The Return of Depressing economics

             If you take Krugman's book and any and all other articles he has written on the crises in Japan, anyone can tell that he thinks Japan needs inflation. According to him, Japan needs to print sufficient money to ensure many years of rising prices (i.e. rising by more than 3%). Given that nominal interest rates cannot fall below zero, inflation is the only way to generate the negative real interest rates that are needed to reverse the "liquidity trap" that Japan finds itself in.
             Japan's problem, excessive savings, is so ingrained that even interest rates of a bit less than .5% are insufficient to get firms to make use of all Japanese' unspent incomes. The only way to make them reduce their savings rate is to make their money depreciate (i.e. to eventually become worthless) if it is not spent. They are not spending due to the fact that the prices keep falling and the Japanese will hold out until the first sign of price increase.
             I think that at this point it is safe to say that the more an economy produces at a cost lower than it sells for, GDP in general will rise. Firms in Japan are abstaining from this production because the labor prices are to high and they don't buy machinery that will increase production because the prices are still dropping. If a firms economic advisor is allowed to step in and make predictions about the economy and when to buy, the firm will undoubtedly wait to the last moment where they think they can get any and all materials necessary for production the cheapest.
             With this in mind, Krugman would argue that there remains two problems with a policy of printing money; one that he noted, and one that I would add and that does go beyond the state , which Krugman confines himself to.
             Krugman noted that the Japanese Central Bank would have a "credibility problem" if it adopted an overtly inflationary policy (and it would have to be overt to have the desired effect). The problem is that people w...

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The Return of Depressing economics . (1969, December 31). In MegaEssays.com. Retrieved 12:21, March 28, 2024, from https://www.megaessays.com/viewpaper/60299.html