November 17, 2015


Why can't Japan shake its economic malaise? Two words: old people. (Jeff Spross, November 17, 2015, The Week)

Let's start with the elephant in the room, which is demographics. Americans over 65 are currently around 14 percent of the population, and are projected to hit 20 percent in 2050. But the over-65 crowd in Japan is 26 percent of its population right now, and is projected to hit 40 percent by 2050. In fact, the number of Japanese between age 15 and 64 has been shrinking in absolute terms ever since it peaked in the mid-1990s.

This matters for growth. Redistributing some portion of economic production can often spark new economic growth, but this is not the case with the elderly. Most poor people, for instance, live in communities that have been locked out of the feedback loops that create sustained growth; giving them money and resources can help kickstart those feedback loops again. But redistributing resources to the elderly is different: It's obviously a moral necessity, but it gets tricky economically. While it can certainly help aggregate demand, which matters, old people generally aren't going to be re-entering the workforce no matter how many jobs you create.

So if your population's share of old people is big and growing fast, that means your working population has to produce more and more to keep up. And if your workers can't keep up, then economic production gets spread thinner and thinner.

This is not really a problem for America. Our population of elderly will grow slow enough and remain small enough that economic productivity per worker can easily outpace it.

Not so Japan.

Posted by at November 17, 2015 7:18 PM