Scott Sumner is perhaps a Japan pessimist

If you want to know what Japan is up against consider that Japanese RGDP has grown by 0.00% per year over the past 6 1/2 years.  In contrast, Germany, the shining star of the European economy, has grown at 0.5% per year over the past 6 1/2 years.  Then consider the fact that the Japanese workforce is falling at an accelerating rate, and unemployment is already at the lowest level in decades.  How fast do you expect Japan to grow?  Negative growth will be the norm; zero growth is the new “economic miracle.”

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"Then consider the fact that the Japanese workforce is falling at an accelerating rate, and unemployment is already at the lowest level in decades."

It's kind of pathetic that this needs to be said, but - for individuals, what matters are per capita measurements.

If the workforce is falling, but unemployment is low and economic growth per capita is OK by Western standards, then well, what do you expect?

Japan isn't the doomsday scenario we've been presented with in the U.S., nor is it an ideal case. That may be too boring of a story to propagate widely. It's not very interesting to say that Japan is essentially another country on the technological frontier, which badly needs said frontier to be pushed forward.

But the costs and obligations are not per capita. Those retiring folks who saved money and indirectly bought JGB's are cashing them in now, and that money has to come from somewhere. The somewhere is a shrinking pool of workers, or some central bank printing money to buy up bonds. They are doing unprecedented levels just buying up new issue let alone the ones that are being cashed out.

No, the situation is very serious. The current economic numbers in spite of the central bank actions should be enough to shake confidence. Anything that any japanese person with resources is going to do will be outside of Japan. The black hole is too deep and the risk too high.

Doesn't this make the case that saving for old age is a pay as you go system of old age retirement "income" no different than Social Security and pensions?

Well if the "pay as you go" system consists solely of Government bonds, then yes, it's pretty similar. However, the flaw in the strategy is the preference in buying a lot of low yield government bonds.

"Anything that any japanese person with resources is going to do will be outside of Japan." Great: let them send their money to London. Or even better, Edinburgh.

It's hard for me to see how anyone can be a "Japan pessimist" and not be a USA super-pessimist. Decades of falling quality of living for the bottom 99%, growing inequality, stubbornly high unemployment... An entire generation of US workers is withering away under the heavy burdens of underemployment (what percentage of employed millenials actually work 40 hours a week? How about 35?), high and growing student loan debt, a pandemic of obesity/diabetes, etc.

America is a trainwreck. Japan looks like paradise in comparison.

Also don't forget about America's overburdened and disintegrating infrastructure and a public school system that is a global laughingstock.

America's public school system is far from a laughingstock and is generally superior to most OECD systems when compared on a demographic basis (i.e., Swedes living in America do better than Swedes living in Sweden, etc.). It also has some relatively low hanging fruit that could be picked if the political stars lined up correctly.

The only problem with the public school system is that politicians think kids are widgets. All the exact same blank slates, but they aren't. So in an effort to deny this reality we have consistently reformed our school system in a futile attempt to educate all kids to an equal level.

If you look at the averages for the entire population the US does worse than other first world nations. But if you take the average of white and asian americans then the US does just as good or better.

"Decades of falling quality of living for the bottom 99%"

Right. That's why the average American family in 2014 compared to 1974 is so much less likely to eat meals in restaurants and travel by jet on vacations. It's why the average American home is so much smaller than it was in 1974. It's why mobile phones that were so common in 1974 are now used only by the very wealthy (and even then only permanently mounted in their limos) and why powerful computers that used to cost a few hundred dollars and were found even in school kids' backpacks in 1974 now cost tens of thousands of dollars and are used only by the government and large corporations. It's why the quality of food and drink has declined so precipitously -- the people of 1974 people drank a huge variety of micro-brewed beer, but now it's all been replaced by uniform lagers brewed in Milwaukee or St Louis. The fancy espresso shops of 1974 have been replaced by diners and Folgers in the red can. What else did the common Americans of 1974 have that are only vague memories now? 600-thread count Egyptian cotton sheets sold at discount stores? Master bedroom suites with whirlpool tubs? Auto safety features like airbags and anti-lock brakes? Hip replacements, minimally-invasive, outpatient surgeries, and cochlear implants to restore hearing to the deaf? How about home movie theaters? Those used to be common but now only Hollywood moguls can afford them (and only they can gain access to the film prints anyway). Back then, people could see almost any film ever made, in the comfort of their homes, on their own schedule, for a couple of bucks. Now unless you live in a big city with a 'revival house', your chances of seeing anything other than a current release are minimal.

