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» The Ornery American Forum » General Comments » "The Myth That Japan Is Broke"

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Author Topic: "The Myth That Japan Is Broke"
philnotfil
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This is different than I had always believed. I don't know enough to evaluate this. True? Misleading? Fantasy?

opednews.com

quote:
Japan's debt-to-GDP ratio is nearly 230%, the worst of any major country in the world. Yet it remains the world's largest creditor, with net foreign assets of $3.19 trillion. In 2010, its GDP per capita was more than that of France, Germany, the U.K. and Italy. While China's economy is now larger than Japan's because of its population (1.3 billion vs 128 million), China's $5,414 GDP per capita is only 12% of Japan's $45,920.
quote:
Japan's finances have long been shrouded in secrecy, perhaps because when the country was more open about printing money and using it to support its industries, it got embroiled in World War II. In his 2008 book In the Jaws of the Dragon , Fingleton suggests that Japan feigned insolvency in the "lost decade" of the 1990s to avoid drawing the ire of protectionist Americans for its booming export trade in automobiles and other products. Belying the weak reported statistics, Japanese exports increased by 73% during that decade, foreign assets increased, and electricity use increased by 30%, a tell-tale indicator of a flourishing industrial sector. By 2006, Japan's exports were three times what they were in 1989.

The Japanese government has maintained the façade of complying with international banking regulations by "borrowing" money rather than "printing" it outright. But borrowing money issued by the government's own central bank is the functional equivalent of the government printing it, particularly when the debt is just carried on the books and never paid back.

quote:
Some of the money for these government expenditures has come directly from "money printing" by the central bank, also known as "quantitative easing." For over a decade, the Bank of Japan has been engaged in this practice; yet the hyperinflation that deficit hawks said it would trigger has not occurred.

To the contrary, as noted by Wolf Richter in a May 9, 2012 article:

[T]he Japanese [are] in fact among the few people in the world enjoying actual price stability, with interchanging periods of minor inflation and minor deflation--as opposed to the 27% inflation per decade that the Fed has conjured up and continues to call, moronically, "price stability."


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KidTokyo
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I would have to read this closely to address its many assertions, but at least a lot of it appears correct.

I can say that the surface reality it address is absolutely true -- Japan's "lost decade" is largely mythological, in that unemployment has remained below 5 % pretty much the whole time, and that the losses of the crash more than a decade ago really only affected the rich. "Trickle down" -- whether good or bad -- is a meaningless concept in the Japanese system.

I'm not sure I buy the idea that Japan's fiscal policy is "opaque." I'd say instead, that Japan's economy is often studied in the west by non-Japanese speakers who make incorrect assumptions about how it operates. There is an almost willful blindness at times, derving from a near-religious devotion to Chicago-school thinking. This article notes correctly that predictions made over the past couple of decades by western academics about Japan's imminent problems never seem to materialize. I have seen many examples of this. It's not because Japan is hiding anything from us -- it's because we're not looking closely enough.

To crudely summarize the difference, Japan favors horizontal economic relationships over vertical ones, and employs a "stakeholders" model of the corporation which emphasizes its duties to its employees and to society at large, and not just its shareholders. The result is a surprisingly egalitarian society with a comparatively small public service/welfare sector. Corporations replace the welfare state (in return for the horribly long work hours, they take exemplary care of their employees and employee's families).

It is true that Japan strongly disfavors foreign investment and leveraged buyouts from overseas. This is not "xenophobia," but rather a strong sense of social contract. They don't want to be exploited by Gordon Geckos from abroad.

[ September 07, 2012, 01:15 PM: Message edited by: KidTokyo ]

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yossarian22c
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So Japan is the only country that properly utilizes a fiat currency?
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JWatts
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quote:
Japan's debt-to-GDP ratio is nearly 230%, the worst of any major country in the world. Yet it remains the world's largest creditor, with net foreign assets of $3.19 trillion.
Japan's debt-to-GDP is not, in of itself, an insurmountable burden. Indeed, in some ways the debt is irrelevant. Most of that debt is internal.

Japan's largest issue is a rapidly aging population combined with a strong reticence to large scale immigration. The Japanese already have one of the oldest effective retirement ages (around 70 for men). However, even that age will have to continue to increase to support the current social structure. The Japanese aren't having many children and they aren't allowing significant immigration. Faced with a dwindling population, the retirement age most go upward, assuming no significant technological changes.

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KidTokyo
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quote:
The Japanese aren't having many children and they aren't allowing significant immigration.
They allow more than you might think. Nothing like the US, but enough. It's job sector-specific, in areas like nursing and factory work, in which you see immigrants from South America, Vietnam, and Thailand. You also see some in highly skilled professions, like law or engineering.

They want to make sure that immigrants who come in are committed to staying there, and that they will be able to learn the language. They're trying to prevent situations where people can't adapt to the culture and are unable to support themselves.

