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The U.S.-Japan Stimulus Coalition

How similar are U.S. and Japanese approaches to stimulus spending?

February 11, 2002

How similar are U.S. and Japanese approaches to stimulus spending?

The news from Washington these days is that the U.S. Congress has officially buried the stimulus package sought by President George W. Bush. Its aim was to revitalize the U.S. economy, hit by the double blow of recession and the terrorist attacks of September 11.

Nothing could be further from the truth. As a matter of fact, there is a Bush Administration stimulus package before the U.S. Congress. And it’s one that politicians of both parties — Republicans and Democrats — embrace enthusiastically.

But there is a twist to the story. What died on Capitol Hill was the civilian version of the stimulus package. On this front, Mr. Bush’s proposals envisioned a mix of tax cuts and spending increases in non-defense economic sectors, depending on which version of the package that you looked at — the one before the U.S. House of Representatives, or the one before the U.S. Senate.

But the stimulus package that both Republicans and Democrats are now considering — and eagerly support — is, in fact, a repackaging. It’s a narrower stimulus bill, targeting but one specific sector of the U.S. economy.

Nevertheless, this repackaged stimulus plan accomplishes many of the goals that the president’s economic advisors had hoped to achieve. For example, the new package is a clear boost to the fortunes of the U.S. manufacturing sector.

Battered companies such as Seattle-based Boeing stand to profit handsomely. And so do many of America’s high-tech companies — which have lost much of the swagger that characterized their public image during the boom.

So, what exactly is this revamped stimulus package? It is Mr. Bush’s proposed defense budget for 2003, of course. The Bush White House has asked for a $48 billion dollar increase over last year’s defense budget.

Add in the additional funds dedicated to homeland defense, amounting to another $40 billion — and, all of a sudden, you have a veritable economic stimulus package to rival its dead and buried counterpart.

And, better yet, from Mr. Bush’s perspective, as things currently stand, this military stimulus package won’t get bogged down in party politics.

From an overseas perspective, this is a truly remarkable turn of events. Only rarely does a country among the ranks of highly industrialized economies consistently maintain a reliable national political consensus that favors increased military spending.

In contrast to the United States, virtually all other countries would surely opt for a mix of corporate and social welfare spending in the original — and now defunct — U.S. economic stimulus package.

Anybody who doubts the importance of the stimulus provided by the U.S. government to the nation’s economy should consider this fact. The modest 0.2% rise in the U.S. GDP in the fourth quarter of 2001 becomes a decline of 0.6% — without federal purchases of goods and services.

And here’s a final tantalizing thought: Are the United States and Japan united in some curious fashion when it comes to stimulus spending? Japan is often criticized for its heavy reliance on public works spending to keep its economy from slipping further behind. And, yes, the United States employs a very different philosophy to maintain a dependable public infrastructure.

But the United States retains its own reliance on public spending. The difference is in the preference of the United States to use its funds for heavy-duty military spending. Both nations, one may argue, waste precious resources on projects that don’t bring a high return to the massive investments that are being made.

February 11, 2002

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