Demographic factors can significantly affect economic activity. The following graph from an article by Gregory White and Kamelia Angelova atBusiness Insider - Clusterstock shows how Japan's aging population has been a detractor from economic growth will be an increasing burden on GDP in coming years.
Some have lamented the burden of retiring baby boomers in the U.S. However,aging demographic factors will also be working to the detriment of the economies of Germany and China, two countries with large balance of trade surpluses today, in the coming decades. Both countries will be disadvantaged with respect to the U.S., as shown in the following graph from an article by Joshua Aizenman and Rajeswari Sengupta.
Germany, and Europe as a whole, are already burdened by aging demographics compared to the U.S. and the difference is projected to increase, especially after 2030. China is projected to surpass the U.S. in old age dependencies in about 25 years.
Not shown in the Aizenman and Sengupta graph is the data for India. India has a much younger demographic profile today, as well as a higher birth rate, which infers that India will have an advantage over many other countries with regard to demographic burdens from an aging population at least until the latter stages of the 21st century. Sanjeev Kulkarni has discussed both the positive and negative aspects of this demographic profile of India.
These are not factors that will have a bearing on economic activity in the coming one, three or five years, but the demographic changes will start to have significant effects in 10 and 20 years. As Aizenman andSengupta point out, today's trade imbalances will eventually be reversed by demographic forces. The U.S. simply has to survive for a couple of decades to have a chance of benefiting.
COMMENTARY: The article by Aizenman and Sengupta is well worth reading and very eye opening. If you look at the Young people dependency chart for the US, China, Germany and Western Europe, you see that China's percentage share of the population under 65yrs of age is about the same as the U.S. Both countries fare better than both Germany and Western Europe because they have a larger percentage of people under 65 years of age.
China presently has an estimated population of 1.3 billion, so it has the advantage of having a larger percentage of people under 65 years of age. China has 390 million citizens under 65 years of age, while the U.S. has a total population of 303 million and only about 90 million people under 65 years of age.
Not mentioned above is the situation in Japan, which now has a population profile like Florida's. Indeed, Japan's population is aging faster than that of any other country. Japan is an aging nation and it’s not being balanced out by an equal birthrate. Add restrictive immigration policies and what you have before you is a nation whose population is predicted to decrease from 127.4 million in 2010 to 89.9 million in 2055--a decrease of 37 Million or 29.4%. in 45 years. This will cause both economic and social problems for the country and its people.
If you compare Japan's population to other major countries of the world (see graph below), you can see that Japan's aging problem became acute in 2007 when 20% of its population was 65 years and older. If its birthrates do not improve drammatically, 34% of Japan's population will be 65 years or older by 2055, higher than France, Germany, Sweden, United Kingdom, United States, China, India, Korea and Singapore.
Like the situation in the US, as Japan's population began to age, several problems occured:
- Increase in the number of retiree's.
- Increase in the number of people receiving social security benefits.
- Tax revenenues declined
- Japan's fiscal deficits balooned.
Japan's fiscal deficit was 14 trillion Yen or 25% of total GDP (see chart below) in 1975, but the deficit is projected to reach 120 trillion Yen or 200% of total GDP in 2010.
These demographic and economic factors has pushed Japan toward an increasingly independent foreign policy, causing friction with America. The skyrocking government deficits has also created cultural friction between the young and the old.
Today, there are less people working in Japan, and more goods are being produced outside of the country, primarily in less developed Asian countries like China. Since less goods and services are being produced in within Japan, more goods are imported, and this has resulted in a net trade deficit each year since 2005. In 2008 and 2009, Japan's current balance of payments account declined for the first time. A similar situation is forecasted for 2010.
In a blog post dated January 30, 2011 titled, "Japan: 'The Land of the Unsettled Sun', Faces A Clash Of Generational Cultures, Red Ink and Endless Debt", I talked in great detail about Japan's fiscal problems and the clash between that nations young and old cultures.
Courtesy of an article dated October 24, 2010 appearing in Seeking Alpha, an article dated june 1, 2010 appearing in GE Reports, an articled dated June 10, 2010 appearing in Reuters and an article in Inteligitni.com
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