Obama, Stimulus, Japan, and Paul Krugman

The cartoon is funny, but is it true?  You be the judge:

After decades of “miracle” economic growth since World War II, Japan’s economy abruptly faltered in 1990 and has stagnated since.

Overall during the 1990s, Japan tried 10 fiscal stimulus packages totaling more than 100 trillion yen, and each failed to cure the recession. What the spending programs have done, however, is put Japan’s government in poor fiscal shape. The “on-budget” government spending has caused public debt to exceed 100 percent of GDP (highest in the G7), and even more debt is apparent when the “off-budget” sector is included.

What is even more interesting is what “economist” and “columnist” Paul Krugman said in 2001 about Japan’s stimulus:

Japan’s postal savings system, which channels money into public works projects that have little if any social payoff, is monumentally inefficient; so is the practice of rolling over the debts of companies that will never regain profitability and hence keeping capital employed producing goods nobody wants.

At the time, Japan’s post office not only delivered the mail but they also were a bank (same as in France).  The money people deposited into their accounts was managed by the Japanese government (which owned the postal service) therefore they could spend that money as they saw fit (as long as they made funds available for withdraw by account holders).

In other words… in 2001 Krugman talked about the need to stop taking money and pouring it into public works projects (Obama’s “shovel ready stimulus” package comes to mind here) that will never produce things people want (because governments are not very efficient at distributing financial resources).  Krugman then concludes:

Japan cannot go on like this.  Swelling public debt will eventually threaten the government’s solvency.

What did Krugman say in November of 2009 about Obama’s “stimulus” however?

Even the claim that we’ll have to pay for stimulus spending now with higher taxes later is mostly wrong.  Spending more on recovery will lead to a stronger economy, both now and in the future — and a stronger economy means more government revenue.

Let’s do a comparison for fun on Japan’s public debt in 2001 and America’s debt in 2009 and what percentage of their GDP this represents to see if Mr. Krugman is being hypocritical or not.

In 2001 Japan’s debt was 414 trillion Yen.  In December 2001, $1 = 0.011130 Yen so 414 trillion Yen (in 2001 dollars) was $4.6 trillion.

In 2009 U.S. debt was $11.4 trillion.

In 2001, Japan’s GDP was $4.147 trillion, therefore public debt composed 110.9% of GDP during that year.

In 2009, America’s GDP was $14.27 trillion, therefore public debt composed 79.88% of GDP during that year.

Both numbers are pretty terrible and yet Mr. Krugman seemed to think that 110.9% of GDP debt “will eventually threaten the government’s solvency” while America’s 79.88% of GDP “will lead to a stronger economy.”  And with the spending Obama has on tap (Stimulus Deux) experts say America’s debt as a percentage of GDP will reach 113% by 2014.

Like Barack Obama and Al Gore, Paul Krugman won a Nobel Prize.  Richard A. Posener of The Atlantic writes of Krugman:

He is also an unabashed Democratic partisan who often goes overboard in his hatred of the Republicans.  The effect of Krugman’s partisanship on his “public intellectual” writings is an old story, but a true one.

Paul Krugman writes for the New York Times (which recently defended Global Warming), the “paper of record.”  Whose record?

You do the math.

Did you like this article? Get new articles daily for free via RSS or Email.