Paul Krugman: Japan the Model

If Abenomics works, it could help to overcome the "economic defeatism" that has overtaken policymakers in the US and other countries:

Japan the Model, by Paul Krugman, Commentary, NY Times: A generation ago, Japan was widely admired — and feared — as an economic paragon. ... Then Japan fell into a seemingly endless slump, and most of the world lost interest. The main exceptions were a relative handful of economists... If one big, wealthy, politically stable country could stumble so badly, they wondered, couldn’t much the same thing happen to other such countries?

Sure enough, it both could and did. These days we are, in economic terms, all Japanese...

In a sense, the really remarkable thing about “Abenomics” — the sharp turn toward monetary and fiscal stimulus adopted by the government of Prime Minster Shinzo Abe — is that nobody else in the advanced world is trying anything similar. In fact, the Western world seems overtaken by economic defeatism. ...

It would be easy for Japanese officials to make the same excuses for inaction that we hear all around the North Atlantic: they are hamstrung by a rapidly aging population; the economy is weighed down by structural problems...; debt is too high (far higher, as a share of the economy, than that of Greece). And in the past, Japanese officials have, indeed, been very fond of making such excuses. ...

So, how is Abenomics working? The safe answer is that it’s too soon to tell. But the early signs are good..., with surprisingly rapid Japanese economic growth in the first quarter of this year... You never want to make too much of one quarter’s numbers, but that’s the kind of thing we want to see.

Meanwhile, Japanese stocks have soared, while the yen has fallen..., very good news for Japan because it makes the country’s export industries more competitive. ...

To be sure, Thursday’s sell-off in Japanese stocks put a small dent in that optimistic assessment. But stocks are still way up from last year...

So the overall verdict on Japan’s effort to turn its economy around is so far, so good. And let’s hope that this verdict both stands and strengthens over time. For if Abenomics works, it will serve a dual purpose, giving Japan itself a much-needed boost and the rest of us an even more-needed antidote to policy lethargy.

As I said at the beginning, at this point the Western world has seemingly succumbed to a severe case of economic defeatism; we’re not even trying to solve our problems. That needs to change — and maybe, just maybe, Japan can be the instrument of that change.