When I warn about the fiscal and economic consequences of America’s poorly designed entitlement programs (as well as the impact of demographic changes), I regularly suggest that the United States is on a path to become Greece.
Because of Greece’s horrible economy, this link has obvious rhetorical appeal.
But there’s another nation that may be a more accurate “role model” of America’s future. This other country, like the United States, is big, relatively rich, and has its own currency.
For these and other reasons, in an article for The Hill, I suggest that Japan is the nation that may offer the most relevant warning signs. I explain first that Japan shows the failure of Keynesian economics.
…ever since a property bubble burst in the late 1980s, Japan’s economy has been in the doldrums, and its politicians deserve much of the blame. They’ve engaged in repeated binges of so-called Keynesian stimulus. But running up the national credit card hasn’t worked any better in Japan than it did for President Barack Obama. Instead of economic rejuvenation, Japan is now saddled with record levels of debt.
I then highlight how Japan shows why a value-added tax is a huge mistake.
Japan’s politicians also decided to impose a value-added tax (VAT) on the nation. As so often happens when a VAT gets adopted, it turns into a money machine, as legislators start ratcheting the rate higher and higher. That happened in Europe back in the 1960s and 1970s, and it’s happening in Japan today.
And regular readers know my paranoid fear of the VAT taking hold in the United States.
But here’s the main lesson in the column.
The combination of demographic changes and redistribution programs is a recipe for fiscal crisis.
…click on the above link to read the rest of the article…