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Hello and welcome to the Intelligence Economist Radio. I'm your host, Jason Palmer.
Every weekday, we provide a fresh perspective on the events shaping your world. Research from this year's Jackson Hole meeting of central bankers and economists suggests the pandemic may well affect consumers and investors decisions for the rest of their lives. Central banks will need lots of help to keep things on an even keel. And chicken or pasta, chicken or pasta, chicken or pasta. With so many flights curtailed or avoided, which in-flight meal you'd like isn't being asked so much in the air.
But here's the funny thing. Those meals are selling like hotcakes on the ground. First up, though. On Friday, Abe Shinzo Abe announced he would be standing down as prime minister of Japan.
Door to door to abandon the right to handout I am the 65 year old has long suffered from a chronic bowel disease, but his condition has worsened.
Mr Abe said he didn't want his illness to get in the way of decision making, and he apologized to the Japanese people for failing to complete his term in office. Last week, that term as prime minister became the longest since the post was created for a post imperial Japan, and it isn't even his first time in the role. He'll remain until a successor is chosen. Successor will face some pressing challenges.
So the press conference where Mr Abe announced his decision to resign was somber, to say the least. Noah Snyder is our Tokyo bureau chief.
I ran into one of his advisers who looked, to be honest, like someone had died. Even his inner circle, his closest associates seemed shocked by the sharp turn of events. The Japanese press, meanwhile, was peppering the prime minister with questions primarily about his legacy, about the problems he left unresolved and the accomplishments that he felt most proud of.
Well, and about that legacy. How has Japan changed under Mr. Obama's leadership?
So Mr. Abe had a first brief stint as prime minister in 2006 and 2007 before stepping down because of the same chronic intestinal disease when he took office again in 2012. He came in determined to revive the country's economy and its standing in the world.
So, ladies and gentlemen. Japan is back, you famously declared that Japan is back in 2013 for Mr. Abe. That meant primarily an agenda of economic reform that came to be known as Abu nomics, monetary easing, fiscal stimulus and structural reform where the so-called three arrows. And he also helped to beef up Japan's military, its self-defense forces. He proved an able manager of Japan's relations with the United States, especially after Donald Trump's election. It was quite telling.
I thought that the Australian Prime Minister, Scott Morrison, said that the region had lost a senior statesman after Abbott announced his resignation and about the program of economic reform.
The dynamics, how successful has that been?
It's a mixed bag. On the one hand, the radical monetary easing that the Bank of Japan pursued did help pull the economy out of deflation, though it never quite hit its two percent inflation target. His his program of reform helped inject a bit of life into the economy. But at the same time, this third arrow structural reforms was probably the weakest piece of the puzzle. He wasn't as successful at promoting female empowerment and also promoting digitalisation and Japan's bureaucracy and its somewhat archaic corporate sector.
Now, covid has threatened to erase many of the gains that were made in the last eight years. In fact, real GDP is now down to the level it was before Mr Abbott took office in 2012.
And what other challenges will his successor have to face?
Well, there are some enormous long term structural challenges. First and foremost, a shrinking population, a mounting, gargantuan public debt, an anemic economy now, and an increasingly turbulent neighbourhood with a rising China. What's more, there are several shorter term problems to solve managing the covid-19 pandemic and figuring out whether Japan will be able to host the Olympic Games that were planned for for this past summer.
And what about the hunt for that successor? How how will that play out?
So Mr Abbott's successor will be decided inside the Liberal Democratic Party, the ruling party of Japan. This is going to be an insiders affair. And whoever does take over, whoever wins the leadership election, that is expected to happen in the coming weeks, that person will rule until the end of Mr Abbott's current term. So until September of next year and then face another party wide general election. There are two candidates who are seen as possible transitional figures to serve out the remainder of Mr Abbott's term, namely the deputy prime minister.
Also Taro and the chief cabinet secretary, Suger Yoshiki there. But that would only delay the eventual fight for the leadership of the party and the country at large. There are a number of figures who pop up in discussions about potential successors former defence minister, former foreign minister, as well as the current defence and foreign ministers. And there will be a lot of jockeying in the weeks, months to come.
And so in that you see a smooth transition of power, no big changes to the agenda.
The policy agenda may remain consistent. This succession will be decided on the basis of factional arithmetic and personalities rather than deep policy debates. But it may not be smooth. Historically, long serving Japanese prime ministers have been followed by strings of short lived, unpopular governments. Japan, in fact, cycled through six prime ministers in as many years. You include Mr Abbott's first stint before he came back in 2012.
