First off, I’ll apologize. This post may seem like a bit of name dropping, but when a panel discussion is led by the managing editor of the Wall Street Journal (Gerard Baker) and he compares his panelists to the Marvel superheroes of economics, it’s hard not to. So here’s the team that took the stage: Ken Rogoff (professor of economics at Harvard and author of This Time is Different), Nouriel Roubini (professor of economics at NYU), and John Taylor (professor of economics at Stanford and creator of the Taylor Rule). Maybe not household names, but they definitely are the Captain America, Iron Man, and Thor of economists. And like superheroes are wont to do, the panel zipped around the world (figuratively) and addressed the problems in each region. I’d like to focus specifically on comments they had on two regions: China and Japan.
On China, the panel looked at that country’s efforts to move from a model of export-driven growth to one powered by domestic consumption. Roubini estimated that China wouldn’t see a hard landing, but that the shift would occur more slowly than most expect. His view is that the powers that benefit from the export-driven model are politically powerful, and that the groups who would benefit from the consumption-driven model are not. This imbalance, in Roubini’s opinion, will slow the process. Rogoff was concerned that a hard landing was somewhat unavoidable. He said, “You have to be concerned. We don’t have good data and I don’t think [China] has good data.” Rogoff put China’s GDP slowdown to somewhere around 6%, though he saw it hard to avoid some kind of hard economic landing in the next few years. Baker keyed off this comment to ask if China didn’t need 7% to 7.5% growth to keep some social pressures from boiling over. It was an important question because China’s efforts to migrate rural populations to urban areas practically requires economic growth sufficient to employ that population. If not, disaffected workers living in crowded cities are not an ideal outcome for China.
Next, the team turned to Japan. Is Abenomics working, was Baker’s question to the panel. Taylor felt that Abenomics (a response to the Fed’s quantitative easing program, according to him) had already been a success in terms of Japan’s currency. He thought that the effect on inflation would be harder to interpret, but that eventually it would have a positive outcome. Of Abe’s “three arrows” (#1 fiscal stimulus, #2 monetary easing, and #3 structural reforms), Taylor went so far as to say that there was no third arrow. “No one’s willing to shoot it.” Roubini was relatively more constructive on Abenomics. On the third arrow, he said, “it’s not doing much, but it’s not doing nothing.”
A couple weeks ago, I learned from Bob Baur (chief global economist with Principal Global Investors) that Abe actually comes from Yamaguchi Prefecture, which is the home of the Legend of the Three Arrows on which Abe based his economic policy. Bob felt that history (both of the Yamaguchi connection and of Abe’s own political legacy) led him to believe it was perhaps premature to discount the effectiveness of Abenomics. So while Bob wasn’t on stage with these “superheroes of economics,” it felt like he could’ve been.
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