U.S. Policymakers Should Avoid Japan's Mistakes, Not Repeat Them

U.S. Policymakers Should Avoid Japan's Mistakes, Not Repeat Them

In the 1990s, Japan tried to revive its moribund economy with deep cuts in interest rates, bank bailouts and nationalizations, and multiple fiscal stimulus packages--including a 1998 spending program that amounted to a whopping 8.5 percent of gross domestic product. Despite those drastic measures, however, the economy languished: the 1990s were Japan's "lost decade."

Economic policymakers in the United States have taken a cue from their Japanese counterparts, enacting similar policies but doing so more quickly. Unfortunately, it is the basic similarity of their approach that is cause for alarm, according to Benjamin Powell, a research fellow at the Independent Institute.

"Bank bailouts and fiscal stimulus bills don't work because they strive to maintain the status quo," writes Powell. "But the status quo is the problem and exactly what needs to be corrected.... To achieve long-term economic recovery, market forces, not political forces, need to direct capital and labor to their most productive uses."

"Avoid Japan's Mistakes," by Benjamin Powell (Washington Times, 3/8/09)
http://www.washingtontimes.com/news/2009/mar/08/avoid-japans-mistakes/

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin Powell
http://www.independent.org/store/book_detail.asp?bookID=70

Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell
http://www.independent.org/store/book_detail.asp?bookID=76