Krugman's uncanny accuracy shows why more eyes should be on Japan

Abenomics is more that just a Japanese story.

Noah Smith has a post up examining Paul Krugman's remarkable record of accurate economic predictions. Ask "KrugTron the Invincible", as Smith dubs him, and he will point to his use of Keynesian economics for simple rule-of-thumb guesstimates, which then get cleaned up with his understanding of the problems of a liquidity trap. But Smith wonders if there's a more specific reason for Krugman's hit-rate:

Like Voltron before him, he's borrowing heavily from Japan.

See, I myself am fairly agnostic about Keynesian ideas. But I've expected nothing but low growth, low interest rates, and low inflation since 2008 (though I haven't been as confident about these things as Krugman, and am thus not in his class as a super-robot). I expected these things because of one simple proposition: We are like Japan.

Since its land bubble popped in 1990, Japan has had low inflation and low interest rates and low growth, even as government debt mounted and quantitative easing was tried. Paul Krugman was there. He watched Japan carefully, and he often states that it deeply affected his thinking. In fact, it might not be an exaggeration to say that watching Japan made Krugman the Keynesian he is today.

The comparison is, at the moment, more relevant to the US than the UK. Our problems are pretty clear: we slashed investment coming out of a recession, which put the brakes on recovery. Now that we're (slowly) putting our foot back on the accelerator, we can expect a return to growth – at least until deficit reduction becomes a priority again. Insofar as we have any macroeconomic phenomena confounding economists, it's positive news: our unemployment rate is significantly lower than it should be, given our anaemic recovery. That's been pegged on underemployment, productivity declines, and the government fiddling the figures, but it doesn't call for a wholesale reworking of economic theory.

The Japanese experience, however, does. Its "lost decade" – now well on the way to being twenty years long – has stubbornly resisted everything thrown at it so far. The pessimistic view is that it's just what happens when demographics turn sour: with an ageing society and migration too low to counteract it, the economy is retooling to serve the needs of retirees, for whom long-term growth isn't a priority.

But Abenomics, the name for the broad package of unconventional policy measures brought in by the government of Shinzo Abe, offers a ray of hope. And if any of those tools, which range from monetized nationalisation of industrial stock to explicitly targeting the stock market to performing one of the largest rounds of qualitative easing ever, work, then there's a meaningful plan of action for not just Japan, but the US as well.

If they don't, then hopefully it won't take America the same twenty years it's taken Japan to realise that business as usual just won't cut it.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Like it or hate it, it doesn't matter: Brexit is happening, and we've got to make a success of it

It's time to stop complaining and start campaigning, says Stella Creasy.

A shortage of Marmite, arguments over exporting jam and angry Belgians. And that’s just this month.  As the Canadian trade deal stalls, and the government decides which cottage industry its will pick next as saviour for the nation, the British people are still no clearer getting an answer to what Brexit actually means. And they are also no clearer as to how they can have a say in how that question is answered.

To date there have been three stages to Brexit. The first was ideological: an ever-rising euroscepticism, rooted in a feeling that the costs the compromises working with others require were not comparable to the benefits. It oozed out, almost unnoticed, from its dormant home deep in the Labour left and the Tory right, stoked by Ukip to devastating effect.

The second stage was the campaign of that referendum itself: a focus on immigration over-riding a wider debate about free trade, and underpinned by the tempting and vague claim that, in an unstable, unfair world, control could be taken back. With any deal dependent on the agreement of twenty eight other countries, it has already proved a hollow victory.

For the last few months, these consequences of these two stages have dominated discussion, generating heat, but not light about what happens next. Neither has anything helped to bring back together those who feel their lives are increasingly at the mercy of a political and economic elite and those who fear Britain is retreating from being a world leader to a back water.

Little wonder the analogy most commonly and easily reached for by commentators has been that of a divorce. They speculate our coming separation from our EU partners is going to be messy, combative and rancorous. Trash talk from some - including those in charge of negotiating -  further feeds this perception. That’s why it is time for all sides to push onto Brexit part three: the practical stage. How and when is it actually going to happen?

A more constructive framework to use than marriage is one of a changing business, rather than a changing relationship. Whatever the solid economic benefits of EU membership, the British people decided the social and democratic costs had become too great. So now we must adapt.

Brexit should be as much about innovating in what we make and create as it is about seeking to renew our trading deals with the world. New products must be sought alongside new markets. This doesn’t have to mean cutting corners or cutting jobs, but it does mean being prepared to learn new skills and invest in helping those in industries that are struggling to make this leap to move on. The UK has an incredible and varied set of services and products to offer the world, but will need to focus on what we do well and uniquely here to thrive. This is easier said than done, but can also offer hope. Specialising and skilling up also means we can resist those who want us to jettison hard-won environmental and social protections as an alternative. 

Most accept such a transition will take time. But what is contested is that it will require openness. However, handing the public a done deal - however well mediated - will do little to address the division within our country. Ensuring the best deal in a way that can garner the public support it needs to work requires strong feedback channels. That is why transparency about the government's plans for Brexit is so important. Of course, a balance needs to be struck with the need to protect negotiating positions, but scrutiny by parliament- and by extension the public- will be vital. With so many differing factors at stake and choices to be made, MPs have to be able and willing to bring their constituents into the discussion not just about what Brexit actually entails, but also what kind of country Britain will be during and after the result - and their role in making it happen. 

Those who want to claim the engagement of parliament and the public undermines the referendum result are still in stages one and two of this debate, looking for someone to blame for past injustices, not building a better future for all. Our Marmite may be safe for the moment, but Brexit can’t remain a love it or hate it phenomenon. It’s time for everyone to get practical.