Nice piece ^[1] (albeit slightly schizophrenic) in the New York Times (HT: Tyler ^[2]) on Japan's attempt to spend its way to recovery. Here are few highlights:

Note the last sentence. Somehow, two paragraphs later:

And yet:

In total, Japan spent $6.3 trillion on construction-related public
investment between 1991 and September of last year, according to the
Cabinet Office. The spending peaked in 1995 and remained high until the
early 2000s, when it was cut amid growing concerns about ballooning
budget deficits. More recently, the governing Liberal Democratic Party
has increased spending again to revive the economy and the party’s own
flagging popularity.

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.

And this:

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.

Later on, we get some classic ex-post theorizing:

But let's hear from the Japanese side:

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.

Part of the problem:

Critics also said decisions on how to spend the money were made behind
closed doors by bureaucrats, politicians and the construction industry,
and often reflected political considerations more than economic.

Good thing that won't happen here.

Be Sociable, Share!

• ^[4]
• ^[5]
• ^[6]
• ^[7]
• ^[8]

• ^[9]
• ^[10]
• ^[11]
• ^[12]

Comments

comments