Abenomics destination?

Trump’s anti-trade campaign rhetoric, for which Japan was often a target along with China and Mexico, jolted the Japanese government enough after the election that Abe deemed it incredibly important to hear the then president-elect in person. Enacting that rhetoric would bring an end to the Abe’s government, and would pull down the country’s economy into a tailspin.

When Abe assumed office in September 2012, he surprised his Japanese compatriots and bewildered the international community by ushering in a set of economic policies that became known as Abenomics. He continued with his economic agenda after his win in the December 2014 general election. John Kenneth Galbraith said, “In economics, the majority is always wrong.” George Bernard Shaw confirmed the same even more bluntly, “If all the economists were laid end to end, they’d never reach a conclusion.” Abe pushed his economic plans steadfastly, for better or worse, regardless of consensus.

In 2012, observers did not dwell if Abenomics would be a quick success or failure. The key question was whether Abe would change course if the expected results did not materialize over time. It was more of “where we are going,” than “when we get there.”

Abenomics got a shot in the arm when the Bank of Japan sent the interest rate to the negative territory. It got a booster last month when BOJ did not push the rate into positive. It can then be said with poise that the Japanese era of open-end cheap money marches forward.

Japan’s lackluster economy and prolonged stagflation that started in the 1990s created a situation that some critical actions were needed by the time Abe took office. Many thought some targeted stimulus and monetary adjustments would become the new PM’s top economic priority. Instead, Abenomics was introduced in a dramatic fashion.

Abenomics brought the cheap-money epoch to Japan that was neither prepared for it nor had a tradition of absorbing that kind of money. Incredible amount of money was thrown into the economy in hopes of creating inflation by kindling higher consumer spending.

The large economies of northeast Asia are all incredibly exciting. Yet, Japan’s economic development historically differs from Korea and China in some sweeping ways. Korea went through a long period of dictatorship while that was justified by its proponents as a necessity to grow the economy. That ended at the end of 1980s. Koreans realized that continued prosperity could not be achieved without political reforms. In a famed December 1984 article, China’s People’s Daily argued that the modern economic solutions for China could not be found in the works of Marx and Engels. That cemented the post-Mao era in the direction of economic liberalization. Today’s China enjoys spectacular economic success thanks to disregarding the orthodoxies that severely limited its development. Japan has been different. After formal surrender in September 1945, post World War II Japan started a new chapter afar from its dreadful imperial past. It brought in democracy along with leveraging its industrial superstructure to deliver valued manufactured products.

War-torn yet industrious Japan saw its future salvation in exports. That meant high degree of domestic savings to channel resources for products that needed to compete globally with advanced manufactured goods of the West.

The controversial protectionist policies of Japan, ranging from automobile to rice imports, helped the succession of governments to implement a monetary policy that had high interest rate as a component of keeping in check domestic consumer spending. A string of disciplined fiscal policies permeated down to individual citizen’s surfeit saving.

All that worked marvelously, but then it led to sustained stagflation. Abenomics was billed as a solution to fix that, in search of illusive inflation. Yet, just last month, consumer prices index was flat as compared to last year, illustrating a continued worrisome trend.

Where is Abenomics heading? Abe has shown no inclination to changing his government’s economic policies. But results vividly defy the objectives of those policies.

The famed investor, Warren Buffett, said, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessel is likely to be more productive than energy devoted to patching leaks.” Food for thought when it comes to Abenomics.

Jahan Alamzad is a management consultant. He lives in San Carlos.