Economist Allan Meltzer for years has been telling top officials at the Bank of Japan that the near-zero interest rates in Japan do not necessarily mean an ultra-loose credit policy.
They didn't believe him.
The result has been an unrecognized tight-money policy that has produced deflation (falling prices) and a decade of doldrums, with off-and-on recessions, in the world's second-largest economy.
"A terrible mistake," says Dr. Meltzer, a professor at Carnegie-Mellon University in Pittsburgh and an adviser to Japan's central bank for 15 years.
Faced with an accelerating economic slide, the Bank of Japan's governor, Masaru Hayami, announced last week a bigger effort to revive the island nation's economy. The bank will create more new money than it promised last March.
The move was welcomed in Japan and around the world. Tokyo stock prices rose 4 percent - briefly - in celebration.
Mr. Hayami is not alone. Facing the prospect of a global recession, several of the world's most powerful central bankers have been stepping on the gas.
In the United States, the Federal Reserve is expected to lower short-term interest rates at least 0.25 percentage points tomorrow. It has already cut interest rates 2.75 percent in six steps this year. But the American economy remains shaky.
Dealing with an industrial slump, the Bank of England cut its base rate by 0.25 percentage points, to 5 percent, two weeks ago. The Bank of Canada made a same-size cut, to 4.25 percent, July 17.
The European Central Bank is out of step, so far. But its policymakers meet Aug. 30. A majority of observers suspect it will get in step, but they aren't sure.
"The news on the growth front [in Europe] is pretty awful," says Darren Williams, an economist in London with Schroder Salomon Smith Barney, an investment banking firm. He hopes the ECB will act.
There is concern that Germany, Europe's largest economy, could edge into a recession. But some members of the 11-nation European Monetary Union are doing well.
To economists, Japan's case is fascinating. Some go along with Hayami's argument that Japan's monetary policy is already loose - that financial institutions are flooded with liquidity but lack borrowers - and that his bank is doing the equivalent of pushing the economy with a string. So a new easing won't work well.
What the bank decided in March was to try a "quantitative" approach to monetary policy. Since interest rates are essentially at zero and can go no lower, the bank can only pump more money into the economy through the banking system and by buying more government bonds.
The goal is to cause a little inflation. That prospect should encourage Japanese consumers to spend more on goods and services now, reviving business.
Meltzer describes the March measure as "a small half step that didn't mean much." Last week's move called for boosting bank reserves to 6 trillion yen ($49 billion) from 5 trillion. Further, the Bank of Japan plans to increase the amount of Japanese government bonds it buys outright from the markets by 50 percent, to 600 billion yen ($4.9 billion) a month.
Still inadequate to do the job, figure Mr. Williams and Meltzer.
But if the Bank of Japan buys even more bonds, eventually the sellers will have more money than they want to hold. So they will use it. Some will invest it elsewhere. Some will spend it. In either case, it will boost output.
Meltzer says he has tried many times to explain this to Hayami. So have other nations' central bankers when they meet monthly in Basel, Switzerland. But he's not sure it even now has sunk in.
What may have set a fire under Hayami was a threat by a group of influential legislators in the ruling Liberal Democratic Party to pass legislation that would take back some of the bank's independence from the Finance Ministry. That autonomy was granted only three years ago.
"You don't have to be a magician" to see the connection, says Meltzer.
The reluctance of Europe's central bank to lower interest rates stems from its mandate to keep inflation to 2 percent or less. Inflation, though declining, is today somewhat above 2 percent.
Unlike the Fed, the ECB doesn't have the jurisdiction to fine-tune the economy to boost growth and reduce unemployment, notes David DeRosa, who teaches finance at the Yale School of Management in New Haven, Conn.
Meltzer maintains the ECB mandate allows it to consider the economic costs of its restraint.
In any case, at the moment, the world still counts primarily on the Fed to lift the US economy out of its slump - and cause echoes of prosperity from Asia to Europe.