patrick.net

I prefer to think we have a lot to learn from the Japanese.

That's just fucking great (um, maybe non-fucking great as the case may be).

https://research.stlouisfed.org/fred2/series/LFWA24TTJPQ647N

is pretty stunning, actually.

But there's still a lot of underemployment in Japan so I don't see the depopulation problem, really.

Real estate is still sky-high in Tokyo, where all the jobs are.

Japan doesn't have half the elderly support problem we do. Their "ranks of aged" are mostly (90%?) arrived by now, while we're going to rise from 50M medicare beneficiaries to 80M+ by 2030.

shows the yellow (old people) in this graph isn't going to increase much in absolute terms going forward.

But economically, the fall-off of young does introduce immense deflation. Less demand for teachers, clothing, furniture, cars, etc. It's really quite something; for Japan Inc to survive it must convert this lost domestic demand into exports somehow.

As for their crippling debt, it's also the baby boom's savings. They gave themselves tax cuts and called it savings, 1997-now. Not sure how they're going to square that circle . . .

I'm 80% sure I'm moving back to Japan this decade, so this interests me, LOL.

Heraclitusstudent says

U.S., which have demonstrated successfully that welcoming people from a variety of nations, who may think differently and have different cultures

That's not exactly true. It's many ppl but assimilated under one culture.

That's the model which has worked because as you said, ppl think differently and bring in new ideas, whether it's in commerce or in education.

Bellingham Bill says

Japan doesn't have half the elderly support problem we do. Their "ranks of aged" are mostly (90%?) arrived by now,

Bellingham Bill says

As for their crippling debt, it's also the baby boom's savings. They gave themselves tax cuts and called it savings,

There are 2 things I would say about their 'elderly support':
- Inversely the boomers savings are invested in their debts. Pensions holding gov bonds. Which means when they default (through printing or otherwise) these savings will look like smaller, maybe a lot smaller.

- You can also look at it this way: saved money is a claim against the production of the working population: since it is money competing with wages for the produced resources. This implies that whatever happens to the debt and currency, they will in fact be a lot poorer in retirements, and the younger generations will also be a lot poorer as they will be taxed through the nose to support the huge debt and indirectly pay the elderly.

Bellingham Bill says

I'm 80% sure I'm moving back to Japan this decade, so this interests me

Personally I would avoid that at all cost. Lots of work, low entertainment, overcrowding (still), general lack of economic opportunities, possible war, radioactive leaks, etc...

Lets take in all the talent and brains from all over the world. I dont care who pays into the retirement system.

Heraclitusstudent says

Lots of work, low entertainment, overcrowding (still), general lack of economic opportunities, possible war, radioactive leaks

There's a lot of nature available from Tokyo, even more if I were to locate myself more in the interior (or should I say periphery, the most interior point of Honshu is only 90 minutes from the coast).

Satellite internet and good waterfalls to hike to is all I need for entertainment, LOL.

Tokyo is quite "overcrowded", but the periphery is beginning to empty out now, and this will accelerate. Might even be possible to pick up livable real estate for free, that's what a pal did in the 1990s, up in the mountains.

Japan is still the #3 economy and is by far the richest nation on the planet, approaching $3T in NIIP:

There's not going to be a war with China. There might be some hurt feelings, but Japan will get over it.

The situation at Fukushima-I totally sucks, but the leaking will only affect the littoral aquaculture of NE Japan, and I wasn't a big fan of that alleged cuisine to begin with.

The coming 2020 Olympics bring in an interesting new change dynamic. A little shot in the arm for internationalism in Japan, something they could always use.

For sure demographics have a lot to do with it. But the real problem is Abenomics and not allowing the market to clear.

indigenous says

the real problem is Abenomics and not allowing the market to clear.

By "allowing the market to clear", you mean "defaulting on the debt?
That means defaulting on a bunch of pensions: People who will not have an opportunity to make it back.

Heraclitusstudent says

That means defaulting on a bunch of pensions: People who will not have an opportunity to make it back

Yes, refer to Argentina. Someone posted a thread here the other day about 85% of pension funds will fail in the US.

Heraclitusstudent says

You can also look at it this way: saved money is a claim against the production of the working population: since it is money competing with wages for the produced resources.

Of course, their boomer savings are basically deferred taxation since it's all (~80%) held in JGBs.

