Tags: Krugman | western | economies | Japan

Krugman: Western Economies Suffering Slump Worse Than Japan's

By    |   Friday, 31 October 2014 10:22 AM

Japan's economy has been a basket case since the early 1990s, with GDP contracting an annualized 7.1 percent in the second quarter.

"However, the West has fallen into a slump similar to Japan's, but worse," Nobel laureate economist Paul Krugman writes in The New York Times.

"In the 1990s, we assumed that if the United States or Western Europe found themselves facing anything like Japan's problems, we would respond much more effectively than the Japanese had," he notes.

"Western policies since 2008 have been so inadequate, if not actively counterproductive, that Japan's failings seem minor in comparison. And Western workers have experienced a level of suffering that Japan has managed to avoid."

One problem is government spending, which fell off after 1996 in Japan, he writes. "This was a big mistake, but it pales by comparison with Europe's hugely destructive austerity policies, or the collapse in infrastructure spending in the United States after 2010," Krugman argues.

"Japanese fiscal policy didn't do enough to help growth; Western fiscal policy actively destroyed growth."

In addition, the Bank of Japan reacted too slowly to hints of deflation and was too eager to raise interest rates when there were hints of a recovery. "But Japan’s central bank never did anything as wrongheaded as the European Central Bank’s decision to raise rates in 2011, helping to send Europe back into recession," he maintains.

Political divisions are a problem too. "In America, conservatives have blocked efforts to fight unemployment out of a general hostility to government," Krugman writes.

"Japan used to be a cautionary tale, but the rest of us have messed up so badly that it almost looks like a role model instead."

Some might take issue with Krugman's view of the U.S. economy, given that annualized GDP growth averaged 4.1 percent for the last two quarters.

The economy "is on a firm footing, and if the labor market continues to get better, that's the primary support to consumer spending," Brian Jones, senior U.S. economist at Societe Generale, tells Bloomberg. "The demand side of the equation was very healthy in the third quarter."

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Japan's economy has been a basket case since the early 1990s, with GDP contracting an annualized 7.1 percent in the second quarter.
Krugman, western, economies, Japan
Friday, 31 October 2014 10:22 AM
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