I was dubious because the claim (“the population of Japan is declining”) was factually wrong until the most recent five-year period (thanks for the correction), whereas the economy has been stumbling along for much longer than that. “Not growing at the optimal rate” is different from “declining,” and “the population is aging” is also not the same thing as “declining.” slash2k provided a more accurate description of what’s happening to the population of Japan.
The notion that population growth is necessary for life as we know it is extremely harmful. One way or another population growth is going to stop at some point, better learn how to handle it sooner rather than later.
You forgot another option: grow it away. If the spending improves your nation’s economy sufficiently, extra revenues will pay back the borrowing. This is the basic idea behind, for example, government bond issues financed by dedicated revenue streams – think toll roads or tax increment financing.
In the English-speaking world, that way is called “an election.”
Government overspending happens because the people who elect the politicians who approve the budgets LIKE the overspending, or at least the part that gets spent on them.
Germany’s population is in decline. They’re also the financial backbone of Europe. I think it’s safe to say that the argument that Japan’s population balance is the issue is not correct or, more likely, a smaller part of the puzzle.
Germany’s population is on the upswing in the last several years, although they had a period of decline in the past decade. There are several key differences, however:
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Although the German population is aging, it is not doing so nearly as fast as in Japan; over-65s comprise about 21% of the population, versus 26% in Japan.
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Germany is integrated into Europe; people can and do freely move back and forth between Germany and France and Belgium and Italy, etc., as economic opportunities present.
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Germany accepts migrants–granted, not always cheerfully, but they do have a steady stream of people arriving from outside Europe, many of them young people with ideas and energy. Japan, for all intents and purposes, doesn’t.
Japan has the highest debt to gdp ration in the world. Saying their problem is deficit hawks and austerity is 180 degrees from reality.
In 1989 or so Japan had a recession and they tried fiscal stimulus to solve it. They have been spending huge amounts ever since on infrastructure and other government spending. It has not worked because it has been offset by tight monetary policy.
Japan has an aging population that has worked to slow economic growth in four ways. First it has shrunk the working age population. Secondly, older people are more cautious economically which has meant less risk. Thirdly, as older people cash in their savings there is less money to invest. Fourth, since inflation is so bad for older people living on fixed incomes the BOJ has kept monetary policy very tight and that is bad for growth.
IMHO, Japan is the future. Because of demographics and bureaucratization of economic policy the world has entered a new era of permanently lower growth. Japan arrived at the era in 1989, Europe and the US arrived in 2000. As Japan showed expansionary fiscal policy is worthless. Better monetary policy would help, especially in Europe, but only at the margin.
Thats about the time that Taiwan, Korea, China started competing seriously .
Also the first of the earthquakes shook the idea that it was a stable growing economy… they were definitely out of safe places for factories …
I know you were kind of joking here, but the lack of labor supply points at 2 of Japan’s weakness:
- Women are not well utilized in the workforce. Even well-educated women are supposed to quit working when they have a baby, and are expected to care for 2 sets of aging parents. This undermines the incentive (let alone the time) required to make a baby.
- Immigrant labor could be an enormous shot in the arm, but Japan as a nation and a government have never been very receptive to immigrant labor.
And from inside; lots of young Spaniards have moved there in the last few years, many of them people with college degrees. Berlin has a large amount of call centers which will generally be manned by native speakers of whatever language it is they’re covering.
Here’s a theory:
Japan has few natural resources and relies on manufacturing exports. Japan had a golden age during a “lag” period, when their manufacturing was developed to the point that they could make quality products that had international appeal but their standard of living had not yet risen to the level of most Western countries, and this gave them a competitive advantage in international trade. But as a result of their very economic success, the standard of living rose, and as a result they lost much of their competitive cost advantage, which then undermined the manufacturing/export sector which had propelled their economy.
Disclaimer: I’m not an economist or an expert on Japan, but am just tossing this out as an idea.
This is a good post about Japan’s demographic issues:
In short, if you look at GDP per working age person (15-65) Japan looks fine. What is happening is that all of their productivity improvements are being eaten up by fewer people working.
yeah, they lost their edge once Korean and Chinese companies showed they could do it as well as Japan, but cheaper.
But if that theory is true, then the implications would be that the same could be in store for Korea and China.
If they don’t continue their growth, well that’s bad news, and if they do, well that’s bad news too. Because then their standards of living would rise, and with it their manufacturing costs and their competitive advantage.
I’m not sure about Korea. But pretty much everything I’ve read about China’s economy and demographics agrees that China is facing a major problem down the road. 30-40 years from now, China is going to be facing the same issues with elderly population that Japan is now, but China won’t be nearly as rich.
Japan at least has plenty of national wealth to use for R & D to search for technology to help with those issues.
That’s the beauty of the plan! Teenagers haven’t yet developed the cognitive skills needed to make a rational decision on the economics of babymaking. Older, educated women came to the same conclusion as you have, which means no babies. Gotta get those uteri working earlier. Heck, if they get started early enough, the grandparents will still be young enough to help out, and the mother still has time for a career.