Quite a trap they've laid for themselves.

They deleveraged privately and put the load on government instead.

shows they were at peak debt in the late 1990s.

Quite frankly, taxes have to double there probably, tax-to-GDP take is pretty low, almost as low as us, and half that of the eurosocialists running tighter fiscal ships, like Denmark.

the younger generations will also be a lot poorer as they will be taxed through the nose to support the huge debt and indirectly pay the elderly

thing is, every penny the young pay to the seniors will come back to them. The only way pensions are wealth-destroying is if Japan has to import goods to meet them. This is not the case.

Same story for the US to some extent. If our boomers all buy RVs and cruise America burning diesel 24/7, we'll be totally f-ed, but otherwise the trillions going out to them will be redistributionary to a great extent -- more health jobs, more restaurant jobs, more tourist sector jobs.

But mostly more health jobs I'd guess.

Japan's declining population does mean increased food security, the opposite story of what we're facing this century, where our population in 2050 will be 30% higher than now (Japan's will be down ~25%).

I'd guess no need for new infrastructural investment for growth reasons. This is deflationary, killing these jobs, but this century I think we need to move past the quasi-Keysenian concern of jobs for jobs sake, all that pump-priming crap, and just focus on the long term picture and what it takes to get there from here.

We need to see where we want to be in 2050 and plan what needs to be done by 2040, 2030, and 2020. Capitalism is total crap at this long-term planning.

As is democratic government, since the current election cycle is more critical than what's going to happen in 2050.

Bellingham Bill says

thing is, every penny the young pay to the seniors will come back to them.

I don't quite agree with that. Yes, you can see it as end demand, and this may mean jobs. But at the end of the day a good chunk of what is produced will go to older folks, which mean the working population will keep a lesser amount than what their parents did.

And the crazy thing is if Japan raises taxes a lot, their sky-high real estate valuations will crash again.

Land in Japan is still hella expensive. Rural parcels with minimal services that get subdivided sell at $1M/acre, since the buildable lot size is so small (100 m2 is common) and nobody bats an eye at paying $50,000 for a lot, since it's only $80/mo in interest burden, thanks to ZIRP.

indigenous says

the real problem is Abenomics

Abenomics is certainly a risky path. The entire debt markets can implode suddenly and with little warning.

Heraclitusstudent says

But at the end of the day a good chunk of what is produced will go to older folks

production is not a zero-sum game when people are underemployed.

What Japan needs is people getting paid doing productive work. Japan has to limit production of rice since they're in oversupply of that.

http://oryza.com/news/rice-news/japan-my2014-15-rice-production-forecast-decline-766-million-tons

They could make millions more cars than they are.

And what do Japanese seniors consume, anyway? Rice, fish, vegetables, water, air, TV reception.

And health care.

Heraclitusstudent says

The entire debt markets can implode suddenly and with little warning.

Not in fiat currency regimes. Japan is not dependent on foreigners buying their bonds. They'd prefer they don't, actually.

Heraclitusstudent says

Abenomics is certainly a risky path. The entire debt markets can implode suddenly and with little warning.

No "can" about it, it will, just like Argentina.

http://finance.yahoo.com/q/bc?s=%5EN225+Basic+Chart&t=5y

Abe is a bad, bad man, LOL

It's abundantly clear that the populations grown during the 19th and 20th centuries are pathologically high.

Even a shrinking industrial state like Japan is still egregiously overcrowded.

Things can only get better with steep declines.

indigenous says

just like Argentina

this is a fundamental non-understanding of macro economics.

Japan essentially won the 20th century with their industrial dominance and weak currency giving them immense competitiveness.

Toyota. Honda. Sony. Yamaha. Toshiba. NEC. I could list world-class industrial powerhouses all day.

What the fuck has Argentina produced in comparison?

Granted, the world is a different place for Japan now than it was in 1980, or 1990 even. China has risen and largely drank their milkshake. As have the ROK chaebols.

Still, if and when they get their nuke fleet back on line Japan will be able to pay its way in the world.

Shows Argentina is walking a much tougher line.

http://research.stlouisfed.org/fred2/series/NYGDPPCAPKDARG

is Argentina's per-capita GDP, roughly 1/10th that of Japan.

http://en.wikipedia.org/wiki/Foreign_trade_of_Argentina#Merchandise_exports_and_imports

shows they have a 18th century economy still, they export food and PMs, import manufactures.

