Maintaining fiscal discipline is absolutely vital. I want to make that crystal clear from the start. Why such a firm disclaimer? Because if I don’t, I’ll inevitably face a barrage of fruitless attacks from austerity hawks claiming that “proponents of active fiscal policy simply don’t understand the importance of discipline.” So, let me reiterate: fiscal discipline is of the utmost importance.
But what does “discipline” actually mean in the context of your own household? Put simply, it’s the realization that over-borrowing is dangerous because you’ll eventually hit a wall where you can’t pay it back. Under Japan’s Money Lending Business Act, an individual’s borrowing limit is generally capped at one-third of their annual income. Some might argue that individuals shouldn’t be in debt at all, unless it’s for a major purchase like a home or a car. This logic—that debt without a clear repayment plan leads to bankruptcy—applies to corporations, local governments, and organizations alike.
So, how should we judge government fiscal discipline? The media loves to point to metrics like the “government debt-to-GDP ratio” or “national debt per capita.” As of 2023, these stood at roughly 260% and 10 million yen, respectively.
My conclusion is simple: These metrics are entirely meaningless.
While the concept of fiscal discipline is essential, the yardsticks we are using to measure it are fundamentally flawed. There are several alternative indicators we could use to gauge true fiscal health, which I plan to explore in a future post. But before we get to those, we first need to have a serious conversation about the nature of money itself.
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