Japans problem was that they listened to those idiots in Chicago. If they had taxed the rich to pay for the government spending they would have been fine. Their problem is that they do not have a consumer culture, they have a huge population of older people with a saver culture.

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Interesting comment about Japan. Thanks… because your view is interesting compared to what others ae saying out there about Japan’s “Big Problem.’

The Japanese didn’t spend a lot on infrastructure? Clearly, your news sources are different from mine:

http://www.nytimes.com/2009/02/06/world/asia/06japan.html

Some salient quotes:
“During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.”
“In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office. The spending peaked in 1995 and remained high until the early 2000s, when it was cut amid growing concerns about ballooning budget deficits.”

HCF

No Japan was not very Keynesian in its response. They used huge amounts of money to save banks, not to build infrastructure. Furthermore, they had an economy where the export part of the equation was huge and all the money they pumped into the banking sector was used for carry-trade not for business loan to build exporting factories. Their basic situation, problems, and approach were considerably different from ours, and their response was far from Keynesian (massive government stimulus). But we can learn from them that you should not just hand over free money to the banks without conditions on how they are allowed to use that money.

HCF

When an economic downturn happens, companies cut back, often TOO MUCH. When they realize this, they begin to ramp up production again. Similarly, consumers pull back spending, also often by TOO MUCH. Eventually, though, people need to buy stuff, if for no other reason, to replace old stuff: cars, houses, etc.

Government intervention into this process almost always results in a misallocation of resources, which leads to a longer recovery time. If you doubt this, then exhibit A is Japan, a nation that was by far the most Keynesian in its response to an economic crisis.

The problem with using the Great Depression as an example of “why we need Keynesianism” is that government intervention helped blow the bubble of the 20′s and to exacerbate the depression of the 30′s. For Keynesianism to truly work, you’d have to have actual counter-cyclical policies to STIMULATE during weak times, and SUPPRESS during bad times. There is no political will to possibly ever implement this… It is easier to remove Federal governments from this part of the economy and have it only as a referee, to enforce rules and crack down on fraud.

HCF

The biggest threat to the recovery and our economy is not stimulus, but politicians doing the right thing at the wrong time and pace. It may happen exactly as in the 30‘ies. We get scared of the debt and pull government spending back to fast and to early. We may mess up like Volker did with the 1980-83 ressesion doing the right thing to fast, and create a nasty and even longer second dip. If the republicans get one more senate seat next year it is almost guaranteed to happen. Even if they were smart enough to understand what they were doing, it would still be in their best self interest to kill the economic recovery so they could beat Obama in 2012.