I'd like to retire to Japan and open a little hotel.

I'll call it Samurai Hotel.

Bellingham Bill says

Heraclitusstudent says

The entire debt markets can implode suddenly and with little warning.

Not in fiat currency regimes. Japan is not dependent on foreigners buying their bonds. They'd prefer they don't, actually.

Well... all the CB can do is buy bonds with printed money. yes they can keep gov bonds low.
But if people don't have confidence that they will be paid back in money as valuable as they put in, they can still sell. If there are no other better investment in Japan, they will look overseas. This is called a capital flight. The Yen could crash. Rates for smaller companies would go through the roof. This can't be helped easily by the central bank.

Also when you say they don't depend on foreign buyers, you imply 2 things:
1 - Japanese don't care about losing money by investing in a losing proposition. I don't think that's true.
2 - They will keep a current account surplus. But printing yens encourages debt increase in Japan, and therefore tends to deteriorate the account balance. Plus as retirees numbers increase, they will necessarily dis-save more. We will see Abe tax consumption precisely because it's a way to tax foreign goods indirectly (while giving tax cuts to Japanese companies) and preserve the account balance. But I doubt this will be enough.

Abenomics may just be coming too late to save Japan.

Believe it or not I'd like to build a ~20-unit apartment bldg in Tokyo serving gaijin like me. There's a screaming market demand for low-BS housing for foreigners.

Though Japan does have pretty goofy tenant-protection laws, unlike the US where it's pretty trivial to get the sheriff's services inside a month.

But try as I might, I can't get it to pencil out due to Tokyo's insane land valuations.

http://www.athome.co.jp/ks_14/dtl_6953343999

is a quick search of land, ~30 minutes outside of town, on the outside edge of not-inconvenient location to the city itself.

$770k for 360m2 (~4000'). This is 200% zoning so I could build 430m2 of apartments, at 30m2 each that'd be 14 units.

That's $50,000 per unit just for land value. This is pretty much constant out this far, and the closer you get, the higher it goes.

http://www.athome.co.jp/ks_14/dtl_1069759908

$2.4M for 500M for the same zoning in a bit better location (still 25 minutes out).

500m2 x .6 x 2 = is 600m2 of allowed construction, or 20 units . . . $120,000 per unit of land cost.

http://www.athome.co.jp/ks_14/dtl_1071260008

is totally prime real estate. 800m2 x .6 x 2 = 960m2 of space, or 30 30m2 units.

Price? $470k per unit.

That's Tokyo's real estate gradient.

Bellingham Bill says

That's Tokyo's real estate gradient.

Can you build underground? Coffin sized units?

Heraclitusstudent says

But printing yens encourages debt increase in Japan

and weakens the yen. Once I figured out that Japan would prosper more with the yen at 150 than 50 I realized Japan's not too bad off, really.

Kuroda just needs to keep printing. His job's not done until prices have another zero on them, basically.

This is of course sacrilege, and I don't know how it's going to turn out. But even with their depopulation, Japan still has a lot of people to put to work.

Age 15-24 Japan (blue) vs Germany (red)

http://research.stlouisfed.org/fred2/graph/?g=xpX

About half our young population are junk people totally unprepared for life.

http://www.edtrust.org/west/press-room/press-release/new-analysis-finds-few-california-students-are-prepared-for-college-an

1/4 don't finish high school, half that do don't qualify for a 4 year college.

It behooves Japan to invest more in its youth, and I hope they are doing that now. I do know that the average high school in Japan is streets ahead of the average high school in the US, in terms of educational merit.

Bellingham Bill says

this is a fundamental non-understanding of macro economics.

I agree, Argentina had the second largest GDP in the world 100 yr ago. Today it is 26th.

The reason is continual meddling by the state(Juan and Evita Peron fame), the last event I heard about was the president confiscating private pension funds.

You might say they just did not have natural resources, but nether does Japan.

You might say they did not have the culture, but they did 100yr ago, but the government meddling affected their culture the same way as it has here.

Anyway I agree, this is a fundamental non-understanding of macro economics.

Heraclitusstudent says

Can you build underground? Coffin sized units?

I actually read an article back in the 1990s about maybe underground construction. With today's high-DPI displays, why the hell not. Put up some fake scenery in this:

and it'd probably be superior to some crappy surface unit.

indigenous says

The reason is continual meddling by the state

that and an insane macro policy in the 1980s.