Seriously -- the 'decades of falling quality of living' thesis doesn't begin to pass the giggle test.

And yet, due to relentless repetition and humanity's inherent suspicion that they're somehow not getting a fair shake, it has become an Unassailable Fact.

I'm convinced.

Yeah but they're paying for it with debt.

Since you brought it up, I miss my 18% mortgage.

Slocum you just revealed how naive you are. Quality of life is not determined or even affected by electric toys or high-threadcount sheets. People just buy that crap because they've been programmed by advertisers. Ever wonder why household income has barely budged even though the total number of hours worked per household has greatly increased? Yeah, a 2 earner household of 2014 struggles to pay the bills more than a single earner did in 1974. That alone makes it clear that quality of life has fallen.

Let's say you're right. Why are advertisers so much better now at "programming" people to buy "crap" than they were 40 years ago?

The environment is also cleaner than in 1974 and crime has been heading steadily down for two decades or so. In the tech/science department, beyond devices that enable you to find vast amounts of knowledge at a moment's notice, call your grandmother for dirt cheap and never get lost via online maps, considerable improvements have also been made in health care.

Maybe you can get around to explaining by which metrics quality of life is lower today than in the past?

Question: if you took 100 members of the 99% and offered them a one way trip back in a time machine to the past (1980?), and assumed they could take their families with them, how many do you think would take you up on the offer?

Quality of life is not determined or even affected by electric toys or high-threadcount sheets.

Of course they do. Why else would people buy them? You're rejecting the whole foundation of economics going back to Adam Smith, not to mention all common sense.

Japan employment numbers cannot be easily compared to European. I was quite surprised by their ability to waste time working. No self service petrol stations, people at parking places showing you way out, overstaffed shops. Just wondering how much of it is tradition and how much government. It seems to me this would probably be the case where less work regulations (including more free work market mindset) would probably result in higher unemployment and higher gdp at the same time.

Which of the two are you referring to after the first sentence?

He said "tradition" so he must mean Japan.

Self service stations first appeared in Japan in 1998 and are now common. The latest I could find was that in 2010, 67 percent of drivers used self service.

And why should Japanese firms not be able to increase productivity by a rate greater than the fall in the number of workers?

Because robots aren't panning out as well as hoped?

It's also only 2014. Check out the robots in 2024.

1. You stimulate until you get inflation picking up. Only then do you know what your supply side problem is.

2. Unemployment being very low does not mean you've maxed out demand. The unemployment rate can stay the same yet you can still create lots of jobs because people can enter the workforce that had previously been out of it.

3. It's not clear to me that demographics mean retreating GDP. Yes you can decrease the # of workers due to them aging out but I suspect an older population starts consuming less too. The lower demand for consumption goods might be offset by increased demand for investment (esp. labor saving investment).

4. Can GDP per capita still increase then at a healthy clip.

"1. You stimulate until you get inflation picking up. Only then do you know what your supply side problem is."

At what central bank are you the janitor?

Sprinkle in 1 oz. of magic pixie dust (no more, no less) and hey presto!

not really following what you are trying to say here. Unless you hit inflation, you have not increased your money supply sufficiently. Are you saying it takes magic to increase the money supply? I don't think so. When you do indeed max out supply by stimulating demand, you may or may not find your economy is healthy and growing. My only point here is that you have to take one problem off the table before you try to guage another problem.

It's not a big deal to ask a plumber to fix some leaky pipes in your house. It is a big deal to expect the plumber to do that without the water being on. He will tell you that the system has to be pressurized so he can see which pipes are leaking.

Also I think this might be a good test for Tyler's Average is Over thesis. Japan is losing workers due to demographics. So does that mean negative GDP growth since one of the factors of production is being decreased? But the average is over thesis, if I read/recall it correctly, is that advanced economies are becoming less and less about the output of the average worker and more about the output of the top performing workers. A thousand people working at Facebook or Google produce as much output as 100,000 workers on assembly lines for GM or Ford. If that is the case Japan should continue to be able to increase GDP despite a shrinking labor force by ensuring its top performing workers stay in the labor market and keep producing. If that's the case then it really shouldn't matter that you're losing a few percentage points of workers every year, in reality 80% of your workers supposedly don't really matter anyway so there's plenty of room to spare.

Seems like you should be losing potential future top workers as well.

It's not at all clear that Sumner is a Japanese pessimist. He is surely not an Abenomics pessimist, but, then again, his view of the potential of Abenomics has always been laudably modest.

There's no "perhaps," I've been a Japan pessimist for 15 years.

Heh. Tyler's 'perhaps' suggests he doesn't understand you any better than I do.

