Krugman is Pessimistic

In his latest blog entry, Krugman has decided that the Bush and Obama responses to the financial crisis have ended up turning the US into another Japan:

Japan reconsidered

For a decade or so Japan’s lost decade has been the great bugaboo of modern macroeconomics. Economists constantly warned that you mustn’t do X or you must do Y, because otherwise we’ll turn into Japan. And policymakers congratulated themselves in advance for not being like their Japanese counterparts, who dithered and drifted, refusing to make hard decisions.

Well, I’m sure I’m not the only person to notice this: Japan doesn’t look so bad these days.

For one thing, the famed sluggishness of Japanese policy — the refusal to face up to banking system losses and pour in the funds needed to recapitalize the system, the refusal to let zombie banks die, the stop-go nature of fiscal policy, with concerns about rising debt warring with concerns about the economy — all of that seems entirely comprehensible now, doesn’t it? Even with the knowledge of what happened to Japan to motivate us, so far we’re following exactly the same path.

And given what the next couple of years are likely to look like, Japan’s lost decade — yes, growth was slow, but there wasn’t mass unemployment or mass suffering — is actually starting to look pretty good. We may or may not be about to face our own lost decade, but the sheer misery millions of Americans will face in the near future probably exceeds anything that happened in Japan during the 90s.

I still hope we can do better than the Japanese did, but it’s not at all obvious that we will.