With Wednesday’s Federal Open Market Committee (FOMC) statement on the horizon, and Japanese Prime Minister Shinzo Abe’s pushing to print more money and enact an ambitious stimulus program, American Enterprise Institute (AEI) economist John Makin has released his latest economic outlook which examines lessons from Japan’s past for current American policymakers.
Is the United States on the precipice of a lost decade?
Makin argues that Japan’s experience with debt, deficits, and deflation can teach the United States important lessons: use monetary policy to avoid deflation, aim for gradual deficit reduction, close tax loopholes to lower the marginal tax rate, and reduce the budget deficit.
What should US policy makers do?
1. Don’t obsess about deficits (as Makin has explained they are, unfortunately, sustainable)
2. Enact tax and entitlement reforms now
3. Cut spending later
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