With austerity (versus bank nationalizations/liquidations) in Europe seemingly failing the general population and with certain of what might be termed versions of Keynesianism, such as in Japan, under attack, whose right?
GDP growth must be financed somehow. Obviously, such growth can be financed with either debt or equity. And while we don’t have data on equity to estimate total investment, we do have the data on debt. The change in total debt over this same 1990–2012 time frame is ¥761 trillion. Had the entirety of this ¥761 trillion been put toward long-term investment, then GDP would be ¥761 trillion higher. [Yen for yen?] Had it all gone toward consumption, then GDP would not have changed (materially) in 22 years, assuming the money supply was held constant.
So, dividing the change in GDP by the change in total debt gives us an indication as to how much of the additional debt went toward investment and how much went toward consumption. Shockingly, the ratio yields an answer of only 4.2%. In essence, it means that 4.2% of this additional debt created long-term growth in the economy — and, in essence, 96% of it was wasted.
Well, it would appear that Japan is intending upon drastically lowering it’s wage and salary rates via inflation in order to compete globally. It has a long slog ahead. Other nations are going to also continue to compete. May the best economic ideology finally prevail and whether that be Austrian School austerity, Keynesianism, a hybrid of one or the other or both, or some entirely different system.