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What does it mean, though, when negative growth persists even after taking economic measures totalling just under 10% of GDP? What would have happened if the measures had not been taken? Assuming that the multiplier of public finance expenditure is 1.5, the growth rate becomes minus 15%, creating a deflationary spiral. Or were the economic measures nothing more than ineffective tax cuts and investment, and thus a squandering of public finance? When the amount invested before the Obuchi Cabinet came to power is included, the cost of economic measures totals 120 trillion yen. The outstanding government debt at the end of 2000 will therefore amount to 650 trillion yen.

To be sure, without economic measures the economy would stall. Economic measures are needed not so much to restore the economy to health, but to rather merely sustain it at its present level. Implementing economic measures stimulates demand.

But the economic system immediately adapts and returns to its original level. So more economic measures are needed, and unless they are on a grander scale than before, the economy worsens again. And in areas where employment expands only as a result of economic measures, unemployment becomes a problem.

Keynesian policies assumed a "mechanical" economic model, and the effectiveness of the policies was viewed by building up linear relations in the form of simultaneous equations. But the actual economic system is not mechanical; it is adaptable and complex like a living creature. So even if the measures are temporarily effective, the economic system soon adapts to them and the hoped-for results cannot be achieved.

 

Contradiction of further deterioration of the economy unless reckless spending is undertaken in the name of public investment

Economic measures are a kind of stimulant. Unless the Japanese economy breaks free of public investment at some point, it will become addicted as if to a drug.

 

 

 

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