Tuesday, September 6, 2011

What happens when Governments “stimulate”

When the inevitable call comes for “more stimulus” and “more government spending” and “more public works” – as it will in the next week or so this extract from the New York Times (hardly an advocate of dumping Keynesian spending or a critic of government spending):

HAMADA, Japan — The Hamada Marine Bridge soars majestically over this small fishing harbor, so much larger than the squid boats anchored below that it seems out of place.

And it is not just the bridge. Two decades of generous public works spending have showered this city of 61,000 mostly graying residents with a highway, a two-lane bypass, a university, a prison, a children’s art museum, the Sun Village Hamada sports center, a bright red welcome center, a ski resort and an aquarium featuring three ring-blowing Beluga whales.

Nor is this remote port in western Japan unusual. Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.

These policies fail – one cannot manufacture economic growth by governments spending up taxpayer money or borrowing from future taxpayers.

HT Russ Roberts at Cafe Hayek.


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