The “Japanisation” of economies is to be expected given the current functioning of labour markets

In the United States and the euro zone, like in Japan, income distribution is skewed in favour of profits and to the detriment of wage earners. The decline in wage earners’ bargaining power has led to low wage growth and therefore low inflation. I n this configuration, it is to be expected that the US and euro-zone economies are now “Japanising”: Interest rates are low due to the absence of inflation; Fiscal policy has to be expansionary because of weak real wages and therefore household demand. The resulting increase in the public debt is without risk given the low level of interest rates; As the public debt ratio becomes very high, the central bank intervenes to keep interest rates down, resulting in a long period of highly expansionary monetary policy made possible by the low inflation; The skewing of income distribution in favour of companies leads to excess corporate savings, which are used to finance fiscal deficits. This Japanisation of the economy is to be expected (it is a normal reaction to the skewing of income distribution). But it is an inefficient equilibrium: it would be better if wages and household demand were higher and the public debt were lower, and if companies did not receive profits for which they had no use .