3 years, 3 months ago
Why did the Japanese stimulus package in the 1990s recession/depression fail?
The Japanese government tried to stimulate the economy with giant stimulus package which included heavy spending on infrastructure. What role did taxes and debt play on prolonging the recession/depression
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M$1 Answer
I am not very familiar with the intricacies of Japan's stimulus policies in the 1990s but I have included links for several articles that discuss it in more detail. According to The Wall Street Journal:
"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.
Japan's economy grow anemically over that decade, but as the nearby chart shows, its national debt exploded. Only in this decade, with a monetary reflation and Prime Minister Junichiro Koizumi's decision to privatize state assets and force banks to acknowledge their bad debts, did the economy recover. Yet recent governments have rolled back Mr. Koizumi's reforms and returned to their spending habits."
But according to MediaMatters.org, "Fiscal stimulus in Japan failed during the "lost decade" of the 1990s: On the January 23 edition of Fox News' Hannity, host Sean Hannity joined the ranks of media figures who have cited Japanese fiscal policy in the 1990s in arguing against a large scale-stimulus plan to combat the current recession in the United States. Hannity claimed that "the Japanese economy was suffering, in the '90s, they had eight separate stimulus packages that created, in their history, massive debt. It was unprecedented. And it didn't work." However, as Media Matters documented, according to prominent economists, economic conditions were improving in Japan before the Japanese government temporarily abandoned fiscal stimulus policies in an attempt to reduce the deficit. And Krugman, for one, points to Japan's fiscal stimulus packages as having "probably prevented a weak economy from plunging into an actual depression."
Additionally, Adam Posen, deputy director of the Peterson Institute for International Economics, wrote in his September 1998 book, Restoring Japan's Economic Growth, that "the 1995 stimulus package ... did result in solid growth in 1996, demonstrating that fiscal policy does work when it is tried. As on earlier occasions in the 1990s, however, the positive response to fiscal stimulus was undercut by fiscal contraction in 1996 and 1997." Posen also testified before the U.S. House of Representatives that the Japanese government "way overstated the amount of fiscal stimulus in which they actually engaged." Other economists and media accounts of Japan's policies agree with Posen that the positive effects of the mid-decade stimulus packages in Japan were curtailed by attempts to scale back spending and increase taxes."
"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.
Japan's economy grow anemically over that decade, but as the nearby chart shows, its national debt exploded. Only in this decade, with a monetary reflation and Prime Minister Junichiro Koizumi's decision to privatize state assets and force banks to acknowledge their bad debts, did the economy recover. Yet recent governments have rolled back Mr. Koizumi's reforms and returned to their spending habits."
But according to MediaMatters.org, "Fiscal stimulus in Japan failed during the "lost decade" of the 1990s: On the January 23 edition of Fox News' Hannity, host Sean Hannity joined the ranks of media figures who have cited Japanese fiscal policy in the 1990s in arguing against a large scale-stimulus plan to combat the current recession in the United States. Hannity claimed that "the Japanese economy was suffering, in the '90s, they had eight separate stimulus packages that created, in their history, massive debt. It was unprecedented. And it didn't work." However, as Media Matters documented, according to prominent economists, economic conditions were improving in Japan before the Japanese government temporarily abandoned fiscal stimulus policies in an attempt to reduce the deficit. And Krugman, for one, points to Japan's fiscal stimulus packages as having "probably prevented a weak economy from plunging into an actual depression."
Additionally, Adam Posen, deputy director of the Peterson Institute for International Economics, wrote in his September 1998 book, Restoring Japan's Economic Growth, that "the 1995 stimulus package ... did result in solid growth in 1996, demonstrating that fiscal policy does work when it is tried. As on earlier occasions in the 1990s, however, the positive response to fiscal stimulus was undercut by fiscal contraction in 1996 and 1997." Posen also testified before the U.S. House of Representatives that the Japanese government "way overstated the amount of fiscal stimulus in which they actually engaged." Other economists and media accounts of Japan's policies agree with Posen that the positive effects of the mid-decade stimulus packages in Japan were curtailed by attempts to scale back spending and increase taxes."
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M$
Mahalo needs a way to edit the ratings, maybe not to a lower rate, but at least to a higher rating.
This is a five star answer.
That is so nice of you, Dave! I am glad you found the answer helpful. You can change the star ratings up and down but you are right, 5 stars is the highest.