Japanization: What the World Can Learn from Japan's Lost Decades

Chapter 1How Japan Papers Over Economic Cracks with Monetary and Fiscal Policy

On November 24, 1997, Lawrence Summers was having an unusually busy Monday morning on a trip to Vancouver, and things were about to get steadily worse. The Asian financial crisis was ricocheting around the globe, and at that very moment claiming its biggest victim yet. South Korea, then the world’s eleventh-largest economy, was days away from receiving a $57 billion international bailout. But on that day, the deputy U.S. Treasury secretary had a far bigger problem on his hands, not in Seoul but in Tokyo: the collapse of 100-year-old Yamaichi Securities Co., an event that sent the Dow Jones Industrial Average down 113 points nearly one month to the day after Asia-crisis worries drove the index down 554 points in a single day, the largest drop ever.

I was among a handful of journalists traveling with Summers to British Columbia for a two-day Asia-Pacific Economic Cooperation summit of 18 world leaders. It started out innocuously enough for the star economist. On the schedule for the twenty-fourth were a bunch of bilateral meetings with finance peers from around the Pacific Rim and the occasional debriefing rendezvous with his boss, President Bill Clinton. At a dinner with his traveling press the night before, Summers seemed to relish a few days away from the madness of Washington and the mounting number of demands ending up on his desk as he prepared to replace Robert Rubin as Treasury secretary two ...