January 28, 2011
“As this fading economic superpower rapidly grays, it desperately needs to increase productivity and unleash the entrepreneurial energies of its shrinking number of younger people. But Japan seems to be doing just the opposite. This has contributed to weak growth and mounting pension obligations, major reasons Standard & Poor’s downgraded Japan’s sovereign debt rating on Thursday.”
This is the sort of paragraph that one would expect to find in an editorial, not a news article. After all, is this a known fact that Japan “desperately” needs to increase productivity? More productivity is generally good, but the article presents no evidence of its desperation. (Standard & Poor’s is famous for giving triple A ratings to hundreds of billions of dollars worth of junk mortgage-backed securities. Based on its track record, the credit ratings agency judgement is worth less than that of a hopeless street drunk.) Furthermore, the evidence in the article actually suggests the direct opposite — it appears that Japan has surplus labor — the point of the article is that there are no jobs for young people.
In other words, if the anecdotes presented in the article are in fact typical, then it seems that Japan has a great surplus of labor. That means that it absolutely does not desperately need to increase productivity nor does it suffer from an aging population. It is of course wasteful to not use any one’s talents, but this has absolutely nothing to do with the aging of the population as the article asserts.
The more obvious problem is the lack of demand in the economy. This could be remedied by more government spending. While this may cause the stumbling drunk bond raters at Standard & Poor’s to downgrade Japan’s debt further, more spending could boost the economy under the economic theory that people work for money. The fact that Japan is not approaching any real limits (as opposed to the drunken delusions of bond raters) is evidenced by the deflation that is noted in the article.
Countries that are reaching the limit of their ability to finance debt suffer inflation, not deflation. In other words, there is every reason to believe that Japan could just spend a large sum of money creating or subsidizing jobs for its young. Its central bank can simply buy and hold the bonds used to finance this spending.
In this respect, some of the complaints against Japan just seem to be invented. For example, at one point the piece asserts that:
“While many nations have aging populations, Japan’s demographic crisis is truly dire, with forecasts showing that 40 percent of the population will be 65 and over by 2055. Some of the consequences have been long foreseen, like deflation: as more Japanese retire and live off their savings, they spend less, further depressing Japan’s anemic levels of domestic consumption.”
Actually, this is 180 degrees at odds with what economists generally predict. The elderly in general have low savings rates, as they spend down the wealth that they have accumulated over their working lifetime. With a smaller share of the population working, the general concern is that consumption is too large a share of GDP. This could lead to inflation, not deflation.
The article also includes the assertion that:
“Calculations show that a child born today can expect to receive up to $1.2 million less in pensions, health care and other government spending over the course of his life than someone retired today; in the national pension system alone, this gap reaches into the hundreds of thousands of dollars.”
There is no source cited for these “calculations.” Readers may question these calculations since they imply that the difference between current benefits and future benefits will be almost three times as large as the $417,000 combined Social Security and Medicare benefits that middle-income workers in the United States can expect to receive. Since Japan is a somewhat poorer country than the United States, it seems implausible that it can pay out so much more in benefits to its population.
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