Japan’s Big-Works Stimulus Is Lesson ...

[tooblue]

In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan’s Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations.

Economists tend to divide into two camps on the question of Japan’s infrastructure spending: those, many of them Americans like Mr. Geithner, who think it did not go far enough; and those, many of them Japanese, who think it was a colossal waste.

Among ordinary Japanese, the spending is widely disparaged for having turned the nation into a public-works-based welfare state and making regional economies dependent on Tokyo for jobs. Much of the blame has fallen on the Liberal Democratic Party, which has long used government spending to grease rural vote-buying machines that help keep the party in power.

They also say that the size of Japan’s apparently successful stimulus in the early 1990s suggests that the United States will need to spend far more than the current $820 billion to get results. Between 1991 and 1995, Japan spent some $2.1 trillion on public works, in an economy roughly half as large as that of the United States, according to the Cabinet Office. “Stimulus worked in Japan when it was tried,” said David Weinstein, a professor of Japanese economics at Columbia University. “Japan’s lesson is that, if anything, the current U.S. stimulus will not be enough.”

http://www.nytimes.com/2009/02/06/wo...prod=permalink

Interesting read.

[Ma'ake]

I've also read a major criticism of the Japanese experience being they should have moved much more quickly to shore up the financial system, the effort should have been roughly double in size, and they also needed to let unhealthy banks fail.

The stimulus bill is designed to arrest the general economic spiral that could become significantly deflationary. Once deflation sets in, it will take *much* bigger spending to halt a negative feedback cycle that threatens to accelerate into a serious spiral, a hallmark of the GD.

What nobody is talking about is the Fed will quietly keep buying up toxic securities to help the banking system recover, which is necessary, but, along with massive government spending, will lead to inflation as the economy is infused with money.

The economy will crawl out of this, and we'll have some inflation.

[MikeWaters]

Japan's banks also made massive loans, with no collateral, to crime syndicates.

http://www.amazon.com/Yakuza-Japans-...4275279&sr=1-1

[Archaea]

Originally Posted by Ma'ake

I've also read a major criticism of the Japanese experience being they should have moved much more quickly to shore up the financial system, the effort should have been roughly double in size, and they also needed to let unhealthy banks fail.

The stimulus bill is designed to arrest the general economic spiral that could become significantly deflationary. Once deflation sets in, it will take *much* bigger spending to halt a negative feedback cycle that threatens to accelerate into a serious spiral, a hallmark of the GD.

What nobody is talking about is the Fed will quietly keep buying up toxic securities to help the banking system recover, which is necessary, but, along with massive government spending, will lead to inflation as the economy is infused with money.

The economy will crawl out of this, and we'll have some inflation.

The Stimulus is not stimulus but waste. Not all spending stimulates key sectors. Any analysis that simply says, give to the poor because they must spend is misguided and naive.

My prediction is that Obama blew it with this bill and we will endure a lost Decade of our own thanks to Obama's miscalculations and waste bill. We needed stimulus if you believe in that sort of thing, not waste and mismanagement.

How does spending on the GAO add a multiplier to the economy?

[Ma'ake]

Originally Posted by Archaea

The Stimulus is not stimulus but waste. Not all spending stimulates key sectors. Any analysis that simply says, give to the poor because they must spend is misguided and naive.

My prediction is that Obama blew it with this bill and we will endure a lost Decade of our own thanks to Obama's miscalculations and waste bill. We needed stimulus if you believe in that sort of thing, not waste and mismanagement.

How does spending on the GAO add a multiplier to the economy?

There are well-considered economists who consider the current Senate bill to be inadequate, not up to the task: http://www.sltrib.com/news/ci_11663869?source=rss

The CBO and Mark Zandi agree the Senate compromise is less efficacious: http://www.americanprogress.org/issu...b_numbers.html

I don't think anyone would argue that every item in the bills offers a 1+ multiplier, but considering the amount of tax cuts included, and that even suboptimal spending does *something* to get economic activity going, I think the bill is a decent beginning, certainly not the end of needed spending.

[ChinoCoug]

Originally Posted by Ma'ake

There are well-considered economists who consider the current Senate bill to be inadequate, not up to the task: http://www.sltrib.com/news/ci_11663869?source=rss

The CBO and Mark Zandi agree the Senate compromise is less efficacious: http://www.americanprogress.org/issu...b_numbers.html

I don't think anyone would argue that every item in the bills offers a 1+ multiplier, but considering the amount of tax cuts included, and that even suboptimal spending does *something* to get economic activity going, I think the bill is a decent beginning, certainly not the end of needed spending.

Krugman, in spite of his mammoth credentials, is ultra-partisan. If you read his Conscience of a Liberal you'll know his agenda.

Anyhow, I don't believe the stimulus would do much. Krugman has said that most economists who believe in a stimulus at all favor spending over tax cuts. That's meaningless because most republicans don't believe in a stimulus at all, so economists who do are overwhelmingly dems, so it's natural they say spending is better.

Christy Romer, Obama's chief economist, on the other hand, did a study while at Berkeley that found that a $1 tax cut has a multiplier of 3. After getting in the White House, her new study found a multiplier of only 1 (cf. 1.6 for spending). Darn the politics.

Overall, I'm pleased at how much Obama has listened to his economists. His centrist team convinced him to include more tax cuts and take out the "buy American" provision.

[ChinoCoug]

Originally Posted by Archaea

The Stimulus is not stimulus but waste. Not all spending stimulates key sectors. Any analysis that simply says, give to the poor because they must spend is misguided and naive.

No Archaea, that is not an "analysis;" that has been in textbooks for the last half century. Engel's Law (re: food consumption) is the single-most accepted fact in economics. Even one ignorant of economics can deduce that the less you make the more of your income you have to spend.

A DC temple presidency member, who is a Fed economist and a Republican, favors cutting the regressive payroll tax and increasing food stamps so the poor can sustain their spending.

How does spending on the GAO add a multiplier to the economy?

GAO employees would spend a % of the increase (public and private sectors), then whoever sold them the good/service would spend a % of their increase, ...

[Archaea]

Originally Posted by ChinoCoug

No Archaea, that is not an "analysis;" that has been in textbooks for the last half century. Engel's Law (re: food consumption) is the single-most accepted fact in economics. Even one ignorant of economics can deduce that the less you make the more of your income you have to spend.

A DC temple presidency member, who is a Fed economist and a Republican, favors cutting the regressive payroll tax and increasing food stamps so the poor can sustain their spending.




GAO employees would spend a % of the increase (public and private sectors), then whoever sold them the good/service would spend a % of their increase, ...

A goodie, it's in the textbooks, that makes it right.

I will not articulate this correctly as I haven't ferreted it out completely, but intuitively I don't believe the poor spending on basic items is what has historically driven our economy. It's been the middle class spending on consumer items. Whether that's a great economic structure requires more complex analysis than I have energy to devote.

But simply focusing upon multiplier effect without investigating what is multiplied should also be a concern. I wonder if studies have focused upon that aspect. It's also tied to consumer confidence.