The US is not Japan

James Pach says that while the US has a debt problem, it is not like Japan. It's not so much that the problem in the US is not serious. Rather, it is that the problem is much bigger in Japan.

Let me explain. In 2009, the United States had a population of 307 million, Japan had 127 million. In 2050, the US is projected to have a population of 393 million, according to the middle series estimate of the US Bureau of the Census. Japan, by contrast, will have just 95 million people, according to its Ministry of Health. So, over the next 40 years, if these projections hold, the US population will grow by about 30 percent, while Japan’s will shrink by 25 percent...

The effects of this contraction on Japan are so profound that no reasonable discussion of macroeconomics can exclude them. Picture yourself as a Japanese manager. What would your thinking be as you made long-term plans for your company’s growth? That’s right, unless they operate in emerging sectors, Japanese companies are shuttering domestic facilities and taking their investment overseas. In disclosure after disclosure, companies are announcing bluntly that they see no more growth in Japan, and are looking abroad. Japan Inc. is becoming a holding company.

As private sector investments slow, Pach thinks that fiscal policy needs to compensate. However, in Japan, that task is complicated by the shrinking population.

The US government also needs to be spending right now, resisting the temptation to tighten too early. Like Japan in the 1990s, the United States is experiencing what economist Richard Koo calls a ‘balance-sheet recession,’ a sustained period of deleveraging that will contract the economy without fiscal stimulus. But the fundamental idea of deficit spending is that at some point the government can stop, returning to relative austerity and budget surpluses once the boom phase of the economic cycle returns. This is where the US and Japan part ways. Japan no longer has an economic cycle—population decline doesn’t allow it. The default position of the Japanese economy is contraction, or with robust productivity gains, something barely above standstill. So the government spending must continue indefinitely, and the debt grows.

Japan is coming to crunch time. Not because of the absolute size of its debt—the gross debt/net debt debate misses the point—but because of the cost of servicing the debt. Even at ludicrously low interest rates, the Japanese government spends almost half its tax take on debt servicing costs. Throw in the rising burdens of an aging population, and the country clearly needs to solve its problems soon.

Paul La Monica at CNNMoney covers similar ground with a focus on the rapidly-aging population in Japan.

Simply put, the United States is not faced with as big of a percentage of people getting older and retiring as was the case in Japan during its Lost Decade.

According to research from Brockhouse Cooper, a brokerage firm based in Montreal, the percentage of people aged 65 or older nearly doubled in Japan between 1990 and 2008. Meanwhile, that percentage has stayed roughly the same in the U.S...

Along those lines, Japan currently has only 2.9 workers supporting retirees, said Tom Higgins, chief economist with Payden & Rygel, a Los Angeles-based money management firm. By way of comparison, there are 5 workers for each retired person in the United States...

Simply put, the strain on the U.S. government by an aging population shouldn't be as severe as it was in Japan.