Maybe it's semantics. There are billions of people around the world that would love a share of Japan's future.

You know, I would find all these "Its not so bad to be Japan" arguments a little bit more convincing if I had not lived through the last 15 years and seen all the goal post shifting of the "Japan will be all right" crowd. We have gone from people arguing that Japan is going to start growing like crazy any second now to people arguing that "well, maybe Japan will never really grow again because what matters is per capita not the nation as a whole".

The bottom line is this: Yes Japan is currently better off then 99% of the other countries in the world. But what matters in the world is not where you are, but were you are going. And Japan is going at a rapid rate towards a very bad future with no mathematically possible way of turning it around short of importing millions of immigrants. And that would break the heart of the Anti-Gnostics of the world.

I dunno. "The Japan That Can Say No" was the height of Japanese hubris. That was 1989.

I'm generally skeptical of bubble theorists, but 1989 Japan is hard to argue against. Three digit P/Es, for starters.

By 1999 (15 years ago), Japan had been humbled. I think the idea that people were then arguing "that Japan is going to start growing like crazy any second now" is a straw man. Anyone paying attention was aware of Japan's demographics by then.

The idea today that "Japan is going at a rapid rate towards a very bad future" is just wrong.

"The idea today that “Japan is going at a rapid rate towards a very bad future” is just wrong." Really?

I will grant you that words like "bad" are value judgements. Some people believe that it would be good if humanity was going to be wiped out. But historically speaking, most people in most time periods would consider having the population of a county drop by 1/3 in the space of 50 years to be very bad (127 million to 87 million). Especially if the resulting population was heavily skewed towards the old and not the young.

It is a fact that Japan is rapidly heading towards that future today. You can argue that something will prevent that future from coming about but not the fact that is were they are currently headed. Simply in order to stabilize the population at around 100 million by 2060 will require massive amounts of immigrants and 50% increase in total fertility rates.

If you're talking about "the space of 50 years" or forecasts out to 2060, maybe 'rapidly' isn't the right word.

I understand Japan's demographics, but a lot will change between now and 2060. Such long-term forecasts are dubious at best, maybe pointless. What might we have predicted for today standing in 1964?

" Japan is going at a rapid rate towards a very bad future"

People are unable to successfully analyze the events of the past yet are confident of being able to predict the future.

Japan would be considered paradise on earth if it had the demographics of the USA and their current economic outlook.

A future Japan will be less crowded with fewer barriers to affordable family formation. Again, why if I am Japanese is this a cause for concern?

Also - It's always good to see what this debate is really about: Japan is just too Japanese!

Kind of like all the frothing at the mouth that goes on around here over how New Zealand still refuses to transform itself into Hong Kong despite the warnings of American economists. Yet the Kiwis still haven't all died of starvation.

And, 15 years on, no Japanese food riots and no Japanese civil war, nor did a horrific natural disaster destroy what we are repeatedly assured is a precarious society.

One might be tempted to guess it's the people stock, not the money stock, that matters.

In this case the people stock is shrinking and aging pretty dramatically.

Why is that a problem? Populations have been ebbing and flowing throughout history.

I agree, this is viewed as a problem because fewer people means fewer workers and since capital and labor are inputs to create GDP that must mean a shrinking economy. Yet look at labor force participation. it too has gone up and down dramatically and as economies grew we have actually shrunk our labor force. For example, we have largely eliminated children from the labor force. Both women and men were employed before the industrial revolution largely producing 'home goods', yet the industrial revolution reduced the role of women in the economy. Today we have 'adult children' living in their parents basements for extended periods of time.

It seems you can have a growing economy with a shrinking labor force when the shrinkage is due to cultural judgements about who is responsible for working and who isn't. It seems plausible, but not proven, that you should be able to pull of the same trick with a shrinking population.

I don't know if it's a problem, but it's how the whole world is going to look in 100 years.

I recall you've (A-G) posted often worried about Western Civ dying off because of low fertility, but maybe I have that wrong

Japan will have fewer Japanese and still be Japan. Western countries will have fewer Westerners, and they won't remain Western.

Populations never dropped below replacement levels except in wars in the past. What is going on in the world now is unprecedented. I agree though that in 20 years the Japanese could start breeding like rabbits. Who knows?

It is not unprecedented. In ancient times population levels also declined over secular periods: population densities in Italy and Greece peaked in the 1st century and 4th century BC respectively, never attaining comparable levels until a thousand years or more later (in Greece's case, even today population densities are lower outside of Athen's metro than in classical times). The cause of decline could even be similar if you read ancient authors.

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