Wednesday, December 10, 2008

Modern experience with infrastructure spending is dismal

Obama's big-spending infrastructure proposals are like the New Deal deja vu—you hear that everywhere. But Amity Shlaes reminds us that Japan's attempt to escape from its deflation/recession quicksand in the 1990s with massive public works spending was a dismal failure:

The projects were similar to some infrastructure plans under discussion here today. Bridges? Japan put up the longest suspension bridge in the world. Airports? Kansai International, yes, on an artificial island, but also local fields such as Ibaraki Airport near Mito. Roads? Japan built new streets and highways, including the famous New Tomei Expressway. For biotech and telecommunications, Japan poured out the subsidies.

In 1999, Japan announced a scheme to create 700,000 jobs, much as Obama recently announced a plan to create or save 2.5 million jobs. Between 1992 and 2000, the Japanese launched 10 stimulus packages that included public works. The Land of the Rising Sun became the Construction State.

"The construction state is in some respects akin to the military-industrial complex in cold-war America (or the Soviet Union), sucking in the country's wealth, consuming it inefficiently, growing like a cancer and bequeathing both fiscal crisis and environmental devastation," commented Gavan McCormack, a professor at the Australian National University.

Worst, though, was the failure on jobs. In Japan, the '90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate.
Read the whole thing.

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