Former Treasury Secretary Lawrence Summers predicted that policy makers in developed nations around the world will study the legacy of Abenomics, a framework he described as an aggressive attempt to address the challenges of economic stagnation.
Summers said that the assassination of former Prime Minister Shinzo Abe, the author of the Abenomics program, was a tragedy not just for his family and Japan, but the U.S.-Japan relationship and for the world, as another manifestation of “swirling anger” in today’s political sphere.
As for the signature economic framework that Abe put in place during his 2012-20 premiership, Summers told Bloomberg Television’s “Wall Street Week” with David Westin, “It will be remembered as one of the more aggressive and successful reprogrammings of macroeconomic strategy that we’ve seen in a long time.”
The program had what Abe called three arrows — an expansionary monetary policy, a flexible fiscal stance that embraced stimulus at first and discipline later and a set of structural reforms aimed at boosting productivity. It followed what some termed two lost decades, where Japan’s economy struggled with deflation and saw regular declines in nominal gross domestic product.
“It was a success by the standards of what had come before,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television, of Abenomics. “But it was not a fully ‘mission accomplished’ in terms of what was happening in Japan.”
‘Mixed legacy’
Japan’s economy saw a renewed drop in GDP after a sales-tax increase enacted in 2014. And despite a gargantuan expansion of the supply of money by the Bank of Japan, policy makers failed to reach their target of sustained 2% inflation.
Summers described the Abenomics program as having “radically expansionary policy both on the fiscal and on the monetary side and with structural policies like major efforts to get women working and enfranchised in the labor force.”
If, following the current inflationary episode, there’s a return of so-called secular stagnation — where the pool of savings is so great relative to available investment opportunities that it drives down interest rates and ultimately growth — Abenomics will be examined by others, the former Treasury secretary said.
If secular stagnation does “recur in Europe and in the United States, then I think that Abenomics legacy will be studied very, very carefully — because, in some sense, Japan was the first to experience the challenge of demographic contraction and of excess saving,” Summers said.
U.S. jobs
Speaking after the release of the June U.S. jobs report, Summers also said that there is “nothing here to suggest that the economy is currently collapsing into recession.”
U.S. employers added 372,000 jobs in June, more than forecast, with the unemployment rate holding near a five-decade low.
Summers also said that while U.S. GDP may show two straight quarters of economic contraction for the first half of 2022, the National Bureau of Economic Research’s Business Cycle Dating Committee — the official arbiter of U.S. recessions — shouldn’t, and likely wouldn’t, declare that a recession, given the strength in employment.
