Thursday, October 20, 2011

Washington Policy Wonks need to look no further than recent History of 1990 Japan for answers.

Washington Policy Wonks need to look no further than recent History of 1990 Japan for answers. 
one small voice

Policy experts continue to be stymied by their inability to get the economy moving again .A look at recent history would suggest that both the talking heads and Washington policy wonks should know better and be better served if they took a look at the failings of Japan in the 1990's.

In the not too distant past Japan was faced with many of the same issues caused by collapsing property and stock markets,leaving Japanese banks upside down on much of the nations collateral. Japan's once invincible economy ran aground with similar policy missteps that our current policy makers are making .

First Japan embarked on printing money and zero interest rates to accelerate demand ,but this is like pushing on a string. It failed in the 1990's for Japan and in reality did nothing to effect the supply and demand curve. This priming the pump or inflating your way to prosperity has historically proven to have dangerous consequences such as run away inflation and in the worst case could lead to a currency collapse.

At the same time both Japan in the 90's and the US government today have engaged in a massive buildup of regulation for both personal and business behavior with the net effect being to suffocate business initiative.

Both countries engaged in wrong headed Government "Stimulus" plans that never work , I repeat NEVER. Most of the stimulus money is wasted or lands in the hands of public unions with little or no job creation. Again Japan in the 1990's embarked on the same foolishness with a huge capital investment plan for infrastructure .Like the fool hearty promotion of alternative energy in the US today where at the end of the day much of the money was wasted ,taxes have to be raised to cover the debt which further suppresses economic growth.

Japanese banks simple hid there loses and in many cases have yet to recognize the depreciated collateral.The US has similar issues with the destruction of the credit markets, the 2000 stealth stock market crash and the inability for the government to offer any reliable economic statistics. There is a consistent theme of not facing the reality of the current economic situation.

Finally for both countries their constant central and state government tweaking or interference with the economy and its unintended consequences  have created so much uncertainty that they have virtually stifled business decision making.

The current period of economic decline will not end until more substantive pro-growth policy's are enacted ,such as deregulation, shrinking the size and scope of government ,paying down debt and lowering taxes. It is just that simple.