Summary: Japan continues to prosper, defying the doomsters’ forecasts. Is this a delay of their end times, or the taxing down the runway before lift-off? Japan is in some ways further into the future than the rest of the world. We should watch and learn from them.
Since Japan’s long crash began in 1989, people have predicted doom. From their massive gross government debt: 237% of GDP in 2015. From their aging shrinking population and refusal to flood the island with immigrants. From their interventionist government and central bank. From the certain-to-come hyperinflation caused by their monetary policy. All so unlike America!
A quarter-century has passed, but Japan refused to cooperate and sink beneath the Pacific. Doubts have risen about their doom, although not to the extent as I wrote in 2012: Japan can again become the land of the rising sun. We should watch and learn from them. Here is a smart example.
“Japan’s tight labour market generates deflation”
At Macrobusiness (hat tip to Naked Capitalism).
“Just a quick observation today as Japan released its October unemployment rate at 2.8%, way below supposed full employment. Yet it’s still waiting for wage inflation to kick in, for about twenty years now. Japan is unique in some ways with its social contract between dead wood salarymen and other stabilising institutions, still as the leading indicator for our post-crisis developed economies it’s hardly irrelevant:
- balance sheet recessions and their aftermath take generations to restore animal spirits for debt;
- aging population;
- advancing automation.
“What it doesn’t have that other {developed nations} do is inequality but that’s also a powerful deflationary force. Nor does it have a flood of cheap migrant labour which equally deflationary, especially when you’re already over-supplied. Just sayin’, for all of you inflation hawks out there.”
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Japan’s economic performance is even better than that article suggests. Despite the doomsters’ list of Japan’s awful policies — so unlike America! — Japan’s real GDP growth has been similar to that of the US since 2004 — in the terms that matter to its people and our people: per capita GDP. The 2004 values for both nations were set to 100. Click to enlarge.
This might be just the beginning. Japan might become a star in the 21st century, growing faster than America — or as fast but with less social turmoil.
(1) A falling population is a boon for Japan
Japan’s government has worried about its overpopulation since the Meiji Restoration when they had about 30 million people (1868). They encouraged emigration to Korea, to no effect. They had 50 million in 1910, 100 million in 1967, and a peak in 2008 at 128 million — all crowded into a narrow urban belt along the coast. At their current level of fertility, by 2100 their population might be half of today’s, back to the level of 1930. If fertility continues to fall, population might fall to 60 million (1925) or even 50 million (1910).
The effect on Japan’s environment would be wonderful. Japan could become a garden with fewer people and the cleaner technology of the future (when common question in grade-school history class will be “Teacher, what is ‘pollution’?”).
(2) What about the economy?
There have been several industrial revolutions. Somewhat arbitrarily, we had the first in 1750-1850, and the second in 1860-1920. Their productivity gains were not shared. Hence “sabotage”, as textile workers protested by throwing their wooden shoes (“sabot”) into the machines.
These rebellions grew in breadth and scale, with peaks during the revolutions of 1848 and the 1917 Russian revolution. Frightened by those and the turmoil of the Great Depression — plus the need for high social cohesion to fight the two world wars and the cold war — the West’s elites decided that more sharing was necessary. That created the western societies we see today, with their large middle classes.
Now the information revolution has begun. So far the effects on employment and productivity are small, as industries slowly develop new methods to use these new tools. But massive job losses lie ahead from machines with rudimentary senses run by powerful algorithms. Beyond that lie true semi-intelligent machines (e.g., totally self-driving cars) and and even larger job losses.
There need be no social turmoil if the gains from the new tech are shared. That will be easier with a highly educated and shrinking population — hence less unemployment and an easier adjustment to new jobs. Japan is by far further along in this process.
Boosting population with culturally different people is a guarantee for social chaos in the coming years. Just as the “Washington Consensus” economic policies brought trouble or ruin to developing nations who took our advice (unlike the Asian “Tigers” who ignored us), western economists have exactly the wrong advice for the 21st century.
(3) Conclusions
Japan’s characteristics can make them an economic leader in the 21st century.
- A highly educated and hard-working people with a high-savings rate — the foundation for economic success).
- A homogeneous population with strong social cohesion — minimizing the domestic turbulence common in multi-ethnic societies when under stress.
- A shrinking labor force — able to more easily absorb the job destruction from automation.
These advantages are mutually reinforcing. A highly educated population suits the available jobs. A shrinking population more easily accommodates job losses from automation, which reduces the social stress of this transition (more about this here). Less social stress might facilitate adoption of new technology and methods. The obvious contrast is with America, and its growing population of increasingly poorly-educated people, in a society fracturing by ethnicity, race, religion, and ideology.
America might look to Japan for ideas in the years to come. We do not appear to have many of our own, other than deregulating industry, wrecking the education system, cutting social services, and reducing taxes for the rich. Without Japan’s advantages we might need bolder measures to prosper.
Or we might try something new. We might learn from other nations.
For More Information
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about Japan, about the new industrial revolution, and especially these…
- Japan can again become the land of the rising sun. We should watch and learn from them. (2012) — Falling population & faster automation are great for Japan.
- Must our population always grow to ensure prosperity? (2013) — Spoiler: no. More about the benefits of a shrinking population & automation.
- A rocky road lies ahead to a far smaller world population.
- Why Japan can become an economic star of the 21st century.
- The facts behind the scary new UN population forecast & those doomster headlines.
- Doomsters warned of End Times from overpopulation. Now *fewer* people are disastrous.
To better understand Japan, read this!
To understand Japan’s underlying problem, its most serious weakness, I recommend reading The Enigma of Japanese Power: People and Politics in a Stateless Nation
Published just before its economy collapsed in 1989, he describes a Japan governed by businessmen and bureaucrats, supported by a public that fears hostile powers threatening their economy, culture, and purity of their race. Japan’s diffuse power structure prevent effective action today, as it did during WWII.
