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In 1989, 11.6% of the population of Japan was over 65. In 2006, it
hit 20%. In 2055, it is expected to reach 38%.
I assert that it is possible to have economic
abundance with a shrinking and graying population. But, not if
you do things the same old way.
How should a government deal with this? Care of the elderly has been
a part of human society from prehistoric times. But, there have
never been so many elderly.
This is not a uniquely Japanese problem. Japan’s fertility rate of
1.42 births per woman is actually rather common throughout the
developed world, and even the developing world. Italy is the same
(1.42), and South Korea is lower (1.25). Japan just happens to be a
forerunner in these matters. Thirty percent of the population of
China is expected to be over age 60 in 2060.
One thing we know for sure: programs developed for completely
different conditions, like Japan’s present public pension system
(“Social Security” in the U.S.), are completely inappropriate. These
date from the 1950s, and were originally modeled on programs
initiated in Prussia in the 1880s.
That was then. This is now.
All public welfare programs in Japan, including public pensions and
health, cost 5.77% of National Income (similar to GDP) in 1970. In
2012, it was 31.34%, and expected to rise further. A lot
further.
Let’s start with a simple proposition: a government, like Japan’s,
does nothing at all. No public pensions, or any other program. In
other words, the small-government, libertarian option. Obviously,
this is also the cheapest option. Doing nothing costs nothing.
While we’re at it, we will also eliminate the public health system.
I’m not saying this is the best option. There’s a reason why public
pension systems have developed over the past century. However, it is
the way things were for most of human history, until only a few
decades ago, and serves as a good departure point for thinking about
these topics.
There’s a big advantage here: you could eliminate Japan’s quite
hideous payroll tax system. In 2013, the payroll tax rate was
apparently 14.42% for companies and 13.94% for individuals, for a
total of 28.36% — with no upper limit on income. Eliminating this
tax would go a long way toward maximizing the productivity of the
working-age population. The productivity of the working-age
population is the resource that ultimately supports elderly people,
one way or another.
Most elderly in Japan would likely live with their adult children.
This is a long-standing tradition in Japanese culture, like most any
culture around the world. The recent fashion for independent elderly
living would be abandoned as an expensive luxury – or even just a
mistake, as community and family is important to elderly people.
Savings rates would likely increase, as people prepared for future
times of need. This high savings would likely translate into a much
higher level of domestic investment, which is the engine for more
and better-paying jobs – the jobs held by the working-age population
that has to, one way or another, support the elderly. Indeed, many
elderly themselves could be hired for less-demanding jobs of one
sort or another, with employers hungry for any employees they can
get in the capital-rich/labor-scarce environment, just as was the
case during Japan’s high-investment years of the 1960s. Savings
rates in those decades were commonly over 20%; today, they are close
to zero. Corporate investment in Japan, net of depreciation, shows a
similar pattern.
Large and stable corporations may begin to provide more
comprehensive elderly support, but perhaps not in the problematic
format of a monetary “pension” as is common today. For example, a
Nissan Motors or Nippon Steel could provide housing and living
facilities directly for its retired long-term employees, in this way
simply expanding the existing Japanese corporate traditions of
providing housing and cafeterias for working employees.
Perhaps many of these corporate elderly could remain employed by the
company in some less-demanding, perhaps part-time fashion – for
example, in an elderly-care function themselves. I suspect that one
occupation that those in the 60-75 age bracket might be well suited
for is care for those over 75.
Healthcare systems today tend to consume a lot of money in the
process of dying. There’s a reason for this: it is profitable, and
has a guaranteed customer base. Death remains incurable. However, a
better sort of public healthcare system might concentrate on those
issues where there is the greatest advantage at the lowest expense —
physical trauma (injury from accidents) and infectious disease.
Those with beset by chronic lifestyle-related disorders, or the
simple processes of aging, would get mostly advice.
This might cost 2% of GDP.
The main focus of public health systems perhaps should be those
under 65 – those with the most potential years remaining, most
likely to have dependents, and who can contribute most to society.
Again, the focus of public programs can be on trauma and infectious
disease. Those with lifestyle-related disorders can be given advice
on lifestyle alternatives. Fortunately, living is a lot less
dangerous than it once was, so physical trauma is rarer. Infectious
disease is not nearly as common as in the past, and generic
antibiotics are cheap and easy to administer. This sort of basic
public health system could be quite inexpensive. Other healthcare
services would be provided through the private sector.
With institutions such as these, the Japanese government would not
be burdened with impossible demands. Thus, taxes could be kept low,
savings rates might be high, and the economy – in other words,
working people – would be growing and prosperous. Ultimately, it is
this actual economic productivity of working people that will be
drawn upon to support nonworking elderly, whether the government is
small and libertarian or embraces centrally-planned communism.
You might not like my ideas, but they are likely to come about, in
some form, whether you like them or not. The Japanese government’s
present overindebtedness is likely to be resolved by either default
or, more likely, currency debasement. In that case, the existing
public pension system, though it remains in form, would likely
disappear in practice, as monthly payments become essentially
worthless. This is what happened to pensioners when the Soviet
system collapsed into hyperinflation in Russia in the 1990s, for
example.
Alas, it seems like nobody today wants to think about these things.
They would just like to continue the present, unsustainable status
quo. Even Japanese intellectuals, I am told, are again “looking to
the West” for solutions – and none are forthcoming, as the West is
itself looking to Japan, to perhaps provide an example that they too
can follow.
When nobody even tries to solve the problems of the day, they tend
to not get solved. In any case, a round of crisis and default is
perhaps necessary in Japan to clear the decks of the detritus of
past error. Nothing particularly good is going to happen as long as
the government continues down the path of increasing taxes,
increasing indebtedness, and printing money to somehow keep the
whole thing from falling apart.
But, something good could happen afterwards. Start planning now.
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