the American economy: I think we're turning Japanese; I really think so

From the title of the piece by Anthony Randazzo, Michael Flynn, and Adam Summers in Reason...

The scenario was eerily familiar. A long real estate bubble that had expanded extra rapidly for the previous five years suddenly burst, and asset prices came crashing back down to earth. Banks and financial institutions were left holding piles of worthless paper, and the economy soon headed south. The national government responded to the crisis by encouraging more lending and spending previously unfathomable amounts of money on public works projects in an effort to stimulate consumer spending and restart growth.

But that stimulus did not save the Japanese economy in the 1990s; far from it. The ensuing period came to be known as the Lost Decade, characterized by multiple recessions, an annual average growth rate of less than 1 percent, and a two-decade decline in stock prices and corporate profits.

The Japanese government’s easing of credit rates, instead of spurring real demand, created artificial demand. Federal loans and stimulus spending were not economically productive, and they vastly increased the nation’s debt and prolonged the economic malaise. Worse, businesses spent critical time on the sidelines, waiting for government bailouts and other centralized actions, instead of speedily consolidating their losses, clearing their balance sheets of bad investments, and reorganizing.

The United States in 2008–09, unfortunately, has started down the same path. Federal intervention and the expectation of additional government action are removing firms’ incentive to clean up their balance sheets by selling “toxic” assets. Why accept pennies on the dollar if a deep-pocketed new bidder (i.e., the state) looms large on the scene? The Japanese experience shows that when the government is an active participant in the market, many firms would rather accept state support than initiate the inevitable financial reckoning. Such a status quo does not provide a sustainable foundation for the economy. Instead, it restricts economic growth and creates a cycle of stagnation....

The authors point to similarities in the late-’80s Japanese bubble and the mid-’00s American bubble: 1.) "overaggressive financial institutions and poor risk management that ignored traditional economic fundamentals"; 2.) stock market bubbles; 3.) and monetary policy errors.

The authors note the usual debate between “too much” vs. “too little” regulation, but see "the real issue" as "how the existing regulatory order helped spawn the financial crisis"-- in particular, through: 1.) capital reserve requirements; and 2.) government housing policy.

They then turn to "Japan’s ineffectual and massively expensive response" and exhort U.S. officials from duplicating those mistakes-- in particular: 1.) government lending to poorly managed firms; 2.) bowing to conflicts of interests; 3.) short-term, static political vision; 4.) bad tax policy; and 5.) government infrastructure “investment”.

Their conclusion:

The history lessons from Japan are plentiful and clear. If the American government continues its pattern of intervention, the United States may soon be trapped in a zombie business economy and a lost decade of our own, ensuring economic stagnation for a long time to come.