Are We Turning Japanese Deliberately?

A disapproving Atrios quotes Bloomberg: “Treasury Secretary Timothy Geithner is betting that U.S. banks can do something their Japanese counterparts were unable to accomplish in that country’s “lost decade” of the 1990s: earn their way out of trouble.” Duncan remarks:

The econ-finance brain trust of this country spend years obsessing about the horrible Japanese mistakes. I guess, like Vietnam, those “lessons” weren’t actually learned.

Recently, however, I began to hear the amazing tale of Richard Koo whose forthcoming book apparently argues that though the Japanese policy response wasn’t perfect, it was actually much better than it’s usually given credit for. According to Koo, given the scale of the negative balance sheet shock, Japan actually did quite well. You can see a summary of his view here at Seeking Alpha and here from Paul Kedrosky.

Do I believe this? I’m not sure. But guess who’s on the jacket flap?


There will probably never be a last word on the Japanese financial catastrophe of the 1990s but Richard Koo’s book may be the most significant analysis ever published. Agree or disagree, any analyst of the current United States situation must consider Koo’s arguments. — Lawrence H. Summers

Summers was among those criticizing the Japanese in the 1990s, but maybe he’s changed his mind?

Meanwhile, it’s become conventional on the left to attack the administration as unduly in hoc to “banksters” who are sure to destroy us. But Koo’s argument is that we ought to spend less time worrying about the banks, and just accept that it will take years for the private sector to restore its balance sheets. In the interim what’s needed is massive and sustained deficit-financed public investment. This, it seems to me, is an argument progressives could find pretty congenial.