By Mohamed El-Erian
The opinions expressed are his own.
It is time to say goodbye to the confident reassurances from American policymakers that Japan could not “happen here.” It is also time to regret the smug assertions that Japan’s “lost decade” of growth was due to a combination of uniquely Japanese failings – from insufficient policy activism to weak corporate governance and poor political leadership.
American policymakers, together with their European counterparts, are realizing something that Japan has been experiencing for a while: It is very difficult to manage well an economy hobbled by structural impediments and balance sheet excesses. Absent a major change in the effectiveness of the policy approach, this realization will likely lead to broadening societal concerns about the possible “Japanization” of America and, with that, worries that under such circumstances the country would not be able to navigate such a phenomenon as well as Japan has.
The US continues to find it difficult to generate meaningful economic growth and to create enough jobs. Despite multiple fiscal and monetary stimulus programs – indeed, record breaking ones – the economy has failed to recover decisively from the sharp contraction that followed the global financial crisis.
With insufficient growth, un- and under-employment remain distressingly high while the average duration of joblessness hits one unfortunate record after another. To make a bad situation even worse, it is the most vulnerable segments of the labor force – the young and the less educated – who are being hit the hardest. In the process, society experiences a further deterioration in already excessive inequalities in income and wealth.
Low growth means that America is unable to “safely de-lever” from the financial excesses of the last decade. As a result, the economy faces a risk of tipping into another recession.