With the return of Europe's economic doldrums and signs of a coming growth slowdown in the United States, advanced economies could be at risk of falling into the same kind of long-term rut that has captured Japan. To avoid that outcome, policymakers must recognize and address the deeper structural forces at work.
NEW YORK – Not too long ago, the conventional wisdom held that “Japanification” could never happen in Western economies. Leading US economists argued that if the combined threat of weak growth, disinflation, and perpetually low interest rates ever materialized, policymakers would have the tools to deal with it. They had no problem lecturing the Japanese about the need for bold measures to pull their country out of a decades-old rut. Japanification was regarded as the avoidable consequence of poor policymaking, not as an inevitability.
NEW YORK – Not too long ago, the conventional wisdom held that “Japanification” could never happen in Western economies. Leading US economists argued that if the combined threat of weak growth, disinflation, and perpetually low interest rates ever materialized, policymakers would have the tools to deal with it. They had no problem lecturing the Japanese about the need for bold measures to pull their country out of a decades-old rut. Japanification was regarded as the avoidable consequence of poor policymaking, not as an inevitability.