"The second thing the
reader needs to know about economics is that debt can have a positive or a
negative effect on wealth creation, depending on what kind of deb. If the debt
is made with the intent of making a subsequent sale, id est. a business loan,
it will help increase capital accumulation. However, if the debt is taken on to
fund current consumption it will decumulate the capital stock and make society
poorer. (...)
Japan misallocated large amounts of capital in the 1980s. Instead of dealing with it head-on, they tried to paper over the problems with fiscal expansion, lowering interest rates to laughable levels and expanding the central bank balance sheet. This story should be familiar to all Americans and Europeans by now as the western economies did the exact same thing in the 2000s.
All it did for Japan was to lift public debt to levels that eat away all tax revenue."
Japan misallocated large amounts of capital in the 1980s. Instead of dealing with it head-on, they tried to paper over the problems with fiscal expansion, lowering interest rates to laughable levels and expanding the central bank balance sheet. This story should be familiar to all Americans and Europeans by now as the western economies did the exact same thing in the 2000s.
All it did for Japan was to lift public debt to levels that eat away all tax revenue."
Part I http://www.bawerk.net/#post16
Part II http://www.bawerk.net/#post17
Part III http://www.bawerk.net/#post18
