Eating our seed corn? Do demographic predictions herald a poor economic future?
In 1997, Population Research Institute published my paper documenting the dependence of economies on strongly growing populations. Among other things, the paper showed that the Great Depression of 1929–1939 resulted from the post World-War I baby bust, and that the same kind of phenomena caused the economic stagnation of the 1970s in the US. Further analysis and significant recent events have continued to bear out these conclusions. Moreover, it is my opinion that we can begin to make conclusions about another Great Depression, should it happen.
Vigorous economic activity and an increasing market share of exports characterized the Japanese economy generally from 1960 to the mid 1980s. Two demographic factors combined to produce this anomalous result. First, Japan’s “baby boom” occurred prior to World War II, and was likely an important stimulus to Japan’s creation of the “East Asian Co-prosperity Sphere,” a euphemism for the invasion of Manchuria, China and Southeast Asia. An expanding population needed both land and resources, particular petroleum. Once Japan had taken the military route to trade expansion, World War II in the Pacific became inevitable, because the only effective tool Roosevelt had against the Rising Sun was an embargo of scrap iron and petroleum products, and the only response Japan saw feasible was a takeover of the Dutch Indonesian petroleum fields.
The Japanese lost heavily in World War II, but Western money was available to help them build all-new plants and equipment. Their glut of babies entered the work force just in time to staff the new factories. By working harder, faster and smarter (they used American-invented management techniques before the US did) they increased their productivity, thus making high-quality goods cheaply. The cost of their goods, such as the Toyota and Datsun (later Nissan) automobiles, attracted American consumers; their ever improving quality kept them as customers year after year.
The second demographic reality in postwar Japan was the availability of widespread and cheap abortion, which was increasingly relied on to keep down the size of Japanese families. In other words, Japan was the experimental station for the anti-natalist order being organized by the US foundations. It answered in the affirmative the question, “can a highly reproductive society be seduced into lowering its birth rate in a few years?” Japanese productivity was enhanced by increasing the number of warm bodies on the production line both men and women — just as much as by using new hardware and management methods. Their economy could do very well in the short run by shifting resources that would ordinarily he devoted to child-rearing and education into producing cheap toys and automobiles for the baby-boom driven American consumer economy. At the same time, the resulting imbalance of trade worked to cheapen the real value of the dollar. This had been an objective of the international monetary mechanism since the end of World War II — to rebuild the anti-Communist Axis economies by debasing the U.S. currency through annual trade deficits.
Almost identical mechanisms were at work in western Germany, which became the trade giant of the new Europe, albeit without the same reliance on abortion. By the 1960s, chemical contraceptives and abortifacients had accomplished the same objective, and the European birth rate plummeted.
When the seed runs out
Since roughly 1990 the end of this game has been playing out both in Japan and in Germany. One cannot borrow from the future without paying back, with compound interest, when the future arrives. This is just as true for populations as it is for money supplies. The Japanese stock market peaked above 20,000, and then went into a widespread retreat. Japanese companies were building factories in the U.S. and Mexico, not because of some sudden surge of altruism, but because their own labor costs and availability were driving them overseas. Supply and demand is at two-edged sword. The new generation of Japanese workers, new in their twenties and thirties, sold themselves more dearly to their employers. Productivity enhancement techniques used in the fifties and sixties of this century were unavailable. Hence jobs were shipped to other countries. In Europe, with the fall of communism, new sources of manpower were available in adjacent countries like Hungary and Poland, and a new generation of workers was already being brought in from the vigorous populations of the Near East. The social problems that have arisen from this importation of labor have been, to say the least, challenging for the old, dying societies of Germany, France and the rest of the continent.
Even so, investors keep an ever critical eye on the future of companies they buy, not on their past. It is future earnings that are being bought on stock exchanges, not current ones. So the Japanese stock market index has been languishing in the 15,000 range for years, and savvy investors are realizing that if they are going to take the risk of investing in East Asia, there are more vigorous and population-rich places to put their money. Korea and China, despite their harsh population-control policies, still have lots of young people to move into the workforce over the next dozen years. And, of course, they are working and having sex but are not rearing children, so they are replicating the “Japanese miracle,” which was essentially a miracle wrought by devouring their seed-corn. Investors whose attention was hard to get on this matter got a severe slap in the face on March 26, 1998, when the Franklin Templeton Japan Fund, which had been closed to new investments since curly January, officially shut up shop and liquidated. This action, which may not be the last, was a tacit admission that, for at least one group of investors. Japanese equity investing has at dim future.
This grim result was predictable, even inevitable given the circumstances. Still, it should be a warning to Western societies who have emulated the “Japanese miracle” by consuming their own children via contraception, abortion and infanticide. The beginnings of the Japanese demographic suicide can be traced to the decade of the 1950s. The U.S. birthrate began to implode after the introduction of the hormone pills in the early 1960s. Hence we can project that the U.S. economic rebirth would be about 15 years behind the Japanese (it was) and that its crisis should begin about 15 years after the Japanese. While it is always dangerous to predict the economic future, it is curious that the cash-flow crisis of Social Security (2005–2012) roughly coincides with the fifteenth anniversary of the beginning of the Japanese crisis (2005–2007). In short, the year 2006 may be an extremely interesting one for these heavily invested in U.S. equities.