In my editor's letter this week in MoneyWeek magazine, I mentioned that fiscal stimulus in Japan was taking an interesting turn.
It is. Shinzo Abe has come over a little Theresa May with some anti corporate suggestions: he'd quite like to force companies to raise wages whether they want to or not, and he is keen on new taxes on companies that hoard cash (most companies). But, says GAvKal Research, he might also have a "bit of a gamechanger up his sleeve".
His government is floating the idea that it might be possible to dramatically boost domestic consumption in Japan by offering free higher education for all 18-22 year olds and by embedding the right to it into the constitution.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This makes some sense (if you assume that boosting consumption is a worthy goal). Japan's overall saving rate has fallen as its population has aged and has started to run down savings. But among the young, the saving rate remains very high: 30-39 year olds save an astonishing 34% of their incomes and there is some evidence that this low propensity to consume "stems in part from a need to build a nest egg to fund their children's education."
So making tertiary education free would not only be a good thing in itself (it is nice to think that developed democracies can educate everyone up to it to degree level) but would kick-start the consumption and hence growth and inflation Japan would like.
It might even persuade couples to try harder to navigate the endless problems of having children in Japan (childcare is hard to access and the older you get the higher the health care costs get) and start having the 2.4 children they say they want or the 2.1 the economy needs rather than the 1.7 they currently knock out. Fiscal stimulus on steroids.
You may, however, have spotted a problem. We can't afford free university education in the UK (the Scots pretend we can, but it isn't true). So how could the Japanese, given that they have an even higher ratio of debt to GDP than we do (some feat) and that the total cost would amount to some 5trn or 1% of GDP?
The answer is that Japan is further down the path of debt monetisation than the rest of us and clearly has every intention of continuing to be a world leader here, so there would be no real effort to actually finance the policy in traditional terms (out of tax revenue for example). Instead, the state would issue education bonds of some kind or another as a "permanent funding source" says Gavkal. The Bank of Japan would then buy the lot every year as part of its QE programme and Japan's use of "direct monetary financing to manage it its fiscal and social obligations" will have moved to the next level. Job done.
-
Barclays warns of significant rise in social media investment scamsInvestment scam victims are losing an average £14k, with 61% of those falling for one over social media. Here's how to spot one and keep your money safe
-
Over a thousand savings accounts now offer inflation-busting rates – how long will they stick around?The rate of UK inflation slowed again in March, boosting the opportunity for savers to earn real returns on cash in the bank. But you will need to act fast to secure the best deals.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
