Koko1 comments

Posted in: South Korea could be model for Japan’s economic development See in context


Government debt doesn't depend on GDP growth.

Government debt doesn't depend solely on GDP growth, but GDP growth IS a major factor, which you conveniently dismiss.

The economy can be growing and government debt increasing (America and many other countries) or shrinking.

The economy can be growing with debt increasing ONLY if growth rate is greater than the debt rate, which as we know in Japan is not the case. As the author points out, Japan has a 200% debt to GDP ratio which means growth must be greater than 200% of its current rate just to break even - not likely in the near future.

It depends on whether the government is willing to keep expenditures low so they can pay down the debt.

Keeping expenditures low is effective for debt reduction (supply side), but also requiring less taxes is necessary for growth stimulation (demand side) - BOTH factors are essential.

For the record a quick look at wikipedia shows a government deficit in Korea despite solid economic growth in 2009, meaning that Korean government debt actually increased, contrary to the implications of your statement.

I didn't look up wikipedia, but again, Korea's growth rate would have had to increase faster than its debt rate, all things being equal.

This is why Japan should not raise taxes, as the author said - taxes lower the debt rate, but at the expense of the growth rate. In accounting terms, you would be increasing assets while increasing liabilities - pushing on a string.

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