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G3
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quote:
Originally posted by KidTokyo:
They want to make sure that immigrants who come in are committed to staying there, and that they will be able to learn the language. They're trying to prevent situations where people can't adapt to the culture and are unable to support themselves.

That sounds like a reasonable immigration policy. No way it would be allowed in the USA though, it's racist here. Plus, you know, Democrats need the votes.
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KidTokyo
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It wouldn't even be possible in the US. Japan is an island(s), with a formidably unique and difficult language. The US is connected to Mexico and Canada and speaks the world's most common language. It is more attractive, and much easier to slip into.
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yossarian22c
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quote:
Originally posted by JWatts:

Japan's largest issue is a rapidly aging population combined with a strong reticence to large scale immigration. The Japanese already have one of the oldest effective retirement ages (around 70 for men). However, even that age will have to continue to increase to support the current social structure. The Japanese aren't having many children and they aren't allowing significant immigration. Faced with a dwindling population, the retirement age most go upward, assuming no significant technological changes.

Why is a stable or slowly declining population a problem? I don't understand why that forces the retirement age upwards.

Are you thinking that if the population isn't increasing that they will be unable to care for all the elderly?

Do you think there is any population level/density in which a dwindling population would be a plus?

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JWatts
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quote:
Originally posted by yossarian22c:
quote:

Faced with a dwindling population, the retirement age most go upward, assuming no significant technological changes.

Why is a stable or slowly declining population a problem? I don't understand why that forces the retirement age upwards.

Are you thinking that if the population isn't increasing that they will be unable to care for all the elderly?

A stable population wouldn't be an issue, a declining population is an issue. Everything else being constant, if your retirement funding is based upon a certain ratio of workers to retirees then a declining ratio is going to be a problem.

Granted, there was an implicit assumption in my statement that the declining population is due to a declining pool of young people, both immigration and births. It wouldn't be applicable if your population was declining due to a sharp increase in older adult mortality or some such.

quote:
Originally posted by yossarian22c:
Do you think there is any population level/density in which a dwindling population would be a plus?

There are all kinds of potential pluses from a smaller population. However, it's problematic in multiple ways to get to a smaller population.
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yossarian22c
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quote:
Originally posted by JWatts:
A stable population wouldn't be an issue, a declining population is an issue. Everything else being constant, if your retirement funding is based upon a certain ratio of workers to retirees then a declining ratio is going to be a problem.

Ok, I understand what you are saying. Fewer workers means less people paying into a system like SS. If I am reading the article about Japan correctly they would leave the taxes alone and make up any deficit by borrowing money from their central bank. From my limited understanding of economics this would not lead to significant inflation as long as there are enough people working to provide goods and services to the rest of society. Based on current employment levels in most of the developed world I think the economies would do fine or better as long as the funding for the retirement system was handled correctly.
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JWatts
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quote:
Originally posted by yossarian22c:
Ok, I understand what you are saying. Fewer workers means less people paying into a system like SS. If I am reading the article about Japan correctly they would leave the taxes alone and make up any deficit by borrowing money from their central bank.

From my limited understanding of economics this would not lead to significant inflation as long as there are enough people working to provide goods and services to the rest of society.

Yes, but in this case there wouldn't be enough people, since the people actually providing goods and services would be a declining percentage of the population.

Of course, Japan could start borrowing from outside the country relying on other countries to obtain the goods, but that's of limited long term use. Once you hit a certain percentage of debt, the costs of debt are going to start escalating. And long term lenders are going to be aware and leery of the demographic situation that causes the need to borrow. Japan would probably have to start paying for the goods and services by equity transfers from their more valuable assets. Land and corporate stock primarily. I'm unsure how the politics would play out in that situation. Are Japanese going to gracefully accept Chinese ownership of large Japanese corporations and buildings? What will the value of the corporations and buildings be in a declining domestic market?

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KidTokyo
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As there are, in fact, people emigrating from overseas to work and live in Japan at this moment, there should not be a problem.
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dvgrn
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quote:
Originally posted by KidTokyo:
As there are, in fact, people emigrating from overseas to work and live in Japan at this moment, there should not be a problem.

Right, as long as there are enough of them. I know one such emigrant myself; it looks like you may be another one, and no doubt you know of many more. But it would take about a million immigrants a year for the next fifty years just to keep the population in balance: Wikipedia, "Demographics of Japan"

Will Japan be happy in fifty years with one resident in three being a recent immigrant -- assuming that many people want to relocate and learn Japanese? I kind of doubt it. The US is *somewhat* better equipped to handle mega-immigration on that scale, since we've been a nation of newcomers from the beginning... but we're having a tough time with xenophobia ourselves these days.

