New York Times: Japan's Big Works Stimulus is a Lesson

Not that the U.S. New Deal 2.0 is focused on infrastructure anymore, but an interesting piece in the New York Times on what Japan learned from trying to "government spend" it's way to prosperity. Just remember, we live in a magical country where economics don't apply the same as other countries - therefore it will "work" here.

• 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 children’s 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. Japan’s 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 — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.
• 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. “It is not enough just to hire workers to dig holes and then fill them in again,” said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”
• 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.
• 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. (imagine that) 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. (sounds familiar) Instead of spreading beneficial ripple effects across the economy, he found that the spending actually led to declines in business investment by driving out private investors.
• Economists tend to divide into two camps on the question of Japan’s 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.
• 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.
• Economists said the finding suggested that while infrastructure spending may yield strong results for developing nations, creating jobs in higher-paying knowledge-based services like health care and education can bring larger benefits to advanced economies like Japan, with its aging population.

This might sound like an alarming piece but please don't worry - our government has an excellent track record and unlike the Japanese will "get it right". As you read this blurb below just remember, this is NOT how it is in the United States.

• Critics also said decisions on how to spend the money were made behind closed doors by bureaucrats, politicians and the construction industry, and often reflected political considerations more than economic.