Failure to launch - Spear's Magazine

Failure to launch

Everyone feels better for a bit of a stimulus now and again – including the economy

Everyone feels better for a bit of a stimulus now and again, including the economy, and focus on this issue is now acute as Valentine’s Day approaches. Over in Washington President Obama is polishing up a whopper, $823 billions worth of it at the last count.

When the Japanese Bubble Economy finally burst in 1988, the Central Bank tried to make the party get up and go on. They threw 1 trillion Yen, then 2 trillion Yen at the economy up to1991, in a bid to get the punch-drunk bankers who had gorged on a credit bubble, which had financed a commercial and residential property boom, back on their feet and to start lending again.

Much to their surprise, nothing got any better, so they stopped and wondered what to do next, but nothing new came to mind. It took them another $2.1 trillion on public works until 1995 to realise that price deflation was still rampant and that yet more yen ‘Quantitative Easing’ beckoned.

From 1991 to September 2008 Japan spent a total of $6.3 trillion on infrastructure projects, but it was reviving exports to China and the US, and a clean-up of the banks, and tax cuts that eventually got things moving again.

The Japanese infrastructure stimuli packages were focussed on bridges and roads. The population is 130 million, 90% of whom live on the coastal ledge that represents just 10% of the land-mass, so roads and bridges seemed like a good idea.

Until that is, you look at the results on the ground: take the City of Hamada in Shimane province, with a population of 61,000, which is now blessed with the majestic Marine Bridge with no one on it, a near-empty four-lane bypass, a university, a children’s art museum, a sports centre, a bright red welcome centre, a ski resort, an aquarium with three ring-blowing Beluga whales and the $250 million Hagi-Iwani Airport that handles two flights a day.

All of these so-called stimuli have filled in every pot-hole in the Land of the Rising Sun, but left one giant hole in this $5.5 trillion economy, with public debt at 183% of its GDP.

Is there anything to be learned from this expensive All-Nippon disaster? Some say it was too slow, some say too small, some say badly focussed, and some say it was all a self-defeating debt-creating fiasco of roads and bridges to nowhere.

The main lesson seems to be that the speediest and most effective economic stimulus is tax reductions, that let the people put their money where they want to, quickly.

So spare a thought on Obama’s stimuli package: it sounds ill-conceived in principle, almost naïve economically, and far too small to address either America’s crumbling infrastructure or the need for swift Quantitative Easing on a significant scale.

The Republicans are giving the new President a hard time, as they really do not believe it will give value for Federal dollars or work effectively, and they may well be right.



 

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