January 08, 2015
Yes, Japan looks like it is becoming less crowded and the folks at the Post are terrified. A Wonkblog piece warned readers that, “Japan’s birth rate problem is way worse than anyone imagined.”
The basic story is it seems that Japan has consistently over-projected its birthrate. As a result, its population is now declining and the rate of decline may be even faster than is now projected.
The question is why is this a problem? First, just to take an issue off the table, it is important that Japan, like the United States, create a situation where families and especially women, feel they can have children and still have a fulfilling career. But the question here is whether it is a problem for society if people choose to have fewer children and we have a declining population.
The piece tells readers:
“Japan’s declining population has a powerful impact on its economic situation, and not for the better. An aging population leaves the country with fewer workers and more dependents. And conventional wisdom says aging leads to slower economic growth and more deflationary forces, both of which make it more difficult for Japan to chip away at the substantial debt burden from its economic crisis at the beginning of the 1990s.”
Actually, since Japan is a densely populated country with expensive real estate, a declining population could be associated with substantial improvements in living standards as the property values and rents would drop due to less demand. It’s not clear why fewer workers and more dependents should be a big problem. This has been the reality for the last 60 years, a period in which countries have generally enjoyed rising living standards. The key of course is productivity growth which means that we need fewer workers to produce the same amount of output. (Remember the robots who are supposed to take all of our jobs? That is productivity growth.)
As far as deflation, countries like Japan can counter this by spending more money. (Ironically, the paper that is the basis for this piece finds that lower birth rates are inflationary. But hey, finding which way is up is never easy.)
Also, Japan’s debt burden is not terribly striking. Because of low interest rates, its interest payments as share of GDP is 0.8 percentage points. (This doesn’t subtract interest payments refunded from the central bank to the Treasury.) This is about half of the burden faced by the United States at present and about one quarter of the burden faced in the early 1990s.
And contrary to what you read in the papers, it would not increase much if interest rates rose. The value of the long-term debt would plummet and the government could purchase it back at a small fraction of its face value.
In short, the Post wants readers to be worried because Japan may become less crowded and the price of real estate in Tokyo could fall. The horror, the horror!
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