Posen on Japan and fiscal policy

[Skip to the end]

Adam is pretty much right on with this.

Perhaps more interesting is that the deficit terrorists at Peterson keep him on the payroll:

Must We Repeat Japan’s Stimulus Mistakes? (Answer: Not Necessarily)

by Gerald F. Seib

Feb 2 (Wall Street Journal) — Adam Posen, deputy director of the Peterson Institute for International Economics, agrees that Japanese mistakes in executing stimulus spending — perhaps most notably enacting tax increases rather than tax cuts along the way — prevented stimulus spending from hitting the real economy with full effect.

“Most of the time in Japan…they didn’t spend or stimulate even a fraction of what they announced,” he says. “Usually they either raised taxes at the same time they increased spending, thus defeating the purpose, or they promised projects that required state/local government matching funds that didn’t exist, so the money didn’t get spent.” That suggests Washington needs to be sure states don’t have to pull in their horns too severely to improve any package’s chances of success.

Perhaps most important in the long run, Mr. Posen says Japan’s stimulus spending, while it drove up short-term government debt, didn’t lead “to permanent increases in government programs or upward spirals in the debt level.”

The lesson for the U.S. now? “There is nothing inevitable about doing temporary spending that turns into automatic government creep and expansion in a lasting way,” Mr. Posen says.