We bloggers get all kinds in our comment sections. One of my favorites are those sophisticated folks who assure us that we just don’t understand how politics works in the real world. You know the type, the one’s who say central bankers could never go for an idea as crazy as NGDPLT. Or the ones who lecture us about how the Japanese are different; “They are a bunch of elderly savers. They don’t want inflation, and are happy in their deflationary paradise.” Yes, with a national debt equal to 240% of GDP and rising steadily.
Now it looks like the Japanese have elected a new government, which won by a landslide. And that government ran on a platform of higher inflation. Lars Christensen points us toward an article by Ambrose Evans-Pritchard:
“Its very rare for monetary policy to be the focus of an election. We campaigned on the need to beat deflation, and our argument has won strong support. I hope the Bank of Japan accepts the results and takes an appropriate decision,” he said.
The menace behind his words did not have to be spelled out. He has already threatened to change the Bank of Japan’s governing law if it refuses to comply. “An all-out attack on deflation is on its way,” said Jesper Koll, Japanese equity chief at JP Morgan.
Mr Abe plans to empower an economic council to “spearhead” a shift in fiscal and monetary strategy, eviscerating the central bank’s independence.
The council is to set a 3pc growth target for nominal GDP, embracing a theory pushed by a small band of “market monetarists” around the world. “This is a big deal. There has been no nominal GDP growth in Japan for 15 years,” said Mr Christensen.
The yen depreciated sharply to Y84.48 against the dollar on Monday, the weakest in nearly two years, as traders bet that the LDP will this time bend the Bank of Japan to its will.
I’ve never been much interested in whether or not my ideas are “politically realistic.” I’m sure that when the first Swedish intellectual proposed a system of universal education vouchers, including for-profit schools, they told him or her that it would never work in socialist Sweden. Political reform proposals are always politically unrealistic, right up until the time when they are adopted.
So the next time you tell me that one of my ideas is not “politically realistic,” don’t be offended if I brush off your warning.
PS. Lars adds the following warning:
PS a friend of mine who once spend time at the BoJ is telling me not to get overly optimistic…
I think that’s right. The yen has fallen, but only to 84/$. Stocks have risen, but only about 12%. The market loves MM, as do the Japanese voters. But Japanese bureaucracies are very powerful, and change may be incremental, not radical.
PPS. I’m not certain about the NGDP target; some have told me that the correct translation was a 2% to 3% inflation target. Time will tell.