News Release

Housing Bust, Stimulus Packages Are Making the U.S. Resemble Japan in the 1990s

Government's response to current recession looks a lot like Japan's Lost Decade

Los Angeles (February 20, 2009) – The current economic uncertainty in the United States, and the government’s response to it, is eerily similar to that of Japan’s “Lost Decade” according to a new Reason Foundation report.

The study finds that Japan’s housing prices rose by 51 percent and commercial real estate values rose 80 percent between 1985 and 1991. In the U.S., commercial real estate and housing prices both skyrocketed 90 percent from 2000 to 2006.

The Nikkei, Japan’s stock index, fell from 38,975 in 1989 to just 18,934 by the end of 1999. During the continuing economic malaise, it dropped even further to 7,603 in 2003. The Dow Jones Industrial Average hit 14,115 in October 2007. On February 19, 2009, the Dow closed at 7,465, its lowest finish since 2002.

President Barack Obama recently signed a $787 stimulus package that includes over $60 billion for infrastructure and transportation projects. Japan passed 10 stimulus packages in the 1990s that would equal $1.4 trillion in today’s dollars. From 1992 to 1999, Japan spent over $500 billion (in today’s dollars) on public works projects. Despite this infrastructure spending, Japan’s unemployment rate more than doubled and the economy remained stagnant.

“The history lessons from Japan are clear,” said Anthony Randazzo, co-author of the brief and a policy analyst at Reason Foundation. “Huge stimulus packages and spending hundreds of billions on infrastructure and health care may deliver some short-term benefits, but, as Japan learned the hard way, they won’t bring the economy out of a recession. Even more worrisome is the prospect that these government interventions will likely do more economic harm than good.”

The Reason Foundation study also finds striking similarities in the way the U.S. and Japan dealt with failing banks, credit woes, toxic assets and other monetary issues.

“In both cases, the government created and worsened the situation through monetary interventions,” said Adam Summers, co-author of the study and a Reason Foundation policy analyst. “The central banks drove interest rates to artificially low levels causing an unsustainable credit expansion that led to numerous bad investments. An economic recession is the inevitable correction for such a bubble. More government interference will only make things worse.”

Full Study Online

The full report, Avoiding an American Lost Decade: Lessons from Japan’s Bubble and Recession, is available online here.

About Reason Foundation

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets.


Chris Mitchell, Director of Communications, Reason Foundation, (310) 367-6109