WASHINGTON – Supposedly “Abenomics” is economic shock therapy aimed at ending Japan’s decades of slumber. Abenomics is about devaluing the currency in order to energize exports. It is about encouraging stock market investments, eliminating barriers to economic activities, while at the same time increasing consumption taxes in order to contain the gigantic national debt.
Awful demographic trends
Some things have worked. The Nikkei average is up. Some key exports are up, and so on. Prime Minister Shinzo Abe is optimistic. Still, without getting into the details of Abenomics’ implementation, let’s focus on a gigantic stumbling block: Japan’s truly awful demographics.
For three years in a row Japan’s population has ben declining. No indication that this is an aberration. Indeed, Japan has one of the lowest fertility rates among modern industrial countries.
A shrinking population means fewer working adults supporting a growing number of retirees who depend on public social services. In Japan 25% of the population is now 65 years or older. Given the demographic trends, (very few babies), this percentage will get progressively larger.
Decline
Mind you, this is a slow process. But, unless it is reversed, population decline spells economic and social decline.
Abenomics may produce important short and medium term results. But you cannot have a serious long-term economic growth strategy in a country that is beginning to look like a very large retirement home.
With due exceptions, retirees do not produce new wealth. They consume it.