...It's too bad, because that's really the obvious way to fix the US's current economic difficulties. If we re-instituted the old "brain drain" in a big way, and imported 100 million twenty-somethings from abroad, we'd actually have enough workers again to keep Social Security in the black for a while.

-- And we've even just spent the last few decades building a ridiculous quantity of indoor space. So we actually have plenty of room to put that many people! ... uh, with a little rezoning and retrofitting, anyway...

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yossarian22c
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quote:
Originally posted by JWatts:
quote:
Originally posted by yossarian22c:
Ok, I understand what you are saying. Fewer workers means less people paying into a system like SS. If I am reading the article about Japan correctly they would leave the taxes alone and make up any deficit by borrowing money from their central bank.

From my limited understanding of economics this would not lead to significant inflation as long as there are enough people working to provide goods and services to the rest of society.

Yes, but in this case there wouldn't be enough people, since the people actually providing goods and services would be a declining percentage of the population.

Technological advancements have made it possible to support a society with a lower percentage of people working throughout human history. We have continued to delay the age in which we enter the workforce through continued education. At the same time we have begun to exit the workforce earlier with lower retirement ages. The fact that Japan has been having roughly static* total birth rates for the last 20 years means they have fewer unproductive children to care for. The percentage of the population that would be considered working age (15-64) has only declined slightly from its peak of 69% in 1970 to 63% today. There have certainly been enough productivity gains in the last 40 years to allow the standard of living increase while reducing the percentage of the population that is working age by 6%. Even as they age the percentage of the working age population is projected to decrease to 51% in 2050. I've already posted about what I think is going to happen to lots of jobs over that time span old thread. So I see no problem with the percentage of the working age continuing to decline slowly.

* The birth rate looks like it may be slowing gradually. japan demographics


quote:
Originally posted by JWatts:

Of course, Japan could start borrowing from outside the country relying on other countries to obtain the goods, but that's of limited long term use. Once you hit a certain percentage of debt, the costs of debt are going to start escalating. And long term lenders are going to be aware and leery of the demographic situation that causes the need to borrow.

Japan doesn't need to borrow from outside the country. They can borrow from their central bank. They can pay any interest rate they choose to. There would be a problem if they ran a continual trade deficit with foreign nations, since eventually people would stop wanting yin or their foreign currency reserves would run out. Japan has traditionally been a net exported. Recently they have a trade deficit as a result of the earthquake and tsunami. However so long as they get close to a zero or positive trade balance there is no long term problem from "loaning" themselves the money to finance public pensions. That is in essence what the article is about, the Japanese really understand how to utilize a fiat currency to sustain and grow their economy.
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KidTokyo
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quote:
But it would take about a million immigrants a year for the next fifty years just to keep the population in balance: Wikipedia, "Demographics of Japan"
There's no need to keep the population "balanced" if I take your meaning correctly. They only need to have enough people to do whatever jobs need doing.

Two things that should be considered:

1) Japan is, in all likelihood, naturally adjusting to the overcrowding which followed the postwar population boom, working its way towards an equilibrium state with a lower-than-present population. Recall that the country is not only comparatively small, it is 90% mountain slope. Virtually all of the farming, industry, and residential life occurs in the crinkles between the mountains. It's crowded. There are limits.

2) The average 60+ year old in Japan at least if not more fit physically than the average 40+ American. In the city, it old folk are out and about at the wee hours up to all kinds of carousing, and in the farming/fishing region I often visit, there are 70 and 80 year-olds out digging, hoeing, harvesting tangerines, driving pick-up trucks (very small ones), and visiting neighbors on foot, carrying large boxes of vegetables. Point being, the need of elders for expensive and labor-intensive health care is probably a lot lower (Japan's health care costs are incredibly low compared to most comparably-sized modern democracies).

quote:
Will Japan be happy in fifty years with one resident in three being a recent immigrant -- assuming that many people want to relocate and learn Japanese? I kind of doubt it.
Your wiki article makes an important observation you should consider. Specifically:

quote:
8.5% Japanese and 1.5% other.[8] The concept of the ethnic groups by the Japanese statistics is different from the ethnicity census of North American, Australasian, Brazilian or some Western European statistics. For example, the United Kingdom Census asks ethnic or racial background which composites the population of the United Kingdom, regardless of their nationalities. The Japanese Statistics Bureau, however, does not have this question yet. Since the Japanese population census asks the people's nationality rather than their ethnic background, naturalized Japanese citizens and Japanese nationals with multi-ethnic background are considered to be ethnically Japanese in the population census of Japan.[9] Thus, in spite of the widespread belief that Japan is ethnically homogeneous, at least one academic recommends description of it as a multiethnic society.
When you spend a lot of time in Japan, you never stop noticing the immense variety of faces there. While mostly Asian, there is an incredible mixture of complexion and facial structure. Fact is, if you are born and raised in Japan, you are considered Japanese in every sense, regardless of what you look like. "Mixed" children are considered especially beautiful (either half-European or half-African). Being Japanese is a way of life, not a genetic trait.

