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I Can Resist the I-Told-You-So No Longer

August 13th, 2014 - 10:31 am

Japan’s massive stimulus program — equal to nearly a quarter of the country’s GDP — wasn’t enough to overcome the effects of a modest sales tax increase:

A sales tax increase this spring drove Japan’s economy into its biggest contraction since the March 2011 earthquake and tsunami, official data showed on Wednesday.

The April 1 tax increase took a heavy toll on household spending, shrinking the Japanese economy, the world’s third-largest, after the United States and China, at an annualized rate of 6.8 percent from April through June, and wiping out the 6.1 percent growth of the January-March quarter, when consumers shopped heavily to avoid the higher tax.

Seeing the slump as temporary, however, the Bank of Japan said it was convinced that the economy was on course for a moderate recovery and that it had no plans to expand stimulus any time soon.

Say it with me now: You can’t spend your way to prosperity.

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All Comments   (2)
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I would think this provides food for thought for the "kill the income tax and replace it with a national sales tax" crowd.
28 weeks ago
28 weeks ago Link To Comment
No, no, no. You have it all wrong!

Don't you ever read Krugman? It is NEVER that a massive stimulus didn't work, or that a tax increase negatively affected an economy.

It is ALWAYS that the stimulus was orders of magnitude too small, and the tax increase was as well.

Had they only committed 500% - 1,000% of GDP to the stimulus, and quadrupled the size of the tax increase, they would have had no problems at all.

One need only look at all the historical examples of countries following such polices that subsequently became economic powerhouses, like, um, well, that is not important, because the theory is sound.

He should know, too, as he won a Nobel Prize, which means you are right about everything.
28 weeks ago
28 weeks ago Link To Comment
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