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February 16, 2009

Japanese Model is Not the Solution

President Obama has been claiming that the spendulus is necessary to keep the United States from an economic funk like the so-called "lost decade" experienced by Japan in the 1990s:

I think that what Ive said is what other economists have said across the political spectrum, which is that if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of.

We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough, and as a consequence they suffered what was called the lost decade, where essentially for the entire 90s, they did not see any significant economic growth.

Japan eventually spent $6.3 trillion building roads and bridges to nowhere on the exact same Keynesian theory that Obama says will save us. It is reasonable to ask then, how the Japanese are doing today:

That is log US real GDP (blue), log Japanese real GDP (red), and log Euro Area 15 real GDP (green), all rescaled to 0 in 2007Q4.

H/t Econbrowser for the graphic.


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posted by Gabriel Malor at 02:45 PM

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