The west must avoid falling into the trap that stifled Japan | Mohamed El-Erian

US and European policymakers once believed they had the tools to deal with sluggish recovery

Not too long ago, the conventional wisdom held that "Japanification" could never happen in western economies. Leading US economists argued that if the combined threat of weak growth, disinflation and perpetually low interest rates ever materialised, policymakers would have the tools to deal with it. They had no problem lecturing the Japanese about the need for bold measures to pull their country out of a decades-old rut. Japanification was regarded as the avoidable consequence of poor policymaking, not as an inevitability.

And yet the spectre of Japanification now looms over the west. After the 2008 financial crisis the recoveries in Europe and the US were more sluggish and less inclusive than the majority of policymakers, politicians and economists expected. More recently, hopes for achieving "escape velocity" out of the "new normal" of low growth and persistent disinflationary pressure have been dashed in Europe and Japan, and some worry that they may be receding in the US.

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