Japan “Wasted Trillions” on Stimulus Programs

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We live in a world run by simpletons.

In this morning’s paper is a front-page article describing how Japan “wasted trillions” on its various stimulus programs.

The International Herald Tribune:

“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.”

Public spending was so aggressive, it boosted Japan’s government debt to 180% of GDP – more than two times the current U.S. level. But did all that cement buy Japan out of its slump?

You be the judge. Housing prices in Japan are now back down to where they were in 1975 – nearly 90% below the late-’80s peak. And stocks? The Nikkei index is back down to where it was a quarter century ago. Stocks sell for half their book value – and they’re still considered too expensive for beaten-down, hyper-fearful Japanese investors. The downturn began in 1990. Over the following 19 years, it did more property damage than the Great Tokyo Fire of ’23 and the Enola Gay combined, wiping out wealth equal to three times the country’s GDP. This was despite interest rates at zero…and a heroic effort at Keynesian stimulation.

If America were to follow Japan’s example, it would have to leave its interest rates near zero for the next decade…and add about $10 TRILLION to its public debt. And if it got the same results, you’ll be able to sell your house in 2026 for the same price you paid in 1992.

But the simpletons have no other idea.

“In a nutshell,” continues the IHT report, “Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists.”

Are these, perhaps, the same economists who thought America’s super-consumption, eternal-debt economy would never fail? The same economists who thought the bankers were providing a public service, by offering so many people so much credit…and then planting their debt bombs all over the planet? The same economists who forecast rising stock prices in 2008?

Probably.

Bill Bonner
for The Daily Reckoning Australia.

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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9 Comments on "Japan “Wasted Trillions” on Stimulus Programs"

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Greg Atkinson
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Bill, The western media often makes serious errors when discussing infrastructure spending in Japan. The biggest blunder is they forget or overlook one important factors..earthquakes! Here in Japan you will often see a very solid looking bridge on a small rural road but it is not built to be impressive or because of over spending, it is built that way so in the event of a major earthquake it will hopefully remain usable and not collapse and isolate small villages etc. (hard to dig people out of rubble if you can’t get equipment to site) Having worked as an engineer… Read more »
Travis
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Greg Atkinson, you the man! Feel free to impart wisdom more often!! You know, I cant help but feel I have stepped a loong way into the future when I go to Japan. No doubt they didnt recover quickly from the bubble. But surely, despite high debt, they have a good medium to longterm outlook given the quality of infrastructure and systems. (not just transport but across the board). Going further, How exactly can America compete with countries like Japan and Germany (and to an increasing extent china) with their better foundations? It certainly cant compete with a outrageously strong… Read more »
Greg Atkinson
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Travis..thanks. But not much wisdom resides in my head, it is just that eventually some things sink in. Regarding the U.S and how it competes with Japan, Germany etc. the simple answer is in my view is that it cannot in many cases. I wrote some views about the U.S economy a while back in: The US Auto Industry..you might find this interesting..or not. Simply put, the U.S gained at least a 10-15 year head start over Japan and Germany after World War 2. (and the Chinese economy was even further back) The U.S. had no major global competitors, the… Read more »
Travis
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Greg, Thanks for the reply. I have the bitter-sweet condition of youth which makes it hard to appreciate things in historical context so thanks for spelling out the headstart the US had. Assuming ethics doesn’t exist, which I think is easier to argue than the existence of, why didn’t the US see this coming and launch destabilising wars to weaken their competitors? DR, Would love to see an article on the breakdown of India’s IT industry. Are they doing basic bread and butter stuff like server maintenance and call centre work or is their a lot of software/hardware design….in consumer,… Read more »
Keith
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The point is not whether infrastructure projects are well engineered or not in Japan, but the reason for undertaking such projects. I am sure a bridge to nowhere can be an engineering marvel, but it does not mean there is economic justification for it. The Japanese governemnt did use infrastructure spending as a way of boosting the economy to no avail. While this is clearly more meaningful than handing out $950, but as Bill has pointed out this strategy has not pulled Japan out of economic slump. The point is that for any country to emulate this, the result is… Read more »
Greg Atkinson
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Keith, economic justification is not always a priority with much national infrastructure in any country. Take for example building and maintaining isolated roads in Australia? Or providing medical services to rural Australia? How about parks and national parks? The list goes on. If economists ruled the world they would simply relocate people to major cities and we would all be living in irrigated shoe boxes. In any case people assume that the Japanese spending of the 1990’s was a failure…was it really? Did the country fall into social chaos after the bubble burst? Didn’t the country emerge from the decline… Read more »
Greg Atkinson
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By the way we could add a bushfire warning system to the list of infrastructure spending….that might not make economists happy but it is in the long term interests of the nation. How about a few fire spotting towers, heat sensors, refuge shelters, fire monitoring cameras and perhaps having some full time paid fire prevention staff stationed in high fire risk areas? We could create jobs and save lives..wouldn’t that be better than home insulation and painting schools?

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Peter Kahlbaum
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I would just like to point out that it is not only earthquakes and typhoons that Japan has to over-engineer against. There is also the danger of a return of Godzilla. I believe primary schools there have to be able to withstand an attack by Ghidra, the three-headed flying serpent. Not to mention Mothra. Only joking. Enjoyed your excellent comments Greg. Particularly about the bushfire warning system. One point I would disagree with is your comment about the lack of economic justification for medical services in rural Australia. Keeping workers fit and healthy in places like Roxby Downs and Port… Read more »
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