Thursday, December 11, 2008

Infrastructure Spending Won't Solve Problems

Read interesting column from Amity Shlaes about the utter failure of the Japanese infrastructure spending boom in the 1990s in reviving the Japanese economy. Very relevant considering Obama's plans for a similar infrastructure spending spree.

3 Comments:

Blogger marc.van.den.bosch said...

Stefan

I read Amity Shlaes' column with interest. This is the sort of criticism I am looking for, an argument against the newfound common consensus which is not entirely political but illustrated with facts and references. But still I was disappointed to a point. Amity did not reflect on the option of what the economy could have looked like without this type of infrastructure spending, neither does she provide any indication as to whether the infrastructure construction is currently benefitting the japanese economy or maybe that these investments have turned out to be white elephants, having added nothing to the economy bar the expense of having been built. Also, I would have liked to see if these huge infrastructure projects have stressed the construction market into charging higher rates. Maybe you can help us out here.

8:46 PM  
Anonymous joey said...

I remember reading a paper by a Japanese economist detailing the fiscal stimulus packages. His conclusion was they worked but were withdrawn when they appeared to be working, there would be an improvement in the economy and the government would start to try to balance the budget causing another down turn as the stimulus was withdrawn.
This was a well researched and detailed paper, and made a lot of sense. I'll see if I can find the link.
His main point was burning paper to keep warm is all a matter of correct timing.

11:48 AM  
Anonymous Anonymous said...

Correction:
"burning paper to keep warm is all a matter of" thievery.

Now, I won't dismiss that in the short term, thieves can benefit from the proceeds of their theft. Many economists say this rewarding of bad behavior is a good thing.

But in the long run everyone is hurt because thievery encourages unproductive behavior and discourages productive behavior, causing less real wealth creation, less productive capital formation, and less economic growth than would otherwise happen.

-Steve

1:46 PM  

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