Economic Growth, Innovation – Fundamental Concepts in Orthodox Economics (Mainstream and Marxist Included) That Are Somehow Overlooked

Economic Growth, Innovation – Fundamental Concepts in Orthodox Economics (Mainstream and Marxist Included) That Are Somehow Overlooked

The essence of economic policy is the decision-making process of weighing the benefits of investment against the opportunity cost of “doing nothing.” Short-term expenses are visible, but the growth and innovation lost by avoiding investment are hard to see. That is precisely why we must adopt a very long-term perspective, position public investment, R&D, and human capital investment as “responsible active fiscal policy,” and maximize the expected benefits for society as a whole.

・Introduction

To state the conclusion simply first: If you do not invest, you may gain the opportunity benefit of saving money, but you may also incur the opportunity cost of having no economic growth and no innovation. Conversely, if you do invest, you may incur the opportunity cost of losing money, but you may also gain the opportunity benefit of achieving economic growth and innovation. Whether you do something or do nothing, you will always gain something and lose something.

・The Unavoidable Problem with Education

Given that humans have limited time and cannot process methods in parallel, it is unavoidable, but there is a problem with education and learning. Simply put, it is the act of starting one’s study from the very beginning of a textbook or course, just as it is laid out. Of course, many people probably study in various styles, such as reading the parts that interest them first. At the level of becoming a scholar, one must probably have the entire textbook memorized from beginning to end. In the first place, when taking a research position, there will be lectures to students, presentations at academic conferences, and so on, so having many gaps in the field will damage one’s reputation. Therefore, I am writing this with beginners, those who are motivated to study on their own, or those who have no choice but to study on their own in mind.

・Grasping the Big Picture First is Probably Better

When studying anything, it is better to understand the big picture first. For this reason, textbooks are devised to place tables of contents, general remarks, introductions, guidance, and overviews at the beginning. This is especially true for foreign textbooks. However, many people probably study precisely because they don’t understand the big picture. Furthermore, I believe that, realistically, few people complete or fully understand their studies, even at the introductory textbook, course, or other levels. Should this be called a human weakness? As a result, only the beginning parts of the textbook or course leave an impression. Even if one tries hard to read the textbook to the end or listen to the lecture to the end, probably not everyone understands it all in one go, or “hears one and understands ten.” Broadly speaking, isn’t it often the case that only the memorable parts of a textbook or course are retained, while the rest is either forgotten, stored away unused, or the student studies the beginning diligently only to have their impression fade as the study progresses?

・The Common Outcome of Studying

As a result, even when trying to study something, one is often left with only fragmentary knowledge. This may be especially true for those who have a study style of reading textbooks meticulously from the beginning, as they tend to become neglectful as they get to the latter half.

・The Trap of Macroeconomics Textbooks

When one tries to study macroeconomics, some textbooks are structured in the order of the very short-run and short-run economy, the medium-run and long-run economy, and the very long-run economy. Macroeconomics textbooks tend to be thick, so they are sometimes split into two volumes. In that case, I think one might study the relatively short-term economy but be crude in their study of the very long-term economy. Even if one reads the chapters on very long-run economics, they may seem vague compared to the short-run and medium/long-run economies. Especially in textbooks written by empirically-focused economists, the very long-run section may tend to be theoretical, conceptual, or something like an introduction to the history of economic thought. However, for the long-term, sustainable improvement of human well-being, very long-run macroeconomics is crucial.

・In a Sense, Very Long-Run Economics is Humanity’s Ultimate Theme

The Japanese word for “economy” (経済, keizai) is derived from a classical phrase (経世済民, Keisei Saimin), meaning “to order the world and save the people.” It sounds complicated, but from a common person’s perspective, it’s about how oneself, one’s family, friends, and descendants can become happy. From a top-down or political-economic perspective, it’s about how to design a society to increase people’s happiness.

・The Most Important Things: Technology, Growth, and Innovation

At the beginning of economics, it is sometimes written that GDP is an indicator of human happiness. There has long been criticism of this, and I feel that criticism is growing even stronger now, but I recall the macroeconomics textbooks I studied in the past were generally like that. Personally, I have a slightly different perspective, and I intend to one day depict an economic and social theory centered on trust and technology using a structuralist methodology.

・Growth and Innovation as the Royal Road of Economics

Looking at the history of economics, and its impact on society, economics and economic systems diverge in two major directions. This is easy to understand when viewed through the lens of growth and innovation. At one extreme, there is the idea of placing innovation and growth at the center of economics. This is the royal road of classical economics, the economy of liberalism and capitalism. The prime example is the United States. America has diversity across time and regions, but within the world, it is the society whose institutions and people’s consciousness are most directed toward growth and innovation. This is not about “making money.” “Making money” might be part of it, and making money is independent of growth and innovation, or rather, it is compatible with growth and innovation, but they are separate things. In fact, isn’t the failure to emphasize, or even the forgetting of, this independent aspect the reason why recent neoliberalism and globalism are in crisis? There has long been a view that “making money” is merely the result of business (not as moneymaking, but as a social or religious mission). Calvinism and Max Weber are famous examples.

