Ultimately, the government spent $6.3 trillion. Highways were built and repaired in all parts of the nation. Schools, hospitals and museums were built, and even the “bridge to nowhere” was completed for $70 million. As the government amassed the largest public debt in the world (180 percent of GDP), taxpayers were reminded that these programs were necessary to restart an ailing economy. The United States two years from now? No, this is Japan’s “Lost Decade,” 1991 through September 2008.
Was the Japanese government’s investment successful? Most Japanese economists think it was a “colossal waste.” Ordinary Japanese citizens believe it turned the nation into a public-works-based welfare state and made regional economies dependent on Tokyo for jobs. According to one report, “the Liberal Democratic party used government spending to grease rural vote-buying machines and keep itself in power.”
Last tax season, President Bush stimulated the economy with tax rebates totaling $152 billion. The lump-sum payments were largely used to pay-off credit cards and never hit the economy. In October, Congress passed the Trouble Asset Relief Program committing $700 billion to mostly bail out Wall Street and banks. Only problem, Congress forgot to tell the banks they were to lend the money into the economy so it would be spent creating jobs and stopping the recession.
Now, President Obama has signed The American Recovery and Reinvestment Plan adding an additional $787 billion to the recovery effort. The plan allocates $116 billion to a payroll tax cut that will add $8/week to the average American’s take-home pay. The hope is, unlike the lump-sum payments of last year, $8/week will be spent. The plan contains a plethora of favorite programs that have nothing to do with current stimulus, and much of the spending, that might be beneficial, doesn’t take place until 2010 through 2015. For all our sakes, let’s hope we don’t need it by then.
President Obama followed the $787 billion with a request for an additional $75 billion for bailing out underwater home loans. Unmentioned in most of the headlines was an additional $200 billion from Treasury to Fannie Mae and Freddie Mac, double the amount provided by the TARP.
So will all this government spending successfully stimulate the economy? Not likely if Japan is any example. Many Japanese believe that “spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations. However, there are those who differ. Treasury Secretary Timothy Geithner, who was a financial attaché in Japan during the time, believes that the Japanese experience shows that we need to spend more money to get results.
While there are some stimulus aspects of the plan, it would have been nice if Congress spent a bit more time planning it out and truly committing the funds to stimulating the economy now. Tax breaks for businesses creating jobs would have been a great start. For now, unfortunately, it is about the money. Your children and grandchildren’s money, as they will be the ones paying this back.
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