Japan: Demographic Time Bomb Waiting to Explode

According to Ambrose Evans-Pritchard, Japan is quickly turning into developed world’s sickest economy and could soon tip into an uncontrolled downward spiral. Evans-Pritchard reported last week in the Telegraph that Japan is reaching the point of no return where it won’t be able to meet its obligations and could enter a debt death spiral.

While Evans-Pritchard is one of my favorite writers, at the end of the article he comes to the wrong conclusion about what the West should learn from Japan. Evans-Pritchard suggests that too much government spending resulting in too much debt is the root cause of Japan’s problems and that the West needs to take notice and get government spending under control. While Evans-Pritchard is correct that Japan’s debt habit is unsustainable, the country’s debt problems are the result of its population imploding and the fuse finally burning out on its demographic time bomb. The Land of the Rising Sun is in trouble because it suffers from an insular society that discourages immigration and implicitly encourages low birth rates. For the last 50 Japan has been slowly committing demographic seppuku and now the inevitable is taking place, i.e., Japan’s population is crossed the tipping point so that its work force is both relatively old and shrinking and as a nation Japan can’t sustain its standard of living.

It shouldn’t be a surprise to anyone that Japan is facing deflation, falling domestic demand, stagnant to shrinking GDP and, as of recently, a low national savings rate. They are all the result of Japan’s bad demographics.

Virtually all economics students learn that when the work force of a nation shrinks it is difficult if not impossible to sustain economic growth and a vibrant economy. Also, retirees tend to consume less than families that are raising children and as each generation ages towards retirement it tends to consume less and less causing domestic demand to shrink. Aging populations also have low savings rates because most retirees continue to spend (particularly on healthcare) but stop working and cash out of their retirement nest eggs to live.

If the Japanese economy keeps on tracking demographic models, its problems will worsen until eventually a there will be an unsolvable crisis. There is inevitability that Japan will continue to decline and only radical social reform will change the outcome.

The lesson that the U.S., EU and Great Britain needs to learn from Japan is that every country’s population is the feedstock for its economy and if we don’t take care to make sure our population is dynamic, healthy and growing sooner or later bad economic things will happen. In Japan’s case, large structural deficits are the byproduct of bad demographics and not the cause of its problems.

Comments

[imagtek:]

Japan, as an island nation, realizes that populations cannot grow indefinitely, and that an economy dependent upon continuous population growth is unsustainable. At some point, growth must cease and an alternative economic model must come into play.

For Japan to continue 'dynamic economic growth', it must become a multi-ethnic society via massive immigration. In short, the cost of continuing economic growth is Japan must cease to be Japan as it has existed for centuries.

Japan has chosen to remain Japanese, at any economic cost. The alternative is growth, at any cost, sacrificing national identity to postponing near term economic difficulties. Such a fix is temporary. Inevitably, all societies and in time, humanity, will encounter an upper limit to economic growth.

Japan is the model for a sustainable economic future, if there is one. It should be watched closely and its decision to remain true to its historical identity should be respected. Economic growth at any cost via multiculturalism and massive immigration is a recent elitist political ideology that has not yet played out. Twenty years from now, nations that have sacrificed their national identities to multiculturalism in order to provoke one last spurt of economic growth may very well envy the Japanese solution when an economic downturn inevitably occurs in their balkanized societies.

Nov 05 03:55 PM

[maff:]

"if we don’t take care to make sure our population is dynamic, healthy and growing sooner or later bad economic things will happen"

and if we do manage to engineer continuous population growth and ever-increasing consumption everything will end happily?

Nov 05 04:20 PM

[Davewmart:]

The numbers of immigrants which would be needed to boost numbers to return to the status quo ante is impossibly huge.
You can't just keep stuffing more and more people in, although it would be handy if the number of births per woman would increase to give a slower rate of decline of population.
The issue is that people, including immigrants, are living longer, and so short of moving the entire population of Africa to the US or some such, dependency ratios will continue to worsen.
Immigration in large numbers is not a solution other than in the very short term, and the real issue is raising birth rates from the around 1.3 children per woman that it is in Japan at present to a more sustainable 1.8 or so, and raising the retirement age.
Efforts to cope would seem easier in a relatively homogenous society, rather than in one which has fractured into many ethnic and religious groups by importing large numbers of people, without solving the fundamental problem of an excessively low birth rate.

Nov 05 05:39 PM

[dw57:]

i don't thats what they are saying. what they are pointing out is that if you have a shrinking population (and i have seen where they might die out in 20 or 30 years) you can't have a growing GDP (cause every year there is less demand).


On Nov 05 04:20 PM maff wrote:

> "if we don’t take care to make sure our population is dynamic, healthy
> and growing sooner or later bad economic things will happen"
>
> and if we do manage to engineer continuous population growth and
> ever-increasing consumption everything will end happily?

