It’s hard to remember that in the 1980s Japan had the world’s most admired economy. It would, people widely believed, achieve the highest living standards and pioneer the niftiest technologies. Nowadays, all we hear are warnings not to repeat the mistakes that resulted in Japan’s “lost decade” of economic growth. Japan’s cardinal sins, we’re told, were skimping on economic “stimulus” and permitting paralyzing “deflation” (falling prices). People postponed buying, because they expected prices to go lower. That’s the conventional wisdom—and it’s wrong.
Japan’s economic eclipse shows the limits of economic stimulus and, at least in modest doses, the exaggerated threat of deflation. There is no substitute for vigorous private-sector job creation and investment, and that’s missing in Japan. This is a lesson we should heed. More at: