But, as Krugman noted, while savings makes sense to individuals, collectively the act of saving for retirement just exacerbates the problem of supporting ourselves in retirement. For society as a whole, excess savings means negative economic growth, which means less for everyone when they retire. And the higher the collective rate of excess savings today then the bigger the collective hole they are digging for themselves tomorrow. Krugman noted that tax cuts could do little in Japan to stimulate spending, and even an increase in Government spending might not do enough. That is, Japan needs a simultaneous fiscal and monetary reflation.
Keynesian reflation is wrong only inasmuch as it is inadequate.
Not even the Alliance could dare advocate such a policy, even if New Zealand was in Japan's current circumstances. We know in New Zealand that monetary inflation simultaneous with high interest rates led to a doubling of inflation rates in 1994-96. But a flush of cheap money may simply generate further production, more economies of scale, and more discounting. The people will not be persuaded to part with their money until prices actually start to rise. Even then, Japanese people might not spend their money.