Tuesday, December 16, 2008


Pump-prime this, B.H. Obama

President-elect B. Hussein Obama has announced that he intends to spend $1 trillion over the next two years in an effort to jump-start the U.S. economy. Naturally, the Congressional Keynesian Chorus, 99 percent of whom are Democrats, is cheering him on, as is the New York Times' editorial page.

If Obama goes through with his promise to spend a trillion dollars on "ingrastructure" and the like, he won't be the first national leader to do so in the past fifteen years. Hell, he won't be the first, or second, or third.

In the 1990s, some half-dozen different Japanese prime ministers spent some several trillion yen trying to "pump-prime" (folks who've studied economics know what that means) Japan's economy out of a deep, deep slump. Japan's government spent and spent, and the economy stalled and stagnated ... and the Japanese now refer to the 1990s as the "lost decade."

A few months back, I said B. Hussein Obama was the most economically ignorant presidential candidate in living memory. I stand my that remark. Today's Wall Street Journal backs me up ...

In the Age of Obama, we seem fated to re-explain these eternal [economic] lessons. So for today we thought we'd recount the history of the last major country that tried to spend its way to "stimulus" -- Japan during its "lost decade" of the 1990s. In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa's Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a "lifestyle superpower." The country embarked on a great Keynesian experiment:

August 1992: 10.7 trillion yen ($85 billion). Japan passed its largest-ever stimulus package to that time, with 8.6 trillion yen earmarked for public works, 1.2 trillion to expand loan quotas for small- and medium-sized businesses and 900 billion for the Japan Development Bank. The package passed in December, but investment kept falling and unemployment rose. By the end of the year, Japan's debt-to-GDP ratio was 68.6%.

April 1993: 13.2 trillion yen. At exchange rates of the day, this was a whopping $117 billion giveaway, again mostly for public works and small businesses. Tokyo erupted into domestic politicking over election practices, the economy went sideways, and the government fell. New Prime Minister Morihiro Hosokawa floated tax cuts, deregulation and decentralization to spur growth. But as the economy worsened -- inflation-adjusted GNP shrank 0.5% in the April to June quarter -- the political drumbeat for handouts increased.

September 1993: 6.2 trillion yen. Mr. Hosokawa announced a compromise "smaller" stimulus of $59 billion, along with minor deregulation. He dropped plans for an income-tax cut. The stimulus included 2.9 trillion yen in low-interest home financing, one trillion yen for "social infrastructure," and another trillion for business. The economy didn't respond. By the end of the year, Japan's debt-to-GDP reached 74.7%.

Is any of this beginning to sound familiar? There's more.

Read the rest here.

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