Robert J. Samuelson: Our Lost Decade

We argue by analogy. The president says that Japan's history demonstrates the need for his "stimulus package." To the contrary, claim Hannity and other conservatives, Japan shows that stimulus plans don't work. Up to a point, they're both right. But the possible parallels between Japan's experience and our own are much broader and pose the question of whether we, too, might face a "lost decade."

What happened to Japan in the 1990s?

It did not, as some commentators say, suffer a "depression." Not even a "great recession," as others put it. Japan experienced a listless, boring prosperity. Its economy expanded in all but two years (1998 and 1999), although the average annual growth rate was a meager 1.5 percent. Unemployment rose to 5 percent in 2001 from 2.1 percent in 1990. Not good, but hardly a calamity. Japan remained a hugely wealthy society.

Its situation compelled attention mainly because it confounded conventional wisdom. From 1956 to 1973, Japan had grown 9 percent a year; in the 1980s, it was still growing at 4 percent. Japan was widely expected to overtake the United States as the richest, most advanced economy. It didn't. Worse, its semi-stagnation defied the notion that modern economics enabled government to ensure adequate growth.

Papers were written, conferences organized and the verdict rendered: The Japanese had botched it. After the "bubble economy" of the late 1980s burst, the Bank of Japan had eased credit too slowly. Burdened with bad loans, banks stopped lending; government didn't cleanse the banks quickly enough. Government stimulus packages were too little, too late. Naturally, the economy languished. All plausible—and wrong.

The standard analysis reassures, because it suggests that with better decisions Japan might have avoided its prolonged slowdown. The reality seems to be that Japan's economic reverses reflect deeply held social and political values. The same might be true of us....

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