In plain and simple English, or German, or Japanese, Germany is getting its act together and Japan isn't. Neither country distinguished itself in the 1990s. While the average growth rate in Germany from 1992 through 1999 was 1.4% compared with 0.9% for Japan, the unemployment rate in Germany rose from 5% to 10%, compared with an increase in Japan from 2% to "only" 5%. By either measure, it was a miserable economic performance for both countries, particularly with exports to the U.S. rising rapidly. Forecasts are ephemeral, but it appears Germany has turned the corner, with expected real growth of 3% this year and next and a decline in the unemployment rate to 8%, while growth in Japan remains mired below 2%, with no signs of declining unemployment. Japan has done everything called for by "textbook" economics: an easy monetary policy as manifested by zero interest rates, zero inflation, a huge budget deficit, a currency close to purchasing-power-parity equilibrium, and a sizable trade surplus. At least so far, though, nothing has worked. Germany, on the other hand, has not engaged in bouts of fiscal and monetary stimulus, its currency is still overvalued, and it has a sizable trade deficit, yet it is well on the road to recovery. Maybe this says more about the failure of textbook economics than anything else, but at this point there is little to be gained by beating that dead horse. What factors caused the remarkable renaissance of the U.S. economy over the last two decades? Fed Chairmen Volcker and Greenspan deserve full praise, as sustained recovery could not have occurred without controlling inflation. Yet that alone would not have boosted productivity growth. The answers are deregulation, lower tax rates, and a reduction in government spending in real per capita terms. Basically, Germany is on the right track while Japan is still derailed. The Japanese government and legislators apparently still believe that their economy will be better off if the government spends money for people instead of letting them spend it themselves. I have no idea how long this canard will continue, but it shows little signs of abating. After all, Japanese growth for the 1992-1996 period averaged 1.7%; the Japanese then raised taxes, and real GDP declined an average of 0.3% over the next three years. During that same period the yen declined and interest rates fell, so those factors cannot be blamed for the return of the recession. A year ago I claimed to detect some improvement in the Japanese views on deregulation, and predicted that real growth would improve this year and next. It's true that real GDP is expected to rise 1.7% this year, compared with 0.3% last year, but bigger gains were expected. Maybe the recent changes eventually will boost growth back to 3%, but even if that does occur, the changes will have taken much longer than anticipated. The Japanese government gives the impression of lurching from crisis to crisis and reacting only when no other alternatives remain. The Germans, on the other hand, not only have passed the most comprehensive tax law revision of the last 50 years, but have done so under the aegis of both the socialist and environmental parties. The end of the capital gains tax will spell the breakup of interlocking directorates and de facto cartels. By the end of the decade, there should be almost as much competition in Germany and the rest of Western Europe as there is now in the U.S. Furthermore, the "socialists" are preparing to scrap retail price maintenance and unshackle the housing and labor markets. A decade ago the conventional wisdom was that Japan was destined to become the global leader, the U.S. would plod along at also-ran rates, Europe was mired in inflexibility, and China was on the inside track to become a world leader. Given this track record, I am hesitant to predict what the derby will look like in another decade. However, based on recent developments, Europe has surged back to run neck and neck with the U.S., while Japan and China have stumbled badly. Call it the Atlantic Decade. Michael K. Evans is president of the Evans Group and professor of economics at the Kellogg School of Business, Northwestern University, Evanston, Ill.