"Dogs and Demons: Tales from the Dark Side of Japan" by expatriate writer John Kerr is another attempt to explain the malaise into which Japan has fallen over the past decade. The story of Japan's fall to earth from the stratospheric levels reached in the 80s has become increasingly well-known to the general populace largely because it has become hard to ignore Japan's economic problems as its recession enters its second decade. Japan's real estate and stock market bubbles have burst with prices falling to one-quarter their previous highs, the Japanese government's budget deficits dwarf even those run by the U.S. during the 80s and early 90s, and the Japanese banking crisis looms over any possible economic recovery.

Kerr places blame for Japan's troubles on the pervasive and powerful government bureaucracy that creeps into every facet of Japanese life. This unelected administration has had devastating effects on the environment, the culture, and the economy, and threatens to mire the country in a future of unpayable debt.

Japan's oversized construction industry is at the center of the country's problems. The sheer scale of Japan's construction sector is astounding in and of itself. As a percentage of the GDP, construction investment constitutes 18.2% of the Japanese economy compared to less than half that in the United States. By 2000, Japan was spending 9% of its GDP and nearly 40% of its government budget on public works projects, levels roughly 10 times that of the U.S. At such high expenditure levels, a country quickly runs out of beneficial projects to undertake and is forced to move to projects with questionable value. The public works sector of the economy has "succeeded" in encasing 55% of Japan's coastline in concrete and damming up 97% of Japan's rivers. Japan is literally building "the road to nowhere."

Bureaucratic momentum has kept these massive expenditures in place. While nearly all politicians realize the cost these public works place on the nation as whole, no local official is willing to give his own slice of pork. Indeed the economies of many rural communities depend almost entirely on government largesse

The book works best as a tale about what government does well and what it does not. The title derives from a quote by the court painter of the emperor of China. When asked what was the hardest thing to paint, he replied "dogs" and when asked the easiest he responded "demons." In other words, it is harder to manage the commonplace than it is the exotic. In Kerr's own words, "Basic solutions to modern problems are hard, but pouring money into expensive showpieces is easy." Japan is a country full of modern concert halls without performers, futuristic sports stadiums without teams, and fantastic art museums without collections. Most importantly, in all cases these monuments are without paying visitors. Public subsidies allow for the creation of these edifices even when the costs far outweigh any potential benefits.

Japan's difficulties in creating dogs versus demons has interesting parallels in the American economy. Lyndon Johnson's "Great Society" prompted the U.S. government to spend millions of dollars creating countless large-scale low-income housing projects in the 60s. The Department of Housing was notoriously unsuccessful, however, at creating workable neighborhoods. Similarly, the massive transformation of the American professional sports infrastructure over the past decade has too often resulted in beautiful new facilities surrounded by acres of barren parking lots. It is easier to build the shining stadium than that comfortable sports bar on the corner.

Certainly the failure of Japan's economy to revive despite massive capital spending also casts some doubt on the limits to the ability of Keynesian fiscal policy to revive economies. Liberal economists have long argued that fiscal stimulus is doomed to failure over any extended period of time. Since expansionary fiscal policy must be financed by sale of government bonds, this borrowing naturally drains money from private capital markets. Thus, government borrowing "crowds out" private investment. Indeed, while outsiders may gasp in astonishment at the absurdly low nominal interest rates in Japan (the official interest rate in Japan is a minuscule one-tenth of one percent) when combined with widespread deflation, real interest rates in Japan are actually quite high, roughly two percent compared with recent negative real interest rates in the United States.

The book is not without its downside. For a book claiming to discuss the economic collapse of Japan over the past decade, the author displays an extraordinary lack of knowledge about even the most basic economic principles. For example, the author confuses nominal and real interest rates leading him to conclude that the relatively low American savings rate is actually better for accumulating retirement assets than the high savings rates in Japan. Even low nominal interest rates provide a high level of future purchasing power when prices are falling.

Furthermore, while the author himself admits that hard data about the Japanese economy is hard to come by, Kerr generally tries to prove his hypothesis by anecdote and story rather than by hard evidence. While this strategy makes for interesting reading, it does little to persuade a skeptical reader of the validity of Kerr's ideas.

Finally much of Kerr's criticism of Japan's modern transformation centers not on the relative costs and benefits of publicly subsidized infrastructure but rather on the authors' own tastes in regard to modern versus traditional architecture. It is one thing to say that Japanese cities have paid too much for cultural showpieces that get too little use. It is quite another to castigate Japan because too many of its new buildings have taken on the manga style of "comic-book fantasy."

For those with a dedicated interest in the rise and fall of modern Japan, this book poses many interesting questions and has numerous fascinating stories to tell. Those looking for convincing answers to those questions, however, will be disappointed.