

The Ryan critique is important in part because it's popping up with increasing frequency among congressional Republicans. In fact, you can expect to hear it more this week as the Senate takes up its version of economic stimulus, after the House passed its package last week.


So, is the U.S. about to repeat that unhappy Japanese experience? There certainly are similarities between Japan then and the U.S. now. But there also are some key differences. Most important, the stimulus package being shaped now has a different mix of spending than the ones the Japanese tried, and it has a chance of hitting the economy faster.

In any case, the debate over the Japan precedent gets at the key question in the debate over the stimulus package, often oddly lost in the political shouting: Will it actually work?



Alongside the unsettling parallels between then and now, there are important differences. The biggest one, as Rep. Ryan notes, is that Japan made a fundamental mistake in monetary policy, which the U.S. Federal Reserve decidedly isn't repeating. At the outset of Japan's woes, it instituted a tight monetary policy. The Fed is doing the opposite.

In addition, C. Fred Bergsten, a former Treasury official and longtime student of international economics, cites a significant difference between the makeup of stimulus spending the Obama administration is pushing and the version used in Japan. "Virtually the totality of the Japanese programs was what we call roads and bridges," he says. "The phrase 'roads to nowhere' came from that."

The U.S. stimulus package, by contrast, has a considerably more varied makeup; about half is tax cuts and spending on programs such as unemployment insurance, worker retraining and Medicaid benefits to the states, which most analysts on both sides agree largely get injected into the economy quickly. Of the remaining spending, Mr. Bergsten notes, only some is of the traditional roads-and-bridges variety. "So the composition is very different," he says.

In addition, economist Barry Eichengreen of the University of California, Berkeley, says that one problem with Japan's stimulus spending was that it was slow and halting. "My reading of Japan's experience is that fiscal stimulus didn't work because it was delayed, sporadic, undersized and inadequately front-loaded," he argues.

The other big lesson from Japan, says Mr. Eichengreen, is that "fiscal stimulus alone won't bring a deep recession caused by a banking crisis to an end. You need to fix the banking problem and get financial markets going again at the same time you replace some of the private spending that has evaporated with public spending."

Adam Posen, deputy director of the Peterson Institute for International Economics, agrees that Japanese mistakes in executing stimulus spending -- perhaps most notably enacting tax increases rather than tax cuts along the way -- prevented stimulus spending from hitting the real economy with full effect.

"Most of the time in Japan...they didn't spend or stimulate even a fraction of what they announced," he says. "Usually they either raised taxes at the same time they increased spending, thus defeating the purpose, or they promised projects that required state/local government matching funds that didn't exist, so the money didn't get spent." That suggests Washington needs to be sure states don't have to pull in their horns too severely to improve any package's chances of success.

Perhaps most important in the long run, Mr. Posen says Japan's stimulus spending, while it drove up short-term government debt, didn't lead "to permanent increases in government programs or upward spirals in the debt level."

The lesson for the U.S. now? "There is nothing inevitable about doing temporary spending that turns into automatic government creep and expansion in a lasting way," Mr. Posen says.

The broader point is that the Japanese experience with stimulus was a mixed bag, one that included plenty of mistakes that the U.S. need not be doomed to repeat now.

Write to Gerald F. Seib at