Obituaries for former Prime Minister Kiichi Miyazawa, who died recently at age 87, agreed that he was a statesman and a genuine internationalist. But some — those from Nikkei, Japan's leading economic media group, especially — also criticized him as a Keynesian economist responsible for Japan's economic troubles in recent years. It is time to set the record straight.
Miyazawa was finance minister in the crucial pre-"bubble" years of 1986-88. At the time the yen was appreciating wildly in the wake of the 1985 Plaza Accords (it was to more than double in value against the dollar). Endaka fukyo — recession induced by the high yen — was a favorite media topic. Meanwhile, Washington was pressuring Japan to boost its economy as a way of reducing its trade surplus.
The obvious answer was for Japan to boost domestic demand by expanding government spending — the Keynesian approach. In so doing it would not only reflate its weakened economy; it would also ease the pressure to export and curb the yen's rise in the process — three birds with one stone. That is what the Keynesian, demand-oriented Miyazawa wanted to do. (As a young bureaucrat in the early 1940s, Miyazawa had studied the works of my father, economist Colin Clark, who had worked with Keynes at Cambridge).