Our Great Recession has been compared with several crises of the past, but Japan’s lost decade is perhaps most relevant. This is not because of the way the two crises developed – we do not yet know what will happen to us – but because of our failure to learn from Japan’s mistakes. Otto von Bismarck said only fools would learn from their own mistakes, while he preferred to learn from the mistakes of others. We are mostly fools.

I am particularly struck by the similarity of the policy responses in Japan then and Europe today. Adam Posen, deputy director of the Peterson Institute in Washington, made the following observation in a book* he published in 2000 about the parallels between Japan’s lost decade and US policy during the savings and loan crisis. He wrote: “Bank regulators issued a litany of announcements meant to be reassuring about the extent of the bad loan problem and the adequacy of Japanese banks’ capital, each of which was correctly disbelieved by other financial firms, foreign banks, and by Japanese savers as understating the problem.”