Demography and Investment in rich countries like Japan

Interesting post here in FTAlphaville by Matthew C Kein. I would dispute the point about openness or closedness of rich Countries’ economies, which isn’t really a true issue. But I’d agree that future economic growth policies will run into trouble if they address only demographic issues. What is stricking and important is the question of the ratio of Business saving rates vs Household saving rates: this seems clear explanation for the paltry and inadequate Investment levels in high-income rich countries for the past 20-30 years. There can no be further doubt the growth must come with a change in the investment outlook for all these countries; there must be some kind of trigger for this to happen, but I’m without a clue about where this should come from, and when we look back in History we don’t want that to be in the form of wider conflict on a World scale…


Here some nice excerpts from the posts:

Like Japan, we too had a big financial crisis caused by excessive private borrowing and bad investment decisions. Like Japan, our non-financial corporate sectors have sharply raised their net savings rates, assuming they hadn’t already done so after the excesses of the late 1990s. And finally, like Japan, the rich world as a whole is a relatively closed economy, which means domestic factors should matter a lot more than international ones when it comes to explaining underlying inflation and wage trends.



By contrast, the share of Americans in work, across all age cohorts except the elderly, remains significantly below the pre-crisis level, much less the heyday of the late 1990s. As Martin Wolf noted recently, America has the dubious distinction of being the only big rich country to experience falling labour participation rates for women in their prime working years.

The expected changes in the rich world’s population structure will clearly have big effects on society, politics, and the distribution of resources from young to old. It’s possible these changes could lead to big upward shifts in discount rates and workers’ share of output, although Japan’s experience suggests the opposite could be even more likely. Either way, any long-term prediction based solely on demographics is likely to run into trouble.