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Author Topic: Fascinating little snippet from NYTimes on Japanese Stimulus  (Read 1593 times)
Beet
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« on: February 06, 2009, 05:31:36 pm »
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I disagree with many of the premises of Us-Japan comparisons (for one thing, Japan's unemployment rate peaked at only 6.5%--  and this was 12 years after the bursting of the bubble), there is one in thing in this article that no one seems to be arguing right now:

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Japanís experience also seems to argue for spending heavily to promote social development. A 1998 report by the Japan Institute for Local Government, a nonprofit policy research group, found that every 1 trillion yen, or about $11.2 billion, spent on social services like care for the elderly and monthly pension payments added 1.64 trillion yen in growth. Financing for schools and education delivered an even bigger boost of 1.74 trillion yen, the report found.

But every 1 trillion yen spent on infrastructure projects in the 1990s increased Japanís gross domestic product, a measure of its overall economic size, by only 1.37 trillion yen, mainly by creating jobs and other improvements like reducing travel times.

Basically, education and social services can actually be more beneficial than infrastructure spending in certain cases. Both parties here at home seem to assume the opposite.
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jmfcst
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« Reply #1 on: February 06, 2009, 05:46:24 pm »
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I disagree with many of the premises of Us-Japan comparisons (for one thing, Japan's unemployment rate peaked at only 6.5%--  and this was 12 years after the bursting of the bubble), there is one in thing in this article that no one seems to be arguing right now:

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Japanís experience also seems to argue for spending heavily to promote social development. A 1998 report by the Japan Institute for Local Government, a nonprofit policy research group, found that every 1 trillion yen, or about $11.2 billion, spent on social services like care for the elderly and monthly pension payments added 1.64 trillion yen in growth. Financing for schools and education delivered an even bigger boost of 1.74 trillion yen, the report found.

But every 1 trillion yen spent on infrastructure projects in the 1990s increased Japanís gross domestic product, a measure of its overall economic size, by only 1.37 trillion yen, mainly by creating jobs and other improvements like reducing travel times.

Basically, education and social services can actually be more beneficial than infrastructure spending in certain cases. Both parties here at home seem to assume the opposite.

yeah, but what gives the quickest short-term boost?
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« Reply #2 on: February 06, 2009, 06:37:24 pm »
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The US is also much more fragmented than Japan, leaving this kind of spending more appropriate in the hands of the states.

The states are broke. This is why most of the Republicans who actually have to govern are supporting the stimulus.

And the money will largely be handled by the states -- it's just raised by the feds.
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Sam Spade
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« Reply #3 on: February 06, 2009, 07:17:46 pm »
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Japan has been in recession for 19 years now, and is going into a depression as we speak that will be much worse than the US.  Part of the reason why Japan has been in a recession for 19 years is due to its social spending - you can't take on government debt without it having effects on the economy in the future.  You see, that's the point that is missing here.

We want to copy that model?

Actually it doesn't matter, because if we even tried to do what they suggest (in terms of spending), the bond market would revolt.

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Beet
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« Reply #4 on: February 06, 2009, 09:36:05 pm »
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Japan has been in recession for 19 years now, and is going into a depression as we speak that will be much worse than the US.  Part of the reason why Japan has been in a recession for 19 years is due to its social spending - you can't take on government debt without it having effects on the economy in the future.  You see, that's the point that is missing here.

We want to copy that model?

Actually it doesn't matter, because if we even tried to do what they suggest (in terms of spending), the bond market would revolt.

Japan's GDP per capita in constant national currency has increased from 3.4 million yen at the top of the bubble in 1989 to 4.4 million yen 19 years later in 2008 (29% higher).

Its total GDP in constant national currency increased from 422 trillion yen to 565 trillion yen 19 years later in 2008 (34%).

In the years after the bursting of the bubble, Japan's output growth dropped from 5.2% in 1990 to 3.4% in 1991 to 1% in 1992 and 0.2% in 1993, but did not actually turn negative until 1998, suffering a 2% annual contraction and a 1% contraction in 1999 before returning to growth in 2000.

Sources for above

I was wrong about Japanese unemployment; it never even touched 6%.

Ok, so looking at these numbers compared to the U.S. in the bubble years, they look horrible. But looking at them from the prospect of another Great Depression, they don't look bad at all. I'm not saying that a Japanese scenario is desirable for the US or that the two are comparable; however, it's certainly desirable compared to a depressionary contraction.

And Japan has a debt to GDP of 180%, and no bond market revolt. While once again I don't think the situations are comparable (Japan had a higher savings rate and a positive current account), no one can predict whether the bond market will revolt or what policy actions exactly will prevent it.
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Duke
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« Reply #5 on: February 07, 2009, 12:13:48 am »
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The CBO already said this package may help short term, but it will hurt economic growth in the long run.
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« Reply #6 on: February 07, 2009, 12:28:10 am »
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And their unemployment numbers probably aren't a total joke the way ours are. While the US has an official rate of 7.6%, it's been calculate that it would be more like 18% or 20% if they used the methodology in place during the Great Depression.
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« Reply #7 on: February 07, 2009, 04:09:32 am »
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yeah, but what gives the quickest short-term boost?

Obviously the quickest short-term boost will come from free money given to the poorest - people with no other income will spend every dime you give them.

But it is a good point that the Japanese economic crisis of the 1990s was nothing compared to what is happening now.
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