The causes of Japan’s lethargy and deflation rest in a failure to push ahead with structural reforms such as in postal savings or cuts to corporate tax rates that would unleash animal spirits, not a shortage of liquidity.
Mr. Bernanke may take comfort that Japan’s situation is in key respects different from America’s. For instance, U.S. households are more prone to consuming than their Japanese peers, and American banks and companies less averse to risk (sometimes to an extreme, as we’ve discovered in the past few years). Mr. Bernanke’s own exceptionally easy monetary policy has already filtered through the economy and has shown up in higher prices in nations pegged to the dollar and in higher global commodity prices (until the recent flight to the safety of dollar assets).
Still, for an economist who has famously examined Japan’s lost decade to avoid a recurrence in America, Mr. Bernanke could usefully come away from his Tokyo sojourn with a few updated lessons in mind. The most important message he could spread when he gets back to Washington is that for all monetary policy’s importance, it’s no substitute for pro-growth fiscal and regulatory policies.
Read the whole article.
WSJ Asia: Japanese Lessons for the Fed
The causes of Japan’s lethargy and deflation rest in a failure to push ahead with structural reforms such as in postal savings or cuts to corporate tax rates that would unleash animal spirits, not a shortage of liquidity.
Mr. Bernanke may take comfort that Japan’s situation is in key respects different from America’s. For instance, U.S. households are more prone to consuming than their Japanese peers, and American banks and companies less averse to risk (sometimes to an extreme, as we’ve discovered in the past few years). Mr. Bernanke’s own exceptionally easy monetary policy has already filtered through the economy and has shown up in higher prices in nations pegged to the dollar and in higher global commodity prices (until the recent flight to the safety of dollar assets).
Still, for an economist who has famously examined Japan’s lost decade to avoid a recurrence in America, Mr. Bernanke could usefully come away from his Tokyo sojourn with a few updated lessons in mind. The most important message he could spread when he gets back to Washington is that for all monetary policy’s importance, it’s no substitute for pro-growth fiscal and regulatory policies.
Read the whole article.