Saturday, August 11, 2012

Wrong Policy for Japan

Re: Japan Lifts Sales Tax to Tackle Debt

Here is the key point:

"Lawmakers dropped plans to curb entitlements, which were seen as more politically contentious than the tax increase."

This is the challenge of democracies everywhere. The people resist cuts to unsustainable entitlements. The elderly population of Japan votes to keep entitlements that their non-existent sons and daughters would have to pay. (Japan's birthrate is the lowest in the industrial world and well below the population replacement rate.) Japan's public debt to GDP is the highest in the industrialized world, and these tax increases will NOT stop it from increasing. So where will Japan get the money? From the printing press.

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