And in today's especially turbulent times, Japan can ill afford another bout of such instability. Thanks very much for joining us, Noah. Thanks for having me. For each of the past 40 years or so, the world's leading economists and central bankers have gathered in Jackson Hole, Wyoming, to discuss the biggest monetary challenges of the day.
From New York, though, we head out to where all the central bankers are. Jackson Hole, Wyoming. Invitation to the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, is a very hot ticket for policymakers and economists alike.
What kind of smoke signals are going to come out of Wyoming in the next couple of days?
But this year, amid the biggest monetary challenge in a generation, the gathering went online with the attendant technical gremlins. So I can hear. I think I can hear you now, Susan.
The biggest news from the conference was a shift in inflation policy from America's Federal Reserve.
This change matter subtle, but it reflects our view that a robust job market can be sustained without causing an outbreak of inflation.
But for central bankers, there's much more ahead than careful policy tweaks. Research presented at the conference suggested some serious and long term effects of the pandemic that will add to economic headwinds well, for the rest of our lives.
Well, the mood of the conference was undeniably weird.
Ryan even writes Free Exchange, our column on economics, the fact that everyone was presenting and watching on Zoome rather than under the shadow of the Grand Teton Mountains. I think it was a constant reminder of all the the challenges that policymakers face. There was a lot of concern about how deep the economic hole that we're in currently is and and how difficult it will be to to get economies out of that hole and back up to speed.
And what was the sort of headline outcome of the conference? I guess to the extent that there was a bombshell that was dropped. The big news was how the Fed's going to change the way it makes monetary policy, and in particular that it's sort of a long standing obsession with keeping inflation. No more than two percent is not going to be the lodestar of policy to the same degree that it was in the past.
How do you mean? What is the Fed proposing that?
So the way the Fed has approached its job over the past 20 to 30 years or so has been to target an inflation rate of about two percent. And there's the view that if they can keep inflation on track at that level, then the economy shouldn't be running too hot and generating unsustainable messes that will be had to be cleaned up later, but should also make sure that it's pretty close to full employment and all the people who want jobs have them. Unfortunately, over the past decade or so, really, since the global financial crisis, especially, a lot of critics have said this approach just isn't working, that we end up being in a permanent slump conditions.
Much of the time the Fed can't respond as well as it needs to to crises. And so there's been a lot of pressure on the Fed to revise its strategy. And since early twenty nineteen, the Fed itself has been doing this review of its policy approach to figure out what to do. And that is what Jerome Powell spoke about last week as he met in front of the gathered faces on Zoome Jackson Hole Zoome.
What exactly does abounding that target do for the economy?
Well, there's a couple of ways to think about what this is supposed to accomplish. I guess the stepping back, generally speaking, prices to go up faster if the economy is stronger, if more people are out there spending money, if firms are having to work harder to hire people and give them raises as a result, then inflation should go up faster. So if the Fed is willing to tolerate a higher rate of inflation or even to generate a higher rate of inflation and other things equal, the economy ought to be a bit stronger.
Employment ought to be a bit more robust and so on.
And so do you think that change in attitude will be enough to accomplish what the Fed wants to do here?
I think the Fed has made a meaningful step in the right direction. You know, really, for the last generation or so, policymakers at the Fed have been far more concerned about inflation than they have been about employment and making sure that every American who wants a job can have one. It hasn't been, I think, the right way of interpreting its dual mandate to make sure that they're both stable prices and maximum employment. This represents kind of a fixing of the balance a bit.
I think the question is whether it is a dramatic enough step or radical enough step to first really change market expectations and convince markets that it's not just giving itself the room to do more, but will actually do whatever it takes to to get the economy going again.
And I think maybe there would have been ways to reframe policy that could have been clear to to the public. You know, inflation doesn't sound like something you want to be higher, right? It means prices are going up. They could have chosen an alternative. They could have chosen a target for for wage growth, for instance. And who doesn't want to hear that their wages are going to go faster? So I think that after all the criticism, after all the sense that they've kind of been making life difficult for themselves by adhering to this target, they really missed an opportunity to make a bold step in a new direction.
And I suppose making things clear and straightforward for for the working stiff is is an important facet of this when the entire world economy is is seemingly crumbling around them.
That's absolutely right. I think that. One thing that is becoming increasingly clear is that this pandemic is going to have a persistent effect on the way people view the world. There was some research presented at the conference last week that addressed this point that really looked at the psychological scarring that happens when people live through a negative economic and social experience of this magnitude. It affects their willingness to invest, their sort of broader optimism about the future, the sense that of how investments are likely to pay off consumption patterns tend to change in response to shocks like this.
