by Patrick Cox
September 28, 2016

In the late 80s, Japan’s economy seemed unstoppable. Japanese investors acquired some of the world’s most famous masterpieces and a string of landmark US properties, including Rockefeller Center and Radio City Music Hall. Many science-fiction novels and music videos predicted permanent Japanese economic dominance.

Didn’t happen.

Japan is still one of the most technologically advanced nations in the world. The business practices that started the boom are also the same. But the Japanese economic juggernaut is a fading memory.

So what changed?

 

The demographic pyramid turned upside down

Japan’s National Institute of Population and Social Security Research states that two population groups had peaked in size and were shrinking in the 1980s: workers and children. At the same time, the aged population was growing rapidly. The demographic pyramid was flipping.

One result of this change was a reduced ratio of younger workers to aged recipients of government services. While the old-age dependency ratio is fairly easy to measure, the other impacts of an aging society aren’t.

I wonder, for example, if there is a loss of societal vigor as the average age of the workforce rises beyond historical norms. Older workers have the advantage of experience and maturity. But they tend to take fewer risks than younger workers who have more time ahead of them, and therefore, more tolerance for failure.

The Japanese government has tried to encourage citizens to have more children. But in the last five years, the population has decreased by about a million people. About one in four Japanese is over the age of 65. The government thinks that number will hit four in ten by 2060. Adult diapers outsell those for infants. A boom in crime by the elderly, who have lost their support systems and exhausted their savings, is overloading the Japanese penal system. Prisons have started to look like assisted care living facilities.

In Japan, whole villages are depopulating and falling into disrepair. Even Tokyo, which once had the world’s highest real estate prices, is blighted by abandoned buildings and empty lots.

South Korea is seeing the same thing. Despite spending billions of dollars to promote childbirth, the fertility rate is about 1.25 children per woman. This is even lower than Japan’s. Recently, the Korean government announced emergency measures to raise the birth rate, including subsidized fertility treatments. But I think these programs will have little impact.

Many Americans fear that technology will destroy jobs. But in technologically advanced Japan and Korea, they are rethinking mandatory retirement guidelines to deal with increasing labor shortages. One concern is that there aren’t enough care givers for the aging population, especially for those who have dementia.

Both Japan and Korea are also implementing reforms to promote the discovery and development of innovative anti-aging biotechnologies. This would reduce healthcare costs and allow people to work longer.

 

Americans need to rethink retirement

If you want to know what America will be like in the future, take a look at Japan. America’s birth rate is lower now than ever before, according to a recent report by the CDC. There are about 1.84 children born per woman. Japan’s fertility rate is now at or below 1.4 children per woman, but the change started earlier there. There is no reason to believe that the US fertility rate won’t continue to drop.

The most important macroeconomic event of our era is the flipping of the demographic pyramid. According to the United Nations Department of Economic and Social Affairs, the world has reached peak babies and peak workers. For the first time in human history, there are more very old people than very young people.

It seems to me that most Americans have not yet recognized this major change in our society. Whenever I talk or write about it, I hear from those who insist that unions and other agencies will keep the retirement age where it is now. When a union’s pension funds are gone, though, the new reality will sink in.

My advice to anyone close to retirement age is this: Don’t do it unless you have no choice. There are biotechnologies in the pipeline right now that could add a decade or more to both your health span and life span. At the very least, ask yourself if your nest egg could last 10–20 years longer than you’ve planned. Don’t be lulled into thinking that things will go on as they have in the past. Look at Japan and Korea… we will soon be in the same situation.

— Patrick Cox is the editor of Transformational Technology Alert. This article originally appeared at Mauldin Economics.