The scenario was eerily familiar. A long real estate bubble that had expanded extra rapidly for the previous five years suddenly burst, and asset prices came crashing back down to earth. Banks and financial institutions were left holding piles of worthless paper, and the economy soon headed south. The national government responded to the crisis by encouraging more lending and spending previously unfathomable amounts of money on public works projects in an effort to stimulate consumer spending and restart growth.
But as I write in the July issue of Reason Magazine, with my colleagues Mike Flynn and Adam B. Summers, the stimulus projects did not save the Japanese economy in the 1990s; far from it. The ensuing period came to be known as the Lost Decade, characterized by multiple recessions, an annual average growth rate of less than 1 percent, and a two-decade decline in stock prices and corporate profits. So why is President Barack Obama emulating it?
Read the whole article online here.
The article stems from a study published by Reason Foundation in February, "Avoiding an American Lost Decade." Also see my related article from December here. Plus, this post on the Japanese economy here.