Must our population grow to ensure prosperity? No!

Summary: Economists are often criticized for excessive focus on monetary measures for a nation’s prosperity, and too narrow and backwards-looking vision of trends in society. Today we look at example of both: recommendations that Japan increase immigration. These matters affect not just Japan, but much of the world.

Now everything’s a little upside down, as a matter of fact the wheels have stopped
What’s good is bad, what’s bad is good, you’ll find out when you reach the top
You’re on the bottom

— From Bob Dylan’s “Idiot Wind” (1974)

Stand by for a boom!

Contents:

  1. Japan leads us to the future
  2. Japan faces the robot revolution
  3. Why recommend more immigration?
  4. For More Information

(1)  Japan leads us to the future

Fewer people is good news for Japan! (source)

Japan's population

Many economists look at this data and conclude that Japan needs more immigration, otherwise their national income (GDP) will fall along with their population.

Economists prescriptions for Japan show the limits of economics as a guide to public policy. GDP is not the only measure of a nation’s well-being, or even the best. Worse, economists sometimes see only linear trends of the past, blind to future developments visible even today.

(2)  A crowded Japan faces the robot revolution

Japan has been crowded for over a century. Japan’s government has worried about its overpopulation since the Meiji Restoration (population ~3 million) in 1868 (their attempted solution was encouraging emigration to Korea). They had 50 million in 1910; 100 million in 1967, and 127 million today.

Excerpt during periods of great productivity improvement (e.g., during an industrial revolution), growth in total GDP requires a growing population. More housing, more public infrastructure, more consumption. A shrinking population not only requires less of these things, but also a rising dependency ratio (i.e., the labor force falls as a share of the population). All bad things. Hence economists’ advice to maintain or even grow Japan’s population.

 

China's One-child Policy
Best example of smart population policy

Missing from this picture is the new industrial revolution arriving right now. First, we can see the next wave of automation, as computers replace workers in service industries (repeating the waves of automation in farming and manufacturing). Second, automation hits high-skill professions (e.g., law, medicine, finance, journalism). Third, there are new manufacturing technologies to further reduce employment in goods manufacturing and distribution (e.g., 3-D printing).  Fourth, there are hints of even greater new tools in our future — such as AI and robots.

We can only guess at the effect on productivity of all this new technology, but “massive” might be an understatement. Ditto the effect on employment. During past industrial revolutions employment increased (with, however, long periods of disruption). But the evolution of technology shows us that the future often differs from the past. The pace and scale of progress might make this revolution different than the last (shown in this picture; source: Fed):

Distribution of Output but Sector

If the next wave of automation reduces employment, Japan’s shrinking labor force will be a blessing. If the National Institute of Population forecast proves accurate, in 2100 Japan will have 64 million people — the same as in 1930. They can upgrade their labor force to match the new jobs, without a large number of socially disruptive unemployed people. Rising per capita GDP from productivity gains might offset the pain of falling total GDP from fewer people.  Even if it does not, their descendents might prefer a slightly poorer but less-crowded Japan to that of today’s.

Not just less crowded. Fewer people plus less-polluting technology could radically reduce the burden on Japan’s environment. It could become a high-tech garden.

Getting there without disruption will require successfully surmounting many challenges. Their government already looks overwhelmed with debt, growing rapidly. Financing retirement care for an increasingly large aged population looks to be an epic struggle more severe than most wars. Allowing in socially disruptive immigrants will loom as a quick easy fix, disastrous if their jobs then disappear.

Now one of the weakest of the developed nations, Japan might become a leader showing us the best path to a green prosperous future.

UN Fertility Graph

(3)  Why recommend more immigration?

A constant through modern history: business owners want immigrants as cheap labor. Usually with little concern with the wider effects: social disruption, social service costs, rising inequality, lower wages for natives. Of course they see that it’s sold on humanitarian grounds (e.g., this NYT op-ed by economics professor Tyler Cowen).

