@ marcfrans

I agree with most of your thinking about Poland. It will take them many years to reach an economy that is equal to Germany. Most of the people don’t completely understand the capitalist economy. Poland has had many people immigrate to Britain and Ireland and I’m sure this helps the Polish economy to have money sent to Polish relatives.

@ Zen Master

Concerning Poland, It seems pretty certain that the early difficult years (after the collapse of communism) are a 'legacy' of communism.  The transition to a market-based economy was bound to be difficult because people's behavior had been generally conditioned by the communist system for many decades. 

Personally, I do not think that Poland is doing much better in recent years because it joined the EU, but rather because various Polish governments have been pursuing policies of macroeconomic stabilisation.  These policies were pursued in the context of IMF-supported 'standby programs' over more than a decade, and they were no doubt induced by the necessity to achieve certain minimum goals in order to qualify for EU membership.   The results of these past successive IMF standby programs are now being felt.  However, I give the credit to the Polish governments, and not to the IMF nor the EU, because it is those Polish governments who have had to take many 'difficult' (politically) - but necessary - measures.  

In general 'regulations' will tend to raise prices, and "excessive regulations" even more so.  Except where the regulations are specifically designed to counter or compensate for some 'market failure'.  Clearly, there are situations were regulations will promote competition, and in general competition will keep prices lower (than they otherwise would have been).  However, the matter of long-term economic (income) growth is not a matter of price levels. The role of prices is to signal relative 'scarcities' of both inputs and outputs, so that economic agents can adjust their behavior 'rationally' and maximise 'utility'.  Whether an economy grows fast or slow over time (distinct from the business cycle or the 'conjuncture') has little to do with overall price levels (exchange rates and wage rates can compensate for that).  It has more to do with whether prices are allowed to be 'true prices',  i.e. whether people can make their decisions w.r.t. production, consumption, investment, and saving, on the basis of real scarcities, unemcumbered by economic 'distortions' with fake signals.       

"Back to the topic at hand ... another round of theoretical hot air won't improve the economic performance of Japan or the EU. A straightforward return to real strategic investment (instead of speculation) backed up by a viable vision of the future (combined with some limits on Forex movements) might."

That's exactly what economic theory says: growth is (in part) caused by strategic investment. Mission impossible, I would almost say that you are an economist, but I guess this is too much of an insult to you. As we are in that period of the year, I will temper my words and withhold any nasty name calling.

@ Tuur Demeester

Economics studies human behavior in the context of 'scarcity'.  It belongs thus clearly to the category of social sciences, and as such it is definitely not an "exact science".  However, that doesn't mean that one should not try both to apply logical deductive reasoning as well as statistical methods of empirical observation to the subject of 'human behavior in the context of scarcity'.  So, your predicate of "pseudo" seems unfair and too pejorative.  Economics is simply a social science, i.e. its subject is human behavior and not purely physical matter.  Which means that the results are not reproducable in the same 'certain' way as in the physical sciences.

I do not agree that it can only exist as an "a priori science".  Logical deductive reasoning is of course very important, but cannot be the sole basis for a theory, let alone a 'science'.  A theory is an explanation of a certain 'reality'.  It can only be as good as the assumptions on which it is based, or to which the 'deductive reasoning' is applied.  What could provide a better basis for fomulating these assumptions than empirical observation?  Economics as a science is not purely theoretical in an 'a priori' sense.  A lot of knowledge is gained ex post from observing the results over time of certain actions.   

@ Zen Master

Your basic point of the damage done by a lot of EU regulatory 'overkill' is in line with the basic message of the presented article on "economic growth" (Part 3).  However, I think one has to keep one's feet firmly on the ground and not engage in linguistic 'overkill' through intemperate language.  Unless, of course, one would want to follow 'mission impossible' down the road of irrational ranting over imaginary hate-objects/subjects (which in his case appear to be all economists and, of course, the USA).  Note that the subject of the article was about ways to improve the growth performance of Japan and the EU.  It is obvious that mission impossible has absolutely nothing sensible to say on that subject, and hence his ranting against presumed USA "world leadership".  When those poor Americans had to take over that role from the British Empire after WW2, obviously a lot of damage was done to parts of the British psyche.  It seems to prevent SOME from pontificating on ANY subject in a calm and rational way.

Let's return to your intemperate language.  Given the mainly negative role that the CAP (common agricultural policy) has played within the EU, I have little doubt that certain provisions of the accession treaty, under which Poland and Hungary joined the EU, may have been damaging to Polish and Hungarian farmers.  But it seems ridiculous to suggest that this has "ruined" many economies of new members.  Two observations.

-- The Polish economy has been growing fast in recent years.  Any news story that claims that it has been "ruined" cannot be taken seriously.  Even apart from the specific provisions of the treaty, joining an economic union will inevitably entail both trade creation and trade diversion.

-- Why would anyone want to join an economic union that is going to "ruin" them?  It is not rational to assume that the Poles, the Hungarians, and others are fools.  They can make an evaluation of pros and cons for themselves.

