Hi-Stat Vox No. 26 (January 23, 2013)

Hitotsubashi University Policy Forum/Global COE Open Forum,
“What's the Use of Economics?”

Yukinobu Kitamura

Professor, Institute of Economic Research, Hitotsubashi University

Photo : Yukinobu Kitamura

On December 14, 2012, the Hitotsubashi University Global COE Program held an open forum at the Star Hall of the Josui Kaikan on the topic “What's the Use of Economics?” The forum was well attended, with more than 120 participants. The choice of topic reflects the sense among economists around the world that economics has not been able to respond well to the successive economic and financial crises that have plagued the world economy since the 1990s, giving rise to various debates under similar headings. In this sense, the criticisms that have been leveled against the economics profession are not confined to Japan.

The first presentation at the forum was given by Prof. Kotaro Suzumura (Hitotsubashi University emeritus professor, member of the Japan Academy) and focused on the topic “Design of Economic Institutions and Social Choice.” Prof. Suzumura talked about historical, philosophical, and theoretical aspects of the difficulties underlying the democratic choice of economic institutions and improvements in the economic tools for overcoming such difficulties. Furthermore, from specific issues regarding the design of economic institutions at the micro level he compellingly expanded his argument to wider issues regarding the choice of economic systems and discussed the role that economics has come to play and the role it is expected to play in the future.

Next, focusing on “Development Economics and Natural Disasters,” Prof. Yasuyuki Sawada (University of Tokyo) discussed how in the field of development economics, various insurance mechanisms have been devised and applied to prepare for uncertainties such as natural disasters. He highlighted how such mechanisms have been devised based on trials following scientific experimental methods and are subjected to policy evaluations.

Prof. Daiji Kawaguchi (Hitotsubashi University) focused on the “Discovery of Causal Relationships in Empirical Economics.” Focusing on research that treated the revision of the minimum wage law in 2007 as a natural experiment and investigated the effect of the increase in the minimum wage on employment of the young, he suggested that the higher the increase in the minimum wage in a particular region, the larger was the decrease in the employment rate among teenagers. He illustrated how, because the increase in the minimum wage rate differed by region, it became possible to analyze the effect on employment of the young as though it were an experiment. He closed his presentation by arguing that the accumulation of straightforward empirical research such as this helps to consolidate our understanding of economic issues.

The topic chosen by Prof. Tamotsu Nishizawa (Hitotsubashi University) was “Economists in the History of Economic Thought.” He concentrated in particular on Tokuzo Fukuda, who was active in the prewar period. Following the Great Kanto Earthquake (1923), Fukuda conducted a detailed unemployment survey and wrote The Principles of Economic Reconstruction and Some Issues, in which he argued that the first principle of reconstruction must be the reconstruction of people's livelihoods, that is, their daily life and business activities, as well as employment opportunities. Fukuda, moreover, played a role in the decision to revise housing legislation as well as measures to prevent unemployment and the employment placement business reform bill. In addition to highlighting the important part played by Fukuda during his lifetime, Prof. Nishizawa argued that Fukuda's conviction that what mattered was improving people's quality of life rather than simply increasing wealth subsequently has had a large influence on the economics profession.

Next, looking at the role of training in economics at Hitotsubashi University's Graduate School of Commerce and Management and Faculty of Commerce and Management, Prof. Hideshi Ito (Hitotsubashi University) talked about the current state of, and issues in, “Business School Economics.” According to Prof. Ito, economics, similar to sociology and psychology, is a basic discipline for analyzing behavioral choices of humans. He argued that one aspect of studying economics is that rather than examining issues in business organizations in a vertical fashion it involves dissecting them in a horizontal fashion. He further explained that when organizations do not necessarily function as a group of individuals making rational decisions, taking an economics approach can make it possible to understand various issues related to organizations.

Finally, Prof. Yukinobu Kitamura (Hitotsubashi University) argued that during the recent financial crisis, historical experience provided important lessons. As an example, he cited the quantitative easing conducted by western central banks based on the lessons of financial crises in the United Kingdom during the 19th century and the Great Depression. In Lombard Street, which provides a prescription for recovering from a major depression, Walter Bagehot argued that the central bank should act as a lender of last resort and provide unlimited amounts of liquidity to troubled financial institutions, but should do so at punitively high interest rates. In fact, today we are a long way from punitive interest rates and have in fact entered a world of zero interest rates. Although it is important to pay attention to historical experience, it needs to be interpreted taking current circumstances into account, as history does not repeat itself in exactly the same fashion. Thus, it is important to understand particular patterns while at the same time being aware of circumstances and constraints that are peculiar to their specific setting and time.

The panel discussion that followed the presentations provided the audience with an opportunity to ask questions, to which the panelist responded as much as time would allow. The consensus that emerged was that economics had no choice but to steadily accumulate more research and work diligently so as to be useful to people's lives.

Handouts (in Japanese) of the open forum can be found on the following website: