Why Japanification and Secular Stagnation Are Bad, Bad News

Even before the coronavirus delivered a body blow to the global economy, Mario Draghi, the former European Central Bank president, was sounding alarms about “Japanification.” Janet Yellen, the former U.S. Federal Reserve chair, warned of “secular stagnation.” They’re not the only ones who lately have been using these overlapping if somewhat obscure terms. They do, however, point to the same conclusion: Fiscal policy is needed where monetary policy has faltered. That is, that elected officials who hold their nation’s purse strings can’t count on central bankers to bail out faltering economies forever.

It’s a term used by economists to describe a state of chronically anemic economic growth and feeble inflation or even deflation similar to the conditions faced by Japan since a giant real-estate bubble popped in the early 1990s. It’s used to convey the alarming prospect -- often discussed in Europe, which has staggered economically ever since the 2008 financial crisis -- of sluggishness so deep that it is extremely difficult to escape. Even after Japan’s central bank embraced two extraordinary forms of monetary stimulus -- negative interest rates and asset purchases worth more than the entire size of the world’s third-largest economy -- the country has yet to return to a positive growth cycle strong enough to generate 2% inflation after nearly three decades.