People are more likely to save when they do spend, they spend on lower quality products or more heavily discounted products. And all of this is going to weigh down on the economy is going to mean that the Fed has to work harder or that economic institutions more generally have to work harder to get the same level of economic growth that they would have wanted to see before the downturn.
And how long does it look like those kinds of effects will last? The research that was presented last week suggested that, you know, once this event has made it into people's memory, it's going to continue to influence their perceptions while they're alive, which, you know, for you and I will hopefully be many decades to come, which is going to be amusing to our grandchildren. But it's going to be a real pain for the Fed and for others who are trying to make sure that there are enough jobs go around, that incomes are growing.
So in the face of the psychological effects that that have that that run that deep and last that long, what can be done instead?
Well, if you're a central banker, probably not all that much. I mean, you can be more aggressive in making sure that you deploy the tools you have to try to get the economy growing back. But I think the implication of this sort of analysis is that central banks are going to need a lot of help, especially from from governments. The government can probably do a few things to try to reduce the negative effect of the scarring. They can make big public investments in infrastructure, things of that nature which should increase the return to private investments.
They can strengthen social safety nets so that the risk of investments that go wrong is lower. But then I think there's just really no getting around the fact that they're going to have to address the root causes of the concern and do much more to persuade the public that if another pandemic hits, we're going to be much more prepared, we're going to be much better able to handle it with a minimal economic shock.
Thanks very much for joining us, Ryan. It's always a pleasure, Jason. For a lot more analysis like this, from grand conferences to grave conflicts to great concerts, subscribe to The Economist to find the best introductory offer. Wherever you are, just go to economist dotcom intelligence offer. Many of us have stopped flying because of the pandemic, if that's left you longing for jazzy Cavin music, stale air and endless security lines, well, you're out of luck.
But there is one aspect of air travel that you can experience from the comfort of your couch. It might amuse you to learn that you can actually buy the prepared food that you have on a plane and have it delivered to your home.
Charlie McCann is The Economist's Southeast Asia correspondent.
This isn't just for the diehard aviation geeks who really miss flying. These in-flight meals are actually finding a market on the ground. So what exactly is on offer here?
Well, if you're in Indonesia, Garuda, the national airline, will deliver some Nasrallah back to your home and they'll serve it with plastic cutlery on a tray just as it is on a plane. If you're in Malaysia, a company called Santtana, which is owned by AirAsia, sells Malay staples like beef rendang. And in Bangkok, Thai Airways sells more ambitious meals of stir-fry, tiger prawns and tandoori lamb chops. And adventurous Australians cannot from free meals from Gate Gourmet, with the alluring choices of Bulc main meals combination or vegetarian combination, perhaps.
And there's there's genuine appetite for this. I mean, who's buying it? Yeah, this has been a moneymaker for caterers. As I discovered while researching this piece, there is a hard core group of Instagram readers who regularly post pictures of planes, pictures of in-flight menu cards, magazines, and we're super into airplane culture. There's even a hashtag called food plane porn. And so this group of people, along with others who are sort of curious about these promotions, have been buying these meals.
Santana sells about 700 meals a day. Another company called SNAP Fresh, roughly twice that Peterboro Food, which is Garuda supplier, is actually so pleased with its retail wing that it plans on opening restaurants in three major Indonesian cities as early as September. You know, if you look at Garuda, the Indonesian airline, it's a far cry from the 80000 to 90000 meals they normally serve each day, but every little bit helps.
But at the end of the day, this is this is airline food universally derided as terrible food. Right.
The response has been mixed. One reviewer I spoke to is not a fan of plane food, but when he saw how cheap the meals served by Gate Gourmet are, they are on average, they range in price from one 80 to two dollars per meal. He thought he couldn't resist. It was a bargain. So he tried the Italian pasta, which was just too cheesy and no good, as he said. And the beef he got was very oily and very salty.
Right, because airline caterers boost the amount of salt in these meals so that when you're eating at altitude, you can actually taste something. By the same token, though, another reviewer who had another dish from Geekcorps made the chicken mango curry said that I would consider flying to somewhere just to eat this. And what about you? Are you going to be filling your freezer with this stuff?
I don't think so. I think that one of the positives, one of the positive aspects to a lot of pandemic has been that I haven't had to eat plain food. And to be honest, if my partner, who is the main chef in our household, saw that I was ordering plain food and not eating his food, he wouldn't be too pleased.
It would be plainly insulting. Charlie, thanks very much for your time. My pleasure. That's all for this episode of the intelligence. If you'd like us, give us a reading on Apple Podcast's and see you back here tomorrow.