Here’s a wise old man named Noah Smith:
Monetarists are an innocent lot. American bloggers, op-ed writers, and economists seem quite taken in by Japanese Prime Minister Shinzo Abe’s promise of a grand monetary experiment. Abe is threatening to revoke the Bank of Japan’s independence, forcing those recalcitrant hard-money-loving inflation hawks to set a hard target of 2% inflation or higher. To an American monetarist, this is really Christmas. Finally, we get to actually test the hypothesis that a central bank can hit an inflation target if it really puts its mind to it! Finally, we get to see the ultimate two-men-enter, one-man-leaves doomsday showdown between the immovable object of Japan’s implacable deflation and the irresistible force of Print Money And Buy Stuff!
But it is not to be. Shinzo Abe is not the Jesus of monetary policy. American monetarists, I feel for you – I would love to see the idea of monetary policy dominance put to a stark test – but I just don’t think it’s going to happen.
It would be interesting to know which monetarists Noah is talking about. (The only “innocent” monetarist Noah links to is Matt Yglesias, who is neither innocent nor a monetarist.) Like Noah, I’ve been skeptical of the intentions of the Abe government, noting that bond yields don’t show much sign of inflation expectations. On the other hand the yen has weakened, so there’s likely to be at least a modest change in policy. But I put faith in markets, not politicians.
You see, unlike most Americans who weren’t watching back in 2006-2007, I remember Shinzo Abe’s first term as PM.
Unlike most Americans, so do I. And my hunch is that lots of bloggers have been following Japanese politics since before Noah was born.
PS. We already know that central banks can hit 2% inflation targets, they’ve been (approximately) doing that for decades.
PPS. And we already know there is no such thing as liquidity “traps,” the yen wouldn’t have depreciated on Abe’s comments if there were.