I don't know, off hand, why there has been no long-term effect. I have, up to this moment, thought that stimulus effects were usually thought of as having mostly short-term, business cycle effects. So the stimulus package of last year worked well--GDP growth was 1.5% (2% if you believe the IMF) in the first quarter of last year--but it petered out by year's end. So it didn't even have enough kick to carry the economy for a year.
But I don't know why. I would like to know how to go about constructing an explanation--or at least an explanation of why I can't come up with an explanation.
> You seem to overlook any such negative effects from even more massive
> deficits, your faith in them as panacea almost religious?
I don't know enough about economics to have faith in deficits. (I'm serious--I'm not just trying to be passive aggressive.) I do know that, depending on what they are spent on, they can at least help transfer some wealth from the richest to the poorest. So, in large part, it depends on what you want to accomplish with them. As for the negative effects--isn't much of our thinking about the negative effects of deficits colored by the US experience of the 80's--ie the twin deficits? I mean, the debt drives up interest rates, makes it more difficult to raise export production, adds to trade deficit etc? (Again, was this such a bad thing in and of itself? Sure, the costs of adjustment to these facts were unequally borne, but would it have to be so?) And Japan simply isn't in that position. The public debt isn't crowding out private debt, is it? Or put another way: that isn't the reason for sagging investment, is it? So I'm wondering which negative effects you think are relevant.
However, I have some basic skepticism about a couple of the subtexts of stories like this one. For example, however "cronyist" such public spending is, it doesn't make sense to criticize it just because it's cronyist--at least, saying it's cronyist is not the same as saying that it's not economically sound, as spending goes.
Second, there's the whole restructuring argument. This one says that fiscal expenditure won't do any good because Japan's markets need a total overhaul. One of the interesting things that Posen argues is that, if Japan's problem were the structure of its enterprises and markets, then the timing of the downturn would have been very different. Although I'm still learning how to evaluate the evidence for these claims, it seems clear that Japan's current situation derives in no small part from the bubble economy of the late 80's, and not necessarily from the structure of its markets, etc, although those might not help.
> Perhaps we have unfounded faith in state interventions into a fetishistic
> economy that leave the underlying relations of production in tact. To me
> the undermining of such faith is what Marxism is all about, beginning with
> the critique of Proudhon.
>
> Let me quote Karl Korsch here from his Karl Marx, 1938:
>
> ...an apparently new attempt is made to 'control,' to 'correct', and
> to'steer' the existing economic system. Such measures serve at the utmost
> to weaken temporarily or even merely to disguise some of the most
> obstructive results of capitalistic production...In trying to escape from
> the periodical crises which threaten more and more the existence of
> bourgeois society, and in a desperate attempt to overcome the existing
> acute crisis of the whole capitalist system, the bourgeoisie is compelled,
> by continually fresh and deeper 'interference' with the inner laws of its
> own mode of production, and continually greater changes in its own social
> and political organization, to prepare more violent and more universal
> crises, and at the same time, to diminish the means of overcoming future
> crises.
Under certain circumstances, as we know, Marx said he was all for free trade--let the markets rip, and everyone will see the leviathan for what it is. Sure. But who will bear the costs of adjustment to such crises if they don't topple the world system?
Thanks for your response. All best
Christian