Catastrophe - Dick Morris [12]
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WHEN JAPAN TRIED OBAMA’S PROGRAM37
1992 As the stock market sinks 60 percent, Japan launches a Keynesian economic stimulus program, passing an $85 billion stimulus package (approximately double it to get the U.S. equivalent). Net result: investment keeps falling and unemployment rises. By the end of the year, Japan’s debt-to-GDP ratio is 68.6 percent.
1993 Japan spends $117 billion on public works and small businesses and announces widespread tax cuts, along with a program of deregulation and decentralization. Result: the economy gets worse; GNP shrinks by 0.5 percent.
Later in 1993, the government spends $59 billion on low-interest home financing, “social infrastructure,” and business. The economy doesn’t respond. By the end of the year, Japan’s debt-to-GDP ratio reaches 74.7 percent.
Is any of this beginning to sound familiar?
1994 The government passes a new $150 billion stimulus package, including a one-year income tax, public investment, aid to small businesses, and employment support. The economy remains stagnant; the country’s prime minister, Morihiro Hosokawa, resigns amid a corruption scandal. By the end of the year, the country’s debt-to-GDP ratio rises to 80.2 percent.
1995 The new government spends $137 billion on another stimulus program. No improvement.
1996 Facing a huge and growing deficit, the Japanese government raises the consumption (sales) tax from 3 percent to 5 percent. The economy goes from bad to worse.
1998 Japan passes another stimulus package, this time worth $128 billion. It doesn’t work. Later that year, it passes yet another stimulus, the largest ever: $195 billion. By the end of the year, the country’s debt-to-GDP ratio reaches an astonishing 114.3 percent.
1999 The government passes a new stimulus package of $70 billion. The debt-to-GDP ratio reaches 128.3 percent.
Source: Wall Street Journal.
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All told, Japan spent about $1 trillion (double it to find the U.S. equivalent) in trying to jump-start its economy. By April 2009, the debt-to-GDP ratio was an incredible 217 percent. What did it get for its trouble? An average growth of .6 percent a year!
All that trouble for nothing.
So how can anyone still believe that the Keynsian approach—which didn’t work in the United States in the 1930s, in Japan in the 1990s, or again in the United States in 2008—stands any chance of working in 2009?
Yet Keynesian economics remains the conventional wisdom—not of economists anymore, but of the mainstream media. As the economist Mark Skousen writes in his book The Big Three in Economics, “If a country falls into a military conflict, a deep slump, or other crisis, the Keynesian model immediately comes to the forefront: maintain spending at all costs, even if it means significant deficit financing. The misleading Keynesian notion that consumer spending, rather than saving, capital formation, and technology drives the economy, is still very much in vogue in the halls of government and in financial circles.”38
The Wall Street Journal points to a key flaw behind the model: “Keynesian ‘pump-priming’ in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.”39
But don’t take our word for it. A wide range of economic experts is already on the record as disagreeing with Obama and predicting failure for his stimulus package.
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TOP ECONOMISTS SAY NO TO OBAMA’S STIMULUS PROGRAM
GARY BECKER, WINNER OF THE NOBEL PRIZE IN ECONOMICS:
“I tend to believe that [estimates of stimulus from government spending] are excessive. They will be put together hastily, and are likely to contain a lot of political pork and other inefficiencies. For another thing…it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital.