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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] Public Works
  • Date: Wed, 10 Dec 2008 08:33:58 -0800 (PST)

Amity Shales has become a prominent name , as of late, in economic circles ,
mainly because of her book concerning the Great Depression and her heavily
reaseached contrarian picture of the history of the GD. Lately, she and a
Nobel Winner winner in economics (Krugman) have been publicly arguing with
each other concerning such theory... from today's Washington
Post.................

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The Perils of a Cement Tsunami



By Amity Shlaes

Wednesday, December 10, 2008; Page A25

President-elect Barack Obama put forward a plan this week for the largest
government infrastructure project in a half-century. The idea is to revive
the economy and create jobs for America's unemployed. But huge public works
projects often fail to revive national economies. Consider the example of
Japan in the 1990s.

The situation in Japan then was similar in some ways to that in the United
States today. A dramatic market crash and a plunge in real estate prices
shook what had been a confident nation. Japan turned inward; economists
talked earnestly about paradigm shifts. The obsession with exporting no
longer seemed to be serving the country well. Leaders cast aside their
previous concerns about budget deficits. The then-Ministry of International
Trade and Industry sorrowfully let it be known that there were "areas in
which Japan lags behind major developed nations."

One such area was infrastructure -- even though Japan is so often rocked by
earthquakes that it tends to operate in Katrina mode: always fortifying for a
meteorological or geological crisis. The central and local governments began
spending billions of yen on construction. In short, Japan traded its export
complex for an edifice complex.

The projects were similar to some infrastructure plans under discussion here
today. Bridges? Japan put up the longest suspension bridge in the world.
Airports? Kansai International, yes, on an artificial island, but also local
fields such as Ibaraki Airport near Mito. Roads? Japan built new streets and
highways, including the famous New Tomei Expressway. For biotech and
telecommunications, Japan poured out the subsidies.


When one plan proved insufficient, another was begun. In 1999, Japan
announced a scheme to create 700,000 jobs, much as Obama recently announced a
plan to create or save 2.5 million jobs. As with the U.S. example,
politicians were precise about the number of new jobs . . . and less precise
about their cost. Between 1992 and 2000, the Japanese launched 10 stimulus
packages that included public works. The Land of the Rising Sun became the
Construction State. Other worthy issues, such as consistent tax reform,
lagged. In fact, fiscal reform overall was postponed. After the 1995 Kobe
earthquake claimed thousands of lives, the focus on infrastructure was
reinforced.

Some of these projects were valuable, some risible. As Bloomberg News
recently reported, Japan Airlines Corp. and All Nippon Airways, which run
nearly all flights within Japan, don't even expect to fly to the Ibaraki
Airport. With the Japanese turning to trains, the New Tomei Expressway seemed
a waste.

The spending yielded painfully little for the rest of the economy. The Nikkei
stayed down. The country's standard of living failed to keep pace with the
rest of the world's. The average Japanese's purchasing power had been moving
closer to that of the average American, Ronald Utt of the Heritage Foundation
has noted. But in the 1990s the Japanese saw few advances. The gap between
America and Japan widened again.

"The construction state is in some respects akin to the military-industrial
complex in cold-war America (or the Soviet Union), sucking in the country's
wealth, consuming it inefficiently, growing like a cancer and bequeathing
both fiscal crisis and environmental devastation," commented Gavan McCormack,
a professor at the Australian National University. The stimulus plans had the
opposite effect of what was expected. Appalled at the country's new deficits,
Japanese consumers closed their wallets.

Worst, though, was the failure on jobs. Unemployment fell in many nations in
the 1990s. In Japan, the '90s were a lost decade: The unemployment rate more
than doubled and surpassed the U.S. rate -- an unthinkable occurrence just a
few years earlier.

Even today, Japan is having trouble climbing out of its cement pit. At its
high, in the mid-1990s, infrastructure spending accounted for 6 percent of
its gross domestic product, double what the United States allocated for
infrastructure in the '90s and still higher than what politicians are
considering spending today. In estimates of national debt, the world's
second-largest national economy is near the top of the list, perched between
Lebanon and Jamaica. Last year, Japan's public debt was far greater than the
size of its economy, a burden that makes its demographic challenges more
difficult to address.

What lessons should the United States take away? It is wrong to assume that
construction will guarantee a two-fer for the economy -- shining structures
and redemptive growth. The private sector is often better than politicians at
guessing what the market needs. And infrastructure projects demand so much
political energy that there's too little energy left over for everything
else. Congress might want to remember all this as it debates infrastructure
funding in the coming months. An edifice complex seems more likely to petrify
a country than to move it forward.

Amity Shlaes, a senior fellow in economic history at the Council on Foreign
Relations, is the author of "The Forgotten Man," a history of the 1930s.







  • [Homestead] Public Works, bob ford, 12/10/2008

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