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The Perils of a Cement Tsunami

Author: Amity Shlaes, Former Hayek Senior Fellow for Political Economy
December 10, 2008
Washington Post


President-elect Barack Obama put forward a plan this week for the largest government infrastructure project in a half-century. The idea is to revive the economy and create jobs for America's unemployed. But huge public works projects often fail to revive national economies. Consider the example of Japan in the 1990s.

The situation in Japan then was similar in some ways to that in the United States today. A dramatic market crash and a plunge in real estate prices shook what had been a confident nation. Japan turned inward; economists talked earnestly about paradigm shifts. The obsession with exporting no longer seemed to be serving the country well. Leaders cast aside their previous concerns about budget deficits. The then-Ministry of International Trade and Industry sorrowfully let it be known that there were "areas in which Japan lags behind major developed nations."

One such area was infrastructure - even though Japan is so often rocked by earthquakes that it tends to operate in Katrina mode: always fortifying for a meteorological or geological crisis. The central and local governments began spending billions of yen on construction. In short, Japan traded its export complex for an edifice complex.

The projects were similar to some infrastructure plans under discussion here today. Bridges? Japan put up the longest suspension bridge in the world. Airports? Kansai International, yes, on an artificial island, but also local fields such as Ibaraki Airport near Mito. Roads? Japan built new streets and highways, including the famous New Tomei Expressway. For biotech and telecommunications, Japan poured out the subsidies.

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