Mind the Gap

How much has Japan's economy shrunk since its bubble burst? It's a trick question; Japan's economy hasn't shrunk. It had only two down years over the past decade, and on average it grew 1 percent per year.

Yet Japan's is a genuinely depressed economy. Because growth has been so slow, an ever-increasing gap has opened up between what the economy could produce and what it actually produces. This "output gap" translates into rising unemployment and accelerating deflation. Slow growth can be almost as big a problem as actual output decline.

Now the non-trick question: What would a similar analysis say about the United States? [read more]