In an opinion piece titled “Barack Obama-san“, the Wall Street Journal today gives the best summary I’ve seen on how much money the Japanese spent on economic stimulus packages during their lost decade.
So for today we thought we’d recount the history of the last major country that tried to spend its way to “stimulus” — Japan during its “lost decade” of the 1990s. In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa’s Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a “lifestyle superpower.” The country embarked on a great Keynesian experiment.
Just to recap, in the late 1980s and early 1990s the Japanese faced something broadly similar to what we are experiencing now. They had huge stock market and real estate market bubbles which crashed, they reduced central bank interest rates to zero to fight recessions, they spent huge amounts of money on infrastructure projects in an attempt to stimulate their economy. None of this has worked to revive their economy in any sustained fashion.
The WSJ article details massive infusions of cash into public infrastructure projects (roads, bridges, trains, etc.), business loans, bad debt purchases, job creation projects, and simple cash giveaways to consumers. These payments happened in 1994, 1995, 1998. and in 1999. “Japan’s economy grew anemically over that decade, while its national debt exploded.”
Sound familiar? This, for the most part, is exactly the plan in the U.S. It does not paint a hopeful picture. Unfortunately, there seems to be no better plan. These steps may not solve our problems, but they are designed to keep us out of a depression. Given the choice between a prolonged period of economic malaise and an outright depression, I’d take the former.