http://www.nytimes.com/2009/02/06/world/asia/06japan.html?_r=1&hp
JAPAN'S BIG-WORKS STIMULUS IS LESSON FOR U.S.
The soaring Marine Bridge in Hamada, Japan, built as a public works project, was almost devoid of traffic on a recent morning.
By MARTIN FACKLER
Published: February 5, 2009
HAMADA, Japan â 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 childrenâs 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. Japanâs 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 â totaling 180 percent of its $5.5 trillion economy â while failing to generate a convincing recovery.
Now, as the Obama administration embarks on a similar path, proposing to spend more than $820 billion to stimulate the sagging American economy, many economists are taking a fresh look at Japanâs troubled experience. While Japan is not exactly comparable to the United States â especially as a late developer with a history of heavy state investment in infrastructure â economists say it can still offer important lessons about the pitfalls, and chances for success, of a stimulus package in an advanced economy.
In a nutshell, Japanâs experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists and one very important American official: Treasury Secretary Timothy F. Geithner, who was a young financial attaché in Japan during the collapse and subsequent doldrums. One lesson Mr. Geithner has said he took away from that experience is that spending must come in quick, massive doses, and be continued until recovery takes firm root.
Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.
âIt is not enough just to hire workers to dig holes and then fill them in again,â said Toshihiro Ihori, an economics professor at the University of Tokyo. âOne lesson from Japan is that public works get the best results when they create something useful for the future.â
Road-building in Oda, in Shimane Prefecture. Critics say Japan focused too much on building roads and other infrastructure.
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 partyâs 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 Japanâs 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.
In the United States, it has also led to calls in Congress, particularly by Republicans, not to repeat the errors of Japanâs failed economic stimulus. They argue that it makes more sense to cut taxes, and let people decide how to spend their own money, than for the government to decide how to invest public funds. Japan put more emphasis on increased spending than tax cuts during its slump, but ultimately did reduce consumption taxes to encourage consumer spending as well.
Economists tend to divide into two camps on the question of Japanâs 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.
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.
But some Western economists who have studied Japanâs experience say the stimulus accomplished more than it is now given credit for. At a minimum, they argue, it saved the economy from an outright, 1930s-style collapse.
Moreover, they say, any direct comparison of Japan and the United States is inevitably misleading, because Japan has spent so much more over the years on infrastructure. Having neglected its roads, bridges, water treatment plants and more over the years, the United States is bound to generate a greater payback for such spending than would Japan.
Beyond that, proponents of Keynesian-style stimulus spending in the United States say that Japanâs approach failed to accomplish more not because of waste but because it was never tried 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.
CONTINUED BELOW
JAPAN'S BIG-WORKS STIMULUS IS LESSON FOR U.S.
The soaring Marine Bridge in Hamada, Japan, built as a public works project, was almost devoid of traffic on a recent morning.
By MARTIN FACKLER
Published: February 5, 2009
HAMADA, Japan â 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 childrenâs 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. Japanâs 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 â totaling 180 percent of its $5.5 trillion economy â while failing to generate a convincing recovery.
Now, as the Obama administration embarks on a similar path, proposing to spend more than $820 billion to stimulate the sagging American economy, many economists are taking a fresh look at Japanâs troubled experience. While Japan is not exactly comparable to the United States â especially as a late developer with a history of heavy state investment in infrastructure â economists say it can still offer important lessons about the pitfalls, and chances for success, of a stimulus package in an advanced economy.
In a nutshell, Japanâs experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists and one very important American official: Treasury Secretary Timothy F. Geithner, who was a young financial attaché in Japan during the collapse and subsequent doldrums. One lesson Mr. Geithner has said he took away from that experience is that spending must come in quick, massive doses, and be continued until recovery takes firm root.
Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.
âIt is not enough just to hire workers to dig holes and then fill them in again,â said Toshihiro Ihori, an economics professor at the University of Tokyo. âOne lesson from Japan is that public works get the best results when they create something useful for the future.â
Road-building in Oda, in Shimane Prefecture. Critics say Japan focused too much on building roads and other infrastructure.
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 partyâs 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 Japanâs 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.
In the United States, it has also led to calls in Congress, particularly by Republicans, not to repeat the errors of Japanâs failed economic stimulus. They argue that it makes more sense to cut taxes, and let people decide how to spend their own money, than for the government to decide how to invest public funds. Japan put more emphasis on increased spending than tax cuts during its slump, but ultimately did reduce consumption taxes to encourage consumer spending as well.
Economists tend to divide into two camps on the question of Japanâs 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.
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.
But some Western economists who have studied Japanâs experience say the stimulus accomplished more than it is now given credit for. At a minimum, they argue, it saved the economy from an outright, 1930s-style collapse.
Moreover, they say, any direct comparison of Japan and the United States is inevitably misleading, because Japan has spent so much more over the years on infrastructure. Having neglected its roads, bridges, water treatment plants and more over the years, the United States is bound to generate a greater payback for such spending than would Japan.
Beyond that, proponents of Keynesian-style stimulus spending in the United States say that Japanâs approach failed to accomplish more not because of waste but because it was never tried 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.
CONTINUED BELOW
