Japan Buries Our Most-Cherished Economic Ideas

choi

Noah Smith, Japan Buries Our Most-Cherished Economic Ideas. The country has mountains of debt and a tight job market. So where's the inflation? Bloomberg View, Aug 3, 2017.
https://www.bloomberg.com/view/a ... shed-economic-ideas

Note:
(a) "Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion."
https://www.bloomberg.com/view/c ... OYuAmvcU/noah-smith

(b) "Some economists think more fiscal deficits could help raise inflation. That’s consistent with a theory called the “fiscal theory of the price level,” or FTPL."
fiscal theory of the price level
https://en.wikipedia.org/wiki/Fiscal_theory_of_the_price_level

Quote: "It is an unorthodox theory, which contrasts with the usual monetary theory of the price level, where the price level is primarily or exclusively determined by supply of money.  These two contrasting views of prices may or may not contradict one another.

(i) "fiscal" means government budget (so "fiscal deficit" = budget deficit), whereas "monetary" means printing money or not (monetary stimulus of economy = government prints and inject money into economy, eg, during recession when consumers are holding money tight).

* stimulus (economics)
https://en.wikipedia.org/wiki/Stimulus_(economics)
("Fiscal stimulus refers to increasing government consumption or transfers or lowering taxes [the first two inject money to, and the last taking less money from, economy). Effectively this means increasing the rate of growth of public debt, except that particularly Keynesians often assume that the stimulus will cause sufficient economic growth to fill that gap partially or completely")
(ii) section 2 History: a proponent, Christopher A Sims, won 2011 Nobel prize in Economics.

(c) "Japan's situation should also give pause to economists who want to resurrect the idea of the Phillips Curve, which purports to show a stable relationship between unemployment and inflation."

Phillips Curve is not dead, so there is no need to "resurrect" it.

Kevin D Hoover, Phillips Curve. The Concise Encyclopedia of Economics, undated
www.econlib.org/library/Enc/PhillipsCurve.html
("Phillips curve, as transformed by the natural-rate hypothesis into its expectations-augmented version, remains the key to relating unemployment (of capital as well as labor) to inflation in mainstream macroeconomic analysis")

Compare Figures 1 and 2.

(d) "With long-term interest rates very low and tax receipts rising due to economic growth, Japan's mountain of government debt isn't as bad as it appears. The government can roll over long-term bonds [government bonds or debts] at increasingly low interest rates until interest payments essentially vanish. * * * Inflation, if it ever materialized, could help erode that debt."
(i) The first part says that as inflation rate decreases ("increasingly low interest rates"), Japanese government pays less and less interest for its debt, which is, like government debts in China, mostly denominated in local currency (ie, not in US dollars' in 1997 East Asia financial crisis, Thailand and South Korea devalued their currencies, but commercial debts in those countries were denominated in US dollars).  
(ii) The last part says that inflation makes any debts (not just government debts) evaporate.