Wednesday, August 16, 2006

Dang, He Does It Again

Professor Christopher Lingle has done it again, written a piece in the Tapei Times that hits another of my economic nails on the head.

taipei times drawing
[Click on image for a larger version. Thanks to Taipei Times for the drawing.]

This time, he analyzes Japanese and Chinese monetary policy, and this guy's an expert (not just a bloggiating gadfly like myself.)

Japan and China have done so well in their leap forward into the 21st century; but they have swallowed the West's fiscal methodology in toto, not stopping to separate the effective policy from the counterproductive waste. Here's how he puts his main point:

"One of the forgotten lessons of the Keynesian-inspired stagflation of the 1970s is that economic growth based on increased government spending is unsustainable. It also introduces distortions and imbalances in the overall production structure of the domestic economy."

He fleshes out the details in his article, and here is the punch line:

"The best evidence of the failure of Keynesian cures is found in Japan. After its 'bubble economy' collapsed at the end of the 1980s, Tokyo financed its additional public-sector expenditures with fiscal deficits. Japan's public-sector spending during the 1990s exceeded [Yen]800 trillion (US$7 trillion), an amount five times greater than America's fiscal expenditures during its restructuring in the 1980s.
"Nonetheless, neither massive expenditures nor the expansionary credit policies with a zero-interest rate worked very well. In the end, average economic growth in Japan during the 1990s was only about 1.1 per cent.
"However, Tokyo's outstanding debt rose from 56 percent of GDP at the beginning of the 1990s to about at least 130 percent. Many independent observers and credit-rating agencies put the figure at a much higher level.
"What happened in Japan was that public officials were either unaware or wary of initiating the needed radical restructuring of the domestic economy. If Beijing follows Tokyo down a similar path, the Chinese economy will slow down markedly in the medium to long term."

Darn, he's good.

And by the way, do I need to point out the similarity between Japan's spending voodoo cure and our own, between Japan's mushrooming debt and ours? Ahem. It's not like we've learned from our own mistakes ourselves. And now that we've gotten up this tree, I don't think the "Fed Experts" know how to get us back down. (I'd love to be a gadfly on the wall at the next FOMC meeting.)

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