Choose the Right Economists

(TAKAHASHI Yoichi, PPPC Chairman)

In Kasumigaseki, the author was one of the few natural-science-based staff studied mathematics in college while the colleagues were dominated by those having backgrounds in social sciences. Given that background, there are mysteries in the world of economic policy.

One regular style in the natural sciences is the pattern to raise a hypothesis and to prove it through experiments. If it is not proved in controlled laboratories, then you attempt to prove the accuracy of your hypothesis by citing the natural phenomena. In mathematics, needless to say, it is not experiments but the logic that proves your hypothesis. If it is not proved, then your hypothesis can be recognized as an error, and it could be disproved if counterevidence were found.

However, in the social sciences, namely in the world of economics, while it adopts the style to gather the past data to prove hypothesis, the theories proved by the past data are rarely utilized in the policymaking process to make future predictions. If one makes an economic prediction, then any outsiders would know in the future whether the prediction was right or wrong.

Economists or scholars do not make such forecasts in Japan, as it may become challenges to them. But one of a few chances just came in; the consumption tax hike to 8% from this April decided last October. This is a good opportunity to test the ability of economists or scholars because the accumulation in the economics is already adequate to make economic forecasts after the tax-hike.

This (http://www5.cao.go.jp/keizai-shimon/kaigi/special/tenken/) is the list of names of people called by the government to state their views, including Japan’s leading economists and scholars. Most of their views were that impacts of the tax-hike to the economy would not be damaging ones, and unfortunately, by now, they proved to have been incorrect. The implication could be either that they only stated their desires without using the economic theories or they do not understand the economic theories from the first place.

This (http://gendai.ismedia.jp/articles/-/40156) is a list of private-sector economic forecasters, whose forecasts are as rarely-correct as dice games. And most of them spoke favorably to the consumption tax hike as its impact on the economy would be small, which also proved to have been wrong.

The government released its official view that the present economic situation is partly due to the irregular weather conditions, but it only sounds as an ex-post excuse. In fact, there is a possibility of economic forecast models taking into consideration the weather conditions; when the author was working in the Ministry of Finance, I once tried to entail the average temperature in summer to estimate the volume of consumption of beer in calculating the liquor tax income. However, it is a matter of the single item of beer and not about the whole macro-economy. Indeed, the weather conditions might affect fluctuation of a specific industry but not the entire macro-economy.

Also, to note, the government’s traditional stance should have been the one not to take weather conditions into consideration. This is to evade criticisms that the government did not take countermeasures to possible disasters despite its weather predictions.

In any case, this is a waste of time listening to opinions of the people who made wrong economic forecasts last year. Nonetheless, the government schedules to hold hearings from the people who stated their views a year ago in order to decide another tax-hike to 10% from next October.

Listening to opinions of the people who made error predictions, you risk making a wrong choice once again. What is the government’s intension to hold hearings from such people? Perhaps disobeying words of the people who made errors may result to good consequences.