Public spending gave Japan its "Lost Decade" and largest public debt in the developed world; Geithner wants to do it bigger
What did Japan get from sustained and massive public works spending by the LDP after a real estate bubble burst in the late 1980s? According to a recent article in the IHT, one thing is clear: taxpayers ended up being saddled with the largest public debt in the developed world, totaling 180 percent of its $5.5 trillion economy.
While there are disputes over how to view the results, the Japanese appear to have learned a lesson, while US officials like Treasury Secretary Timothy Geithner, who spent time as a financial attaché in Japan after the collapse, appear to determined to repeat it on a larger scale
Excerpts from the article:
Economists tend to divide into two camps on the question of Japan’s infrastructure spending: those, many of them Americans like 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. …
Beyond that, proponents of Keynesian-style stimulus spending in the United States say that the Japanese approach failed to accomplish more not because of waste but because it was never undertaken 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.
After years of heavy spending in the first half of the 1990s, economists say, Japanese leaders grew concerned about growing budget deficits and cut back too soon, snuffing out the recovery in its infancy, much as Roosevelt did to the U.S. economy in 1936. Growth that, by 1996, had reached 3 percent was suffocated by premature spending cuts and tax increases, they say. While spending remained high in the late 1990s, Japan never gave the economy another full-fledged push, these economists say.
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.”
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