Here’s commenter dtoh:
I think you’re disheartened a little bit by the results of monetary policy which has been less effective in Japan than you had hoped and therefore you are trying to blame it on socio-economic and supply side factors. Yes…. these are problems, but the primary reason monetary policy has not been effective is the hike in the consumption (and other) tax rates.
Stop worrying, it will take a little longer, but Japan will prove you are a clairvoyant genius.
This is half wrong. Certainly less effective than I had hoped, but more effective than I expected. In my early posts on Abenomics I suggested that it was likely to have a positive effect, but that Japan would fall short of the 2% inflation goal. I expected about 1% inflation, still a significant improvement. Japan has exceeded 1% inflation, even if you discount the effects of the sales tax. The yen has also depreciated much more than I (and the markets) expected. Japanese stocks have risen much more than I (and the markets) expected. Indeed by almost every metric they’ve done better than I expected.
So why does dtoh (a careful reader) have the opposite impression? Because I am also very pessimistic about Japan, due to its big public debt and rapidly falling working age population. I supported the sales tax increase, but even as I did so I predicted it would hurt the economy, and it has. And regarding monetary stimulus, it’s technically possible for a policy to improve an economy that is doing very poorly, while still leaving it doing fairly poorly. That’s Japan.
For the same reason, people often wrongly believe I’m a fan of the Chinese government, or its economic policy. It’s a bad policy–perhaps as bad as Greece. But if China ever became as rich as Greece it would be the single most successful economic policy in all of world history. And China probably will become as rich as Greece, as moving from a nightmarish policy under Mao to a merely bad policy under Deng and Xi has released the entrepreneurial energies of the Chinese population.
Real world economics is never black and white; it’s always about shades of grey. I’ve frequently pointed out that Abenomics was doing all sorts of things that the liquidity trap Keynesians said was impossible. It boosted stock prices, it depreciated the yen, and it boosted nominal and real GDP. That made me seem like an optimist. But I also said it would fall short of the announced goals, and I now feel that more strongly than ever. Contrary to dtoh, if Japan does well I will be forced to admit I was wrong, as I did not expect Japan to do well.
I’ve also been saying that while QE and forward guidance helped, the Fed has consistently been too optimistic about US growth. We are in a Great Stagnation. Just yesterday I noticed that Fed officials are hard at work explaining why their latest 3% growth forecast will fail to materialize, just like the previous 5 years.
A sharply stronger dollar could hamper Federal Reserve efforts to spur growth and lift inflation, a senior Fed official said today, in unusually direct remarks about the U.S. currency from the central bank.
By the way, Nick Rowe recently had this to say about central bankers:
But I do have a lot more confidence in the BoC than in the BoJ, ECB, or the Fed. Yes. The people who run the BoC are better macroeconomists, they speak with one voice, and they have the support of the government in doing what they are doing. You do not hear them say totally stupid things, like you do with people making decisions at other central banks.
Yesterday I noticed a perfect example of what Nick was thinking about:
“The current yen weakness is slightly excessive,” Kazumasa Iwata, the deputy from 2003-2008, said in an interview on Sept. 19 in Tokyo. “Abenomics entails the risk of ‘beggar thyself’ consequences and signs are already emerging.”
Hmmm . . . .
Totally off topic, fans of drug legalization will love this youtube.