But much of the government s increased spending goes to public works projects of dubious economic value and props up a very inefficient and corrupt construction industry. Such stimulus may not kick the economy into a self-generating recovery. More importantly, additional fiscal stimulus now has pushed the government deficit to a high level. While the debt and deficit level won t lead to imminent disaster, prudence may make the government reluctant to widen the deficit, and U.S. Treasury officials may concur. Japan may lack usable macroeconomic policy tools to keep the economy from sliding by this fall.
Significant evidence supports the view that the economy has failed to recover.
Should commitment to maintaining surplus employment weaken in the face of further deterioration of corporate profits, unemployment could easily jump, causing a slowdown in consumer spending. Unemployment already is at 4.6 percent, up a full percentage point during the past year, and at its highest level in the post World War II period. Economists have forecast possible double-digit levels of unemployment within a year. Worried about possible joblessness, households have cut back on major purchases. Both housing starts and automobile purchases are continuing to fall each month.