Demand-side economists, aka Keynesians, believe it’s all about aggregate demand… Get consumers in a demanding mood, get them more spendable cash, and you’ll see the economy take off, or so goes the narrative… And sure enough, as we speak, the great nation of Japan is living proof that Keynes was right…

Japan’s Economy Rebounds in First Quarter on Consumption, reads the headline that caught my eye while browsing CNBC Online a few minutes ago… The following sentence (quoting Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute) is music to the Keynesian ear;

“Consumer spending and public investment are what drove the economy, with auto demand stirred by government subsidies and investment helped by extra budgets after the earthquake.”

“Demand stirred by government subsidies” says it all… The way you get an economy moving is you take a bunch of money from the taxpayer, then give it right back to him – but only if he spends it precisely where government directs… In Japan’s case, a fuel-efficient automobile… Then, when it’s time to report auto sales, voila!, the economy’s growing! Never mind where that money would have gone; the industries that will take the hit…

It’s like magic, and think of all the ancillary benefits for the politician… You know, get behind an industry that’ll get behind your campaign(like say, I don’t know, Solar maybe… Or, think back a few years, maybe Ethanol), then direct a government handout (taxpayer dollars) right back at them… You take from the taxpayer then goose whatever industry you like… Yyyyep… It happens…

“But dang!” says the frustrated Keynesian, Mr. Maruyama isn’t quite drinking the Kool Aid – per his next statement;

“So, with government polices behind the quarterly growth, we can’t say this is a reflection of real strength in the Japanese economy.”

Nope, we can’t say that at all… Although the politician sure can…