by Jayant Bhandari, Acting Man:
Known for Being Terrible
For the past few decades, Japan has been known for its stagnant economy, falling stock market, and most importantly its terrible demographics.
A chart of Japan’s much-bewailed demographic horror-show. Most people consider a declining population to be a bad thing due to the implications for assorted state-run pay-as-you-go Ponzi schemes, primarily those related to retirement. It is hard to be sympathetic, since it would have been possible to do something completely different from the outset. Even with respect to existing schemes, we don’t recall that anyone forced politicians to direct funds designated for funding social security claims to alternative uses at the time when these schemes still enjoyed a surfeit of revenues. Of course one has to be sympathetic to the future victims – those who paid in during their working lives and will end up getting stiffed. However, this is a problem that could be easily resolved by simply winding up the State in orderly insolvency proceedings prior to abolishing it. Most nation states have large amounts of assets at their disposal (e.g., they are often the by far largest land owners in the territories they control), which should suffice to cover the claims of creditors and to pay out the NPV of accumulated pension claims in lump sums. There is one way in which a declining population still has to be regarded as a drawback though. The market will so to speak have to function with fewer network nodes as the population shrinks. There will inevitably be a concomitant decline in distributed knowledge. Thus fewer ideas will occur to people and will be pursued; markets will become less efficient, the division of labor in the broadest sense will suffer a setback. Consider in this context that the market is the opposite of central economic planning in every way – the larger the network of people included in it, the better it will work for everyone. [PT] – click to enlarge.
For almost three decades, Japan’s GDP growth has mostly been less than 2%, has been negative for several of these years, and has often hovered close to zero. The net result is that its GDP is almost at the same level as 25 years ago.
After the asset bubbles in Japan peaked, a long period of stagnation in economic output began. As you will see further below, this impression is slightly misleading. [PT] – click to enlarge.
The stock market index (Nikkei 225), which at the last trading day of 1989 stood at 38,960, is around 40 percent lower today, despite the fact that 27 years have passed. Malinvestments in infrastructure and cross-holdings of shares among companies and the resulting crony capitalism are getting a lot of the blame for draining away Japan’s competitiveness. Confucian culture is blamed for a lack of creativity and an environment in which wrongs done by senior officials go unchallenged.
Boom and bust in the Nikkei Index – the recent breakout actually looks encouraging from a technical perspective, but it remains to be seen what happens when the most recent central bank policy-induced global asset bubble bursts. [PT] – click to enlarge.
But the real problem of Japan is supposed to be its demographic meltdown. The population is falling and the proportion of old people is growing. The median age is 46.9 years and increasing, and the elderly dependency ratio is 42.7%. By 2050, Japan’s population is expected to fall to 109 million people from the current 127 million, while the dependency ratio will continue to increase.
Unwilling to Procreate?
Major media publish regular reports about the Japanese refusing to have sex, and the large number of people in their forties who are still virgins. The “vagaries” of Japanese sexual life amuse outsiders.
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