Totally agree. However, to be clear, the crowding out that occurs isn’t fiscal, it’s real.
I Googled “Micro-Recession” and I didn’t see much. There is an NYT story about “localized recession” which I suspect is what you’re alluding to. I refer to this more broadly as “market disruption”. Some disruption can be constructive or destructive. That said, I think we’re referring to the same thing or at least something similar.
Let’s address Japan.
From an MMT perspective, which you know I embrace, at least in part, Japan’s experience seems to lend some evidence to claims made by MMT"academics".
Do big deficits cause inflation? No. Japan’s inflation runs just above zero.
Do big debts cause high interest rates? No. Japan’s policy rate is about -0.10 (negative rates).
Do big debts cause bond vigilante strikes? No. Japan’s government debt is hoovered up as fast as it can be issued. (All the more true with the BOJ running QE and creating a “scarcity” in spite of the quadrillions of yen debt available.)
Critics of MMT counter that Japan is “proof” that big deficits kill investment and growth.
Well, it is true that Japan has been growing at just 1% per year—certainly nothing to write home about. However, investment grows at about a 2% pace but is pulled down by lack of consumption growth—which has averaged just about zero over the past few years.
From the MMT perspective, what Japan needs is a good fiscal stimulus, albeit one that is targeted. Japan has three “injections” into the economy: the fiscal deficit (which has fallen from 7% of GDP to about 5% over the past few years—still a substantial injection), the current account surplus, and private investment. But what it needs is stronger growth of domestic consumer demand—which would also stimulate investment directed to home consumption. So fiscal policy ought to be targeted to spending that would increase the economic security of Japanese households to the point that they’d increase consumer spending.
So what is Prime Minister Abe’s announced plan? To raise the sales tax to squelch consumption and reduce economic growth.
You cannot make this up.
This has been Japan’s policy for a whole generation. Any time it looks like the economy might break out of its long-term stagnation, policy makers impose austerity in an attempt to reduce the fiscal deficit and thereby throw the economy back into its permanent recession.
Clearly, this is the precise opposite to the MMT recommendation. And yet pundits proclaim Japan has been following MMT policy all these years.
I agree, but to suggest that capitalists know this is equally false. Furthermore, should the money go to improving the lives of citizens or generating higher profits? The two aren’t mutually inclusive.
Should decisions be made only by investors or as a process within our democracy?
I don’t claim to have the answers to these questions and I realize there are problems on both sides as I’ve defined (though I recognize there may be more choices).
I know we don’t always agree, but I appreciate your input. That said, not sure what you mean by “omni-slashing”…