The government in Japan is not going to fall into recession, not if the government can help it. It has introduced a stimulus package worth over $100 billion. A comparable figure for the US would be well over $400 billion.
The pillars of the new program are tax cuts and programs to improve energy conservation.
The US government has not come even close to the solution proposed by Japan. The recent tax-rebate fiasco gave the economy a lift for about six weeks and then that disappeared. The lesson was that something that lasts a month only has benefits for a month.
The plan in Japan is likely to work because it is more comprehensive. Tax cuts which last a year are likely to help capital spending and employment. The ripples from that could last several quarters.
The trouble that the US government has if it wants to extend its efforts to aid businesses and consumers is that the Treasury is already up to its neck in debt. Every week China and other large nations with strong GDP growth buy US bonds. At some point soon they will want a lien on The White House.
There has been substantial evidence in the last two decades that strong GDP growth can cause a government surplus. The federal authorities are going to have to gamble that this can happen again. A broad action to prime the economy is the only way out of a tight corner. And, time is not on the economy’s side.
Douglas A. McIntyre
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