Will Obama's new New Deal program work?

Japan faced a stock market and housing bubble back in the early 1990s. They tried the huge macro-Keynesian model to "stimulate" the economy by increasing government spending and having the government take over bad debts.

Didn't work. Japan was mired in a recession. The only thing the "stimulus package" did was increase Japan's national debt.

It looks like the only solution was to let the bad debts be wiped out. This required companies who took out the debts as well as the banks who lent the money to suffer and go under. However, until the debt level of consumers and people came down to a reasonable ratio with spending power (in other words, people started living within their means - what a foreign concept!), the Japanese economy just limped along.

I hope Obama's plan works. However, if this plan (spending our way out of a recession) does not work, he and the government have no other alternatives other than letting the natural business cycle take its course, which might mean a very very long recession and a lot more people losing their jobs and a lot more businesses going under.

POST A COMMENTHaveADamnNiceDay(02/12/2009)
In japanese, the closest thing they say that sounds like "Good luck" is Gambatte! (Gahm-baht-teh)

I've been saying ever since this whole stimulus spending idea was born that it was a bad idea and that if the economy was going to recover, that these companies should be ALLOWED TO FAIL (suffer the consequences of their stupid decisions). The government doesn't seem to understand this logic. WHY????

BonusOnus(02/12/2009)
I thought the Japanese version for "Good Luck" was "do mo origato mister roboto".



CK(02/12/2009)
If it includes an infrastructure plan I would think it has a chance. The reason is many-fold. We need the work done anyway, it is something that we all use almost every day - thus WE benefit, and it also places people to work - making a wage.

When you place people to work you; are more likely to spend it (stores, resturants, etc.), the local merchants also benefit from the increase spending and would most likely hire additional staff, people will be better able to afford to stay in their homes (if the banks will re-adjust the mortgage). This will also help slow or reverse the home foreclosures.

HaveADamnNiceDay(02/13/2009)
Doomo arigatoo means thank you very much, silly Bonus!
Gambatte is closer to 'do your best' or 'try your hardest'. Essentially, their version of our "good luck" phrase. Silly person. You're supposed to be closer to japan than I am!

BonusOnus(02/13/2009)
CK,

The Japanese invested heavily in infrastructure for their stimulus back in the early 1990s. Their infrastructure is much better than ours. But spending on the infrastructure didn't help the Japanese economy pull out of a recession (read the article).

Most of the analysis of Obama's stimulus that I'm reading say that the spending on infrastructure won't help the in the near future. Most infrastructure plans aren't ready to be started on immediately. Building highways or a new bridge takes years of planning. Before the first construction worker gets hired to work on the infrastructure, it will be 2010 at the earliest. The recession will either be over by then (hopefully) or we will be in a prolonged recession that won't be alleviated by the infrastructure spending.

I'm all for infrastructure spending. Infrastructure spending on highways (under Eisenhower) helped the economic growth of this country in the 1950s. But most people think it's been neglected. It has not. The Federal government spent billions per year on infrastructure. It's just that the process of determining what infrastructure projects are funded is very politicized. The billions spent on infrastructure each year don't go to projects that can do the most good or would help the most people. Instead, it goes to the district of the most powerful politician. Witness the "Bridge to Nowhere" in Alaska. Or back when the Democrats last controlled Congress, more than 50% of the Federal highway funds were spent in West Virginia.

The infrastructure spending in this stimulus bill is no different BTW. It will not go to where it can do the most good. It has been earmarked for the politicians with the most pull.

BonusOnus(02/13/2009)
HANDD,

I was just being sarcastic. :)

I should do better with Japanese since I've been to Japan.

HaveADamnNiceDay(02/13/2009)
I know you were being sarcastic ^_^

HaveADamnNiceDay(02/13/2009)
Holy crap you've been to japan??? I am green with envy...

SouthernProgrammer(02/13/2009)
The economy is going to recover (eventually) no matter WHAT is done. Quite frankly, if they did not release a spendulus the economy would still recover. Washington knows this, they just want to push in something that will allow them to have pork barrel projects while taking credit for the recovery at the same time.

HaveADamnNiceDay(02/13/2009)
SPENDULUS! What a great word, SP!
I agree, too. I think the economy would be better recovered if there had been less or nothing done... I don't see how spending money to get out of debt is a good idea.

SouthernProgrammer(02/13/2009)
Had - Spending money to get out of debt is always a great idea when it is someone elses money. Sooner or later, this will come back to haunt us.

HaveADamnNiceDay(02/13/2009)
SP--
I've added your word (spendulus) to urbandictionary.com. They're reviewing it before they post it, but it should go up there soon. ^_^
That was a great word....

BonusOnus(02/13/2009)
HANDD,

Yes, I've been to Japan. Tokyo only. Never saw so many neon lights anywhere. I don't speak Japanese other than a few phrases but I was able to get around because enough people, especially the young, spoke English.

Been to Japan, S. Korea, India, Spain, England, and Portugal (and Canada and Mexico numerous times). Not much of a world traveller but I've been to more foreign countries than US states.

BonusOnus(02/13/2009)
SP,

I can see the motivation of the spendulus (as you call it). We will pull out of this recession but Obama, Bush, and the political leaders want to try to make the recession shorter and shallower than it could be. It could get worse - if we go into a deflationary cycle, then we are all screwed and we'll have a 2nd Depression.

The spending should have been on plans that would have goosed consumer spending - extension of UI, health care subsidies for the uninsured, job training programs, a temporary tax cut aimed at the lower classes (even though they don't pay much in income taxes).

Strip out the bailouts and the various earmarks for "infrastructure" and the cost would be probably half of the $800 billion that the current spendulus will cost.

But...if this spendulus doesn't work, there's nothing much else the government can do. Our country's credit card limit is almost maxed out. The Fed have lowered interest rates to almost 0 so they can't go any lower. If this doesn't work, all we have left to show for it is a bigger national debt that will hinder the nation in the future.

SouthernProgrammer(02/15/2009)
Bonus, nothing to say except I agree with you.

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