What's happening at the
Thursday 17 Aug 2017 | 20:20 | SYDNEY
Thursday 17 Aug 2017 | 20:20 | SYDNEY

What are the lessons of Japanese stimulus spending?

By

COMMENTS

5 February 2009 20:23

Here's econo-blogger Megan McArdle on the historical antecedents for the Obama Administration's  massive stimulus package:

Let's recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)--the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.

But Japanese economist Richard Koo told Radio National this morning that:

...You never become a hero by pre-empting a crisis...and that's what happened in Japan. Japanese GDP never fell during the last 18 years compared to the peak of the bubble. But that was because of all the pre-emptive fiscal spending...we saw our commercial real estate prices fall 87 percent from the peak...but we managed to keep our GDP from falling...our unemployment rate never went above 5.5%. All that suggests that Japan was doing the right thing...what the Japanese have proven is that, even with  massive collapse in asset prices, as long as you have a pre-emptive fiscal stimulus to keep GDP from falling, then people have the income to pay down debt...Japan has proven that it can be done without first experiencing a massive depression or even a war, which was often the way many countries came out of these recessions in the past.

So let's hear from you, economists (professional and amateur alike). Who's right about what Japanese stimulus spending achieved?

You may also be interested in...