Jan Hatzius and Paul Krugman on Japan’s lost decade
All of this is very familiar if you studied Japan in the ’90s. In fact, we’re [USA] doing worse than the Japanese did. Our monetary policy is a bit more aggressive, but our fiscal policy has been less aggressive. We have a larger output gap than they [Japan] did, and we’ve had a surge in unemployment that they never had, and our political will to act has been exhausted much faster than theirs was. On the current track, we’re going to look at Japan’s lost decade as a success story compared to us. What we should be doing is a really big dose of stimulus on all of these fronts. Throw the kitchen sink at it. But if you ask me for ways to solve this problem that lives within the constraints of policymakers who don’t want to be bold, I don’t know that I have an answer for that.