(4)  For More Information

(a)  Articles about Japan’s crisis:

(b)  Posts about Japan:

  1. We are following Japan’s path of decline. The real test comes later this year., 23 June 2009
  2. As Japan sails into the shadows, let’s wish them well and wave good-by, 14 July 2009
  3. Japan can again become the land of the rising sun. We should watch and learn from them., 1 November 2012
  4. Are we following Japan into an era of slow growth, even stagnation?, 18 November 2013

(c)  Posts about demography:

  1. Another front in the geopolitical struggles shaping our world, 3 June 2008
  2. “The Return of Patriarchy“ – a classic article about demography, 5 June 2008
  3. More news about Russia’s demographic collapse, 6 June 2008
  4. From the 3rd century BC, Polybius warns us about demographic collapse, 11 June 2008
  5. The War Nerd discovers van Creveld’s “power of weakness”, and demography, 18 July 2008
  6. Demographic note for today…, 20 December 2008
  7. Reading recommendations – about demography, 28 April 2009
  8. “The Russian Economy and Russian Power” by George Friedman of Stratfor, 2 August 2009
  9. Update about China: a new center of the world, 13 December 2009
  10. Updates on the trends shaping our age, 2 July 2012

World population map

 

 

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27 thoughts on “Must our population grow to ensure prosperity? No!

  1. Fabius, THANK YOU!! I have been saying this for years.

    That we keep saying the population must grow to ensure economic growth, as well as taking care of the elderly. But I contend that the earth cannot afford this, and technology will compensate for population dip. Also, as technology takes over the work force, as well as take care of the elderly, we also must be responsible toward each other, and save more for our future (but health will increase allowing us to work longer).

    Anyway, I love your reference to Japan as a garden paradise.

    This also means more happiness for people. You dont need more material things when the earth is cleaner and more open. Again, great job on this post, and going against the standard economic line of needing the population to grow endlessly to meet GDP growth.

    I think that your focus on Japan is good, but the USA can also go this way as well. It will have too.

    Take Care, Don”

    Like

    1. Love the post.

      And I agree with Don Vandergriff. also.

      Hope more folks will explore this line of thinking.

      Reposted at Logos Forum.

      Like

  2. But the side effect of an aging population is debt creation. Savings rates are higher but the need for savings are lower. If no one borrows the savings the economy tanks. At least until people reach an age where they start to run down their savings.

    Hence the problem Japan faces debtwise.

    Like

    1. Rune,

      “Savings rates are higher ”

      Retired people do not borrow, nor do they save. Also, they spend less — esp as the Boomers are retiring with long lives ahead of them, high debt loads, and low savings.

      That is unique combo in history.

      Add in the possibility of widespread failures in public and private pension plans (I.e., payments less than promised — not zero).

      The net result cannot be reliably forecast, but unlikely to be shiny.

      On the other hand, this problem will go away during the next 30 years — as the boomers die off. A bump in history.

      Liked by 1 person

    2. I was unclear about who was saving. It’s the people in their 40’s – 60’s.

      The problem is who borrows their savings and what use they put those savings to. In Japan’s case the borrower is the Japanese government and how sensible have their use of that borrowed capital been? Will those savers be able to get their money back?

      Secondly commercial investment should also decline has there is less need for factories, office buildings and industrial robots etc. due to declining demand. Productivity increases also should reduce demand for investments with a declining population.

      Like

    3. Rune,

      (1). I assume you mean people are savers in their 40s and 50s (not 60s).

      (2). Sovereign governments like Japan can always repay their bonds. The accompanying risk is inflation, repayment with lost purchasing power. The BoJ is trying desperately to induce some inflation into Japan’s economy, hoping to win a 25 year war with deflation.

      Nobody can know what strange turns that story will take before this cycle ends, or if other nations will follow along Japan’s path.

      (3). There are always investment opportunities for “surplus” savings. Not all might be feasible by profit-seeking entities. We might in this respect return to a situation like 29th C America, when many key investments are made by and for the public through the government.

