> It's striking how ineffectual the Japanese ruling class looks in the
> face of this crisis, unable to come up with a program or get the state to
> do its bidding - in contrast with the U.S., where $200 billion (present
> value) can be spent on the S&L bailout with hardly any political debate.
But Japan's elites have spent close to $750 billion over the past five years, in various mongo bailouts/tax cuts ("bribes" would be a more accurate term, but we'll let that pass) to the business sector. Japanese Government debt is now around 90% of GDP, much higher than the US or many European countries; Japan has actually deployed, with little fanfare, a titanic Keynesianism in the last few years (lest anyone start spouting chrysanthemum-and-sword metaphors, it should be pointed out that Germany has spent close to $800 billion on the bailout of East Germany during the same period, with an equivalent lack of press). Weird as it sounds, I think the collapse of the LDP and the general chaos of Japanese politics has only strengthened the hand of the keiretsu who are really running the show there. The trouble is, Japan Inc. is still trying to bail itself out with purely national packages. Well, Japanese firms took the money and spent it on the East Asian bubble, thus compounding the problem. Sooner or later, they're going to have to finance the development of their semi-peripheries.
> So why did the U.S. deficit reduction since 1993 have such a benign
> outturn, then? I keep asking Keynesians how they explain the U.S.
> expansion, and don't hear much in the way of a good answer.
Yeah, in general the Keynesians, despite their superficial sympathy with collective demand, i.e. real wages, have no real theory of the credit sphere as such: what they have is a theory of why credit breaks down and falls into crisis (underconsumption, overproduction etc.). In short, they confuse capital with money.
I suspect that the US deficit reduction was more than counterbalanced by a juicy increase in collective debt, especially mortgages of various kinds. The Fed says the deficit was running at 200-300 billion in the early Nineties, while credit growth was nil; nowadays, the deficit has vanished, but private and business credit are pumping some 300-400 billion into the economy each year, more than enough to power an expansion. This credit, in turn, is increasingly recycled from our global creditors, the EU and Japan, and so I would argue that it's been the superlow interest rates of the latter, plus the limited, bandaid Keynesianism of East Germany and the Japanese construction industry, which has, in effect, kept the US and indeed the entire world economy afloat. Or, put more concretely, our net internat'l investment position (NIIP) is running -$150 billion a year (the minus sign means, for you non-econ folks out there, that the money is flowing into the US from foreign investors, i.e. the US is going into hock), a powerfully significant chunk of annual US debt growth.
But hey, I could be wrong about this. For one thing, the Wall Street bubble may be papering over some more fundamental contradictions here; certainly, capital gains taxes are a big reason the deficit has shrunk so much, and the Dow is beginning to look a mite tetchy, yes?
-- Dennis