The Sankei Shimbun published a dialogue between Professor Emeritus Hamada Koichi of Yale University and editorial writer Tamura Hideo.
In response to the economic crisis caused by the novel coronavirus originating in Wuhan, China, Professor Hamada calls for expanded quantitative easing by the Bank of Japan to prevent yen appreciation, fiscal stimulus by the government, and a temporary reversal of the consumption tax increase for about two years.

March 15, 2020
Even excellent economists, like the Ministry of Finance, go so far as to say that even in a disaster, we should think about future welfare.
I cannot help thinking that they understand economics in an utterly wrong way.

The following is from today’s Sankei Shimbun.

Coronavirus Shock
The Bank of Japan Should Expand Easing
Consumption Tax Cut for Two Years

Hamada Koichi, Professor Emeritus at Yale University

Hamada Koichi stands in complete contrast to the many scholars who continue to demean Japan, weaken Japan’s national strength, and side with China and the Korean Peninsula.
Japan’s long period of deflation was something that advanced countries detested like snakes and scorpions.
It was Hamada Koichi who made the greatest contribution to Abenomics, which saved Japan from the great decline brought about by that deflation.
For the Japanese people, he is one of their benefactors.

The shock of the novel coronavirus originating in Wuhan, China, is giving the financial markets an impact on the scale of the Lehman Shock that occurred in September 2008.
What economic policy should Japan adopt?
Hamada Koichi, Special Adviser to the Cabinet and Professor Emeritus at Yale University, who resides in the United States, expressed the view that “the tax increase may be withdrawn for about two years” in an online dialogue with Tamura Hideo, editorial writer of the Sankei Shimbun, who proposes a large-scale cut in the consumption tax.
The main exchanges were as follows.

Tamura
The novel coronavirus shock may inflict a blow on the Japanese economy exceeding the Lehman level.

Hamada
Japan must firmly prevent the yen from appreciating.
At the time of the Lehman Shock, the central banks of various countries expanded money extremely quickly, but the Bank of Japan did not move, so the yen’s exchange rate against the dollar rose by 70 to 80 percent, putting the Japanese economy in a state of destruction.
I think the idea of launching large-scale monetary easing in order to avoid repeating that is quite reasonable.

Tamura
It seems to me that the Bank of Japan’s monetary policy has reached its limit.

Hamada
Deepening negative interest rates would hurt small and medium-sized financial institutions.
To prevent yen appreciation, there is nothing but quantitative expansion.
Since there is the 80-trillion-yen framework, it is naturally necessary to increase purchases of ETFs, exchange-traded funds, and the like.

Tamura
When the free movement of people becomes difficult, production and income shrink.
If the private sector cannot do it, the government has no choice but to support demand through fiscal spending.

Hamada
Regarding fiscal stimulus, especially now, I completely agree.
The idea that the government must always maintain a balanced budget is now outdated economics.
Moreover, when considered in terms of net assets, Japan’s public finances belong to a sound and wealthy country.
The Japanese media do not readily write about that, do they?
Wry smile.

Tamura
From the standpoint that the root cause of Japan’s economic stagnation lies in the consumption tax increase, I argue that Japan should take the plunge into a large-scale consumption tax cut, such as returning the consumption tax rate to its previous level and lowering it to 5 percent or less, or making it effectively zero percent.

Hamada
Ordinarily speaking, after a recession that has continued for 20 years, companies have become extremely timid and do not try to invest domestically.
In order to fill that gap, the government needs to bear a little fiscal deficit and restore the balance of the Japanese economy.
Moreover, the present moment is precisely a crisis that occurs perhaps once in ten years, even in the 21st century.
If we do not respond swiftly at such a time, infrastructure will also be damaged, children will not be educated, and in the end the burden will be passed on to the future.
Even excellent economists, like the Ministry of Finance, go so far as to say that even in a disaster, we should think about future welfare.
I cannot help thinking that they understand economics in an utterly wrong way.
Regarding a consumption tax cut, I think it would be all right to consider, by means of a temporary law or for a limited period such as two years, withdrawing the decision to raise the consumption tax.

Tamura
About two years?

Hamada
That is my sense of it.

Tamura
I think the tax rate should be 5 percent or less.
If it is for two years, should it not be zero percent?

Hamada
I am not at all opposed to that, but I cannot say there is absolutely no possibility that the coronavirus shock may ease and recover in another two or three months.
That is why, while setting a period of two years, we should think flexibly, including such measures.