      Like

    4. Sorry the 60’s is a Danish feature. Retirement age is 67 and some continue until 70 In particular high-income earners, Doctors, engineers etc. There are incentives for working a few extra years in the form of tax cuts and a higher old age pension if you postpone your retirement

      My point is that it could be a structural feature of a declining population that you have excess savings. In Japan the government and foreigners have ended up borrowing the money. How much of a return the Japanese savers will see is an open question.

      The US has it’s own unique problems. Here it’s the top 10% of the population who saves plus foreign lenders.

      Like

    5. Rune,

      (1). Good point about retirement age. Retirement age (SS eligibility at full rate) is 67 for people born after 1959.

      But even so, increased disability and unemployment among people over 60 means that they are not and will probably not be net savers in aggregate.

      (2). “My point is that it could be a structural feature of a declining population that you have excess savings.”

      Yes, that should be clear to all by now, at least until the balance tips until enough people are retired. Excess savings is a phase.

      (3). “In Japan the government and foreigners have ended up borrowing the money.”

      Very very little of Japanese govt debt is owned by foreigners. The low yield and weak currency makes it too high risk.

      (4). “How much of a return the Japanese savers will see is an open question.”

      I don’t know why you keep repeating that. In nominal terms, almost certain they will get exactly what promised. They can just print the money.

      (5). “Here it’s the top 10% of the population who saves plus foreign lenders.”
      6
      Yes, about the top 10%. Foreign lenders are not “savers” in any conventional sense.

      Like

    6. I assume that the Japanese current account surpluse is to be considered a part of Japanese savings. It’s assets which can be sold off later on. An advantage for Japan whereas countries like Greece and Spain is not as privilleged.

      Like

    7. Rune,

      (1) “the Japanese current account surpluse is to be considered a part of Japanese savings.”

      Yes. See Wikipedia on the Current Account for details.

      (2) “An advantage for Japan whereas countries like Greece and Spain is not as privilleged.”

      Yes, but these things are complex. A current account surplus brings with it advantages and disadvantages. For example, in global downturns, countries running trade surpluses tend to suffer more. Broadly speaking, running a balanced set of national accounts is best. Large imbalances suggest some kind of dysfunctionality that might cause trouble later.

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    8. Yes but what if that dysfunctionality is the ageing of the population?

      Ageing results in excess savings. Who will borrow and spend to keep the economy going. What state would Japan’s economy be in if the government hadn’t started to build up debt. Who would have taken their place. The households or the business sector? Excess savings with no borrowers equals a declining economy. Some of those savings can be sent abroad in the form of current account surpluses but there is a limit to that as well.

      It’s just the point Keynes made in the time of the Great Depression. Too many households wanted to save money, and the only way to keep up demand was for the state to borrow and spend.
      What better options do you have for handling the problem of excess savings due to ageing.

      Like

    9. Rune,

      “dysfunctionality is the ageing of the population? ”

      As people retire — as the Boomers are daily doing, in ever-growing numbers — they dissave. They borrow less, continue to paydown existing debt, and draw down savings. Their income and consumption both also drop.

      Liked by 1 person

  3. Almost two years ago, NYT had an op ed piece “The Myth of Japan’s Failure” that touched on some of the themes in this column. In terms of increasing life expectancy, infrastructure, adopting new innovations and good restaurants, Japan has done quite well in its lost decades.

    The Myth of Japan’s Failure” by Eamonn Fingleton, op-ed in the New York Times, 8 January 2012

    The immigration issue is more difficult for me. The inscription on the Statue of Liberty, “Give me your tired, your poor” represents an ideal of what the United States is meant to be no less than the “All men are created equal” of the Declaration of Independence. We fall short of this when businesses exploit undocumented workers and those with means buy their way in on EB-5 visas. In this nation of diminished opportunities, is this another casualty of the death of the Second Republic?

    Like

    1. DMKaplan,

      All valid points. Esp thanks for citing the NYT op-ed. Let me take the contrary side on both points.

      (1) “The Myth of Japan’s Failure”

      The failure is quite real. Japan has stabilized its per capita GDP by massive government borrowing. With gross government debt at over 200% of GDP, their institutions (government, pensions, etc) face unnatural stress in the near future (i.e., next decade or so). Regime collapse is quite likely.

