NY Times op-ed, February 9, 2000 RECKONINGS / By PAUL KRUGMAN The Japan Syndrome When Japan's Kansai International Airport was being planned, there was considerable uncertainty over how much the artificial island on which it sits would sink. The officials in charge chose to accept the lowest, most favorable estimate; as it turned out, the reality has been worse than even the most pessimistic estimate, and despite expensive emergency measures -- and continual assurances from those officials that everything is under control -- the island is still sinking. It's not a bad metaphor for the story of Japanese economic policy in recent years. Japan's government keeps on insisting that its economic strategy has put the nation on the road to sustained recovery, brushing aside both the doubts of outside economists and the growing evidence that the strategy is not, in fact, working. For most of the past year this unwarranted confidence has been supported by a strange consensus on the part of investment analysts, who somehow became committed as a group to the view that Japan's economy is on the mend. And so it came as a shock last Sunday when a senior official admitted that the Japanese economy has almost certainly been shrinking for the last two quarters, which means that by the usual definition it has slipped back into recession. Japan has the dubious distinction of being the first major nation since the 1930's to experience a "liquidity trap," in which even cutting the interest rate all the way to zero doesn't induce enough business investment to restore full employment. The result is an economy that has been depressed since the early 90's, and that in 1998 seemed to be on the verge of a catastrophic deflationary spiral... Full article at: http://www.nytimes.com/library/opinion/krugman/020900krug.html Louis Proyect (The Marxism mailing list: http://www.marxmail.org)
