Japan: Proof Economics Is Wrong

By Shlomo Maital   

     At university, we are taught to challenge everything – basic premises and assumptions.  Yet there is one premise Economics embraces, chiseled in stone – more is better than less.  Growth is the goal.  More GDP beats less.  

      Really?  On a hot flat planet, where large parts are burning up daily?

      As a young Ph.D., I read with passion E.F. Schumacher’s book Small Is Beautiful: A Study of Economics As If People Mattered (1973).   As If People Mattered!   Because, when people matter, and when the planet they live on matter, things look different.  Maybe, Schumacher pleads, small is indeed beautiful – and better?

       Consider Japan.  NYT columnist Paul Krugman points out that contrary to common economists’ views, Japan has done well, despite shrinking population and dwindling work force: 

     “Adjusted for demography, Japan has achieved significant growth: It has seen a 45 percent rise in real income per relevant capita. The United States has done even better, but this hardly fits the narrative of Japanese stagnation. 

     “Wait, there’s more. Managing an economy with a declining working-age population is difficult, because low population growth tends to lead to weak investment. This observation is at the heart of the secular stagnation hypothesis, which says that nations with weak population growth tend to have persistent difficulty in maintaining full employment.  Yet Japan has, in fact, managed to avoid mass unemployment, or indeed mass suffering of any kind.”

   But wait.  The narrative above is still about growth (in per capita real income).  What about ‘less’?  A Japanese philosopher named Kohei Saito has published a best-selling book, Capital in the Anthropocene”, which has sold over 500,000 copies, advocating “degrowth capitalism”. (See NYT, Best seller makes for a shrinking Japan, Thursday August 24, p. 7).  Small is beautiful.  Less is more. 

    Note:  Anthropocene means  “the period during which human activity has been the dominant influence on climate and the environment.”

       Has having more stuff truly made humanity happier?  At the cost of a burning hot planet?  When a handful are billionaires and billions are hungry?  Is the economic gospel of growth flawed or false?  If we distributed wealth better, maybe less is indeed more?

       Maybe it is time to examine basic assumptions.  What if less is more and better?  What if less growth is needed, Japanese style, than more?  What if 95 % of us economists are misguided? 

        Many countries, especially in Europe, are experiencing population decline, as female fertility plummets.  This requires a rethinking of policy.  Japan has done this.  Other countries are still trying to persuade couples to have babies, e.g. with monetary incentives. It isn’t working too well.

      Hello Kitty (see the illustration above) was invented in 1974 by Yuko Shimizu, a Japanese designer.  It will celebrate its 50th birthday next year.  Japanese design is innovative, clean, sparse, minimal – and lovely.  Like Hello Kitty.  Perhaps Japan’s economic policy is similar.

      It’s worth a close look – as Paul Krugman advises.  People matter. And they find happiness in general beyond having more stuff. Maybe one day economists will see the light.