Wednesday, January 11, 2012

The US Becoming Japan... not in the way you may think!

It has become common in recent years to suggest that the US is headed the way of Japan, with the implication being that Japan has been an economic failure in recent decades. (I starting expecting in the early 2000s that the US would follow Japan, also, but for some right and some wrong reasons). Last year and again today I've highlighted the huge degree to which Japan's economic performance is a story about demographics and the confusion about nominal versus real in the context of periodic mild deflation.

However, by failing to adequately support US economic growth (that is, incomes and employment) in the wake of the "Great Recession", policy makers may yet find a way to send us down Japan's path:
"A sharp decline in fertility rates in the United States that started in 2008 is closely linked to the souring of the economy that began about the same time, according to a new analysis of multiple economic and demographic data sources by the Pew Research Center." -- In a Down Economy, Fewer Births

U.S. population grows at slowest rate since 1940s

So, poor economic growth could become a self-fulfilling prophecy via the demographic channel itself!

Of course I'm exaggerating for effect. The drop off in US fertility rate (about a 7% fall from 2007 to 2010) is not yet anywhere near large enough to give the US a demographic outlook like Japan's... plus there are long lags in demographic effects, and other factors such as immigration rate. And according to Eamonn Fingleton the reasons for Japan's demographics are quite different:
"The story begins in the terrible winter of 1945-6, when, newly bereft of their empire, the Japanese nearly starved to death. With overseas expansion no longer an option, Japanese leaders determined as a top priority to cut the birthrate. Thereafter a culture of small families set in that has continued to the present day."

"Japan’s motivation is clear: food security. With only about one-third as much arable land per capita as China, Japan has long been the world’s largest net food importer. While the birth control policy is the primary cause of Japan’s aging demographics, the phenomenon also reflects improved health care and an increase of more than 20 years in life expectancy since 1950."
Nevertheless, if US policy makers were to sabotage the US economy further by actively imposing austerity, we might yet follow in Japan's economic path (or worse) but in a different way than typically suggested!

I should also note that I'm not suggesting that higher population growth rates are inherently better, just that they contribute to economic growth (for better or worse). I recognize the planet's finite resources are being strained, but I am also a mild optimistic regarding our ability to accelerate "radical resource productivity" with the right fixes to the political system and the current massive problems of externalized costs.

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