NPR’s PlanÂet MonÂey podÂcast has done an excelÂlent job of trackÂing the ongoÂing globÂal finanÂcial criÂsis. In its latÂest installÂment (Stream — iTunes — Rss Feed), they get down to an imporÂtant quesÂtion: Does hisÂtoÂry offer soluÂtions to the curÂrent criÂsis? And if so, does it make sense to look back at the DepresÂsion of the 1930s? Or does 1990s Japan offer a betÂter examÂple?
One of PlanÂet MonÂey’s guests, econÂoÂmist Adam Posen, argues that we should keep our eyes on Japan. DurÂing the 1980s, JapanÂese banks and investors exploitÂed loose mortÂgage lendÂing and genÂerÂatÂed a subÂstanÂtial real estate bubÂble, which popped in the earÂly 90s once Japan’s govÂernÂment startÂed tightÂenÂing credÂit. From there, all othÂer assets and marÂkets fell apart, and a long recesÂsion began. Sound familÂiar?
For Posen, the actions of the JapanÂese govÂernÂment help illusÂtrate which anti-recesÂsion poliÂcies worked, and which didÂn’t. The upshot is that Japan’s criÂsis could have been limÂitÂed to three years. But it went on for a decade instead. And that’s because Japan nevÂer passed a major stimÂuÂlus packÂage until the very end, and because the govÂernÂment nevÂer forced the banks to change their pracÂtices. This all sugÂgests that AmerÂiÂcan polÂiÂcy can make a difÂferÂence. The ObaÂma adminÂisÂtraÂtion has a big stimÂuÂlus packÂage comÂing. But will it get the banks under conÂtrol? I’m less than sanÂguine about that, and it could make the difÂferÂence between a short, sharp recesÂsion and anothÂer lost decade.
PS The conÂverÂsaÂtion menÂtioned above starts about 3 and 1/2 minÂutes into the podÂcast.