But, your criticism of "damaging" EU regulations stands.  That is why the article argues for careful consideration of the impact of regulations (any regulations) on productivity and employment.  This would apply equally to national regulations as to 'international' regulations.  

is the study of human behavior and not the study of 0's and 1's where everything fits exactly in some category. Therefore, economics is not an 'exact' science. Furthermore, human behavior changes over time and consequently economics changes also. Even within Europe, at any moment in time, human behavior (propensity to save, to invest, to enjoy working etc) changes consiserably from country to country.

In economics 1 + 1 does not always equal 2. Sometimes it is 1.8 or 2.3. Some people, like me, love this kind of science.

Economic theory is often based on disecting data with quantitative methods (like regression analysis). Sometimes, economic researchers 'manipulate' (or 'torture' as my prof used to call it) data in order to make the data admit to a certain theory. This is of course wrong and is even not a pseudo-science but a lie.

The article 'fools put faith in data alone' is a good critique on the current practices of economics:

http://www.mises.org/story/2056

However, this doesn't mean there is no correct economic theory. Economics can only exist as an a priori science, using the methods of introspection, logical consistency and deduction. This method has been developed since the late 19th century to by the Austrian School of Economics.

For anyone interested, I would warmly recommend the studyguide of the Mises institute:
http://www.mises.org/studyguide.aspx?action=subject&Id=116

Most governments have become quite adept at demand-side management through appropriate fiscal and monetary policies.

Yes, they have adeptly fuelled an irresponsible (and inappropriate) credit boom and property asset bubble.

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But that is essentially concerned with limiting short-term cyclical movements (of aggregate demand) around the underlying trend line of potential GDP.

Economists have become so enamoured with their jargon and so-called analysis tools, they've convinced themselves they can apply process control theory to a whole economy. There are inherent lags and non-linearities in any economy, so "short-term cyclical movements" are normal and unavoidable. Dampen the system too much and you make your measurements insensitive, and the economy non-responsive.

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Developed and/or diversified economies create new jobs all the time.

That's right. I understand there are westerners in gainful employment right now, tasked with the actual sending of work and employment opportunities to gleeful companies overseas. Even traitors are gainfully employed whilst they perform their treachery.

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Growth in GDP per capita will depend on (1) growth in GDP per hour worked and on (2) growth in hours worked.

Wow ... I didn't know that! See, I told you ... Economics is even more complex than Rocket Science!!

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Indeed, in many developed countries labor utilization has actually declined somewhat in recent decades, so that productivity growth has to be even higher (than it otherwise would have to) for GDP per capita to grow.

Yes it has, and this is mainly due a number of non-economic factors:

(1) A prejudice against retraining people who are aged over, let us say, 45 years old;

(2) A welfare economy that has been put into overdrive;

(3) Political leaders of developed countries who are more focused on developing peoples other than their own (e.g. UK's Chancellor of Exchequer on his 'bleedin' heart' Africa tours);

(4) There are natural limits to productive growth due to human foibles, emotions, and an aversion to being treated like robots;

(5) The overwhelming influence of productivity growth in low-cost centres such as India and China. For every 1% improvement in those economies requires a circa 3% improvement in the West just to keep pace.

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That is were the ‘productivity gap’ with the US can mainly be found, and that also explains the lower GDP per capita in most European countries and Japan.

I don't see what is to be gained by being compared to a bankrupt nation (the USA) and a nation built upon the largesse of that same bankrupt country (namely Japan, which has in any case been mired in depression for over 12 years).

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Typically, overall GDP growth in developed countries is now in large measure driven by the growth in local service sectors, like retail services and construction.

Proof positive (almost) the Western economies -- having exported or given away (for free) all of their former manufacturing capability -- have recently been converted into one big shopping mall. The construction growth mentioned is mainly to facilitate the shopping (and leisure) bonanza: more shopping malls, distribution centres, security systems, and credit centres for the financing of consumption.

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Thus, for example, regulations restricting the scale of enterprises or labor laws restricting layoffs can often destroy the potential (productivity) benefits of R&D and of information technology investment.

R&D is now already being performed in low-cost centres like India and China. So, it is rather late in the day to be arguing for increased R&D in the West, unless we contemplate limits to this silly one-world, globalizing ideology. As for lay-offs, we have just emerged from a 20 year orgy of lay-offs made under a series of euphemisms: down-sizing, early retirement, restructuring, etc., etc. Therefore, laws to limit yet more need not be a bad thing.

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I have run out of space, but I think you will have gotten the idea. Economics is like plasticine; it can be moulded into any shape you desire, to explain anything and everything. That is why it is Pseudo-Science, and why Economics, and the ramblings of most Economists, should be treated with the contempt they deserve.

The ‘World Press’ of December 27, had an interesting article about how the EU has ruined many economies of new members. This long article mentioned how the EU badly damaged the farmers in Poland and Hungary by imposing import bans on the Polish and Hungarian farm products. At the same time, the EU gave member farmers from original EU countries, subsidies, and dumped low priced products on Poland and Hungary. The Poles and Hungarian farmers could not complete and were nearly ruined. To replace the products no longer sold in Poland and Hungary, the EU moved in products from the original EU states.

This is all a good example of how the EU can ruin an economy, as it is now damaging the economies of most members. They’re constantly adding regulations, only adds to the cost of EU products. Then the people in the EU have less money to spend on other consumer products and the EU exports cost more.