Canadian economist William White argues that Japan’s planned expansion of the money supply can “quickly take inflation to very high levels”. Many economists think that is precisely what Japan needs. Mr White, on the contrary, believes that monetary action “is not needed and it will not succeed in stimulating the economy”.
Here, from his op-ed, is a brief introduction to Mr White’s reasoning. Among economists, his is definitely a minority view. It might even be correct. Unfortunately, in macroeconomics everything changes at once, so we will never know for sure, even if the Bank of Japan goes forward with its plan.
Japan’s recent slow growth has been largely driven by demographic trends. Since 2000 growth in GDP per person of working age has been significantly above that in the US. As for persistent deflation, the level of Japanese consumer prices has fallen less than 4 per cent in the past 15 years. There is no evidence of an accelerating deflationary trend, nor of consumers delaying spending in anticipation of lower prices. Indeed, the household saving rate has fallen since the 1990s from a traditionally high level to zero today. Finally, the BoJ estimates that the amount of spare production capacity is also close to zero.
William White, “Japan’s plan for further stimulus is not courageous but foolhardy“, Financial Times, 20 November 2014 (metered paywall).
William White (born 1943) was at the Bank of Canada from 1972 until 1994, when he joined the Swiss-based Bank for International Settlements (BIS). He retired from the BIS in 2008. The following year he was appointed chairman of the Economic Development and Review Committee at the Paris-based Organisation for Economic Co-operation and Development (OECD.