・Another Direction of Classical Economics

Another branch of classical economics is Marxism. This had a decisive impact on modern history. The Russian Revolution, the establishment of the Soviet Union, and the Cold War. As an ideology, it held overwhelming influence even in the non-Marxist countries of the West. For example, Hayao Miyazaki of Studio Ghibli is famous. Miyazaki was a staunch socialist, and when the Cold War collapsed, he fell into a state of anomie, delving into Nietzsche, completing the Nausicaä of the Valley of the Wind manga, and requesting dialogues with Ryotaro Shiba and Yoshie Hotta. Japan’s current Ministry of Finance (MOF) is fundamentally a den of Marxists, and before the MOF, the University of Tokyo’s Faculty of Law was a den of Marxist economics. In fact, the University of Tokyo’s Faculty of Economics was an institution that branched off from the Faculty of Law to study Marxist economics. Before the end of the Cold War, Japan’s mass media, academia, and education from elementary to higher levels were all steeped in Marxism.

・Characteristics of Marxism

Marxism follows the tradition of classical economics. At the same time, it is influenced by Western culture, or Biblical culture. Marx’s grandfather was a Jewish rabbi, and his father converted to Christianity. It’s not necessarily because of this, but the thinking of Biblical culture is originally that the world has an end (eschatology), there is God’s judgment, the dead are resurrected, and those who receive a favorable judgment from God will attain eternal happiness. Therefore, Marxist economics also has an “end.” It holds a paradise-like view of economics and history, believing that economic development also has an end, and at its dawn, all people will be happy. In such an era, as described in the Biblical books of Amos and Micah, and as successive prophets criticized the realistic economic management of the government (or king), an ideal society will emerge where issues of making money and wealth disparity are resolved. Simply put, this is the vision of Marxism. It may not deny economic growth or innovation, but it is the idea that such things will be strictly managed and distributed. On the other hand, there is a coexisting view that in the ultimately developed world, growth and innovation may not be necessary. Perhaps because of this, in the former Soviet Union, private-sector innovation and growth were suppressed, and only mission-oriented investments were made in technologies such as the military. It is negative toward private growth and innovation, or rather, suppresses them because they are difficult to manage. As a result, the former Soviet Union became a strange society in a permanent recession. Seeing this as “strange” might just be how it appears from the other side, the Western liberal side, which places growth and Schumpeter’s creative destruction—innovation—at the core of the economy. Ironically, present-day China has adopted a system similar to the former Soviet Union, investing in military, EVs, semiconductors, and environmental technology, while oppressing the private economy—or rather, leaving the post-property-bubble recession unattended, or rather, controlling it while it remains in recession.

・The Middle Path Between America and the Soviet Union: Classification by Tolerance for Growth and Innovation

There is the idea of socialism. The definition is not clear. During the Cold War, there was a flurry of activity defining it in various ways using “Iwanami language” (a form of arcane Japanese academic jargon). Broadly speaking, it is the idea of maintaining a moderate distance from growth and innovation, considering harmony with society. This is the idea of social democracy in Europe. It seems social democracy would be fine in Japan too, but it is not much publicized. I think there could be more political parties that promote themselves as social democratic parties, but if I had to name one, it would be the former Democratic Socialist Party (DSP). The DSP has similar characters to the Social Democratic Party (SDP) or the Socialist Party, so young people today might just see it as a left-wing party, but it was rather different. Its former members seem to have been absorbed into the old SDP, the Constitutional Democratic Party, and others.

・National Socialism and State Capitalism

It’s unclear what National Socialism means, but because the official name of the Nazi party was the National Socialist German Workers’ Party, the term “National Socialism” seems to be avoided today. This is also a form of socialism. Competition and innovation are emphasized, and the lives of the common people, i.e., “workers,” are also considered. Because words like “National,” “German,” and “Workers” are peppered throughout, one can see that “for the Germans”-style nationalism was emphasized both in the name and in historical practice. This is probably shunned in the current world order, which tries to get along with the whole world, especially neighboring countries. In any case, the impact of the Nazis was too strong, making the term difficult to use in the West.

・Japan and Developing Countries

For a long time, Japan was seen as a model case for the world of a developing country achieving economic development and becoming an advanced nation. Also, meaning that Japan is a strange country, an anecdote was often used that there are only four types of countries in the world: “advanced countries, developing countries, Argentina, and Japan.” The Japanese model for developing countries catching up to advanced ones is basically to copy innovative… well, all innovation from the US and Western Europe, and to place extreme emphasis on economic growth. Because this method has been followed since the Meiji Restoration, Japan has a history of being heavily criticized as a “copycat nation” or “Japanese people lack originality,” and being discriminated against—though I don’t like the undefined word “discrimination.”

・Innovation-Specialized Nations

They may not be top-tier innovations that rewrite the history of science or technology, but there are also innovation-specialized nations. These are the industrial promotion policies characteristic of small and medium-sized European countries, like the Nordic countries or Switzerland. This can be understood by considering regional revitalization in Japan. It is a strategy of pursuing uniqueness to fill or uncover niche demands and becoming the “one and only” within that space.

