Money

Recession News -- U.S. Heading Towards Economic Stagnation?

| by Reason Foundation

It wasn't that long ago that everyone in America believed that Japan would soon overtake the United States as the dominant economic force on the planet. When the Japanese stock market rallied to historic heights in late 1989 and Japanese investors even bought Rockefeller Center in New York, it all seemed like a done deal.

But then...the Nikkei Index tanked, the nation's economy collapsed, the government responded with an ever-changing mix of tax hike and tax cuts, stimulus spending on infrastructure, massive bailouts of businesses, and more. None of it worked and Japan entered what's been called its "Lost Decade," a seemingly endless period of economic stagnation.

What are the lessons for the U.S. from Japan's experience? Reason Foundation policy analyst Anthony Randazzo is the co-author of the recent study "Avoiding an American Lost Decade: Lessons from Japan's bubble and recession" and a July 2009 cover story for Reason magazine, "Turning Japanese: Japan's post-bubble policies produced a 'lost decade.' So why is President Obama emulating them?"

As Randazzo explains, both the causes of and official responses to Japan's bubble and economic slump eerily anticipate exactly what the U.S. government is doing. Worse still, the Obama administration and Congress seem dead-set against the sorts of policies-across-the-board taxes on personal and business income, reductions in long-term and unsustainable government debt, and allowing damaged firms to go bankrupt-that would help revivify the American economy.

Is America on the verge of its own lost decade? Sadly, the government seems to be doing everything it can to make that happen.

Approximately 3.30 minutes long. Produced by Dan Hayes and Nick Gillespie; graphics by Meredith Bragg.

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