Japan's problem, excessive savings, is so ingrained that even interest rates of a bit less than .5% are insufficient to get firms to make use of all Japanese' unspent incomes. The only way to make them reduce their savings rate is to make their money depreciate (i.e. to eventually become worthless) if it is not spent. They are not spending due to the fact that the prices keep falling and the Japanese will hold out until the first sign of price increase.

I think that at this point it is safe to say that the more an economy produces at a cost lower than it sells for, GDP in general will rise. Firms in Japan are abstaining from this production because the labor prices are to high and they don't buy machinery that will increase production because the price

He also talks a lot about "crony capitalism" and "collective stupidity". Japan has less of both problems than many other countries do, and still Japan is a rich nation in trouble in part because of these two problems. Stupid right-wing policies are adopted not because they are sound, but because they enrich short-sighted capitalists. Crony capitalists follow the slogan (Krugman's words): "heads we win; tails the government loses".

The problem that I can see with the Krugman solution is that monetary inflation (i.e. printing loads of money) in Japan may not actually lead to higher prices. As seen in New Zealand, we know that monetary inflation, simultaneous with high interest rates, led to a doubling of inflation rates in 1994-96. But a load of cheap money may simply generate further production, more economies of scale, and more discounting. The people will not be persuaded to part with their money until prices actually start to rise.

Krugman played down the rises and falls in the value of the yen as being of significance for Japan (they may be significant for the rest of Asia, which is indebted to Japan). Krugman noted that Japan was not an open economy (meaning it is a protectionist economy) and at no stage did he ever suggest that Japan could solve its own problem by turning itself into an open economy. Japan's problem is very simply a lack of spending, relative to a supply glut.

Crony capitalism is about incurring public risk for private gain. I am worried about the Labour Party's "Third Way". A policy of social investment without matching social dividends strikes me as a rather obvious form of crony capitalism.

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s are still dropping. If a firms economic advisor is allowed to step in and make predictions about the economy and when to buy, the firm will undoubtedly wait to the last moment where they think

Some common words found in the essay are:
Zealand Japanese, Central Bank, Japan Krugman, Baby-sitters'' Co-op, Firms Japan, Party's Third, Bank Japan, Japan Japan's, According Japan, , liquidity trap, japanese government, krugman noted, japanese people, central bank, monetary inflation, crony capitalism, japanese central bank, excess savings, low rates, proposed solution,
Approximate Word count = 1287
Approximate Pages = 5 (250 words per page double spaced)