Shovel Ready

by Russ Roberts on September 5, 2011

in Stimulus

There is only one thing worse than having trouble finding shovel-ready projects when a Keynesian mind-set is afoot in the land. That’s having lots of projects that are easy to start. Here is an old (Feb 2009) New York Times article on what happened in Japan:

HAMADA, Japan — The Hamada Marine Bridge soars majestically over this small fishing harbor, so much larger than the squid boats anchored below that it seems out of place.

And it is not just the bridge. Two decades of generous public works spending have showered this city of 61,000 mostly graying residents with a highway, a two-lane bypass, a university, a prison, a children’s art museum, the Sun Village Hamada sports center, a bright red welcome center, a ski resort and an aquarium featuring three ring-blowing Beluga whales.

Nor is this remote port in western Japan unusual. 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.

So maybe, just maybe, we’re lucky that there weren’t a lot of shovel-ready projects and that the so-called stimulus wasn’t twice as big.

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Methinks1776 September 5, 2011 at 8:27 pm

My absolute favourite shovel ready project is Obama’s presidency. Bonus is it requires no porkulus spending. Win win.

Richard Stands September 5, 2011 at 8:37 pm

I hear he’ll be shoveling some more on Wednesday.

Methinks1776 September 5, 2011 at 8:59 pm

Wednesday you say? I’m sure something urgent will come up to prevent me looking up his nostrils as he condescends to the great unwashed.

He must be absolutely Irate that Irene didn’t flatten the East Coast. He was all set to get a boost to his ratings as the president who lays hands on those who lost everything (and promised to lay his hands on the property of everyone else to accomplish what Irene couldn’t). Alas, instead, he had only a couple of swollen rivers and rain puddles for photo ops. No boost to his numbers.

John Galt September 5, 2011 at 9:41 pm

Were we ever to stop being afraid of the government itself and to cast off the phoney fears it has fostered, the government would shrivel and die, and the host would disappear for the tens of millions of parasites in the United States—not to speak of the vast number of others in the rest of the world–who now feed directly and indirectly off the public’s wealth and energies. On that glorious day, everyone who had been living at public expense would have to get an honest job, and the rest of us, recognizing government as the false god it has always been, could set about assuaging our remaining fears in more productive and morally defensible ways. – R. Higgs.

Subhi Andrews September 5, 2011 at 8:46 pm

Bill Bonner used to write about this all the time, back when I had time to read his doom and gloom.

“Roads to nowhere, concrete shorelines, bridges and dams…Japan, per square mile of available territory, covered 30 times as much surface in concrete as in America. In 1996, the Shumizu Corporation even announced plans to build a hotel on the moon using specially developed techniques for making cement on the lunar surface.”

Read more: These Firefighters are Pyromaniacs!

Krishnan September 5, 2011 at 8:48 pm

Japan has a public debt that is 180% of it’s GDP? In that case then, I can hear Obama telling Congress that our public debt is ONLY about 100% of our GDP – so more stimulus is needed

(The fact that Japan is mired in no growth will be irrelevant to Obama. He will remind us that 1 US dollar buys even fewer Japanese Yen than it used to – and so Japan is not as bad as we think)

More money … print and borrow more and more and more …

MichaelG September 5, 2011 at 10:01 pm

I’m surprised I don’t read more comparisons between the U.S. and Japan. We’ve both had stock bubbles and real estate bubbles, tried bank bailouts and stimulus programs, and have rising debt levels and a graying population. So why aren’t economists all over the topic of Japan, what went wrong there, and why it will (or will not) happen here?

Or have I just missed it?

Martin September 6, 2011 at 1:54 am

You’ve missed it. Krugman wrote his depression economics before the US went into the slump because of Japan as well as his famous liquidity trap paper ‘it’s baaack’.

If you’re looking for an explicit comparison though: Richard Koo’s ‘The holy grail of macroeconomics’ is where it’s at. The book’s great insight is great, as it gets you focused on the deleveraging process – a process different from Fisher’s 1933 paper on debt-deflation – otherwise the book is sloppy when it comes to the peripheral economics and I am not too thrilled about the way Koo conceptualized it (switch from profit maximization to debt minimization) as it could easily have been fitted in the Neo-classical framework. Then again it’s partly intended for the lay audience so it makes sense. Otherwise, the book is funny, well written and a lot of stuff on Japan and interesting ideas.

Herman September 5, 2011 at 11:12 pm

The worst part about big Keynesian stimulus is that it has to rely on established channels to distribute the money. It’s hard to push a trillion dollars out the door. So legacy programs and aging industries are richly rewarded, as they are the only ones able to put money at that scale to work.

