海角大神

Last week Japan announced a massive stimulus package designed to jumpstart its slumping economy, which is in the midst of its fifth recession in 15 years.聽, heavy on infrastructure spending and disaster preparedness, includes $117 billion in central government spending. Add in local government and private-sector support and spending could top $200 billion.聽 It鈥檚 a smart move if implemented quickly and effectively.

The Japanese cabinet聽聽the package will boost real GDP by 2 percent and create 600,000 new jobs; this sizable increase may be an understatement. In Japan鈥檚 $5.87 trillion economy, a $200 billion stimulus package could raise the short-run level of GDP by around 3 percent, assuming a聽聽relationship between government spending and economic growth. (Government investment raises GDP when the outlay is made. Subsequent economic effects depend on the productivity of the investment鈥攚hich can raise its net impact鈥攁nd the effect on taxes and interest rates鈥攚hich can reduce the net benefits.)

Moreover, research shows that when interest rates are at or near zero as is the case in Japan, the ability of government spending to stimulate economic growth is particularly acute.聽聽estimated that each government dollar spent when interest rates are zero leads to over $3 in economic growth. If this is right, Japan鈥檚 stimulus will be a remarkable shot in the arm for a struggling economy.聽

There are, of course, large caveats to the above statement. Foremost is the need for聽辫谤辞诲耻肠迟颈惫别听public investments that leverage private sector activity鈥攆or example, helping to rebuild the regions affected by the 2011 tsunami. Japan鈥檚 jawdroppingly high national debt鈥斅燡apan鈥檚 gross public debt to reach 240 percent of GDP in 2013鈥攊s in part due to wasteful public works projects undertaken over a decade ago. (Japan made several mistakes during its 鈥渓ost decade,鈥� including jacking up its consumption tax in the midst of a recovery and overinvesting in unproductive public works projects.)

Also, there is a big difference between announcing a stimulus package and implementing one. Japan learned this lesson in the 1990鈥檚, when it announced large stimulus programs but never followed through.聽 Lastly, it鈥檚 vital that the programs quickly release funds to the economy; a slow drip of stimulus payments won鈥檛 help.

Japan鈥檚 move has two important implications for the U.S. For starters, recovery in Japan would likely boost growth here at home: the U.S. exported over $100 billion to Japan last year and would benefit from stronger demand.聽聽found that Japan鈥檚 fiscal stimulus during the U.S. financial crisis鈥攅stimated at 1.8 percent of GDP over two years鈥攂oosted U.S. GDP by a small amount in 2010. The effect on the U.S. economy could be larger if Japan鈥檚 latest stimulus package exceeds $200 billion.

Perhaps more importantly, success in Japan might bring the word 鈥渟timulus鈥� out of our nation鈥檚 collective doghouse. The tepid economic recovery in the U.S., combined with desperately needed relief for regions affected by Hurricane Sandy, begs for higher infrastructure and disaster relief spending. These conditions, combined with near-zero interest rates, make the U.S. economy an ideal candidate for temporary infrastructure spending of its own.