The coming decline of Japan

[Lenny]

The Economic Impact of an Aging Japan

A Mckinsey Study

By 2024, more than a third of Japan's population will be over the age of 65, making it one of the oldest in the developed world. Retired households will outnumber households in their prime saving years, so savings rates will fall dramatically, and Japan's financial wealth will begin to decline. The continual improvement in living standards that the country has enjoyed over the past half century will come to an end.

A decline in financial wealth could bring down Japan's living standards and spread the economic misery to other countries.

http://web.archive.org/web/20080214124323/www.edwardhugh.net/demography.html

[Æmeric]

The Japanese have a high savings rate. They will be able to live off their capital to pay for the care of their elderly. The total amount of foreign assets may decline but that doesn't mean they will be poorer per capital. A declining population will mean housing will become cheaper, perhaps leading to a baby boom before midcentury.

[Lenny]

The Japanese have a high savings rate.
Historically, yes; but how can they be a net-saving state when non-working dependents (under 18 and over 65) outnumber workers?

There is only one way, it seems to me: lowering living standards and thus lowering relative wealth.

Then again I don't really understand economics.

[Lenny]

A declining population will mean housing will become cheaper, perhaps leading to a baby boom before midcentury.
It seems unlikely, to me, that Japanese TFR will rise much above its current anemic level of 1.2 in the near future*. Once TFR reaches a level below 1.5 for a sustained period of peacetime/non-depression-time, no modern country has yet shown itself capable of recovering to over 2.1. This is truly scary stuff (see asterix below).

Even if a baby boom did happen, "demographic-momentum" is such that it would take decades for it to really be felt. In the meantime, Japan's relative financial decline would continue apace.


[* - For those who don't appreciate this: A sustained 1.05 TFR would mean each succeeding generation is exactly half as large as the parent generation. In less than seven generations (under 200 years), that would mean total population would go from 100 units to 1 unit... i.e., Imagine a Germany ca. 2200AD with 800,000 people rather than 80 million!]




BTW - I was reading a fascinating little book lately called "The Return of History", and in the section about Japan it mentioned they have the third highest military budget in the world. Who knew?


The Japanese military is one of the world’s most modern.
Although Japan spends barely more than 1 percent of its
national wealth on defense, that amounts to $40 billion a
year, among the three or four highest defense budgets in
the world.

[SwordoftheVistula]

Historically, yes; but how can they be a net-saving state when non-working dependents (under 18 and over 65) outnumber workers?

Since they were a high net savings nation in the past, they can fund their retirements by living off their savings. They've actually got a pile of money sitting in accounts somewhere which they can withdraw and live off of, unlike 'the west' which already collectively blew its money and relies on collecting taxes from current workers to fund retirement and health care benefits in a ponzi-style scheme.