A “Lost Decade” for U. S.?

Paul Krugman raises the spectre of a Japanese-style “lost decade” for the United States:

Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.

We’ve made nearly every move the Japanese did. Reducing interest rates to near zero. Creating zombie banks. Ill-conceived spending programs. Rise of a carry trade. And our economic downturn has the same underpinnings as theirs did: asset inflation, inadequate domestic investment.

As has been said, the definition of insanity is doing the same thing over and over and expecting different results. Should we be surprised if we do the same things as the Japanese and get the same results?

2 comments… add one
  • Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.

    And yet, the answer is of course more government. Even when their guy wins and does the wrong things…its still more government, we just need the right guy.

    Are these people delusional or what?

  • Drew Link

    Delusional.

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