Paul Krugman Applauds Japan's Break From Fiscal Orthodoxy

The new Japanese government decided to do something to get out of its deflation spiral.  Its central bank has kept interest rates low and the government has decided to increase spending.  Japan has used a little bit of monetary and fiscal policy in the past, but it was not politically possible to do what was necessary to stimulate growth and end deflation.  The immediate reaction to Japanese policy has been positive.  Japan can still borrow at very low interest rates, and the market is now expecting a little bit of inflation instead of deflation.  The yen has fallen in value, but that is good for Japanese exports.  We will have to see whether the government can stick to its guns.  Its economy has been stuck in low gear for more than a decade.  Perhaps its departure from "economic orthodoxy" will work.  We do know that whatever else it was doing did not work.

The US has some of the same problems that Japan has had.  We were told that investors would stop buying US treasuries, and that interest rates would rise when the Fed pushed monetary policy to its political limits.  Interest rates are still low, but that does not stop the Fed's critics from warning us about pending doom.  We are also told that government has to cut spending, or that we will suffer the same fate as Greece.  Anyone who compares the US to Greece should have their head examined, but that has not stopped very serious people from being seriously stupid.  They would rather have high unemployment, which has little impact on their ability to find high paying employment.  Their worst nightmare is that government intervention in the economy might work.