Deflation and a lost decade can be avoided it seems; all we need are perfect central bankers, sensible politicians, a biddable electorate and cooperative investors.
Nothing to worry about there, then.
In a speech on Monday, Bank of England Monetary Policy Committee member Adam Posen, a leading expert on Japan’s lost decade of deflation and recurring recessions, laid out Japan’s experience.
The good news: Japan wasn’t cursed, it simply suffered from repeated policy mistakes which choked off growth during recoveries. Deflation was surprisingly persistent but recoveries were punctuated by policy errors which pretty much add up to not having loose enough monetary or fiscal policy.
The bad news: at least on my reading there is every chance that the United States or Britain makes some of the same mistakes, and an even better one that they make up some new blunders of their own.
“Japan’s Great Recession was the result of a series of macroeconomic and financial policy mistakes. Thus, it was largely avoidable once the initial shock from the bubble bursting had passed,” Posen said, speaking at the London School of Economics.