Lawrence Summers (c) WEF
On Thursday, I moderated a fascinating lunch-time discussion on “secular
stagnation” with Lawrence Summers, former US treasury secretary,
who has recently propounded this idea.
Other participants were Motoshige Itoh of Tokyo university, Edmund Phelps, Nobel laureate, director of the Center on Capitalism and Society, Columbia University, Adam Posen, director of the Peterson Institute for International Economics, Helene Rey of the London Business School and Kenneth Rogoff of Harvard. This was a notably heavy-weight panel.
The discussion was rich and complex. But here are some conclusions.
First, since the crisis in 2007 and 2008, the equilibrium long-run real interest rate in the high-income countries has been ultra-low and the equilibrium real short rate has been negative. There is no disagreement on this. This was an obvious indicator of sustained and chronic weakness of demand.
Second, the main instrument we have used to deal with condition this has been hyper-aggressive monetary policy. But this creates substantial problems (in some views, at least, including mine): it distributes income towards both the financial sector and the rich, while also generating bubbles. Read more
TOSHIFUMI KITAMURA/AFP/Getty Images
By Jonathan Soble
Sermons from the IMF tend to make Japanese leaders fidget nervously in their pews – all fire and brimstone about budget deficits and the need for austerity. But Christine Lagarde’s warning about the evils of deflation is more likely to elicit a full-throated “amen”.
Successive Japanese administrations have promised to end deflation – the “ogre”, in Ms Lagarde’s description, that has menaced the country’s economy since the late 1990s. But under Shinzo Abe, prime minister since December 2012, and his central bank governor, Haruhiko Kuroda, deflation-fighting has become the overriding priority.
They have been getting results so far: prices of consumer goods excluding fresh food are rising nearly 1 per cent year-on-year, thanks to the Bank of Japan’s ultra-accommodative monetary policy and the related plunge in the value of the yen, which has pushed up the cost of imports. Read more
It’s been a year since Shinzo Abe got financial markets excited with his plan to pull Japan’s economy out of its more than 15-year deflation. So has Abenomics been a success? Jonathan Soble, Tokyo bureau chief investigates: Read more
By Gideon Rachman
A few years ago Wired, the technology magazine, ran a regular feature called “Japanese schoolgirl watch”. The concept was not as dubious as it sounds. The idea was simply that the schoolgirls of Japan are technological trendsetters and that the gadgets they adopt today will go global tomorrow.
There’s been a lot written in the FT and elsewhere about the Trans-Pacific Partnership, or TPP. Here are five reasons you should care about this trade pact:
1. This is a big deal.
If, or when, it is finalised the 12-country Pacific Rim deal will cover countries responsible for almost 40 per cent of global GDP and involved in more than a third of global trade.
This chart is taken from a June 2013 report by the US Congressional Research Service. Some $18tn in goods is traded around the world each year these days. The countries in the TPP (The current “TPP 12”: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam) accounted for 36 per cent of that total in 2011.
♦ The anxiety over Japan’s sales tax may seem bizarre to outsiders, but it will be a stern test of Shinzo Abe’s popularity.
♦ James Politi looks at the impact of the sequester on Head Start, arguably the most high-profile casualty among the anti-poverty programmes.
♦ Nicolás Maduro is looking to blame anybody else for Venezuela’s economic problems – even Spider-Man.
♦ While support for Cristina Fernández ebbs in Argentina, Sergio Massa has risen to become one of the strongest potential candidates for presidential elections in 2015.
♦ Slate magazine imagines how the US government shutdown would be covered by the US media, if it took the same tone that it does in its foreign coverage.
♦ The Washington Post is crowdsourcing for ideas as to how congress can be punished for the government shutdown.
♦ Smuggled letters from westerners caught up in the crackdown on the Muslim Brotherhood reveal that terrible prison conditions remained unchanged and there is a new willingness to subject westerners to the same treatment as Egyptians, according to the New York Times. Read more
Not a milestone to rejoice in. Japan’s debt has tipped into the “quadrillion” zone for the first time. That is, as of the end of June, central government debt, looked like this: Y1,008,628,100,000,000, or $10.4tn.
It surely could not be a clearer message to Japanese Prime Minister Shinzo Abe that shilly-shallying over fiscal consolidation is no longer an option? Second-quarter economic output figures due on Monday are key to Abe’s decision about whether to raise consumption tax from 5 per cent to 10 per cent by 2015. Back in June in a speech in London, he pinned any decision to raise the tax – one he must make by October – on the strength of the economy in the second quarter. Read more
Shinzo Abe speaks at the Guildhall (Getty)
Shinzo Abe didn’t tell his British audience at London’s Guildhall anything new about Abenomics, his programme to reflate Japan’s economy back to health. But it is worth listening once again to the impassioned language with which he endeavoured to sell it.
Not since Junichiro Koizumi, the last prime minister to promise radical reform, has Japan had a leader so obviously energised by a sense of his own destiny. Mr Abe does not possess the charisma of the Elvis-loving Koizumi, but what he lacks in appeal he makes up for in zeal.
Mr Abe pledged to be “a drill bit that will break through [the] bedrock” of Japanese regulations. He promised to be “afire, burning with all the political strength I can muster”. To allow Japan’s economy to shrink would not just be unfortunate, he said, it would be nothing less than a “cardinal sin”. (In nominal terms, at least, Japan has evidently been a sinful place in recent years.) Read more