Morning Must-Read: Paul Krugman: Structural Deformity

…trying to accomplish something very difficult, and it’s by no means clear whether the instruments he’s deploying are sufficient. Still, there’s one type of criticism that I really, really hate… especially because it’s one of those things that is so completely accepted by Very Serious People that they don’t even realize that they’re spouting a dubious hypothesis…. I refer to the claim that Japan doesn’t need a demand boost, it needs structural reform^TM….

Traditionally, structural reform was offered as an answer to the problem of stagflation… accelerating inflation, despite quite high unemployment…. This argument makes a fair bit of sense… at least this was… coherent argument. But Japan isn’t suffering from stagflation; neither is Europe. They are, instead, suffering from low inflation or deflation, and persistent shortfalls in demand despite zero interest rates. Why, exactly, is structural reform supposed to help cure this problem?… There’s a definite snake-oil feel to calls for structural reform, which is touted as a universal elixir–it cures inflation, but it cures deflation too! Also back pain and bad breath…. The blanket call for ‘structural reform’ as the answer is intellectually lazy, and destructive…. What Japan needs right now, more than anything else, is to escape from deflation any way it can.