Chicago Boys ran Argentina into the ground in the 1990s

"Record foreign debt interest payments, tax evasion and capital flight resulted in a balance of payments crisis that plagued Argentina with severe stagflation from 1975 to 1990. Attempting to remedy this, economist Domingo Cavallo pegged the peso to the U.S. dollar in 1991 and limited the growth in the money supply. His team then embarked on a path of trade liberalization, deregulation, and privatization. Inflation dropped to single digits and GDP grew by one third in four years;[2] but external economic shocks, as well as a dependency on volatile short-term capital and debt to maintain the overvalued fixed exchange rate, diluted benefits, causing the economy to crumble slowly from 1995 until the collapse in 2001"

Bellingham Bill says

that and an insane macro policy in the 1980s.

It started with the president before Peron in the 30s. With a push toward more and more socialism. Which they could not afford, generous social programs that went bust and stiffed the older citizens putting them on the street.

Whatever happened in the 80s was just a symptom caused by the above.

Argentina just had too much debt, Japan just has too much debt, the US just has too much debt.

Bellingham Bill says

Believe it or not I'd like to build a ~20-unit apartment bldg in Tokyo serving gaijin like me. There's a screaming market demand for low-BS housing for foreigners.

Believe it or not, the market price is a mechanism to keep the outsiders out. LOL. I'm sure you'd love to have a condo in SFBA or NYC too. Too bad so does everyone else and his dog.

Bellingham Bill says

Chicago Boys ran Argentina into the ground in the 1990s

"Record foreign debt interest payments, tax evasion and capital flight resulted in a balance of payments crisis that plagued Argentina with severe stagflation from 1975 to 1990. Attempting to remedy this, economist Domingo Cavallo pegged the peso to the U.S. dollar in 1991 and limited the growth in the money supply. His team then embarked on a path of trade liberalization, deregulation, and privatization. Inflation dropped to single digits and GDP grew by one third in four years;[2] but external economic shocks, as well as a dependency on volatile short-term capital and debt to maintain the overvalued fixed exchange rate, diluted benefits, causing the economy to crumble slowly from 1995 until the collapse in 2001"

Let's translate this: the Argentine economy was in the ground prior to 1991 (remember the Latin America debt default around 1990??). The Chicago boys rescued Argentine economy, giving rapid growth at low inflation for half a decade or more. Then the damn socialist government/culture couldn't resist money printing. What else could "overvalued fixed exchange rate" mean? Only the Argetine government could print Argetine Peso; it's not like the Peso was a fruit naturally grown on trees. Fixed exchange rate was designed as a mechanism for limiting local currency printing, just like when the US Dollar was fixed to gold and silver. The fix is never over-valued unless the government starts to cheat and print more money than it should have, like LBJ did and made the Bretton Woods fix rate "overvalued" and untenable.

indigenous says

Argentina just had too much debt, Japan just has too much debt, the US just has too much debt.

for every debtor there is a debtee.

What happened to Japan was they hit a wall wrt growth.

http://research.stlouisfed.org/fred2/graph/?g=xqk

real GDP blue, employment red (right axis)

Japan was running a very high-debt economy 1960s-1980s, but the music stopped for them in 1990 and their high leverage in the private sector could not be repaid, too many speculators caught out by the change in credit conditions and loss of bubble pricing mentality.

Like I said, Argentina has an 18th century economy that does not respond all that well to population growth. More people is just more poverty.

The US is somewhere in the middle, though we're becoming more of Argentina than Japan as things devolve as automation removes jobs from all sectors of the economy, primary, secondary, tertiary, and quaternary.

I would not choose to be a random newborn infant in either Argentina or the US today. I'd certainly pick Japan over those two options, and most other.

Switzerland, Norway, Sweden, Germany, Canada, Oz probably top the list with Japan #7.

births per year per country, courtesy Wolfram Alpha

To be born in the US is still pretty f'in lucky by this measure.

I think Japan has the best prospect of countries in this list though.

(#25 is Afghanistan, just behind Japan at 1.03M)

indigenous says

Bellingham Bill says

this is a fundamental non-understanding of macro economics.

I agree, Argentina had the second largest GDP in the world 100 yr ago. Today it is 26th.