(and yes, I’m mostly joking, and think immigrant labor is a better solution, but that seems even less likely than achieving a higher birth rate)
Japan’s bubble was like nothing else before or since; land underneath the Tokyo Imperial Palace was rumored to have been worth as much as the entire state of California; Japan’s stock market was worth 1/3 of the global total; land in Tokyo was 350 times more expensive than comparable land in Manhattan; companies were buying their own and each others’ stocks and declaring the rise in value as net profits (financial engineering known as ‘zaitech’); only one way to go from there.
Now that land is worth 1-10% of what it was; the Nikkei has gone from 39,000 in 1989 to 16,700 today; China, Taiwan and Korea have taken much of Japan’s market share in sales; and there will be no repeat of the 1950s to 1980s economic miracle.
From my reading of *Economist *over the years, and an attempt by a previous employer to teach “Japanese Management Methods” (Since Japan was going to take over the world with their dynamic industrial economy…):
-not just the demographic challenge, but the story is that Japan has the worst pension system of any “Western” country. As a result, not only does it have a plethora of risk-averse seniors, but they and younger workers are dumping every spare cent into the bank to save for retirement.
Real estate in cities is still a premium price compared to anywhere else, so living sucks. Workers travel long distances. they live in tiny apartments. (Fun fact - the original study that determined “second hand smoke is dangerous” studied spouses who lived in tiny Japanese apartments with husbands who smoked relentlessly like chimneys with minimal ventilation. Might as well be smoking.) And as mentioned, the daughters are stuck looking after the parents… and maybe also inlaws. Living like overcrowded mice or a high-speed wheel does not encourage raising families, although the demographic collapse is a global Western phenomenon. Japan and Russia are just ahead of the curve.
Worse yet, since the crash, the traditional “sararimen”(?) with a guaranteed job for life has fallen by the wayside, and jobs are less secure every year. Plus, as the founder of Sony said in his autobiography, quitting your job and going to work for someone else was considered a stab in the back… and not many places hired non-college age - more manifestation of risk-averse mentality. So everyone was working their way up the ladder because there is nowhere else to go.
Japan does not have a seriously active stock market, with a Wall Street of its own playing games with savings turning them into equity. (which may explain why their “get rich quick” bubble was real estate) Instead, the large companies - the Sonys and Hondas - financed their expansion to global size with loans from Japanese banks financed by stock as security. So the banks own the companies, or hold them by the equity goolies. The companies thus value cash flow over stock price or profit, so they can pay back these loans.
Typical evolution of markets in the 70’s and 80’s - the Japanese decide to take over a market - stereos, motorcycles, small motor appliances, television - they start selling cheap versions. Their workforce, committed to the company for life, apply serious quality and design refinement to fit the market. Lackadaisical American companies lose on quality and price, aren’t making enough profit, drop out of the market. The Japanese own the market. Once Taiwan and Korea could compete on price and quality, they had no way to truly compete.
Now add in Japanese politics. Not sure now, but for decades before and after the crash, the system was skewed to give excess power to the farmers so the elected governments were not representative. Unlike, say, Washington, where everyone cooperates and things get done, the Japanese government has been in paralysis and frequent churning since before the crash. The problem was not just that the major banks had overcommitted on the real estate bubble and were insolvent, but a lot of their equity beyond that was the same equities from those large multinationals that were experiencing stagnant performance. The banks were doubly broke. Rather than bite the bullet and rearrange their finances (and annoy all those voters who kind of wanted their savings to live on) politicians kept kicking the can down the road, making the problem worse.
While many might say that Japan is a country of dull, gray workers living life on a treadmill (unable to take off)… I consider the mark of a country in transition to be its shift from being known for hardware to being known for software - and you see a hint of this. Anime (not just the porn) and similar Japanese culture has steadily been making a mark on the world. Creativity demonstrates a growing independent thinking class, no longer held back by the need to feed themselves.
I used to think in the 80’s that Japan was due for a hippie revolution, much like the 60’s USA - a rebellion of drop-outs against establishment and regimentation that overturns all old paradigms and creates a new culture. However, the 60’s were a response to a decade of plenty - those hippie kids knew that mom and dad or someone would feed them while they made tie-dyes and pottery. The market crash in Japan meant there was no such security, and now it’s probably too late.
I will try to find some time in the next couple of days to post. I lived in Japan for 25 years, before, during and after the bubble, as a businessman for almost the entire time. I worked in importing and sales, and my customers included the big boys, Sony, Panasonic, Toshiba, et al, as well as mom and pop places.
I set up the branch office of a US company and took it from zero to US$ 6mil and then did a bit of consulting for other US clients trying to break into the market.
Our children were born there, and we started them off in Japanese day care / preschool.
Some of the ideas here in the thread are good, others are way off or irrelevant.
I’ll try to get something posted in the next couple of days. My opinions are just that, my own. I get lots of things wrong; I’m not an economist, but I lived it.
md2000 mentions the insolvent banks. Every article I’ve read, going back several years, about what Japan needs to do to really fix things starts with having the banks fail. The banks just cannot work their way out of the hole they’re in and the best way is to wipe the slate and start over.
Of course, people with equity in the banks aren’t going to be happy, but they don’t really have much true equity in them anyway. Time to face reality.
Facing reality, OTOH, is not what top Japanese officials are about.