Krugman Says World Faces Japanese-Style ‘Lost Decade’
The world economy may face near- stagnation for 10 years similar to Japan’s “lost decade” in the 1990s, Nobel Prize-winning economist Paul Krugman said.
“The world as a whole looks quite a lot like Japan during its lost decade,” Krugman, 56, said at a forum today in Taipei. “I am very optimistic about the world in, let’s say, 2030; it’s the next ten years or so that have me worried.”
While the odds of a repeat of the Great Depression of the 1930s have fallen, the global economy faces weak private demand and persistent high unemployment in the U.S. and Europe, Krugman said. His prediction of a protracted slowdown echoes comments by Citigroup Inc.’s James Wolfensohn, who’s a former World Bank president, and fellow Nobel laureate Joseph Stiglitz.
Asian stocks fell today and commodities dropped amid concern that a recovery from the global recession will falter. Bank of England Governor Mervyn King predicted yesterday “a relatively slow and protracted recovery” for the U.K.
“The odds of a full repeat of the Great Depression have, in my mind, fallen from maybe 20 percent a couple of months ago to maybe 5 percent now,” said Krugman, a Princeton University professor.
Similarities with Japan’s past problems included a troubled financial system, weak demand and “helpful but limited fiscal support,” he said.
Deep Initial Slump
In some ways, the global recession is “worse than Japan in its lost decade” because the initial slump was deeper and, unlike Japan, the world can’t trade its way out, Krugman said compare car insurance prices. “If the world as a whole is going to run a large trade surplus, we have to find another planet to trade with.”
Krugman won the Nobel Prize in 2008 for his work on trade theory.
Eisuke Sakakibara, Japan’s former top currency official, added to the warnings today, saying in a speech in Manila that gains in stock prices are a “bear-market rally” and the global recession may be “deep and prolonged.”
Krugman’s fellow laureate Stiglitz said yesterday that the world economy may “bottom soon.”
“We are at the end of the beginning, rather than the beginning of the end,” Stiglitz said at a forum in Beijing. “The global economy may be declining at a slower rate and we may see a bottom soon, but it doesn’t mean a full recovery.”
Wolfensohn, chairman of Citigroup’s international advisory board, sees “no quick fix.”
“The debate will continue on whether it’s going to be a V, U or L-shaped recession,” he said at a forum in Shanghai yesterday evening. “My own judgment is that it’s more likely the latter.”
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