Tuesday, 25 May 2010

Do we ever make ANY difference at all?

This fascinating analysis from Tino Sanandaji (via Marginal Revolution) reveals an unexpected (to me) fact about the Japanese "lost decade(s)".

Japan's growth from 1990 to 2007, adjusting for changes in demographic composition of the population, was exactly the same as the US and Europe's!

So for all the attention on the US technology boom, European integration, Japan's property bust and vast stimulus programmes - none of it mattered. Growth per working-age individual seems to proceed at a steady 1.6% per annum regardless of the different policy regimes, tax rates, interest rates etc etc etc.

This sheds interesting light on the claim of Adam Posen (Bank of England monetary policy committee member) that Britain faces a Japan-style decade. So does the surprising fact that the UK was the leader among all rich countries in total factor productivity growth from 1990 to 2007!

So is all of economic growth explained by some common underlying factor, unrelated to economic policy? Let's say a bit of technological progress, plus the bankruptcy or shrinking of the least competitive firms each year. Maybe that is enough to ensure our society and wealth continue to progress.

And talking of technological progress - maybe it's relevant to point out this statement from Scott Sumner:
In 1927 Lindburgh flew a primitive airplane over the Atlantic. By 1968 we had the Boeing 747. (In 1969 the moon landing.) In the next 42 years commercial airplanes hardly advanced at all.
And yet, in 1970 the airline industry sold 550 billion passenger-kilometres. In 1995, 2.5 trillion. In 2010, about 5 trillion. So in this 42 years of making no advances, the airline industry somehow managed to provide ten times as much air travel and, presumably, ten times as much positive impact on people's lives. Maybe inventing new kinds of plane isn't what drives growth after all.

More on that in another article.


Min said...

"Maybe inventing new kinds of plane isn't what drives growth after all."

For those of us who believe in living in energy balance with our environment, that is a hopeful possibility. :)

Nick Rowe had an interesting post about this some months ago. :)

BTW, I read something interesting recently. (On the web, so I cannot vouch for its veracity.) The claim is that the Dark Ages were not just a time of political turmoil and loss of knowledge, it was highly deflationary.

Are deficits necessary for growth?

no-win-no-fee said...

We all make a difference, to somebody.

However, the difference you make is noticed in different ways. The bigger your bank balance, the more the difference you make is noticed by the general public!