Avoid Making Mistakes in Economic Policy:

Encouraging Supply to Counter Demand Declines

March 19, 2009

The important principle to counter the current global economic crisis is to first increase the demand, not the supply.

Dr. Atsushi Tsuchida’s analysis of the great world economic depression

Interviewed by Junichi Kowaka, chief editor of Safety of Our Foods and Life

Kowaka: Dr. Tsuchida, you have analyzed the severe global economic crisis. How would you characterize the current situation?

Tsuchida: This current depression occurred as the demand fell down and the supply surplus rose up. Given such conditions, if the government provides loans for companies in bankruptcy to prevent unemployment, they will increase production. Therefore, such measures to provide loans, as most governments in the world are doing, will have a contrary effect. As a result, the depression will be prolonged.

Kowaka: So we are all making a mistake in coping with the crisis.

Tsuchida: Yes. In other words, even if a company produces commodities, it would only fail to sell them due to a lack of demand. If one person is employed, another will be fired. If one company is saved, another one will go bankrupt. Therefore, an important principle to counter this devastating global economic crisis is to increase the demand first, not the supply.

Kowaka: What kind of measures can be taken in reality?

Tsuchida: First, the government should provide the unemployed and business failures with minimum loans to maintain their life. Second, for those who are unable to work, it should just provide them with enough money to live. By doing so, the money will reach those in need and they will spend the all amount to purchase the necessities of life.

Kowaka: Those in need will use all the money provided for sure, won’t they?

Tsuchida: Yes, and that will certainly create demand. If the basic human needs of the poor are secured, the feeling of happiness in the whole society will be improved, and soon, the industries producing the necessities of life will grow. And then, other industries will also grow. At that point, supply may be increased as demand rises, and businesses will start to recover. However, a law is needed to prohibit collecting the money provided by the government as repayment.

Kowaka: In your opinion, should the government pay for these measures by issuing national bonds?

Tsuchida: It should be paid by a tax to help those who are unable to work. For loans to the unemployed and business dropouts, government notes may be used. The government can issue currency notes with its own loan guarantee, but not just give the money away. Then, when people become employed or start their own business again, the loans should be repaid according to their income. In fact, issuing government notes should be the last and limited option. Because if the government can print its own money, it would be able to practice any policy without taxation, and the economy will fall into terrible disorder. That is why government notes in my proposal are restricted to loans to those in need. In the case of national bonds, we owe the principal and a huge amount of interest to future generations. On the other hand, government notes used for this purpose must be recollected as loans and should not be given as grants or subsidy payments.

Kowaka: Government notes will drive the currency rates down during the present time, but it will not cause trouble in the distant future, and that is good.

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Original text is available in Japanese.

An extract and summary of Dr Atsushi Tsuchida’s analysis was published in Safety of Our Foods and Life No. 239, March, 2009.

Dr. Atsushi Tsuchida is a physicist and economist, born in 1933. He is the author of Introduction to The Entropy Economics and many other publications.

Safety of Our Foods and Life is the monthly magazine issued by Japan Offspring Fund (JOF). JOF is a consumer group and environmental NGO established in 1984. JOF has researched issues involving the safety of daily life, including chemical residues, endocrine disruptors, and genetically engineered food.

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