Six months ago, American politicians took great delight in bashing Japan. They said Japan's unfair trading practices were responsible for many of America's economic ills. The litany of offenses ranged from dumping automobiles in the United States to closing its markets to American construction companies.
In recent weeks, however, the political campaigns have been free of this rhetorical pummeling, thanks to Japan's economic woes. Plummeting land values and share prices on the Tokyo stock market have taken their toll on the economic superpower. As a consequence, American politicians have muted their criticisms of Japan.
Japan should be part of this year's political campaign, particularly in light of its government's recently announced $86 billion economic recovery plan. Designed to stimulate its anemic growth and shore up some of Japan's shaky financial institutions, the plan offers U.S. elected officials an example of a government initiative that should be thoroughly examined and debated. There are a number of lessons our policy-makers could learn.
Since the mid-80s, Japan's government has been running a budget surplus of about three percent of the nation's output. Despite the strong economy, the government also took action to curb government spending. In addition, shortly after Iraq attacked Kuwait in August 1990, the Japanese government imposed a tax on oil imports, raising revenue to finance its contribution to the war effort and forcing Japanese people and companies to squeeze more efficiency out of their energy consumption. This fiscal prudence during the country's economic boom now enables the government to kick-start the nation's slowing economy.
By contrast, during our economic boom of the 1980s, the U.S. was running government deficits of about four percent of the country's output. Government spending also grew, and the Bush administration financed the gulf war out of the country's existing revenues. U.S. politicians find the large deficits of the past decade have limited their options to the point where they can't do much to stimulate the economy.
While there are problems with Japan's new economic stimulus package, the sacrifices made during the boom period are likely to pay off. Japanese government spending will stimulate demand, shore up faltering markets and reinvigorate the economy. In the meantime, American officials, who refused to make any provisions during our boom, can't do much to stimulate the economy but wring their hands. As a result, Japan will increase its economic clout in the world economy. American politicians have only themselves to blame.