Introduction: Once It Happened in Japan

As the world economic crisis continues, people are turning to the Japanese example. Japan was one of the best macroeconomic performers in the world until 1990. Then Japan experienced the bursting of the asset price boom, a financial crisis, and more than a decade of deflation and stagnation. The Japanese episode, known as the Great Stagnation, received much attention during the 1990s and the early years of the 2000s, but the onset of the current crisis invigorated a renewed interest in that episode. Some commentators are even worrying about the Japanization, or Japanification, of the Western countries.1 The prime example was the lead article in the July 30–August 5, 2011, issue of The Economist. Aptly titled “Turning Japanese,” the article featured U.S. President Barack Obama and German Chancellor Angela Merkel wearing Japanese kimonos. The image the news magazine tried to convey was the sense that United States and European political leaders are marred with the same problems as their Japanese counterparts: a lack of leadership, incoherent policy initiatives, and the resultant prolonged stagnation.2 Paul Krugman, the most vocal critic of macroeconomic policy as it is currently practiced all over the world, remarked several times that he should apologize to the Japanese because the Americans were not doing better than the Japanese were. His so-called apology was mere rhetoric for this master debater, but his reference to Japan is more substantial.3