In February, the Times
explained the lessons the U.S. could take away from Japan's
Lost
Decade. But now it seems that those morals are better suited
for the U.K., which, the Times is
now claiming, is staring down the barrel of it's own Lost
Decade:
Britain may be emerging from recession, but that is little
solace for those who suggest that the economy here might follow
in the steps of Japan's lost decade in the 1990s unless the
twin threats of burgeoning national debt and ruined banks are
adequately addressed.
The parallels are easy to see: Like Japan, Britain enjoyed a
decade of booming growth, fueled by aggressive bank lending and
real estate investments. Haunted by the comparison, policy
makers have been extra aggressive in using fiscal and monetary
levers to prevent the type of sustained period of stagnation
and banking stasis that plagued Japan for so long.
One of the interesting notes in the February article on the Lost
Decade is that the fiscal measures Japan enacted throughout the
90s were a mixed bag, at best:
Japan’s rural areas have been paved over and filled in with
roads, dams and other big infrastructure projects, the legacy
of trillions of dollars spent to lift the economy from a severe
downturn caused by the bursting of a real estate bubble in the
late 1980s. During those nearly two decades, Japan accumulated
the largest public debt in the developed world — totaling 180
percent of its $5.5 trillion economy — while failing to
generate a convincing recovery.
...
In the end, say economists, it was not public works but an
expensive cleanup of the debt-ridden banking system, combined
with growing exports to China and the United States, that
brought a close to Japan's Lost Decade.
So before paving over its rural areas, the UK should probably
first address its "ruined banks." Weird that the Bank of Englad
should be worrying about these things now, a full year after
Gordon Brown's government interventions saved
not only the banks, but also
the world.
