For Keynesians, Too Much Is Never Enough

The New York Times has an article on the “stimulus attempt” in Japan in the 1990s. The article describes two points of view: American economists who think that it partly worked, but did not go far enough, and everyone in Japan, who thinks it was a colossal waste, which they will have to repay for decades, and a waste which turned their economy into one large public works project.

The article also provides some insight into how large a stimulus these American economists think is necessary to get the economy moving. A little bit of math shows that their target size would be even more massive than anything we’re currently debating, and would cripple the economy, not stimulate it.

The article explains:

After years of heavy spending in the first half of the 1990s, economists say, Japan’s leaders grew concerned about growing budget deficits and cut back too soon, snuffing out the recovery in its infancy, much as Roosevelt did to the American economy in 1936. Growth that, by 1996, had reached 3 percent was suffocated by premature spending cuts and tax increases, they say. While spending remained high in the late 1990s, Japan never gave the economy another full-fledged push, these economists say.

They also say that the size of Japan’s apparently successful stimulus in the early 1990s suggests that the United States will need to spend far more than the current $820 billion to get results. Between 1991 and 1995, Japan spent some $2.1 trillion on public works, in an economy roughly half as large as that of the United States, according to the Cabinet Office. “Stimulus worked in Japan when it was tried,” said David Weinstein, a professor of Japanese economics at Columbia University. “Japan’s lesson is that, if anything, the current U.S. stimulus will not be enough.”

If Japan’s economy is half the size of the American economy, then these economists would suggest that we spend at least $4.2 trillion over four years, or more than $1 trillion per year. To not “cripple the stimulus in its infancy,” we’d have to sustain this for significantly longer than just four years. Deficit financed public works costing more than $1 trillion per year, over, let’s say, eight or ten years – this is supposed to stimulate the economy? This would obviously cripple the economy! When spelled out like this, it is hard to imagine any economist seriously suggesting that America should, or could, borrow that kind of money and create that kind of long-term public sector employment.

Instead, it seems that Keynesian economists are simply running out of excuses as to why previous experiments in spending “stimulus” plans have failed to produce good results.

Learning and Bureaucracy

The market is an evolutionary process, in which selection forces actors to learn, and price conveys the information necessary for that learning. The pressure on the individual to innovate (or face losses) is not a pressure applied strictly to firm owners and managers- it is also applied to workers and job-seekers.

The Iraqi band Acrassicauda recently acquired refugee status and settled into a nice New Jersey metal band lifestyle. One of them explained their prior training and conditioning:

“We’re good at process,” said Mr. Riyadh, 24, who has previously used the name Marwan Hussain. “Going to the U.N.H.C.R.,” he said, referring to the United Nations High Commissioner for Refugees, “standing in a queue for three or four hours. We’re good at that. But musically, we need to practice.”

This reminded me of what Irina Pantaeva said of her training in Soviet Russia:

Neither of us knew how the fashion business worked in the West. That models carry thick books full of glossy pictures, and that they made appointments and worked with agents. We knew only what we had learned in Russia: if you want something, go to where it is and be prepared to wait.

In a bureaucratic country or system, there is no pressure applied that can force the individual to work, learn, innovate, or generally train themselves. Instead, they learn to wait on lines, fill out paperwork, and ask others for handouts. Expect a lot more of this kind of learning as government continues to rapidly grow, and a lot less innovation and new technology.