Part of the tale being spun perpetually about the economy, any economy in this day and age, relies on nothing more than circularism. Because monetary policy is so captured by managing expectations, meaning that economists and policymakers will never be anything but positive about anything ever again, you end up with nonsense as a foundation for prediction. That might pass for certain settings, like a belief in yourself or quiet confidence in something specific, but to make economic policy as a basis of not even conjecture is beyond foolish; and it very well explains why economists have cried recovery wolf as an annual ritual of comic tragedy.
As Stanley Fischer noted a few weeks ago, “Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back.”
The Bank of Japan has recently undertaken the seemingly hardline where it will refuse to bend its expectations for the future to the reality of what has transpired so far this year. To say that the economy has performed far worse than anticipated, particularly after so badly misreading the first quarter “surge”, is a huge understatement. But again, rational expectations theory in its current extreme form will not “allow” the BoJ to admit what everyone likely already knows. They must maintain the positive stance regardless (though the rumors are now saying that they will eventually reduce their forecasts, but only after this most vital quarter for the economy has completed).
So what you get is something like what Deputy Governor Kikuo Iwata uttered this week:
Iwata acknowledged that weak exports and the rising burden on households from the tax hike were among risks to the outlook, but said a pick-up in global demand and wages will keep the world’s third-largest economy on track for a moderate recovery.
The curious part about that “pick-up in global demand” is exactly what I am driving at. What he is saying is that the economy in Japan will get better because some nebulous notion of the global economy will get better; or, if you want to be specific, they expect the economy to improve because the economy is expected to improve. While he (and those like him) will not admit to engaging such circular logic, that is what it really amounts to.
The proof of that circuitous route, and something never bothered to be reckoned by media, observers or whomever, is that the BoJ said the same exact thing, even with regard to “exports”, just last year.
Overseas economies have been moving out of the deceleration phase that had continued since last year and are gradually heading toward a pick-up. In this situation, exports have stopped decreasing…Exports are expected to pick up mainly against the background that growth rates of overseas economies gradually pick up.
That statement was included in the minutes from the April 2013 BoJ policy meeting that officially set QQE in motion. To make sure that “expectations” were properly aware of that sentiment, it was reiterated again the following month in the exact same setup:
They shared the view that exports had recently bottomed out and were likely to pick up, supported by a moderate recovery in overseas economies and the yen’s depreciation in the foreign exchange market.
It was as plain then as it was when they said the same exact thing in October 2010 in engaging in their prior QE expansion, that time enlarging the asset list of what they would purchase on the “market” to include J-REITs and even ETF’s. So in 2010, it was the economy will improve because the economy will improve, same as it was in April and May 2013 and once more in September 2014.
And lest anyone get the impression that this is a specific quirk of the Japanese strain of orthodox monetarism, it is not. The European Commission’s office for “Economic and Financial Affairs” issued its semi-annual report for “Autumn 2013” under the headline of:
The EU economy has started growing again. Following a slow expansion of economic activity during the remainder of 2013, growth is set to become more robust in 2014 and 2015.
The basis for that forecast was “continued policy effort will sustain improvements in business and consumer confidence” and the ephemeral appeal of a non-specific and vague “pick-up in global growth.” This “global growth” meme is something that exists apparently somewhere that can never be measured or even accounted with the smallest sense of specific geography or detail; it just “is.”
No doubt, the Economic and Financial Affairs office will be writing a far different report for Autumn 2014, though I have undying faith that it will be equally optimistic due to a repeated and non-specific “pick-up in global growth” ; only the dates will change.
Here in the US, economists with PNC Financial Services offered in March the following summation of Janet Yellen’s assessments:
Economic growth should be stronger in 2014 compared to 2013 because of less drag from fiscal policy, a pickup in business investment, continued recovery in the housing market, better global growth with recovery in Europe, and moderate gains in consumer spending. [emphasis added]
Someday there may indeed be a pick-up in global growth, though we will probably need all our fingers (and some toes) to count how many “unexpected” occurrences disrupted that “pick-up” over the years to come. And when it does come, there will be no need at all for vagueness about its features, as it will be obvious and unmistakable. Until then, these poor attempts at rational expectations manipulation should have been curtailed by now by even a modestly curious media that is sick of writing the same lines over and over. In other words, when global growth actually does happen it won’t be much talked about, and certainly not to the unceasing degree of the past seven years.
As Chairman Bernanke outlined at the start of the second day of March 2008 FOMC deliberations:
Exports continue to be an important source of final demand and will continue to contribute significantly to growth, although it’s possible that growth abroad may slow.
Global growth, decoupling as it were, never did save the day in 2008, particularly since every other economy looked to the same global growth at the same time. Maybe that is why there is so much emphasis on currencies, since global growth, to these policymakers, just “exists” somewhere out there so it really must be that easy to devalue and take your fill. That seems to be, at least, the plan as it has to have been written in stone because it remains the axis of policy, and policy expectations, even to this day.
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