Avoiding Japan’s Fate

While the Obama stimulus package was successful in stabilizing the economy at a time when it teetered on the brink of collapse, the potential consequences far outweigh the benefits.  The textbook resolution for economic recession in Keynesian terms is deficit spending.  So, according to conventional wisdom, this policy was appropriate.

However, it may be time to rethink the textbook economics of the day and input some measure of practical thinking into the equation.  Economics is an inexact science, and no policy decision is designated as the end-all-be-all for economic growth.  When The Left claims that government spending is necessary for economic stabilization and growth, it is really an opinion based on data provided by Keynesian theory.

Liberal and Conservative policy with respect to the economy represent two distinctly different means to the same end.  The stimulus package succeeded in stabilizing our economy.  However, the real question is not one of the success of the policy but of the cost/benefit analysis of the policy options available.  One could easily point to the tax breaks within the stimulus package and claim that these GOP influenced stipulations provided the key to economic stabilization, but one could also claim that infrastructure spending was a more influential factor.

So, in terms of weighing the ratio between the costs and benefits of stimulus spending, it becomes increasingly clear that the costs of  deficit spending outweigh the benefits.

The best case study in this regard is the current Japanese economy.  Once regarded as the paradigm for global industry, the Japanese economy fell hard in the 90s, and the government resorted to Obamaesque stimulus policy to address the issue.  The recession in Japan is still felt to this day, and the impetus for the recession mirrors that of the current situation in the United States. 

The Japanese use of stimulus spending over the long term created several detrimental results:

Despite massive stimulus, rapid growth hasn’t resumed two decades later. Although the Japanese reacted slowly, they adopted the advice of economics textbooks. They raised spending, cut taxes and let budget deficits balloon. Gross government debt soared from 63 percent of the economy (gross domestic product) in 1991 to 101 percent of GDP by 1997. It’s now around 200 percent. The Bank of Japan (their Federal Reserve) cut interest rates, going to zero in 1999 – a policy that, with some slight interruptions, endures.

These are the dangers facing our country due to Obama’s Keynesian economic stimulus.  While the result of the policy stabilized our economy to some extent, it is just as possible that conservative supply-side economics and a responsible energy policy would have accomplished the same result.  Now, the United States is experiencing gross debt in excess of 98% of GDP, and any continued expansion of government will result in an even greater loss of fiscal resources than Japan.  Furthermore, we will face a similar dilemma as Japan in terms of deciding when to end our fiscal policy of holding interest rates low. 

While the textbook says to spend, it seems that a practical application of this policy has costs that far outweigh the benefits.

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