・Looking Back at Japan

To give a brief summary first: “‘Fiscal soundness’ should be redefined as an intertemporal soundness that includes not only the right side of the balance sheet (liabilities) but also the future benefits of the left side (assets, human capital, and intellectual capital).” The development of modern economics began in the mid-20th century. It developed in the West, so its import and spread to Japan were delayed. As a result, Japan hard-landed its real estate bubble and experienced the “Lost 30 Years” of continued austerity-based reverence. The delay in importing modern economics means that Japan was practicing “modern-era” (pre-WWII) economics during that time. For example, the currently talked-about Ministry of Finance (MOF) operates on Marxist economics, has a strict hierarchy, and built a system of “amakudari” (golden parachute) vested interests, thus favoring fiscal austerity. It’s now called “primary balance zero,” but in the extreme, it’s unclear if they are aiming for a pre-1960s state of zero government bond issuance, i.e., a debt-free nation, but that’s the extreme implication. Lately, it’s famously called “MOF fundamentalism” (Zaimu Shinrikyo), even sparking protests. Recently, gross debt (gross assets) and net debt (net assets) have also come to be understood. This is thanks to the people who have helped spread and enlighten Japan about economics. At the same time, it seems the percentage of Japanese people who are not just relying on withholding tax from organizations, but are investing, inheriting assets like condos, starting side businesses, small businesses, enterprises, or becoming sole proprietors has increased, so that likely has an influence too. Perhaps we haven’t reached a point where people can see the world like Antonio Graziani’s monetary circuit theory—viewing all economic agents as accounting ledgers, and seeing the pair creation, pair annihilation, and exchange of money (credit, capital, debt, equity, etc.) and value—but isn’t the number of people with a similar sensibility increasing? If you don’t invest, there is no innovation or growth, so Japan became a country with no growth and no innovation. The economy is always a trade-off. If you invest, you pay its opportunity cost. Even if you don’t invest, you pay its opportunity cost. Whether you invest or not, you pay an opportunity cost either way. Not limited to investment, even if you lend money, both the lender and borrower pay an opportunity cost. Everything comes with an opportunity cost. From the perspective of trade-offs and opportunity costs, for everything, if you gain something, you lose something. And if you lose something, you might gain something. “Good things and bad things occur simultaneously like two sides of a coin”—this is written at the beginning of economics textbooks, so quite a few people probably know it, right? However, this is also a terrifying “shortcoming.” The problem is that there is no way to escape this. “Doing nothing” might seem like it doesn’t require paying an opportunity cost. But “doing nothing” also incurs an opportunity cost. In other words, whether you do something or do nothing, an opportunity cost arises. Many people might think, “If I do nothing, at least I won’t lose anything.” But even if you do nothing, you are continuously paying some opportunity cost somewhere without knowing it. Becoming aware of and conscious of what that opportunity cost you are paying is, becomes good training for acquiring modern philosophy’s structuralism or post-structuralism. In the era of deflation, the Lost 30 Years, Japanese people refrained from investing. And they paid the opportunity costs of declining economic growth, suppressed creation of innovation, national poverty, inequality, and a declining birthrate. There is also the idea that the Lost 30 Years were actually a good thing. The hard landing of the real estate bubble through total volume regulations and insane monetary tightening is a done deal, so it can’t be helped. There’s a theory that the response over the subsequent 30 years was bad, but there’s also a theory that it was, in fact, good, and that theory has a point or two. If the disposal of non-performing loans had been advanced rapidly, society might have become more unstable. If there had been no phase of rapidly advancing the disposal of non-performing loans, we might still be suffering from a balance sheet recession. From another perspective, Japan was left behind during that time when the world was sprinting ahead with neoliberalism and globalism. However, for any economic policy, timing, duration, and degree are important. While Japan was doing nothing, the world went full-throttle with it and is now stumbling quite a bit. Japan was somehow lucky enough to escape the worst of the harmful effects of such neoliberalism and globalism (international financial capitalism). This might be called the “opportunity benefit” gained in exchange for the opportunity cost of “doing nothing.” The world and the economy may not be a monetary circuit theory, but the economy, or society, or trust, technology, industry, politics, whatever—they are sometimes connected by invisible structures. Learning various structures, various information processing methods, various ways of seeing, various ways of thinking, various structures, and various methods of structuralization in order to make such things visible might, on some occasion, be a skill that saves you. And in another sense, it is also recommended in modern philosophy. Though it has a place that is too biased toward intellectualism, and that itself may have demerits, or rather, one may have to pay an opportunity cost for it.

・Conclusion

I will repeat the introduction. If you do not invest, you may gain the opportunity benefit of saving money, but you may also incur the opportunity cost of having no economic growth and no innovation. Conversely, if you do invest, you may incur the opportunity cost of losing money, but you may also gain the opportunity benefit of achieving economic growth and innovation. Whether you do something or do nothing, you will always gain something and lose something.