The United States should avoid Japan's mistake in pursuing a fiscal policy of short-term stimulus and should instead go for long-term growth as proposed in President George W. Bush's tax-cut plan, a senior U.S. Treasury Department official said Monday.
"Among the policy mistakes that Japan made in trying to recover from their own bubble in the early 1990s was to use fiscal policy as a tool only for short-term stimulus," Treasury Undersecretary for Domestic Finance Peter Fisher said in a speech at the University of Connecticut.
A text of Fisher's speech was made available in Washington.
Fisher said Japan each year introduced a short-term stimulus package to finance the building of more roads and bridges, but its output slipped further below its potential.
"The error was in failing to deliver an enduring boost to demand, balanced between consumption and investment," he said.
Citing Japan's fiscal policy as a bad example, Fisher tried to counter criticism from Democrats and independent economists that Bush's tax-cut plan falls short of providing an immediate boost to the U.S. economy.
"An American version of Japanese-style fiscal policy might be reflected, I fear, in an excessive reliance on the short-term stimulus of rebate checks or the like as a substitute for promoting long-term economic growth," he said.