If there has been any blogger more accurate than me in their claims about Japan in recent years, please send me all his/her relevant posts, so I can can give him/her some praise.
Just to review:
1. I predicted the BOJ would be able to depreciate the yen, if it choose to do so. I’ve been proved right again and again. Paul Krugman had doubts.
2. I predicted monetary stimulus would boost inflation, but that they’d fail to hit their 2% target (excluding taxes). I was right. Krugman’s been all over the map, hostile to fiscal stimulus in the late 1990s, then too pessimistic about the possibilities for monetary policy before Abe, then (perhaps) too optimistic. And now? I can’t tell.
3. I predicted the monetary stimulus would boost growth, but that growth would remain low as the working age population is falling fast. I was proved right. (Krugman agrees it boosted growth.)
4. I predicted a growth surge before the April 1 tax increase and a growth slump afterwards. I was right. BTW, this has nothing to do with “monetary offset.” And Japan is not in a “recession.”
I mention this in response to a recent post by Paul Krugman, who has totally forgotten about the outcome of his earlier 2013 “test” of market monetarism, and started claiming that monetary offset doesn’t hold:
The bad growth news shows, pretty clearly, that the consumption tax hike was a big mistake. It also shows, by the way, how weak the market monetarist argument — which is that fiscal policy doesn’t matter, because central banks can always achieve the nominal GDP they want — really is; do you seriously want to contend that Kuroda likes what he sees, that he isn’t trying as hard as he can to boost Japan out of deflation?”
This is Krugman being Krugman—making it seem like his opponents are making idiotic claims.
BTW, Kuroda is engaged in monetary offset (the yen has recently fallen from 109 to 118), just as market monetarists would expect, and no, he is not doing all he can. For instance, he could do MORE, and in all likelihood will do MORE when he discovers that he needs to do MORE to hit his target.
Perhaps some day Krugman can explain to us how events that we predicted accurately somehow disprove the market monetarist view. Does he believe that market monetarists claimed that Japanese consumers would be indifferent between buying a car on March 31 and April 1st, after the tax rise? It sounds like an April Fools Day joke.
The real problem with the sales tax increase is that the money is being used to finance additional government spending. A few years back the Keynesians told us that taxes didn’t matter very much, it was all about spending. Well Japan is ramping up its government spending. Now Keynesians seem to have suddenly discovered that it’s taxes that matter, not spending.
PS. Just three weeks ago Krugman did a post showing that inflation expectations in Japan have risen to almost 2%. I doubt that, but let’s say Krugman’s right. If inflation expectations have risen to close to 2%, then how could the tax increase have had a major impact on the prospects for growth going forward? Is Krugman making an Art Laffer-style supply-side argument that tax increases reduce growth without reducing inflation? Is he now an inflation optimist and a growth pessimist for Japan? Where’s the model? When conservatives used to make that argument he would ridicule it. BTW, I’m a moderate on this question—call me a supply and demand-sider.
HT: Michael Darda