I think Japan could easily absorb more immigrants if it does so at a moderate rate. I do not think it needs to do so at the rate you suggest, for the reasons listed above, and because, from what I've observed, many retired Japanese pursue second careers (farming, business, etc.) after the first. And they also save a lot.

[ September 11, 2012, 11:16 PM: Message edited by: KidTokyo ]

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Pyrtolin
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quote:
There's no need to keep the population "balanced" if I take your meaning correctly. They only need to have enough people to do whatever jobs need doing.
That's a key point there. The entire notion of a minimum retirement age is about as anti-market as you can get. Remove the age restrictions entirely and let people retire at any point that they feel their earned credit plus and personal investments are sufficient to sustain them (You could largely fold unemployment protection into that as well instead of maintaining two separate systems). The benefit for retirement at any given time then serves as the negotiating baseline for the wages that need to be offered to pull people away from it and back into the workforce, and the average retirement age would automatically adjust itself based on the actual need for labor rather than on an arbitrary number based solely on political paternalism.
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JWatts
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quote:
Originally posted by yossarian22c:
Technological advancements have made it possible to support a society with a lower percentage of people working throughout human history.

I have no argument with that. Indeed, my original phrasing was:

quote:
Faced with a dwindling population, the retirement age most go upward, assuming no significant technological changes.
However, technological change is unpredictable. So while I'll believe it will inevitably happen, I don't think you can always assume it will necessarily fix any problem.

If you assume technological change is a cure all, then you shouldn't worry about the long term effects of global warming. Nor much of anything for that matter. I'm a long term optimist, but a short term pessimist. I believe you should assume the problems are potentially dangerous and you should at least think about and study them, but also understand that 20-50 years down the road, the problem might have a trivial solution.


quote:
Originally posted by JWatts:
Japan doesn't need to borrow from outside the country. They can borrow from their central bank.
... However so long as they get close to a zero or positive trade balance there is no long term problem from "loaning" themselves the money to finance public pensions. That is in essence what the article is about, the Japanese really understand how to utilize a fiat currency to sustain and grow their economy.

I don't agree with your analysis. Let's assume for a moment that trade balance doesn't matter. That for the time period in question, say the next 70 years the trade balance average out to zero. So assuming that, we can then just concentrate on the domestic Japanese market.

Your assumption is that in a declining labor force that you can "loan" money to themselves to "finance" the "public pensions" over a 70 year period. Effectively that's impossible. Loaned money is an accounting ledger entry. It doesn't actually create any wealth, it's merely (ideally) a transfer of capital from low growth areas to high growth areas.

However, in this case, the high growth areas are capped by a dwindling population. If you assume a 1% GDP (technological, efficiency, etc advances) growth combined with a 1% working population decline, the net is zero growth. If you have zero growth in total GDP (and the underlying total wages and taxes) and a growing pool of retirees, you have to increase pension costs as a percentage of GDP. It's a zero sum game.

The reason economics is generally considered a non-zero sum game is net GDP growth. In Japan, it's quite possible that over the next 70 years GDP growth will be very close to zero. In such an environment (ignoring external supply) you can't give more goods to one group (growing number of pensioners) and not take more goods from another group (the dwindling pool of wager earners).

All that being said, I think Japan has already figured out the obvious. Their effective male retirement age is now 70 and heading up. They are growing their wage earner pool and simultaneously shrinking their pensioner pool, by increasing their retirement age. It's an approach every developed country will have to inevitably follow, unless we see some significant technological breakthroughs over the next 50-70 year time frame. The breakthroughs would have to be enough to raise the average long term GDP growth rate by roughly 2+%.

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Pyrtolin
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quote:
However, in this case, the high growth areas are capped by a dwindling population. If you assume a 1% GDP (technological, efficiency, etc advances) growth combined with a 1% working population decline, the net is zero growth. If you have zero growth in total GDP (and the underlying total wages and taxes) and a growing pool of retirees, you have to increase pension costs as a percentage of GDP. It's a zero sum game.
Bad comparison- total GDP needs to be compared to total population, not just working population or retirees.

If population and GDP hold constant, then a growing pool of retirees and and shrinking pool of workers are a wash as well.

But the current stats are that Japan is seeing population growing at a rate of less than .5%, while it's productivity grows at about 1.6%, meaning that the number of productive hours/person available are dropping pretty rapidly; raising the retirement age in the face of that kind of shift is ludicrous, as it only serves to force more people into an already overfilled labor pool, which is only going to get more and more crowded as increased overall wealth continues to push the population growth rate down and technological advancement pushes productivity up. (And there's no need need to wait for future technology; there's plenty of current technology waiting in the wings that's not being fully applied in order to artificially depress productivity and preserve employment)

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