Opinion

Anatole Kaletsky

Abe’s disturbing lack of focus

Anatole Kaletsky
Apr 24, 2014 21:52 UTC

President Barack Obama’s trip to Asia this week has focused mostly on Japan’s territorial disputes with China. On this issue, Obama seems to be repeating the same mistakes he made in Ukraine.

By creating false expectations of U.S. support for the Japanese position, the president is encouraging Japan to escalate its belligerent rhetoric. That, in turn, makes Chinese military action to seize the disputed islands more likely. Everyone knows that there is no chance of the United States going to war with China to defend Japan’s claim to four uninhabited lumps of rock.

Luckily, a military confrontation in the East China Sea remains highly unlikely because the Beijing government’s top priority is economic and financial reform.  Unfortunately, this seems less true of Japan.

Prime Minister Shinzo Abe’s attention seems to have shifted from economics to diplomacy and military matters — and financial markets have started to notice this disturbing change of focus. The clearest evidence can be seen in the relative performance of the Japanese stock market.

Equities around the world have enjoyed a strong rebound in the past few weeks. While the U.S. and several European stock markets were again challenging record highs this week, the Tokyo market has been by far the world’s worst-performing stock market, down 10 percent so far this year.

Time to stop following defunct economic policies

Anatole Kaletsky
Apr 19, 2014 17:59 UTC

Can economists contribute anything useful to our understanding of politics, business and finance in the real world?

I raise this question having spent last weekend in Toronto at the annual conference of the Institute for New Economic Thinking, a foundation created in 2009 in response to the failure of modern economics in the global financial crisis (whose board I currently chair). Unfortunately, the question raised above is as troubling today as it was in November 2008, when Britain’s Queen Elizabeth famously stunned the head of the London School of Economics by asking faux naively, “But why did nobody foresee this [economic collapse]?”

As John Maynard Keynes observed in 1936, when he challenged the economic orthodoxies that were aggravating the Great Depression: “The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

Behind Wall Street’s anxiety

Anatole Kaletsky
Apr 10, 2014 20:49 UTC

The recent economic news has been about as investor-friendly as anyone could imagine.

It started with last week’s strong U.S. employment figures; continued through Tuesday’s reassuring International Monetary Fund forecasts, which put the probability of avoiding a global recession this year to 99.9 percent, and culminated in dovish Federal Reserve minutes, which soothed concerns about an earlier than expected  increase in U.S. interest rates.

Considering all this good news, investors could justifiably feel surprised — even shocked — by Wall Street’s sharp falls this week. By Thursday afternoon, the Standard & Poor’s 500 had given back its entire gain for the year, and the Nasdaq 100 gauge of leading technology stocks had suffered its biggest setback since 2011. Many market analysts interpreted the negative reaction to good news as a classic sign of a market top, warning that the uninterrupted rise in share prices that began more than five years ago is overdue for a sharp reversal.

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