## 1/20/12

### Tim Duy on Japan or why macroeconomics is wrong

Tim Duy on Economists View posted (http://economistsview.typepad.com/economistsview/2012/01/fed-watch-japan-revisited.html) on the current recovery of Japan and also mentioned usuall macroeconomic rubbish on "lost decades". This is one of good examples showing that the mainstream macroeconomic theories are  worthless and confusing. These people do not actually understand what drive a developed economy like the Japanese one.

We have already decribed the evolution of  a developed economy as expressed by real GDP per capita, G. There are two component in play - inertial growth, A/G,  and the change in a specific age population, dNs/Ns ( following paragraph is borrowd from our book "mechanomics. Economics as Classical Mechanics)
dG(t)/G(t)=A/G(t)+0.5dNs(t)/Ns(t)dt   (1.8)
where A is an empirically determined coefficient, Ns(t) is the number of people of the defining age. For Japan, the defining age of eighteen years has been found.  Relationship (1.8) implies that the growth rate of GDP depends explicitly and entirely on the attained level of real GDP per capita and the population change. If to gather relevant terms on both sides of the equation, this relationship can be simplified in the following form:
d[G(t)-(At+C)]/G(t)= 0.5dNs(t)/Ns(t)  (1.9)
where C is the constant of integration, i.e. the initial condition of the initial value problem.

From (1.9) one can derive either the evolution of G or Ns depending on the purpose. Since the number of 18-year-olds can be estimated by integrating (actually by summation of discrete estimates) the left hand side of (1.9) with the measured annual values of G and also enumerated by population surveys one can  compare results visually and statisticaly. Figure 1.23 (also from the book) demonstartes that the evolution of G follows up the evolution of Ns. Since G can not affect Ns the causality directio is opposite - the change in Ns drives G.   From 1.23, one can  understand that so called "lost decades" actually manifest the fall in the number of 18-year-olds since 1992. Accordingly, the years before 1991 are charaterized by increasing Ns and thus are called "economic  miracle".  Finally, one can extrapolate the younger age cohorts into the future and estimate the future evolution of G. Figure 1.23 shows that the years of low economic growth are left behind and the 2010s will be charaterized inertial growth only, A/G, since Ns will not be changing. This is not fast economic growth, A/G~ 1.5% per year, but is definitely better than the permanent depression of the 1990s and 2000s.
Figure 1.23. Enumerated and predicted number of 18-year-olds.