The Tale of Two Economic Theories: Why Japan’s “Reformers” Have No Clothes

Ah, Japan—land of sushi, sumo, and a political-economic spectacle that could put even the best kabuki theater to shame. If you’ve ever found yourself baffled by the endless debates over fiscal and monetary policy here, you’re not alone. On one side, we have the Keynesians, brandishing government intervention like a samurai sword. On the other side, we have the neoclassicals, who, in recent years, have begun advocating for massive monetary easing like a child with unlimited Monopoly money, but when it comes to fiscal policy, they scream “tighten those purse strings!” And then, of course, we have the self-proclaimed “reformers”—those who think cutting government spending, deregulating everything, and making it easier to fire workers will magically fix the economy.

Let’s break down how these economic schools differ, not just in monetary policy but in fiscal policy as well, while we also watch the reformers scramble around like they’ve discovered economic nirvana, all while missing the key points entirely.

Neoclassical Economics: “Print Money but Don’t You Dare Spend It!”

In one corner, we have the neoclassicals. They’ve always been known for advocating for small government, low taxes, and a “hands-off” approach to the economy. But in Japan, they’ve evolved. In the face of Japan’s ongoing economic stagnation, they’ve embraced 異次元の金融緩和 (unconventional monetary easing)—flooding the economy with cash in hopes of jumpstarting growth. Think of it like they’ve taken a page out of a wizard’s spellbook, conjuring up trillions of yen through quantitative easing and negative interest rates.

When it comes to monetary policy, they believe in using monetary easing to stimulate investment and consumer spending. Their mantra is simple: “Lower interest rates, print more money, and let the market handle the rest.” The theory is that cheaper borrowing will encourage businesses to invest and people to spend. So far, so good. But here’s the catch—despite years of such policies, Japan’s economy hasn’t roared back to life like they’d hoped. Sure, the stock market got a boost, but consumer spending? Not so much.

But wait, what about fiscal policy? This is where neoclassicals turn from money-printing wizards to strict penny pinchers. They hate the idea of government borrowing money to spend on things like infrastructure or social programs, claiming that government spending distorts the market. They see fiscal stimulus as wasteful, believing it only leads to inefficient allocation of resources. Their ideal world is one where public spending is cut, taxes are low, and the market is left to sort itself out. They love monetary easing but will fight to the death to avoid fiscal expansion.

For Japan, this has meant pushing for austerity measures and tax hikes even in times when government spending might have helped boost demand. The neoclassicals argue that fiscal deficits are harmful, despite Japan’s low borrowing costs. To them, the government should reduce its debt, cut social spending, and balance its budget. The irony is that while they’re happy to flood the economy with cheap money, they refuse to allow the government to spend any of it directly.

Keynesian Economics: “Spend and Print When Necessary”

In the opposite corner, we have the Keynesians. While neoclassicals are all about controlling inflation, Keynesians couldn’t care less about inflation in a depressed economy. What they care about is demand—if people aren’t spending, businesses aren’t investing, and unemployment is rising, the government has to act.

For Keynesians, fiscal policy is the central weapon in their arsenal. They argue that in times of economic stagnation, like Japan’s lost decades, the government should be increasing public spending to boost demand. They believe the government should run fiscal deficits in the short term to create jobs, invest in infrastructure, and increase consumer spending. Keynesians would say that Japan’s decades-long stagnation could have been alleviated if the government had stimulated demand more aggressively instead of constantly worrying about debt.

But Keynesians don’t ignore monetary policy. They acknowledge that monetary easing is important, but only up to a point. When interest rates are already near zero (or negative, in Japan’s case), they argue that you hit what’s called a liquidity trap. This is when people stop borrowing and spending no matter how low interest rates go, and that’s where monetary policy alone becomes ineffective. To Keynesians, Japan’s economic issues aren’t caused by a lack of easy money; it’s a lack of demand. The government needs to step in with fiscal stimulus to get the economy moving.

In short, Keynesians believe in using both fiscal and monetary policy, but when the central bank can’t do any more, they turn to the government to spend its way out of trouble.

The “Reformers”: Slash, Burn, and Deregulate Everything!

And then, of course, we have the “reformers”—those self-proclaimed economic saviors who believe that Japan’s biggest problem is too much government. Their battle cry? “Slash spending, cut taxes, and deregulate everything!”

Here’s the thing: reformers seem to lack any real economic theory. They talk about fiscal austerity like it’s the key to paradise, even though there’s little evidence to back it up. For them, cutting government spending is the answer to everything—whether it’s health care, social security, or infrastructure. If it’s in the budget, it needs to be cut.

But they don’t stop there. Reformers also love deregulation. They believe the economy will magically grow if only the government would deregulate labor laws, environmental protections, and safety standards. And let’s not forget their favorite topic: "解雇の自由化" (free firing). To them, making it easier for companies to fire workers is a no-brainer because it will supposedly make Japan’s labor market more “flexible.” In reality, it sounds more like they want to throw workers under the bus for the sake of “efficiency.”

What reformers fail to grasp is that Japan’s economic problems are far more complex than they think. They call for smaller government, but their version of “reform” looks more like fiscal amputation. Cut everything and hope the market fixes itself? It’s like trying to put out a fire by turning off the water supply.

Key Differences Between Neoclassical and Keynesian Approaches

At the heart of the debate between neoclassicals and Keynesians is how they view the role of government in managing the economy. Here are the key differences:

1. Monetary Policy:

   • Neoclassicals: They love unconventional monetary easing and believe that keeping interest rates low and printing money will solve economic problems. But they don’t think the government should be directly involved in spending that money.

   • Keynesians: They also support monetary easing but argue that it becomes ineffective in a liquidity trap. When people and businesses stop borrowing, Keynesians turn to fiscal policy to boost demand.

2. Fiscal Policy:

   • Neoclassicals: They despise government spending and believe the government should balance its budget and reduce debt. Fiscal deficits, in their view, distort the market and lead to inefficiency.

   • Keynesians: Fiscal policy is crucial for Keynesians. They believe that in times of economic stagnation, the government should run deficits to stimulate demand, create jobs, and invest in public infrastructure.

Conclusion: The Emperor’s New Economic Clothes

In the ongoing battle between neoclassicals and Keynesians, there’s at least a method to the madness. Neoclassicals believe in letting the market handle everything (except when it comes to printing money), and Keynesians argue for government intervention when the market can’t solve the problem.

And the reformers? They’re like the overconfident middle child who didn’t bring their homework but insists they know the answers. They mix a bit of neoclassical thinking, add in some libertarian fantasy, and come up with a recipe for disaster. In reality, their policies are more about cutting than reforming, and they ignore the deeper structural issues in the economy.

So, while Japan continues to navigate its economic challenges, remember that the loudest voice in the room isn’t always right. Sometimes, it’s just someone parading around in nothing but fig leaves.

【参考文献】
ケインズvsハイエク
https://youtu.be/3EkcQJkudoY?si=sCwLmR1PddxBBWKa

ケインズvsハイエク 第2ラウンド
https://youtu.be/-65T-ZqINwI?si=kKMIZ5osb7KRNEld