      (2) Immigration

      Immigration from foreign cultures is a viable option for some nations, such as USA, Canada, and Australia. But nations without the cultural and institutional machinery for it, immigration can induce potentially lethal social stress.

      My point is bolder: immigration is a bad idea. Japan is a world leader on the best path: reduce the population for both a better economic and ecological future.

      Like

  4. I’m forced to assume that the first graph primarily refers to fertility rates (as measured by birth rates) among the industrialized nations of the West…because if it applies to the entire planet, this would appear to contradict the well-established fact that the global population continues to climb even though it’s estimated that at least five million children die of malnutrition alone on this planet every year. (As distasteful and as controversial as it might be to point this out, there’s still no denying the fact that the population question would be far worse if most of those children lived long enough to reproduce.) Granted, the population growth can be explained in part by greater longevity resulting from improvements in nutrition, sanitation, health care, etc. — but I find it hard to believe that this is the overriding factor responsible for the continued growth of the world’s population, especially given the decline in the birth rate among the industrialized nations.

    Falling fertility rates make sense within the industrialized nations as the robot revolution gradually takes the place of human labor…but the fact nevertheless remains that mechanization is replacing and will continue to replace human labor at a faster rate than the decline in population (and it still does little to address the question of population growth within the third-world nations).

    At some point in the not-quite-as-distant-as-all-that future as the robot revolution gains strength — and especially since technological growth seems to be occurring at an exponential rate, with each new advance making the next one come that much faster — humanity will inevitably be forced to make some sort of massive (perhaps even unprecedented) paradigm shift that will almost certainly overturn at least one historical belief that goes back thousands of years.

    I believe that this is why eminent thinkers such as Dr. Michio Kaku and Dr. Stephen Hawking have gone on the record stating that in their view, this century is an extremely critical and pivotal one which may well decide whether the human race continues to survive or not.

    This shift could pan out in a variety of different ways, some of which have already been tentatively examined through the medium of science fiction (much of which has taken the form of dystopian cautionary tales). What form it takes will very much depend on whether the human race is willing to make an effort to restrain its common vices — greed, egotism, elitism, ignorance, xenophobia, etc. — on behalf of the larger community. Personally, if the United States is anything to go on, I sadly find it difficult to see a great deal of reason for optimism on that score.

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    1. Bluestocking,

      “Because if it applies to the entire planet, this would appear to contradict the well-established fact that the global population continues to climb”

      (1). It is world fertility.

      (2) So long as fertility is above replacement rate, as it us on the graph through ~2020, population can grow.

      (3) Fertility can decline even to below replacement rate while the population grows, if the average age at the start of the period is low.

      Like

  5. An even more disturbing question: is the “natural” rate of interest roughly equal to the rate of population growth of a nation?

    If so (and many of the most respected economics believe it is), this suggests that nations with zero or negative population growth find themselves in a regime below the zero lower bound, requiring negative real interest rates to avoid economic stagnation. The latter possibility was raised by Larry Summers and has been echoed by Paul Krugman, Brad deLong, and many others.

    America has been below zero population growth for some time now with increased fertility among immigrants masking this trend. America also has a much higher rate of immigration compared to European nations or xenophobic countries like Japan. This would explain America’s putative need for a negative real interest rate and thus our lackluster growth since the financial crisis.

    D.M. Kaplan’s point about Japan’s alleged “failure” being more an issue of Western perception than economic reality seems not negated by FM’s attempt at a counterthrust. The problem I find with FM’s dire warning about Japan’s institutions alleged facing “unnatural stress in the near future (i.e., next decade or so)” and ‘regime collapse’ allegedly being likely, is that Western neoliberal economists have been scolding Japan like this and predicting imminent collapse of the Japanese economy and Japanese society for more than 20 years now, and it hasn’t happened.

