Lost decade looms for United States

The United States appears to be following many of the same policies as Japan did when it fell into recession back in the 1990s.

Washington, too, is spending huge amounts on stimulus projects, running big deficits, and offering lavish support for banks. It’s natural then to wonder about the possibility of our neighbour falling into a Japanese-style lost decade.

At first glance this doesn’t sound like the worst scenario: Japan hasn’t suffered a depression; it still enjoys a healthy current-account surplus with the rest of the world; many Japanese still lead relatively affluent lives.

But think again. The Economist has a look at Japan’s lost couple of decades and it’s frightening. What’s particularly noteworthy about the Japanese experience is how hard it is to budge attitudes once they’re ingrained. Retail investors fled the stock market beginning in 1991 and have yet to return.

Urban property prices have plunged by almost two-thirds of their highs back in the 1980s. Bond investors have been among the few winners.

Anyone concerned about the current crop of policies in North America should ponder the Japanese experience. At the very least, it demonstrates that economies don’t automatically heal themselves even with gigantic dollops of stimulus spending to help them along.

To lose one decade may be misfortune...

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