Japan Isn’t out of “Resources”

Probably nobody cares that Michael Schuman is total wrong about Japan and Shinzo Abe’s economic policy, but this particular phrase is wrong in a felicitous way:

In simple terms, Abe’s plan is to flood the economy with cash, either from government coffers or the Bank of Japan (BOJ), to boost growth. The LDP advocates a plan to lavish a staggering $2.4 trillion on public-works programs over the next decade — a gargantuan stimulus equivalent to 40% of the country’s GDP. And where will Abe find the money to pay for all of that construction? The government itself, already posting huge deficits, doesn’t have the resources. So Abe figures he can extract the cash from the supposedly independent Bank of Japan.

See the problem is that when you’re talking about households or firms, it’s sensible to treat money as a stand-in for resources. The great thing about the cash in my PNC bank account is that I can use it to obtain taxi rides, meals, new shoes, electricity, and all the other stuff I’m likely to want. Who needs stuff when you’ve got money? But if you’re out of money, then you can’t get new stuff. You might even have to sell the stuff you have to get money. But a large nation-state isn’t like that. 

Since the Japanese government can create arbitrary quantities of yen, it doesn’t need to worry about “find[ing] the money” it needs to worry about resources. Japan has no oil domestically and in order to obtain oil from abroad it needs to export manufactured goods. Obtaining yen is neither here nor there. In terms of public works, the question is really whether the resources are present. Does Japan have unemployed workers who have the skills to do public works jobs? Is there enough concrete? I’ll have to plead ignorance on the details. I’ve heard it argued that past pork barreling and patronage politics has created a situation where Japan genuinely doesn’t have idle civil engineering capacity and maybe that’s true or maybe it’s wrong. But whatever the case may be the issue is resources.

A country that’s had no net increase in nominal spending in over fifteen years should absolutely be getting yen from the Bank of Japan. Japan needs monetary stimulus big time.