Japan’s new ruling party says that the country’s budget will be balanced by 2020 and that massive bond sales to cover the country’s large sovereign debt will become less and less necessary. Annual government spending over the next three years will be no more than $780 billion, and taxes, perhaps heavy ones, are on the way.
Like the nations of Europe, Japan has decided to take the austerity road. The US is largely silent on its plans immediate plans, but the President’s budget for the next decade shows that there will be a smaller deficit in 2020 than this year and the next three.
Ultimately, the Japanese budget is built on sand much like the U.S. spending plan.The Soviet Union used to pride itself on its Five Year Plans which were first instituted in 1928. These plans went through thirteen cycles which ended in 1991. There is no evidence that any of them worked well. The Soviets had to try to borrow money from overseas to make some of their goals. It often could not find ready lenders. And, birth rates and crop estimates turned were wrong. The entire process may have been a good way to make it seem that the central government was keeping the economy on track, but beyond that the mechanism’s success was spotty.
Japan’s plan and the Administration’s puts the benefits for voters near the end of the decade. That is a long way off for people out of work, burdened by taxes, or unable to pay mortgages. Most Americans, and perhaps most Japanese, would like to know what the one year plan is, or at least the program for the next two or three years.
Politicians in the industrialized nations are now focusing economic policies on the long-term because the next two or three years may be dismal. Voters, though, want relief from their economic problems now. They don’t care what will happen in 2020.
Between now and 2020 there could be another recession, or two, or three. Or the global economy could grow rapidly like it did in the 1990s. Unemployment could stay above 9% for two decades, or the pick-up in factory production could drive it down to 6% during the same time period.
Since the near-term future is so hard to predict, selling a ten-year plan is impossible.
Douglas A. McIntyre