The reason is continual meddling by the state(Juan and Evita Peron fame), the last event I heard about was the president confiscating private pension funds.

You might say they just did not have natural resources, but nether does Japan.

You might say they did not have the culture, but they did 100yr ago, but the government meddling affected their culture the same way as it has here.

Anyway I agree, this is a fundamental non-understanding of macro economics.

No the story of Argentina is a lot more complicated than government meddling. In the late 1800's Argentina had vast herds of cattle that had grown and grown since the spanish first introduced them. The pampas is one of the finest area's for grazing in the world. Problem was Argentina was a long, long way from any markets so the cattle were pretty useless. New technology in the form of reefer steamships all of a sudden made all these cattle valuable. So Argentina became very wealthy on exports because no one else in the world had the vast stocks of beef to export to the European markets. But Argentina was still Argentina. Education was still poor, corruption was still rampant, the banking system was still ingrown and inefficient. So when other countries caught up with the beef export boom Argentina rapidly lost wealth and moved back to the path it was on in the first place. Peron was a symptom, not a cause of the problems.

Argentina is just one in a long list of countries in history that became wealthy through being in the right place at the right time then going bankrupt trying to keep the party alive after the world moved on.

Bellingham Bill says

What happened to Japan was they hit a wall wrt growth.

http://research.stlouisfed.org/fred2/graph/?g=xqk

real GDP blue, employment red (right axis)

Japan was running a very high-debt economy 1960s-1980s, but the music stopped for them in 1990 and their high leverage in the private sector could not be repaid, too many speculators caught out by the change in credit conditions and loss of bubble pricing mentality.

Japan hit a wall called "the limitations of central planning." Their rapid economic growth in the 1950's-70's was largely the result of copying the good practices of the US. When they reached the US level by the 80's, they ran out of good things to copy. So their central planners copied and improvised upon a massive monetary bubble, bigger than even the US original back then. That's the fundamental cause of their stock market bubble and real estate bubble.

Japanese population stagnation is also the result of central planning and massive financial bubble: the funny money spewed out by the Japanese central planners have resulted in a warped population distribution, with too many people attracted to the tightly packed metro areas, where money printing is taking place. We know damn well that urban populations around the world tend to have negative population growth. It is the suburban and rural incubators that replenish the urban "lost" population generation after generation. Japanese monetary policy and central planning economic model simply have made their rural / suburban population incubators threadbare.

bob2356 says

going bankrupt trying to keep the party alive after the world moved on

this resembles Japan a bit.

The iPhone and now Android totally eliminated Japan's historical cachet in consumer (and prosumer) goods that has built up over the past 50 years.

Phones might have Japan OEM components, but they still kill global demand for Japanese-style consumer goods.

Automobiles -- Korea is killing them it looks like.

Maybe Japan Inc is still relevant in motorcycles, but that's totally niche.

What Japan needs to do now is skate to where the puck's going. Energy is the biggie. And other ways machinery and clever engineering can create wealth, like water purification, food engineering (artificial meat), etc.

They are going big into regenerative medicine, having perhaps the most efficient regulatory process for speeding these new therapies to market.

bob2356 says

No the story of Argentina is a lot more complicated than government meddling.

No the point is that if they had no debt, did not leverage, and hit the demographic wall, there would be no problem.

Private pensions in this country are highly regulated their assets are rock solid.

The public pensions on the other hand are not and will fail.

If Argentina had not practiced socialism the GDP could have shrunk without any problem.

indigenous says

if they had no debt,

Without debt we (who do not inherit our wealth position) are limited to roughly a hunter-gatherer standard of living.

Mexico has little private debt, and they're a basket case for it.

http://graphics.wsj.com/world-debts/#i[]=999&b=1

Wow, Argentina is actually the LEAST indebted country on that diagram!

So much for YOUR thesis.

The problem comes that selling future wealth-creation to buy now pushes up the price of stuff with inelastic supply curves -- real estate being foremost.

And that's the main trap Japan fell into, bidding up the cost of land in the late 1980s, same thing we did 2002-2006.

indigenous says

Private pensions in this country are highly regulated their assets are rock solid.

They weren't rock solid 5 years ago. What happened to your burning desire to see the 'market clear'? All 401ks, pension funds would be taken out with the trash with that, too.

Hell, if we just raised taxes to cover spending, corporate america would collapse forthwith due to a fall in consumer demand.