>Does anybody know the details of the Japanese stimulus package.
Financial Times - Tuesday October 6 1998
JAPAN'S ANTIDOTE TO DEPRESSION By Paul Abrahams in Tokyo
Milton Friedman would be amused. The Nobel prize winning economist, who once joked that the fastest way to boost money supply was to throw dollar bills out of helicopters, may soon see a variant of this idea put to the test.
The Japanese government said yesterday it was considering plans to hand out ¥30,000 (£130) gift vouchers to every one of the country's 125m inhabitants.
The government is also considering a "Happy Monday" scheme, which would turn an increasing number of Mondays into holidays in a bid to persuade consumers to go shopping instead of going to work.
These are desperate times in Tokyo, as the government seeks to head off what some economists believe is an imminent depression.
Yesterday, the Nikkei average of 225 leading shares fell another 2 per cent to 12,948, its lowest since January 1986. Today, the government is set to cut its forecast for gross domestic product this financial year to minus 1.8 per cent. A few months ago, it was predicting 1.9 per cent growth.
The economics of the gift voucher scheme are perhaps a little more rational than those of Friedman's free dollar bills. Like more orthodox methods of stimulating an economy, such as printing money or cutting taxes, recipients of the dollar bills could choose to save the benefit rather than spend it immediately. But because the vouchers would have a limited shelf life, people would have to spend them quickly, giving a fast, if ultimately illusory, boost to the economy.
The political rationale for the scheme is that it has been championed by a marginal political party, Komei (the clean government party). By embracing Komei's idea, the ruling Liberal Democratic party, which failed to win an absolute majority in last July's elections, might win the support of the party for passing other legislation . Perhaps the political benefits will even outweigh the economic one.
Yesterday, economists suggested the effect of the vouchers would be a boost to the economy of only ¥3,750bn, or 0.7 of a percentage point. Robert Feldman, economist at Morgan Stanley, said: "What they need to do is more drastic; say, abolishing central government income tax, which would provide a boost of ¥19,000bn to the economy.
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LEADER: A yen for spending
In most places handing out wads of crisp new notes is a fine way to get things moving. But not in Japan. The government there is so desperate to revive the economy that it is looking for a way to force people to spend the cash as well. Its latest idea is to give Y30,000 ($223) gift vouchers to all Japanese inhabitants, with an expiry date by which they must be spent. The plan sounds bizarre, but does have a certain logic.
None of the Japanese government's measures for fiscal reflation is working. Its plans for a massive infrastructure boost are being thwarted by an unenthusiastic response from local governments, which are already over-indebted. And in a country where infrastructure is already well-developed, any new spending that does happen may boost demand, but will do little to improve the economy's long-term growth potential. The tax cuts being introduced, meanwhile, will probably end up in people's bank accounts (or, more likely, under their mattresses), rather than being spent. The reasons are not hard to understand. Prices in Japan are stable or falling, so that little is lost by deferring consumption. Job insecurity is growing. And individuals approaching retirement are increasingly concerned about the shaky state of the life assurance industry.
Faced with these constraints, handing out money which people are forced to spend straight away could be the only way to achieve a quick fiscal boost.
The policy may prove administratively impossible. But even if it could be done, it would fall well short of a panacea. The main effect would probably be to change the timing of consumption, as people brought forward their spending plans. After the vouchers were used up, spending could quickly fall back.
And the scheme is too small to counteract the deflationary forces in the Japanese economy. It might produce a boost of 0.7 per cent of gross domestic product. But the International Monetary Fund estimates that the Japanese economy is now running at about 8 per cent of GDP below full capacity. The painful process of bank restructuring, if it ever gets going, can only make matters worse in the short term.
The voucher idea is not crazy, and could help provide a much-needed short-term stimulus to a rapidly deteriorating economy. But it needs to be part of a much more substantial macroeconomic policy, including large-scale monetary expansion by the Bank of Japan. And for the economy to return to a reasonable long-term growth path, there is no alternative but for Japan's politicians to tackle the structural reforms that the country needs.