Konichiwa

Be sure to check out the front-page story in today’s Times on Japan’s decade-long experience with massive government spending to combat economic downturn. Here are the numbers:

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.

According to the Times, public debt in Japan is now at 180 percent of the country’s $5.5 trillion GDP. Did the massive deficit spending grow its economy?

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.

The argument for infrastructure spending, the piece goes on to argue, is that it prevented a full-scale collapse of the Japanese economy. Interestingly, however, one study found that government spending on health care and education produced a greater return than spending on infrastructure. Japan certainly got a lot of new buildings and roads and tarmacs out of its stimulus. Consider

Shimane, a rural prefecture about the size of Delaware where Hamada is located. Each town seems to have its own art museum, domed athletic center and government-built tourist attraction like the Nima Sand Museum, a giant hourglass in a glass pyramid. The prefecture, with 740,000 residents, even has three commercial airports able to handle jets, including the $250 million Hagi-Iwami Airport, which sits eerily empty with just two flights per day. In Hamada, residents say the city’s most visible “hakomono,” the Japanese equivalent of “white elephant,” was its own bridge to nowhere, the $70 million Marine Bridge, whose 1,006-foot span sat almost completely devoid of traffic on a recent morning. Built in 1999, the bridge links the city to a small, sparsely populated island already connected by a shorter bridge. “The bridge? It’s a dud,” said Masahiro Shimada, 70, a retired city official who was fishing near the port. “Maybe we could use it for bungee jumping,” he joked.

Obama faces three economic problems. The first is the correction in housing markets. The second is banking trouble. The third is rising unemployment and declining consumer demand. The first two problems caused the third, but so far Obama has spent all his political capital on addressing the symptoms, not treating the causes. If the stimulus passes, as it likely will, Obama soon will have to reckon with budget-hawks telling him to raise taxes to lower the deficit. He’ll say sure. And then we’ll be in the stimulus trap. How do you say “Lost Decade” in Japanese?

Konichiwa

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