Nov 05 06:24 PM

[Slava15:]

Yes to all this, but a country with a declining population and no desire to increase immigration should be a debt free society. Otherwise emmigration will accelerate the death spiral as no younger person would want to bear the tax burdens of the ageing.


On Nov 05 03:55 PM imagtek wrote:

> Japan, as an island nation, realizes that populations cannot grow
> indefinitely, and that an economy dependent upon continuous population
> growth is unsustainable. At some point, growth must cease and an
> alternative economic model must come into play.
>
> For Japan to continue 'dynamic economic growth', it must become a
> multi-ethnic society via massive immigration. In short, the cost
> of continuing economic growth is Japan must cease to be Japan as
> it has existed for centuries.
>
> Japan has chosen to remain Japanese, at any economic cost. The alternative
> is growth, at any cost, sacrificing national identity to postponing
> near term economic difficulties. Such a fix is temporary. Inevitably,
> all societies and in time, humanity, will encounter an upper limit
> to economic growth.
>
> Japan is the model for a sustainable economic future, if there is
> one. It should be watched closely and its decision to remain true
> to its historical identity should be respected. Economic growth at
> any cost via multiculturalism and massive immigration is a recent
> elitist political ideology that has not yet played out. Twenty years
> from now, nations that have sacrificed their national identities
> to multiculturalism in order to provoke one last spurt of economic
> growth may very well envy the Japanese solution when an economic
> downturn inevitably occurs in their balkanized societies.

Nov 06 08:43 AM

[KevB:]

Japan is certainly not alone with a low birth rate and declining population. There are 78 countries ( 60 percent of the worlds pop ) now in countries with birth rate below 2.1... or 2.33 in Develpoing countries ). Immigration only means MORE elderly people in the future as the immigrants also grow old and also have the same birth rate as the host population in one generation.. see Canada, Australia and Europe .. Japan can increase the pension age to 70 nad make 10m more workers available and cut the pension bill in half.

Also, women make up only 50 percent of the workforce against 70 per cent in USA and 80 per cent in Scandinavia. Helping women to get good wellpaid jobs after children would increase workforce by another 5m. that would mean no immigrants for the next 40 years.

Nov 06 11:17 AM

[jeffgroove:]

Interesting article, and yet I think this is where the US has some reflexivity, given immigration from mexico and other areas. I know people whom would like to see immigration reform in this country, the awful truth is that the government needs more minions to help out with it's largesse and/or obligations. Human effort is money/economy.

Nov 06 12:01 PM

[Bobo6655:]

It's clear the article wasn't even written by Mark, but by an Indian PR agency or maybe even NASSCOM. India pulled this same PR stunt on America in 1998 which resulted in the flooding of America with cheap foreign labor from India. After a decade of that the result has been the destruction of the U.S. economy as we have known it. The original text of the article reveals that an Indian really wrote it:

"According to Ambrose Evans-Pritchard, Japan is quickly turning into developed world's sickest economy and could soon tip into an uncontrolled downward spiral."

The omission of the word "the" is a dead giveaway that an Indian wrote it.

Now that Americans are kicking India, Inc. out of the U.S., India has to look for some new wealthy country to plunder. They greying of Japan and the collapse of Japan due to a "demographic time bomb" is a myth. Anyone who has been to Tokyo can tell you Japan is very much alive and well.

Articles such as these are nothing more than paid-for PR from India designed to create an excuse for India to flood Japan with workers who will carry of Japan's wealth just as they did America's. The Japanese people will never allow mass invasion no matter how much propaganda India, Inc. pumps out. Keep dreaming India.

Nov 06 04:53 PM

[Bobo6655:]

"work force" instead of the correct word "workforce" is another dead giveaway that an amateur Indian writer wrote the article.

If you want to talk about a healthy population, why don't we talk about India's workers who are ranked 54th in world worker productivity and who destroyed 14 million white collar jobs in the U.S. from 1998 to 2008. That's the kind of "healthy" population that Japan doesn't need to import.

I would also like to remind you that age discriminaion is immoral.

India needs to create jobs for its own people in India instead of invading and ripping off other countries which is the real cause of the world economic crisis.

Are most people aware of the behavior of imported Indian workers? That they get into companies, take over, and will only hire other Indians? And that once they take companies over, they can't do the work and the companies all collapse. Vista anyone? If you think the Japanese people will stand for that, you're dreaming.

Nov 06 04:59 PM

[H-1B Scam:]

Obviously, this article is a scare tactics for more cheap labor imports. What the author does not want to you know is that Japan develops robots rather than imports cheap labors.

Nov 06 10:31 PM