Now that Janet Yellen is to be Chair of the US Federal Reserve Board, attention has turned to the candidate to succeed her as Vice Chair. Stanley Fischer would be the perfect choice. He has an ideal combination of all the desirable qualities, unique in the literal sense that nobody else has them. During his academic career, Fischer was one of the most accomplished scholars of monetary economics. Subsequently he served as Chief Economist of the World Bank, number two at the International Monetary Fund, and most recently Governor of the central bank of Israel. He was a star performer in each of these positions. I thought in 2000 he should have been made Managing Director of the IMF.
Category Archives: monetary policy
Japan’s Consumption Tax: Take it Slow and Steady
Japan’s consumption tax rate is scheduled to increase substantially in April (from 5% to 8%). The motive is to address the long-term problem of very high debt. (Takatoshi Ito has stated the case in favor of the tax increase.) Prime Minister Shinzō Abe has apparently decided to go ahead with it. Many observers, however, are worried that the loss in purchasing power resulting from the sharp increase in the sales tax rate will send the Japanese economy back into recession.
It is very reminiscent of April 1997. I remember Larry Summers, who was then Undersecretary of the US Treasury, repeatedly warning the Japanese government that if it went ahead with the consumption tax hike that was scheduled for that date, Japan’s economy would go back into recession. I was in the US government then too. As the date drew near, I asked Summers why he persisted in offering Tokyo this unwanted advice, given that the prime minister of the day was clearly locked into the policy politically. Summers told me that he knew he was unlikely to change their minds, but that he wanted to be sure the Japanese would realize their mistake when they went ahead with the tax increase and his prediction subsequently came true – as it did.
Dispatches from the Currency Wars
The value of the yen has fallen sharply since November, owing to the monetary component of Japan’s efforts to jump-start its economy (“Abenomics”). Thus the issue of currency wars is expected to feature on the agenda at the G-8’s upcoming summit in Enniskillen, UK, June 17-18.
The phrase “currency wars” is catchy. But does it have genuine analytical content? It is another way of saying “competitive devaluation.” To use the language of IMF Article IV(1) iii, it is what happens when countries are “manipulating exchange rates…to gain an unfair competitive advantage over other members…” To use the language of the 1930s, this manipulation would be a kind of beggar-thy-neighbor policy, with each country seeking to shift net exports toward its own goods at the expense of its neighbors.