Why a Universal Basic Income for Japan's Deflation Battle is Unworkable: A Look at Economic Principles and Challenges
Understanding the Historical Context: Wage and Price Controls vs. Inflation
During the 1970s, many Western governments attempted to curb inflation by imposing wage and price controls, a strategy championed as a quick fix. However, as economist Milton Friedman famously noted, such measures are akin to 'covering over a kettle to fight the steam.' This aphorism highlights the futility of addressing surface-level symptoms without tackling underlying causes. The same can be said about the oft-proposed remedy to deflation in Japan—giving every citizen 1 million yen monthly for a decade.
The Economic Reality of Japan's Deflationary Struggle
Japan's economy has been stagnant since 1989, amid a younger demographic with a below-replacement birth rate and strict immigration policies. This situation has created a unique challenge where an aging population with a declining workforce means there are fewer consumers to drive economic activity. Japan faces the dual problem of having excess goods sold to a shrinking consumer base. Historically, policies aimed at stimulating spending—such as small cash handouts, vouchers, and basic income schemes—have not been particularly effective.
Failed Attempts at Stimulating Consumption
The Japanese government has experimented with various forms of giving money to the people, including cash transfers and vouchers for major purchases like new TVs or washing machines. Even the post-war period saw the introduction of cheap government loans for land, a strategy that was quickly eroded by inflation. Each of these attempts, while well-meaning, has been met with reluctance from the ruling class, often due to ideological reasons. Instead of directly supporting consumers, the government opted to intervene in the banking sector to reduce the burden of zombie loans, a move that did not significantly spur economic activity.
The Role of Central Banks and Negative Interest Rates
In response to deflationary pressures, the Japanese government has also experimented with negative interest rates, hoping to prod banks into lending more. However, this strategy has had mixed results. The reallocation of funds to bank debt relief, while beneficial for financial institutions, has not aligned with the goal of stimulating economic growth through direct consumer spending. The focus on bank debt resolution rather than consumer spending means that the hoped-for economic stimulus was not fully realized.
Addressing Misconceptions and Future Outlook
The proposed solution of a universal basic income (UBI) for Japan faces several challenges. Even if the monthly amount were scaled down to around 100,000 yen (equivalent to 1 million yen annually), it would still be a significant financial commitment that risks exacerbating long-term economic imbalances. Moreover, given Japan's current socio-economic conditions, a UBI that serves as the only income source following mass automation might require even higher monthly amounts—perhaps between 3 and 4 million yen annually—making it financially unsustainable.
The Future is Shaped by Technological Transformation
As technological advancements continue to disrupt traditional job markets, particularly in supermarkets and convenience stores, the concept of a universal basic income may one day become less radical and more necessary. Recent developments, such as Lawson's Amazon Go-style store, where staffless convenience stores are becoming a reality, underscore the pace of technological change. As millions of jobs become obsolete due to automation, a UBI scheme could indeed appear as an urgent necessity, rather than a radical idea.
Conclusion
While the idea of providing every citizen with a substantial monthly income may seem appealing, it is not a straightforward solution to Japan's deflationary challenges. The effectiveness of such measures would depend on their implementation, the economic context, and the overall strategic goals of the government. Japan must continue to explore innovative policies that focus on direct consumer spending and sustainable economic growth rather than relying on short-term fixes or radical approaches.