    D.M. Kaplan’s point, and the point of the NYTimes op-ed, seems to me to be that Japan has eschewed traditional measures of societal well-being and thus have done very well despite the decline of quite a number of ostensibly crucial economic stats. Japanese crime remains amazingly low; Japanese social cohesion remains incredibly high. Japan’s “soft power” in world culture has never been higher, as witness for example the crossover influence of manga in American big-budget films like Scott Pilgrim vs. the World and Pacific Rim. Japanese science and technology continues to push the cutting edge, competing easily with the best science and tech from Europe and America, while Japan’s robotics and IT industries push ahead of America at an ever-increasing pace. Their national health care system works far better at far less cost per capita than America’s, and their transportation infrastructure remains the envy of the world.

    I see little to scold the Japanese about. If social decline is going on in Japan as a result of their economic policies, it’s certainly not visible to me. Especially by comparison with festering centers of social decay and collapse in these United States like Detroit, New Orleans, Cleveland, or the slums of Baltimore.

    Like

    1. Thomas,

      “America has been below zero population growth for some time now with increased fertility among immigrants masking this trend.”

      The trend results from the level of population change. Whether we import or roll our own makes little difference on the resulting natural rate of interest or return on capital.

      Like

  6. FM notes:

    Whether we import or roll our own makes little difference on the resulting natural rate of interest or return on capital.

    It makes a big difference because population growth due to immigration, or to recent immigration, makes America very vulnerable to outbreaks of xenophobia. After 9/11, America foolishly clamped down on immigration and as a result the number of immigrants has dropped precipitously after 9/11. We have also foolishly made it so difficult for immigrants to get green cards post-9/11 (unless they’re rich) that we’re shooting ourserlves in the foot as a nation.

    America should be encouraging immigration instead of (for example) locking up Italian tourists in steel cages and then refusing to let them return to their home country, as in this New York Times article “Italian’s Detention Illustrates Dangers Foreign Visitors Face,” The New York Times, 14 May 2008.

    America’s single biggest economic advantage over other countries is that we have traditionally welcomes immigrants. Many examples exist where groups of immigrants fail economically in their home countries (people from Southern Italy) but succeed economically in America. But because of the paranoia and crazy police-state tactics of the U.S. national security state post-9/11, immigrants are returning to their home countries in record numbers after getting advanced degrees in sciences and engineering instead of staying in the U.S. See “America’s two brain drains,” Northwestern Business Review, 13 November 2011.

    The massive numbers of international students who enter America for college are increasingly choosing to say “goodbye America,” “gàobié měiguó,” “alavidā amērikā,” and so on as they exit the country upon graduation. In 2010, over 690,000 international students were studying in America. These international students take up an enormous part of the American education system, obtaining more than half of the doctorates earned by American universities in math, computer science, and engineering. Historically, most of these students would stay in America after finishing college: five years after graduation, 92% of Chinese students (128,000 total) and 81% of Indian students (105,000 total) were still in America.

    A combination of increased standards of living back home and restrictive American immigration policies have flipped the situation around. The booming economies and improved research and development of countries such as China and India, along with the prospects of living near family have led many of America’s top college graduates to return home, bringing their skills and ideas with them. While America clearly cannot inhibit all of this, a loosening of rigid immigration policies could slow this trend.

    The United States limits the number of foreigners who seek careers in the U.S., creating a logjam of applicants struggling to gain citizenship. According to the National Foundation for American Policy, a highly skilled Indian national could wait up to 70 years for permanent status. Inventors, investors, and entrepreneurs who would love to enrich America, are being turned away.

    Like

    1. Thomas,

      “America should be encouraging immigration”

      IMO that’s absurd.

      We have surpluses in many professional and technical fields — esp among many kinds of PhDs.

      We have massive oversupply of blue collar workers — as shown by their falling wages.

      Where we have long-term shortages met by immigrants (e.g., medicine) it is because of education and licensing cartels that restrict the number of entrants.

      We would have more than sufficient trained people if out education system was not grossly ineffective, esp for the bottom 40% of the population. Immigration allows us to keep those kids on the junkpile while meeting the needs of corporations by immigrations — saving the money on education (State funding on colleges has been slashed in many states), so we can spend it on prisons and wars.

