America’s Blade Runner economy

October 21, 2009

In the 1982 sci-fi film “Blade Runner,” it appears as if Japan is the world’s leading economy and culture. It is a cinematic portrayal of the future sketched by many economists in the 1980s who wanted America to adopt Japanese-style industrial policy. But America may yet have an economy that resembles Japan’s. This NY Times story looks at how Japan amassed such a huge national debt, twice the size of its economy:

How Japan got into such a deep hole, and kept digging, is a tale of reckless spending.

The country poured hundreds of billions of dollars into civil engineering projects in the postwar era, marbling Japan with highways, dams and ports.

The spending initially fueled Japan’s rapid postwar growth and kept the Liberal Democratic Party in power for most of the last half-century. But after a spectacular asset and stock market boom collapsed in 1990, the country fell into a long economic malaise.

The Democratic Party, which swept to victory in August, promises to rein in public works spending. But the party’s generous welfare agenda — like cash support to families with children and free high schools — could ultimately enlarge budget deficits.

“It’s dangerous for the Democrats to push on with all of their policies when tax revenues are so low,” said Chotaro Morita, head of fixed-income strategy at Barclays Capital Japan. “From a global perspective, Japan’s debt ratio is way off the charts,” he said.

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