Abenomics part three

Japanese prime minister Shinzo Abe has unleashed the 'third arrow' of his package to revive the Japanese economy.

He has declared a target to increase incomes by 3%. To be compared to his inflation target of 2%. That is real income growth (of only about 1%, but growth nonetheless). It seems Mr Abe has realised, at last, the key to a vibrant economy is widespread prosperity. No amount of trickle down from a super rich elite will do. You need either an expanding middle class (like the BRICs) or expanding middle class incomes, like the post war west.

So actually what you really need is expanding aggregate income for ordinary people.

That is just what Mr Abe plans.

So far, all the asset buying, quantitative easing as they call it, a kind of modern day money printing, has seen a lot of newly minted money falling straight into the pockets of those rich enough to own assets. You may think that we all own these sorts of assets via pension funds, but that is less true by the year. And given the requirement for pension funds to own Sovereign debt, and the price manipulation we have seen in the market for sovereign debt, pension funds for ordinary people have been a particularly poor way of transmitting this historical largesse to people on he ground.

What has been striking during this crisis is the vast amounts of money thrown at supporting financial markets, i.e. the rich. And the preferred methods of paying for it? Target ordinary people. Via social security, medical benefits, publicly funded education. Whatever else you can think of.

Looks like Mr Abe is showing at least some intention of facing these vested interests down.

The squeals of the elite can be heard all the way from Tokyo. "'Abenomics' should not lean toward a planned economy and market players are attaching greater importance to deregulation, not these numerical targets."  said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

I have news for the economists of  Dai-ichi Life Research Institute, we have tried your neo liberal economic policy. We have tested is to exhaustion and destruction. It failed.

Share markets fell at the news. Cry me a river.