Liquidity trap? part II

From Japan 2008

This one needs a caption: There was a sign describing this construction project as building a fish spawning pathway. As you can see, they’re tearing out the old fish spawning pathway to build this new one. I should mention that the government agency that funds such projects had its prefecture headquarters across the street from the construction.

We were in Japan for 21 days and I’d say, besides the usual “Japanese” stuff, the thing that struck me most was the number and size of infrastructure projects, e.g. bridges, dams, railroads, etc.

We got lost driving in the middle of nowhere one day on a one lane road winding through the mountains. In 30 or so kilometers we drove through two or three villages with a total population of at most 100. Along that route there were three major infrastructure projects — realigning the road, erosion control, a new bridge — that must of had budgets in the tens of millions.

In other news, the Japanese government just approved a $132,000,000,000 stimulus package.

9 thoughts on “Liquidity trap? part II”

  1. Oh hey, I found out you can look up “liquidity trap” on google and read interesting stuff. The wikipedia article even talks about Japanese infrastructure spending as a (possibly misguided) effort to inject cash into the economy, citing some Paul Krugman dude. Whoever that is.

    Are you worried about a similar “New Deal” deal in the US?

  2. i.e. large amounts of deficit spending on dubious projects that keep misaligned resources misaligned thus prolonging a recession into a depression?


    But those are abnormal concerns. Normal economists worry about the fact that deficits lead to inflation or higher taxes. Neither’s good. Normal economists care about the so-called multiplier in which government expenditures magically increase GDP by a multiple of their value. Normal economists have measured the multiplier and found it to be close to 1, i.e. there is no magic.

    Krugman’s basically argues we’re not in normal times so all those normal results don’t apply. We’re living with so-called “depression economics”. With lack of sufficient evidence about what happens with government expenditures in abnormal times — depressions are relatively rare— we’re just suppose to believe Krugman’s conjectures are right. Also, he ignores the few data points we do have and that are contrary to his conjectures, e.g. the fact that Japan had been stimulating the crap out of its economy during its “lost decade” or the fact that when Roosevelt fixed monetary policy the economy started recovering from the Depression (i.e. fiscal stimulus doesn’t do much).

    Krugman and team social democrats want a “green economy” and they want nationalized medicine. This crisis has people crying for government to do something. Using Krugman’s depression economics as psuedo-intellectual backing, social democrats have a political window to bring those things about.

    As political cover, “depression economics” is brilliant. As a scientific theory, Krugman’s conjectures have little going for them.

  3. Sort of like with using “the terrists” as a political vehicle to push tax cuts and slash regulation, which should have pushed us into an economic golden age.

    I’m not saying “how could things possibly get worse,” though. I can imagine much worse.

  4. Totally without any direct input from those around me, I’ve come to the conclusion that many of these projects make people *feel good* about having a government that’s *doing something* for them. Even^1^1^1^1 Especially for the little people.

    Swong used the word “austere” in part I. From first hand experience I can tell you that this is one of many very strong social and political ideals. Perhaps people are willing to spend insane amounts of money on huge roadway projects for tiny little villages because, on some level, they feel that they’re working hard to preserve some part of their own culture.

    Further, in the same way that Americans would have an emotional response to, “For the love of god, think of the children~!” Japanese people also feel obligated to “think of the _____” children; elderly; teachers; students; villagers; fishermen; tofu makers; farmers; craftsmen; ore-ore-sagi victims; mothers; …

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