Japan in the early 1990s looked a lot like we do today. A stock market bubble had burst in the late 80s and a real estate bubble in the early 90s. Japan’s politicians felt the need to do something about the economy and embarked on the greatest experiment in Keynesian stimulus since the Great Depression. The WSJ has an Op-Ed today that details all the specific “stimulus” plans enacted through the 90s, but suffice it to say, they weren’t very effective except in raising the debt to GDP ratio.

Japan’s economy grow anemically over that decade, but as the nearby chart shows, its national debt exploded. Only in this decade, with a monetary reflation and Prime Minister Junichiro Koizumi’s decision to privatize state assets and force banks to acknowledge their bad debts, did the economy recover. Yet recent governments have rolled back Mr. Koizumi’s reforms and returned to their spending habits. But Japan does have better roads.

Now we’re told that a similar spending program — a new New Deal — will revive the U.S. economy. How do you say “good luck” in Japanese?

I suppose it is possible that our government will be more intelligent about spending our tax dollars than were the politicians of Japan in their lost decade, but I have my doubts. If individuals do the right thing – spend less, save more – and the government does the opposite, what will we accomplish? Shifting the debt from individuals to the public as a whole will not accomplish anything economically and it has the effect of punishing those who acted responsibly. Even if you didn’t participate in the orgy of borrowing and spending, you’ll still have to pay the bill through higher taxes or higher inflation.

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