Anthony Hilton: Economists brave enough to debunk our cherished beliefs


Keynes warned in the 1930s how many people who would consider their views soundly based, rational and, of course, correct were in fact slaves in their thinking to some defunct economist. Not only has this not changed, but those who do from time to time try to point out how many of our most cherished beliefs are totally wrong still get ignored.

One reason I admire Andrew Smithers is that he does still keep trying. A few months ago he pointed out how the short-term bonus culture was destroying business because it made executives less willing to invest for the future. This week, at a lunch organised by the Japan Society, he casually demolished that article of faith of investors politicians and economists that the Japanese economy had stagnated for the last 20 years.

The most objective measure of economic performance is the growth in output per employee, he said, and on this basis Japan has done better, not worse, than America for the past 20 years. The reason people think Japan is stagnating is because the overall growth of the economy has been flat – but that is because the number of retired people has soared and the number still working has shrunk. The pot is smaller because there are fewer people putting into it. However, those who are contributing are doing so more efficiently and productively than ever. In other words, Japan is not a basket case. Its government’s efforts to revive it are misguided because it is not comatose in the first place.

You can make a similar point about France, another economy the British love to look down on. Here John Kay points out that though the American consumer appears to have massively more spending money than the average Frenchman, the latter economy is the more efficient if measured by output per hour worked. The vast difference in consumer spending power can be explained, Professor Kay says, by long lunches, six weeks on the beach and retiring at 62 – in another words, the French choose to take their wealth in the form of extra leisure time, rather than as cash to spend on tat from Walmart. And who are we to say they are wrong?