Thursday, November 13, 2014

Third arrow?

The financial press has accepted the catchy label "Abenomics" re Japan Prime Minister Shinzo Abe's proclaimed three-pronged economic policy. There would be aggressive fiscal and monetary policies as well as "structural reform". The latter is the famous "third arrow" that has not yet been fired. Launching fiscal and monetary largesse is second nature to politicians here and abroad. "Reform" is another matter.  But it's absence means the other two legs of the stool will not accomplish much. In fact, that's been the case in Japan, the U.S. and much of Europe.

The three-pronged stool idea suggests an equal distribution of weight. So it's a bad analogy. The part that could make a serious difference is number three, reform. John Taylor explains that (i) post-2008, the policies that came from Washington were erratic and ad hoc; and (ii) "reforms" have been mixed at best, e.g., Dodd-Frank.

And what do we read almost every day? Discussions of whether fiscal and monetary policies been aggressive enough. But it's not just the politicians, it's (most) economists on that same page too.