily worsening; and there's an election no more than seven months away.

No wonder, then, that LDP members are in full panic over the prospect of losing the next election. So a few of the dimmer stars in the LDP constellation have Come Up With A Plan: Give away more money to the public.

"But.. that's what they're already doing, and it's costing them votes, right?" Right. But they seem to have decided that the current cash giveaway is impopular for two reasons: it's too little, and it costs too much.

First, the thinking seems to go, 12000 yen per person is not enough to bribe comfort the electorate. 12k yen - $150, or SEK1000 - is not chicken feed (the chickens would choke on the tough paper bills) but it's not exactly going to change your life either. So they suggest not another 12k yen, but 600k yen - yes, sixhundred thousand yen, or $6700 or SEK55000 - enough to buy an election revive consumer spending just about anywhere.

The lawmakers suggest a giveaway of around 100 trillion yen, $1.1 trillion or SEK 9 trillion. That's some serious amount of money. Huge, in fact. "Absolutely freaking ginormous" comes to mind. That's about 15% of Japan's GDP. Just about the entire GDP of Sweden - for two years. Real money is what we're talking about here. A financially prudent observer may well pause for a moment and wonder just how they suggest paying for it.

Their suggestion: not pay at all. They propose printing more money - yes, quite literally run the presses and send out the results (by post, presumably) to each and every resident of the Japanese isles. The arguments in favour sound good: the export industry - engine of economic growth - is hurting badly from the expensive yen exchange rate. Also, deflation was a persistent plague on the Japanese economy during the last recession. By diluting the money supply and have people spend it you get a healthy dose of inflation, a drop in the value of the yen, and kickstart the domestic economy. Everybody wins, the LDP lawmakers are hailed as heroes and a grateful electorate will carry them on their shoulders into the Diet and another generation of complete political dominance.

Well, except for one thing - it doesn't really work that way. Printing money without assuming any obligation would generate inflation, sure, and a drop in the value of the currency. But it also destroys the trust in the currency, so there's no reason to expect inflation rate to stabilize or the drop in value to stop. After all, if the government are ready to print money once, why not do it again? And again? Nobody would want to hold Japanese yen, or being paid in yen anymore.

And of course, in aggregate the Japanese households are not poor. They have money; they're just not spending it. Why are they not spending? Worry about the future, worry about the lack of job security, worry about deteriorating social safety nets. Giving each one a big wad of cash is not going to change that. Giving each one a wad of cash in this way will if anything have prudent people lining up to save it in some other currency, on economically safer shores.

And it's the cash giveaway part that really exposes this as the rather amateurish election gambit it is: if you're going to print free money anyhow, how about at least use it to shore up those deteriorating systems - pension, health care, unemployment benefits, social security - that are the main reason people are afraid to spend in the first place?

You know, I wonder: when you become a banana republic, do the banana plants appear by themselves, does the UN send them as part of the first aid programs or are you expected to import them yourself?