Wednesday, March 3, 2010
Economists overestimate the importance of their subject.
Recessions and failure by governments to adequately deal with them explain poor economic growth for a few years – perhaps up to five years. But the longer such poor economic growth goes on, the less likely it is that economic policies are to blame.
Reason is that in the long run, economic growth is determined by the pace of technological improvement OTHER THINGS BEING EQUAL. And a large number of factors fall into the “other things being equal” category. That is, I’m assuming, 1, constant population, 2, constant hours per week for those who are in work, 3. Constant levels of “rule of law” versus “corruption” etc etc.
For example Gillian Tett in considering Japan’s economic policies in the Financial Times says “The experience of Tokyo is salutary, not least because Japan has never truly returned to vibrant economic growth in the decade after its banking woes.
I suggest there is another explanation for Japan not “returning to vibrant economic growth”, as follows. Up to very roughly 1990 Japan had the relatively easy job of copying the technology of the US and Europe. Once a country is as technologically competent as other leading countries, it then has to invent and implement technology faster than its rivals: much more difficult.
There is no shortage of Japanese inventors: but the fact remains that inventing is more difficult than copying.