The fear that the US will follow the miserable track of Japan as we emerge from the Great Crash of 2008 is reaching the front pages of acceptable discourse. This New York Times piece goes farther: it claims that the lost decades of the Japanese economy have doused the animal spirits (a Keynsian expression) of their young people, making them unwilling to take risks, and facing a dark future. Here is their explanation:

Still, as political pressure builds to reduce federal spending and budget deficits, other economists are now warning of “Japanification” — of falling into the same deflationary trap of collapsed demand that occurs when consumers refuse to consume, corporations hold back on investments and banks sit on cash. It becomes a vicious, self-reinforcing cycle: as prices fall further and jobs disappear, consumers tighten their purse strings even more and companies cut back on spending and delay expansion plans.

Paul Krugman has been on this from the beginning, and so have bloggers including FDL. One way to use the lessons is to examine the remedies the Japanese government tried, and see how they worked out. That is the approach taken by the economists interviewed by the NYT, who assert that the US is not like Japan because we tried some other things and acted more quickly. That is just another way of saying “this time it’s different”, words that send shivers down my spine.

I don’t think it’s different. In Japan, the government propped up failing banks, and in doing so, bailed out the wealthy. It is the workers who are paying the price in lowered standards of living and a dark future. The Japanese plan was to return to the status quo, without threatening the wealth of the top few who run the country.

We have done the same thing. Every single step we have taken was an effort to restore the financial economy to its prior state. The effect is to protect the wealth of the richest Americans, those whose assets are tied up in the financial economy. We propped up commercial banks, bailed out the investment banks like Goldman Sachs, tried to bail out the securitization business and undo the massive damage to investors (the success of this effort is not yet known). We did nothing to help the workers except a few dollars in increased unemployment insurance, and bailing out auto companies with comparatively few dollars.

The financial reforms we enacted did nothing to shut down violent speculation. We merely reorganized existing markets into different groupings. The same market structures are available for gambling by the wealthy, just under new ownership. We did nothing that would force investment in the productive economy of the trillions of dollars sitting in corporate bank accounts, hedge funds, private equity funds, and Cayman Island bank accounts of the rich.

The modest differences in the speed of the US response and the steps taken do not affect the basic similarity to the Japanese response in the most important area: the same people have all the money, and they flatly refuse to invest it in the productive economy. They continue to control the public discussions of the economy. Their theories of the economy are unchanged. We only consider their solutions, including their demands for austerity instead of stimulus. As a result, there will be pain for almost all Americans, workers, retirees, those who accumulated savings and those in debt. Only one class will avoid pain: the rich.

Last week, I pointed to an Economist article discussing this mess. It says that the increase in the national debt of the US and other developed economies is caused by a huge increase in savings in these countries. People frightened about the future save, they don’t spend. When they save, they look for safe places to put those savings, not risky new investments in an economy doomed to slow to no growth. The only entity big enough to absorb those investments is the government.

Rich people won’t pay taxes, and demand austerity. The result is that there is far too much money available for investment in private enterprise which doesn’t need it, and not enough for investment in desperately needed public goods. All that excess money is being used for speculation. It serves no useful purpose.

The one thing that will make a difference is taxing the rich, not just the 3% hike the Administration says it wants, but substantial increases, including new brackets at higher income levels, cutting out the absurd tax treatment for hedge fund managers, reinstating the estate tax, and adding a tax on sterile wealth that fuels speculation and produces nothing of value.

The new tax revenue can fund massive investment in public goods, ranging from infrastructure repair to schools, without the necessity of increasing the national debt. It will reduce the influence of right-wing billionaires and their right-wing corporate managers over our spineless politicians. And it will change the dynamics of our society, opening up social and economic mobility to all.