Lesson from "The Lost Decade"

Remember the 1980's when everyone was convinced that Japan was on it's way to world domination through cheap stereos and manga comics? Books were written and movies made about our coming bleak future under the heel of our new Asian overlords (hopefully busty Asian overlords but that's a different matter) and all seemed lost. Then suddenly Japan was on the bottom of the economic pile.

The "Lost Decade" had begun.

Reading the description on wikipedia and from memory (I was stationed on Okinawa when the crash began) it was a burst real estate bubble very similar to the current situation in the United States that started the troubles and their responses were pretty similar to the stimulus package currently working it's way through congress. Today's NY Times looks at the lessons the Japanese learned the hard way.

Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.

...

In a nutshell, Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists and one very important American official: Treasury Secretary Timothy F. Geithner, who was a young financial attaché in Japan during the collapse and subsequent doldrums. One lesson Mr. Geithner has said he took away from that experience is that spending must come in quick, massive doses, and be continued until recovery takes firm root.

Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.

...

In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan’s Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations.

In the United States, it has also led to calls in Congress, particularly by Republicans, not to repeat the errors of Japan’s failed economic stimulus. They argue that it makes more sense to cut taxes, and let people decide how to spend their own money, than for the government to decide how to invest public funds. Japan put more emphasis on increased spending than tax cuts during its slump, but ultimately did reduce consumption taxes to encourage consumer spending as well.

Economists tend to divide into two camps on the question of Japan’s infrastructure spending: those, many of them Americans like Mr. Geithner, who think it did not go far enough; and those, many of them Japanese, who think it was a colossal waste.

I would say that the fact that Japaneses economists think their similar spending program was a "colossal waste" would be enough to convince our politicians that maybe we need to take a little more than two weeks to look at this plan consider the consequences. I would apparently be wrong.

Yesterday I saw something that fit this situation perfectly, I don't remember where or I would credit them. What's the major difference between this recessions and the Great Depression? In the 1930's FDR said, "We have nothing to fear but fear itself", today President Obama is runnibgf around yelling, "Be Afraid! Be Very Afraid!"