By Richard A. Werner (auth.)
Modern mainstream economics is attracting increasingly more critics of its excessive measure of abstraction and shortage of relevance to fiscal fact. Economists are calling for a greater mirrored image of the truth of imperfect details, the function of banks and credits markets, the mechanisms of monetary progress, the function of associations and the chance that markets won't transparent. whereas it truly is something to discover flaws in present mainstream economics, it really is one other to provide another paradigm which, can clarify up to the outdated, yet may also account for the various 'anomalies'. that's what this booklet makes an attempt. seeing that one of many largest empirical demanding situations to the 'old' paradigm has been raised by means of the second one biggest financial system on the earth - Japan - this ebook places the proposed 'new paradigm' to the critical try out of the japanese macroeconomic reality.
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Additional resources for New Paradigm in Macroeconomics: Solving the Riddle of Japanese Macroeconomic Performance
Many observers, and even many economists, believe that neoclassical economics has proven that only free, unimpeded markets and free trade can lead to economic success, while government intervention is doomed to inefficiency and failure. This is not in fact true. Instead, neoclassical models have demonstrated quite precisely that free markets and free trade would only then lead to optimum welfare, and government intervention would only then be an inefficient distortion of the economy, if and only if we lived in a world where everyone had perfect information about everything, and a number of other stringent conditions (such as zero transaction costs, constant returns to scale, complete markets, perfect competition, and so on) were met.
Sixty years after Keynes, a great nation – a country with a stable and effective government, a massive net creditor, subject to none of the constraints that lesser economies face – is operating far below its productive capacity, simply because its consumers and investors do not spend enough. That should not happen; in allowing it to happen, and to continue year after year, Japan’s economic officials have subtracted value from their nation and the world as a whole on a truly heroic scale. The fault does not, however, lie merely with those officials.
1 trillion over a decade that often also saw a significant expansion in the regular budgets. 4 Government spending increased from a total of ¥705 trillion in the 1980s to ¥1136 trillion in the 1990s. 9% on 37 No. 3 0 0 1991 Source: Cabinet Office, Ministry of Finance. No. 7% in the 1990s. 2 shows the breakdown by contribution to growth of each GDP component. On average, government spending contributed almost half of growth in the 1990s, while it only contributed a sixth of growth in the 1980s. 5 As a result, Japan’s government registered the largest budget deficits of any industrial country in the postwar era, averaging over 6% of GDP during the period 1993–2000.