While there is every reason to tax the wealth and savings of individuals, especially the super rich, attacking corporates, which in Japan combine wealth and caution in equal measure, is more politically acceptable.
Japanese Prime Minister Shinzo Abe said last week that the splurge in quantitative easing by the Bank of Japan will achieve the same end painlessly. Dubbed Abenomics, the policy aims to devalue the currency and push up inflation via more costly imported goods. Rising prices will persuade consumers to spend now, not later, making for a healthier, higher spending economy.
However, a cheaper currency raises the cost of the chief import, gas and oil, and everyone’s heating, lighting and transport costs. Pushing up inflation while cutting living standards could be self-defeating.
The knock-on effects of quantitative easing in the UK and US on consumer spending are also disputed. They have arguably kept inflation from falling precipitously, and asset prices are bolstered — witness the rising stock market — but economic activity has shifted only marginally.
All this means Japan could be left with higher debts and an equally sclerotic economy. There is no chance of immigrants coming to the economy’s rescue.
The same applies in Italy where the young and skilled are setting sail. Rome’s membership of the euro means it is unable to print money. It could tax unproductive money in personal and corporate bank accounts, but like many European countries its banks are not in the best of health. Without an expanding export sector, it must look inward and has recently put the emphasis, like the UK, on a bonfire of welfare benefits.
Unfortunately for an aging society, this policy brings us full circle. Without a welfare safety net that includes funds for childcare, the population will continue to decline.
If Germany’s example is anything to go by, Rome has already left it too late.
Almost 10 years of generous benefits appeared to arrive too late for Germans who have fewer children a head than Italians.
No wonder several economists have speculated that Italy and not Greece will be the first to leave the euro. With a budget deficit of almost zero, it can survive with funds from Brussels.
However, an exit and devaluation would be a way for Rome to repeat the “spend and devalue” that encouraged the formation of the euro in the first place. There is no easy way out.
Only when governments realize they need to tax the dead money in their economies to release the funds for investment that they desperately need, can the recovery begin.