In the US, we are locked into a 1990′s economy while new economies tool up for the new millennium. The stimulus compounds our stagnant economic inertia and leaves a debt overhang that further works against modernization.

I question whether the economy’s best use of capital is on shovel-ready projects. I do not think that shovels are the tools that will shape the next generation of the world’s economy – and perhaps are not even the best tools for it’s infrastructure.

Randy September 6, 2011 at 1:37 am

Well said.

kyle8 September 6, 2011 at 8:30 am

That is another part of Keynsianism I never understood. IF the idea is that we just need more aggregate demand then why use all these middle men in government and industry? Why not just mail a big check to every citizen?

None of it ever works of course, but we would have been better off if that was the way the so called stimulus had been handled.

Henri Hein September 6, 2011 at 3:26 pm

Kyle, that’s what Australia did. Anybody know how that worked out? I’m being serious. I thint it would be interesting to see if an Australian style stimulus worked better or worse (or at all) compared to the Obama style.

Darren September 6, 2011 at 7:32 pm

I wonder how much of that ‘stimulus’ ended up overseas. I’d think that if there was simply a check mailed to each person, more of that money would remain in this country.

MT September 7, 2011 at 12:20 pm

Bush did it I think a couple of times–mailed checks out. It had an effect all right. It convinced me and others that he’s a clueless Keynesian, and it gave ammo to his opponents to say, “see, tax cuts don’t work.”

Leonardo T B September 5, 2011 at 11:20 pm

“I’m surprised I don’t read more comparisons between the U.S. and Japan.”

Wait until US own “Japan Postal Bank” is set up and any comparison will sound rather obvious.

Chris O'Leary September 5, 2011 at 11:29 pm

Is it just me, or does the National Infrastructure Bank sound like Fannie and Freddie?

Leonardo T B September 6, 2011 at 12:20 am

Much worse, I believe. I live in a country with such thing and it sums up everything that is economically and politically perverse.

Pom-Pom September 5, 2011 at 11:34 pm

If spoons were used, and not shovels, there would be full employment!

tdp September 5, 2011 at 11:52 pm

+1 for the Milton Friedman allusion.

Levi September 6, 2011 at 12:45 am

Maybe they just didn’t spend *enough* stimulus money

James Reade September 6, 2011 at 3:07 am

Of course, it’s easy to just use trite examples in a simplistic way to back up your a priori view of the world. Digging a little deeper to think about the Bank of Japan’s ultra-conservative monetary policy would just muddy the waters a little, wouldn’t it? Controlling for that might also help to isolate what fiscal multipliers exist (or don’t exist). But you don’t do that kind of thing around here, do you? If it appears via a simplistic broadside to be against any possible slightly possibly positive Keynesian slant, it has to be shot down.

But I do agree about the lack of economists thinking seriously about Japan and its lessons for the rest of us. A conference I’m organising in 2.5 weeks here in the UK has had very few expressions of interest…

kyle8 September 6, 2011 at 7:03 am

You have got to be joking? So a conservative monetary policy defeats two decades of Keynesian spending? That is a pretty good indictment of Keynesian voodoo right there.

NotSure September 6, 2011 at 7:08 am

What “ultra-conservative monetary policy”, care to explain what was ultra conservative about it. So a country accumulates record debts despite those conservative bankers, I suspect nobody wants to attend your conference because most people generally do want to waste time listening to crackpots.

robert_o September 6, 2011 at 4:03 pm

Yeah, 0% interest just wasn’t low enough.

Jim September 6, 2011 at 7:26 am

The never ending infrastructure project in Japan is more than just a top tier example in the long list of stimulus failures which only served to bankrupt nations and states.

The amounts involved introduced and institutionalized government corruption on a breath taking scale. It is commonly agreed that Yakuza and incestuous government self-interests now make ending those meaningless projects impossible. And yes, I realize pointing out the practical failings of economic theory is uninteresting and irrelevant to most economists.

I never see Keynesians talk about Japan. For any readers in the know, do they point to WWII as a comparable example, or argue that in the absence of infrastructure spending, Japan would be far worse? There must be a self-fulfilling response in there somewhere, if only they look hard enough.

kyle8 September 6, 2011 at 8:27 am

Just look at the posts above yours for the answer, Evidently the Keynesian “explanation” of the failure of their policies in Japan is “Conservative monetary policy”.

That, and no doubt because the Japanese are inscrutable foreign people.

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