Monday, August 23, 2010

Copter Cash could improve Japanese economy

Japan's economy remains in the doldrums. Consumers are saving and firms are desperately reducing prices. The problem is deflation, not inflation. The Bank of Japan has pushed interest rates to near zero with little stimulus to investment. To make matters worse, Japan's currency is rising against the dollar, depressing exports.
What's the answer when traditional monetary policy has no effective options?
Answer, Copter Cash. Create more money to overcome consumer reluctance to spend. This could be done by Bank of Japan and the Japanese treasury directly creating money without borrowing and incurring debt obligations.
By the way, this would be a good policy for the US as I have proposed in earlier blogs. Dropping cash from helicopters would be crude, but every one could be sent a check, and of course the government could spend on infrastructure. How would you like a high-speed trans-country railroad to bring us up to European standards? A country without high speed rail is a second rate country. Or maybe you would like a national electric grid that could prevent power failures and be able to transport solar-driven electricity from sunny areas to cloudy cities.

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