      The pro-immigration propaganda comes from corporations who want to hold down wages. Much as software companies use HB2 visas.

      Like

  7. “Financing retirement care for an increasingly large aged population looks to be an epic struggle more severe than most wars.”

    The question is what is the top priority? Is it finacing following gold bugs the top priority? Or is providing the aged population with good living? What is the real top priority?

    Fiat money says that there is no problem with financing retirement no matter what their saving level is. That way it will provide for increased output no matter population fall. Because robot revolution will provide productivity for increased numbers.

    But if the top priority is not to finace retirees with fiat money, but to hold the strickt rules on property rights and value of the Yen, then they are in trouble since they will not have enough money to fund productivity for robot use.

    MMT provides you with insight what should be your priorities. Money and finacing rules should not be your top priority but the provisioning the retirement of aging population.

    Earlier i described my view of how the Social Contract should be viewed. Retierment funds can never run out of means to provision their retirees unles we trough our selfishness and fears about financing decide not to provide them with the share of resources. Retirement funds is just a way of accounting of how much we want them to share with us, the productive population.
    Us, sharing our finacing with retirees provides for demand for our work, and so will be with our children when we retire. Increasing productivity create excess goods that we can not spend by ourselves.
    The real problem lies in; will we allow for small number of people to hold ever more ammount of money instead of sharring it with retirees? What system of compensation will ensure that small number does not hold and sit on demand for our work (fiat money that should go to retirees)? There is the finacing problem for retirees that you talk about. What is our top priority?

    Like

  8. You’re spot on about immigration being encouraged by the managerial class to undercut pay for the native working class. In fact, it’s just one aspect of a broader civic disaster brought on by uncontrolled immigration.

    A lot of the rhetoric about illegal immigration comes from the crude, the bigoted, and the uneducated. What the mandarins don’t realize is that these working-class ruffians are responding to grave socioeconomic disruptions. If anything, the problems are worse and more complicated than many anti-immigration activists claim. We have a desperate Latin American peasantry flooding more and more sectors of our labor market, undermining not only wages but also workplace safety standards. They’re numerous enough that employers are able to advertise exclusively in Spanish and make arguably discriminatory demands that applicants be bilingual. I’ve seen Spanish-only help-wanted ads for welders in Sacramento, a city where the local building trades have taken an incredible beating since 2007. The peasants being preferentially recruited for these jobs have little civic stake in the US, and their employers make no appreciable effort to help them acculturate (by design, I assume).

    Most of my personal exposure to these pernicious dynamics is as a farmworker. I’ve worked on a few all-gringo crews, so I know for a fact that there are Americans who are willing to take these jobs. Our problem is finding employers who are willing to hire us and not treat us like we’re on a chain gang. Over the fall, I heard a Fresno County Farm Bureau official complaining about a dire shortage of fieldhands at a time when I could find maybe two help-wanted ads for nonsupervisory farmworkers in the entire county; the next week, I worked on a one-day harvest for a vineyard owner near San Luis Obispo who had had to turn away excess applicants, all of them English speakers, some of them openly upset that they weren’t chosen. My competition for orchard jobs includes guys who have no qualms about moving recklessly up and down haphazardly propped ladders while carrying up to eighty pounds of fruit. I’m undercut by marginalized foreign peasants who literally have less regard for their own lives than I have for mine and sold out by planters who would rather have employees die from their own atavistic recklessness than deal with uppity help.

    To be clear, I’m not resentful of Latin American migrants as a group or of individuals among them for working harder or faster than I can manage. My resentment is towards specific idiots and malefactors who have caused me trouble and their ilk. I’d consider accusations of bigotry by sheltered Brahmins too ridiculous to be offensive; I get along fine with Latin American colleagues who have class and common sense, just as I don’t get along with gringo colleagues who are jackasses, and vice versa. The structural problem is that it’s a lot harder to root out dysfunction in a gray market with a serious language barrier and a patchwork of shady subcontractors than in an intact civic fabric with a common language. It’s a classic divide-and-conquer stunt by our planter overlords.

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