Morning Must-Read: Paul Krugman: Apologizing to Japan

an object lesson on how not to run an advanced economy…. Western economists were scathing in their criticisms…. I was one of those critics; Ben Bernanke… was another. And these days, I often find myself thinking that we ought to apologize…. Our economic analysis… look[s] more relevant than ever now that much of the West has fallen into a prolonged slump very similar to Japan’s experience…. 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. But we didn’t, even though we had Japan’s experience to guide us….

Start with government spending. Everyone knows that in the early 1990s Japan tried to boost its economy with a surge in public investment; it’s less well-known that public investment fell rapidly after 1996 even as the government raised taxes, undermining progress toward recovery. 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…. Or consider monetary policy. The Bank of Japan, Japan’s equivalent of the Federal Reserve, has received a lot of criticism…. That criticism is fair, but Japan’s central bank never did anything as wrongheaded as the European Central Bank’s decision to raise rates in 2011…. And even that mistake is trivial compared with the awesomely wrongheaded behavior of the Riksbank….

As for why the West has done even worse than Japan, I suspect that it’s about the deep divisions within our societies. In America, conservatives[‘]… general hostility to… a government that does anything to help Those People. In Europe… the German public is intensely hostile to anything that could be called a bailout of southern Europe…. Japan used to be a cautionary tale, but… [now] it almost looks like a role model…