The lost decade for stocks has been a popular topic in the financial press lately. Well I guess we should be thankful that it’s only been one decade. Tim Iacono notes today that over in Japan they are celebrating (okay, maybe not celebrating – probably marking with melancholy) the twentieth anniversary of the top of their stock market bubble.
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According to economist Richard Koo, Japan’s economy has been so weak for the past couple of decades due to an ongoing “Balance Sheet Recession.” Koo also believes that America’s economy now faces a similarly dismal fate.
One prescription he advocates for ameliorating the brutal effects of such a predicament is something Amity Shlaes wrote about in a piece for Bloomberg today titled, “Obama’s Next Trillion Spending Might Be Worth It”:
Obama’s best move would be to stop spending. [Koo would strongly disagree with this.] But given that he won’t, and that he has three more years in office, the right kind of infrastructure splurge might not be such a bad idea — especially if you don’t call it a stimulus.
Today the country can ill afford another trillion in stimulus. But if such an outlay is inevitable, then let that trillion go to a national Big Dig [exactly what Koo is promoting]. As Eisenhower demonstrated, a growth project like a road can be superior to a new social program. A road, or a railway, or a plan to collect water in space, after all, reflects more hope. Obama will achieve the happiest outcome if he simply makes like Ike and plows forward.
Is it possible that the administration is taking Koo’s advice but not publicly acknowledging as much in order to avoid raising public concern over the true economic weakness the country faces? Plausible if not provable, I guess.