Interesting article from David Pilling about population ageing in Japan. Ive been thinking about this whole topic - ageing in general not just Japan- a lot in recent months. Naturally living longer is in no way a catastrophe. Nor, necessarily, is having shrinking populations and fewer children. Indeed it looks like this will eventually become the norm globally (hence all the current talk about secular stagnation. That being said, we do need to find better ways to manage this process as it does represent something of an overall paradigm change for our economies and societies challenging both our earlier way of doing things and our earlier ways of thinking about economic processes (eg structural reforms can return all economies to previous growth rates). One big difference I notice in the post crisis world is that people are now much more open to talking about ageing as an issue and willing to think about the possible problems which can arise if the process is mishandled. The key issue is clearly going to revolve around how you respond to the challenges presented. I havent studied the Japanese health care system so obviously I cant comment on whether this works well or not, but on the economic front I would contend that the problem has not been appropriately managed and it is here that the risk of economic catastrophe does creep in. The kernel of the problem is summed up by Pilling thus: Of course, 15 years of deflation have left Japan’s overall finances in lousy shape, with a public debt-to-output ratio of 240 per cent, the highest in the world. So far economic policy in Japan has been directed towards trying to reflate an economy which is now naturally trying to deflate. Abenomics is the latest such attempt. This approach I think represents a problem, since along this road lie only unsustainable debt levels and subsequent earthshaking crises. I think instead of trying to desperately reflate the uninflateable we would be better off accepting the deflation (and of course this is true not simply for Japan but elsewhere as the phenomenon spreads). This is where I would part company with Paul Krugman and Larry Summers on how to handle secular stagnation. The key problem will be how to handle the financial system and savings in a world of shrinking economies and ongoing price deflation. Negative interest rates on retail deposits would be one answer. It wouldnt be popular, but it would avoid periodic life-threatening debt restructuring crises. One way or another though, this is the debate we now need to have.
Posted on: Sun, 19 Jan 2014 07:42:56 +0000
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