Metabolizing Japan, the World’s Oldest Nation

Jon Economy, Market Commentary, Politics

Getting old can be a drag, for both people and nations. As people age, they tend to become less physically active. This leads to loss of muscle mass and the gain of fat, which causes the body’s metabolism – the process of converting nutrients into energy – to decrease. When the population of a nation ages, a similar effect plays out. The labor pool dwindles, fatty debts build up, and the nation’s economic muscle, or labor productivity, atrophies, leading to a decrease in the nation’s metabolic rate and slower growth overall.
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The National Bureau of Economic Research released a study in July that examined how an aging population can impair economic growth. In analyzing the economic response to aging in the United States since 1980, the study emphasized a drop in labor productivity as the chief economic consequence of a graying society and estimated that the aging of a society can shave as much as 1.2 percent off gross domestic product growth, a considerable amount given that a 2 percent growth rate in an advanced industrial economy is a cause for celebration these days.
Demographics matter – a lot. This is a big part of why central bankers in the developed world are banging their heads against the wall trying to concoct new monetary and fiscal cocktails to stimulate growth when even crawling to 2 percent growth seems like an uphill battle. A graying society simply cannot burn off as many calories as economists, politicians and voters would like. Tackling the roots of demographic decline is no easy task, either. Population growth is considered stable at a 2.1 total fertility rate, meaning mom and dad are producing enough offspring at least to replace themselves. But a more urbanized world means a higher cost of living and tighter living quarters, leaving less physical and financial room to seat a big family around the dinner table. And as more women seek higher education and professional careers, childbearing gets put off until an age when fertility drops. Add to this picture longer life expectancy enabled by advancements in medicine and technology, and you have yourself a demographic crunch.

This post was published at FinancialSense on 08/30/2016.