Japanization: What the World Can Learn from Japan's Lost Decades

Chapter 7Will Abenomics Save the World?

Three weeks into his campaign to end deflation, Abe received an unexpected herogram from one of the world’s most famous economists: Nobel laureate Paul Krugman. The Princeton University professor carries quite a megaphone in the form of his New York Times column. And in a January 13, 2013, piece, Krugman bemoaned the “dismal orthodoxy” of austerity plaguing governments around the globe, a dynamic that he argued was prolonging the global recession. “But now,” he wrote, “it seems that one major nation is breaking ranks, and that nation is, of all places, Japan.” If successful, Krugman said, “something remarkable may be about to happen: Japan, which pioneered the economics of stagnation, may also end up showing the rest of us the way out.”

Krugman’s statement was remarkable in itself; few dare hold Japan up as a model for how to run productive fiscal, monetary, or trade policies. Think of his suggestion as Japanization in reverse. Yet, 10 months later, Krugman seemed a bit less enamored with Abe’s handiwork. While Krugman said he’s “still moderately optimistic” in a November 14, 2013, interview with John Dawson of Bloomberg Television, making policies work is “difficult,” especially with sales taxes going up. “I’m really worried about that consumption-tax increase,” Krugman said. “They really need a psychological jolt and I’m crossing my fingers that what they’re doing is enough.”

This gets at a question economists of Krugman’s ilk don’t ...