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  • Learning from Japan's Big Debt Spending Failure

    The New York Times reports today:

    Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.

    This should not be news to any responsible law maker. Heritage Senior Research Fellow Ron Utt wrote in October of 2001:

    The United States was not the only country to experience an economic downturn in 1991 as the Gulf War and its impact on energy prices and business confidence depressed commerce worldwide. Although the negative impact on the U.S. economy was brief and shallow, the effect in Japan was much more severe, exacerbated by that country’s highly leveraged and overextended financial system and inefficient service, agriculture, and distribution sectors.

    Beginning in 1991-1992, Japan adopted the spending approach now advocated by many in the U.S. Congress when it embarked on a massive nationwide program of infrastructure investment. Between 1992 and 2000, Japan implemented 10 separate spending stimulus packages in which public infrastructure investment was a major component.

    Combined with increases in other government spending programs, Japan’s efforts to spend its way to prosperity led to substantial increases in government spending as a share of GDP. … Japan’s failed policies had severe negative consequences for its economy and citizens. …[M]easured in inflation-adjusted GDP growth, Japan went from being a high-growth country in the 1980s to a slow-growth country during the 1990s. … For the average Japanese citizen, the chief consequence of this economic underperformance has been both a relative and an absolute decline in the nation’s standard of living, defined by per capita GDP as measured by the World Bank and adjusted for differences in purchasing power parity (PPP).

    Back to today’s NYT:

    … proponents of Keynesian-style stimulus spending in the United States say that Japan’s approach failed to accomplish more not because of waste but because it was never tried wholeheartedly. They argue that instead of making one big push to pump up the economy with economic shock therapy, Japan spread its spending out over several years, diluting the effects.

    Most Japanese economists have tended to take a bleaker view of their nation’s track record, saying that Japan spent more than enough money, but wasted too much of it on roads to nowhere and other unneeded projects.

    Dr. Ihori of the University of Tokyo did a survey of public works in the 1990s, concluding that the spending created almost no additional economic growth. Instead of spreading beneficial ripple effects across the economy, he found that the spending actually led to declines in business investment by driving out private investors. He also said job creation was too narrowly focused in the construction industry in rural areas to give much benefit to the overall economy.

    Back to Utt in 2001:

    Although Congress is split over whether the stimulus package should be comprised of tax cuts or spending increases or some combination of both, lessons derived from such past efforts at home and abroad demonstrate that strategies relying on increased spending will fail. Indeed, such lessons also suggest that such strategies make things worse by diverting scarce resources away from productive use in the private sector.

    Posted in Ongoing Priorities [slideshow_deploy]

    7 Responses to Learning from Japan's Big Debt Spending Failure

    1. ken dacon pa says:

      Obama had better be carefull or the American people will start to say. We made a mistake and fire HIM. Ken

    2. Spiritof76, New Hamp says:

      Socialists and communists in Washington don't care about creating jobs. They care about expanding dependency on the government. Once they get to the tipping point of 50% or more of the population dependent on them, then they will declare the rest of the population is hindering their progress. They will keep shrinking the independent minority until they become negligible. As the standard of living goes down (as it will)they will say that we need to sacrifice and not consume so much compared to the rest of the world. It is OK to be poor and there will be more of them accepting the dole and being compliant. USSR and Hitler's Germany come to my mind.

    3. Pingback: Freaks Of The Industry 10

    4. richard weirton says:

      Does anyone out there believe that the government can spend it's way out of a recession?

      Borrow only about one-third of that and send every american a check, and the economy would be on fire overnight. We all would be back to work.

      But this is not what our government wants. It wants even more control over us. It wants us all back on the plantation, under it's rule.

      Why not lift everyone out of poverty by getting the government out of the way and let private companies get back to work, so that we all can have jobs to go to, instead of laying around waiting for our measly government check to arrive

    5. A Keene Byrd Hot Spr says:

      If the Japan example fails because they didnot spend the money fast enough but spent it over an extended peroid of time, how is the Obama/Lawrence plan any different? Isn't it ladden with intrastructure spending? Isn't the key to prime the pump not become the main source of stimulus flow? What happens if no one steps-up and provides follow through cash to build a market? The only experience these people seem to have is spending their parents nestegg not building one.

    6. Toni, Brandywine, MD says:

      After reading about the Japanese who tried, and failed, spending their way out of the recession, I am even more disgusted with the politicians whom are running our nation. We do need change, we need true patriots running our country. It is time to fire the self-serving congress that wants only to exercise total control over the lives of we,the people. I also want to point out that this president is showing his socialist agenda a lot sooner than anyone expected. So much for the type of change that won his election.

    7. Rodger Malcolm Mitch says:

      Japan’s GDP in 1990 was about $3 trillion (in U.S. dollars). Today, twenty years later, it is about $4.9 trillion, an average annual increase of 2.5%. What would their GDP have been had the Japanese government spent less?

      Japan's economic problems are different from ours. But I do know this about the U.S.: All seven U.S. recessions in the 40 years following the end of the gold standard, have come on the heels of reduced deficit growth, and all seven recoveries have come during increased deficit growth. Meanwhile, federal tax rates have declined.

      What does this mean? It means increased deficit growth stimulates and reduced deficit growth depresses. It also means the debt hawks' repeated statements that deficits are “unsustainable,” will be “paid for by our children and grandchildren,” “divert resources from the private sector” or “hinder private saving and spending” simply are not true. In fact, the reverse is true.

      Unfortunately, the debt hawks are so convinced of their position, they feel no need to look at data, but instead rely on what their intuition tells them should be true.

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