Since Shinzo Abe came to power, the Japanese stock market has risen an astonishing 50% in 5 months, and the replacement of the fatalism which has dogged Japan’s economy by a new burst of policy activism has profound implications for the UK. There is another precedent for this policy activism other than the General Theory of John Maynard Keynes in 1936 which transformed Western macroeconomic thinking till the high inflation of the 1970s caused by the sudden quadrupling of the oil price by the Shah of Persia and OPEC led to the eclipse of Keynesian stimulus theory and the rise of neo-liberal ultra-free-markets capitalism.
Keynesian analysis of course was not disproved by the 1970s experience because it was never designed to deal with hyper-inflation, but rather with the serious and prolonged loss of demand in a depression. That situation is now being repeated today, which is why Keynesian stimulus policies are once again highly relevant. But there is a Japanese precedent here too.
