By Henry Hilton

Commentary Jan. 28, 2009 - 06:00AM JST ( 18 )

The world has been here before but that was ages ago. Nothing in anyone’s post-1945 economic experience looks like being remotely comparable to what is going to be in store for us in the coming year.

Those commentators who confidently reckoned that the worst would be over by Christmas got it seriously wrong. Politicians who thought that their particular nation would be largely immune have been proved to be wildly optimistic.

Now might be just the moment for some brave entrepreneur to start running a series of economic and financial crisis management seminars in English. The Japanese public has spent the past months hearing from NHK all about subprime Loans and deleveraging and is now going on to digest phrases such as the mother of all Ponzi scams and the uses of commercial paper. No doubt in a year’s time, there will be dozens of newly minted expressions in circulation - starting perhaps with the Bush-Obama depression era.

Clearly Japan is in the thick of it. News of substantial lay-offs at Toyota and the certainty of pay cuts to follow ought to make it obvious to one and all that there really is no hiding place.When Japan’s blue ribbon company of companies starts to hand out redundancies to so-called “permanent” staffers, then you had better start preparing for a tsunami and a half. Perhaps an economic hiccup for Japan might be defined as when the part-timers get shafted and a nasty recession could be measured from when Toyota stops hiring its April graduate intake.

For 2009, the first priority has to be for all central bankers to carry on injecting massive amounts of funds into their respective economies to keep the financial and industrial machinery ticking over. Beyond that, though, there are long-term consequences of public debt that will have to be addressed one day.

It needs to be recalled that once President Roosevelt shifted gears in the 1930s and launched his New Deal, everyone began to ask exactly this same question. It was then that the American public’s balanced-budget fixation led inevitably to anxieties of who was eventually going to have to pay for the all great experiments in federal spending. When one nervous college student plucked up the courage to put this to his economics professor, he got the ultimate in short, frightening answers. He was bluntly told: “You are.”

U.S. President Barack Obama deserves applause for having stated that the United States should get used to the prospect of “trillion-dollar deficits for years to come.” He and his advisers are clearly preparing the public for a long-term scenario on how his proposed stimulus packages are to be financed. Naturally, all this must require huge government borrowings and at some later stage, a series of revenue increases to pay the interest on the Treasury bonds. Loads of pork may also have to be sliced from congressional budgets.

Yet those who take comfort in Obama’s schemes might just pause before overlauding his New Deal-style offensive against what he terms “the worse economic crisis we’ve seen since the Great Depression.”

The plain fact is that Roosevelt, for all his bravado and the alphabet soup of schemes dreamed up to get folks back to work, did not solve the misery of the depression. History did not work out as smoothly in the 1930s as some of Obama’s fans may have us believe. Whether “make work” schemes are really much sense is far from clear, though well-crafted public infrastructure programs are highly desirable and will help both individuals and corporations as well as paying long-term dividends for society.

All FDR could do was contain the depression. A degree of prosperity did gradually return to the United States but it was Imperial Japan’s attack on Pearl Harbor and the start of American involvement in the second world war that really did the trick. Only then as the U.S. rapidly became the arsenal of democracy and the factories started to churn out munitions did the decade-long depression era finally end. 

The contrast though between Obama’s warnings and the current fun and games in Japan over whether we should all receive 12,000 yen for being good guys is pretty large. In the red corner serious warnings about the long-term U.S. government deficit and in the blue corner, petty bickering in Tokyo on who should or should not get some nice readies. Prime Minister Taro Aso’s scheme may make little economic sense but it is going to be difficult for Ichiro Ozawa’s Democrats to snatch it away without suffering electorally. It is one thing to say the spoils should only go to the deserving and quite another to draw the line over who qualifies for the cash.

What can be predicted, though, is that Japan’s coalition will keep on rolling out emergency packages throughout 2009 in the same manner as the Europeans and North Americans are doing. The present global crisis certainly warrants this action but Keynesianism comes at a price. We shall all have to pay - eventually.