Japanese desperate to reflate economy

Milton Friedman would be amused. The Nobel prize winning economist, who once joked that the fastest way to boost money supply was to throw dollar bills out of helicopters, may soon see a variant of this idea put to the test.

The Japanese government said yesterday it was mulling plans to hand out Y30,000 ($220) gift vouchers to each of the country's 125 million inhabitants.

The government is also considering a `Happy Monday` scheme, which would turn an increasing number of Mondays into holidays in a bid to persuade consumers to go shopping instead of working.

These are desperate times in Tokyo, as the government seeks to head off what some economists believe is an imminent depression. Yesterday the Nikkei of 225 leading shares fell another 2 per cent to 12,948, its lowest since January 1986.

Today, the government is set to cut its forecast for gross domestic product this financial year to minus 1.8 per cent. A few months ago, it predicted 1.9 per cent growth.

The economics of the gift voucher scheme are perhaps a little more rational than those for Friedman's free dollar bills. Like more orthodox methods of stimulating an economy, such as printing money or cutting taxes, recipients of the bills could choose to save the benefit rather than spend it immediately. But because the vouchers would have a limited shelf life, people would have to spend them quickly, so giving a quick, if ultimately illusory, boost to the economy.

And, as for public works pump priming measures, successive Japanese governments have become laughing stocks for promising results that never materialised.

The political rationale for the scheme is that it has been championed by a marginal political party, Komei (the clean government party). By embracing the idea, the ruling Liberal Democratic Party, which failed to win an absolute majority in last July's elections, might win Komei's support for passing other legislation.

Perhaps the political benefits will even outweigh the economic one. Yesterday, economists suggested that the effect of the vouchers would be a boost to the economy of only about Y3,750 billion , or 0.7 of a percentage point.