From Dr Derek Scissors.
Sir, Richard Koo (“Explain the disease, then US citizens will feel better”, November 5) wants the US to learn from Japan’s response to its 1990 crisis. He is quite right about that, but draws stunningly wrong conclusions.
Prior to the bubble bursting, Japan was fiscally responsible and had four decades of increasing prosperity. In the 22 years since, Japanese borrowing has surpassed 200 per cent of gross domestic product and its economy has stagnated. Japanese Keynesianism turned a recession into a lost generation.
Mr Koo considers this a viable path for the US. He notes Japan’s success in restoring GDP to slightly more than at the peak of the bubble. The implicit goal for the US is a 2029 GDP that is slightly above its 2007 level. Along the same lines, Japan’s 2011 GDP was equal to its 1992 level – Mr Koo’s policies offer 19 years of no net growth.
He and other supporters of colossal amounts of government borrowing castigate Japan’s attempt in 1997 to borrow less. That mild one-year deviation is presented as undermining the ensuing 15 years of correct policy. The logical and conceptual flaws of contemporary Keynesianism are overwhelming.
Even more telling is when its advocates can do no better than cite Japan’s experience as justification.
Derek Scissors, The Heritage Foundation, Washington, DC, US
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