A Different Take on the Japanese Economy
It's always refreshing to read economic analysis that differs completely from what most people are saying about Japan. In today's Japan Times, Gregory Clark rips Koizumi's economic policies, arguing that they have been the cause of massive increases in debt. He also belittles Koizumi's faith in structural form:

Koizumi's policies were the exact reverse [of what should have been done]: Cut government spending in vital areas, public works especially. Then compound that mistake with a witch hunt against all bad loans in the banking system (which creates more bad loans) combined with accounting changes that magnify losses. The result? A full-scale recession that cuts tax revenues far more than you have been able to cut government spending. A massive increase in government debtis inevitable.

This of course is blasphemy to the conventional wisdom, which was that Koizumi engineered tough reforms in Japan's economic system and thus made possible the recovery Japan now enjoys.

I'm by no means an economist, or even an astute economic observer. But Clark too seems to be framing the debate along traditional lines that seem outdated. Take the emphasis that many economists place on "public" versus "private" spending. But during Hurricane Katrina, Wal-Mart, because of its logistical expertise, did much better at providing vital "government services" than the government itself did.

By the same token, what possible use is it to a nation to have three different brands of chocolate puffed rice on supermarket shelves in three different size boxes? Couldn't the enormous private investment made in 16-oz Cocoa Pebbles have been used for something better than to give us an alternative to 21-0z Cocoa Krispies? Why is the allocation of resources to give us a hundred varieties of cereal and boxes deemed productive investment?

Can spending on OSHA really be that much worse? Maybe, if the OSHA rules are counter-productive and ideologically driven, rather than truly serve the cause of worker safety. But protecting workers is both a private and public good. And creating the rules and implementing them are both a public and private responsibility that should not be working at cross-purposes.

It seems to me Clark falls in the same trap when he argues for more public investment and dismisses criticism that Japan's public works programs build bridges to nowhere. Instead of arguing merely for greater public investment, Clark would do better to focus on what public investment would make the economy both more productive and best serve the Japanese people.