Regarding the effect of population decline on GDP, should one look more deeply at the changes in composition of the population rather than just at the total population size?
For example, the total population size may not have changed much over 15 years, but it has aged greatly, and older people are likely to spend less and less (apart from on healthcare)?
Also, is the demographic *outlook* not a reason for people to be trying to spend less and save more, knowing how difficult future years will be as the working population collapses?
One could say that the future-looking demographic forecasts are as big a factor influencing current spending patterns as the past demographic changes?
Lastly, when looking at populatiojn size in Japan, do you include foreigners who are living, and often working, in Japan? I expect those numbers will be increasing to offset the falling working population, and will be an increasingly large economic factor, even if they only have temporary residency status.
Yes, I agree that aging is the core of the demographic problem. as Japan ages, there are fewer working age people to create the GDP needed to support all the rest. However, Japan can still grow much better than it has done. What it requires is an increase in productivity, i.e., output per workhour. At present, Japan's GDP per workhour is only 63% of the US level, while the Eurozone is almost 90% and France and Germany are about equal to the US. Japan has a very educated population, lots of capital to invest, etc. So why the lag? Bad business strategy and execution. Just by catching up to world benchmarks, Japan could have a big burst of growth over the next couple decades.
Yes, the figures for population in measuring per capita GDP include non-citizens.
People are already spending less because they have less income. The savings rate has gone down because people need to spend to maintain their current standard of living, but are not seeing an improvement. Some suffer a fall in it.
It still leaves the question open, if GDP growth is necessarily a good indicator to chase? If construction is down, one could tear down all houses every 5 years and rebuild them to raise GDP. But would it make the country wealthier, or just massively waste resources and lead to losses in real wealth? Same with government spending to increase GDP, it will almost certainly be largely very inefficient, lead to wrong incentives (try and get money from METI instead of investing in actually sensible R&D?)… Seems like one needs a better indicator than GDP, that measures actually value creation… Gross Negative Entropy Product? Still, it is true that Japanese private companies have not been at the forefront of global economic growth and can (need to?) do more to reform their business practices to become globally competitive (again).
A country that tries to boost GDP by tearing down houses and rebuilding them every five years (or bridges to nowhere) will do so at the expense of building up its productive capacity and modernizing its equipment or preparing for climate change. As a result, its ability to grow GDP in future years--no matter how much it spends--will decline. This is exactly what happened in Japan. That's one of the reasons why GDP is a good measure, but not the only measure, needed to judge a country's current economy and future prospects.
Excuse my ignorance as an outside observer of the matter, but do you see the government taking steps in such a direction of economic development? It seems to me Abenomics was essentially exactly the short term GDP boosting policy through senseless government spending that leads to less long term growth potential. Similar to the building of often rather pointless infrastructure projects to subsidize inefficient country side construction jobs.
Regarding the effect of population decline on GDP, should one look more deeply at the changes in composition of the population rather than just at the total population size?
For example, the total population size may not have changed much over 15 years, but it has aged greatly, and older people are likely to spend less and less (apart from on healthcare)?
Also, is the demographic *outlook* not a reason for people to be trying to spend less and save more, knowing how difficult future years will be as the working population collapses?
One could say that the future-looking demographic forecasts are as big a factor influencing current spending patterns as the past demographic changes?
Lastly, when looking at populatiojn size in Japan, do you include foreigners who are living, and often working, in Japan? I expect those numbers will be increasing to offset the falling working population, and will be an increasingly large economic factor, even if they only have temporary residency status.
Yes, I agree that aging is the core of the demographic problem. as Japan ages, there are fewer working age people to create the GDP needed to support all the rest. However, Japan can still grow much better than it has done. What it requires is an increase in productivity, i.e., output per workhour. At present, Japan's GDP per workhour is only 63% of the US level, while the Eurozone is almost 90% and France and Germany are about equal to the US. Japan has a very educated population, lots of capital to invest, etc. So why the lag? Bad business strategy and execution. Just by catching up to world benchmarks, Japan could have a big burst of growth over the next couple decades.
Yes, the figures for population in measuring per capita GDP include non-citizens.
People are already spending less because they have less income. The savings rate has gone down because people need to spend to maintain their current standard of living, but are not seeing an improvement. Some suffer a fall in it.
It's not just the economy. In fact, profits are eroding (much) quicker than the economy.
https://mtaylor.substack.com/p/japans-evaporating-profits
It still leaves the question open, if GDP growth is necessarily a good indicator to chase? If construction is down, one could tear down all houses every 5 years and rebuild them to raise GDP. But would it make the country wealthier, or just massively waste resources and lead to losses in real wealth? Same with government spending to increase GDP, it will almost certainly be largely very inefficient, lead to wrong incentives (try and get money from METI instead of investing in actually sensible R&D?)… Seems like one needs a better indicator than GDP, that measures actually value creation… Gross Negative Entropy Product? Still, it is true that Japanese private companies have not been at the forefront of global economic growth and can (need to?) do more to reform their business practices to become globally competitive (again).
Jens,
A country that tries to boost GDP by tearing down houses and rebuilding them every five years (or bridges to nowhere) will do so at the expense of building up its productive capacity and modernizing its equipment or preparing for climate change. As a result, its ability to grow GDP in future years--no matter how much it spends--will decline. This is exactly what happened in Japan. That's one of the reasons why GDP is a good measure, but not the only measure, needed to judge a country's current economy and future prospects.
Richard,
Excuse my ignorance as an outside observer of the matter, but do you see the government taking steps in such a direction of economic development? It seems to me Abenomics was essentially exactly the short term GDP boosting policy through senseless government spending that leads to less long term growth potential. Similar to the building of often rather pointless infrastructure projects to subsidize inefficient country side construction jobs.
It could but so far has not.