Maynard Keynes on Japan – “Very Disastrous”

Bruce Krasting's picture

“In an era of declining
population, demand tends be below what is expected and a state of
over-supply is less easily corrected. Thus a pessimistic atmosphere may
issue; and although at long last pessimism may tend to correct itself
through its effect on supply, the first result to prosperity of a change-over from an increasing to a declining population may be very disastrous.”

John Maynard Keynes
General Theory - 1937

 And now in 2010 we get the following headlines:

I will leave you to conclude whether Keynes’s forecast for Japan will
come true. Keynes wrote his thoughts on population in the context of
equity prices. Generally speaking, the Nikkei has been down for the
last twenty years.

There are many components to the make up of population. The death rate
and immigration are factors. But the big one is the fertility rate.
Some fuzzy math: If each female has 2.3 children in her lifetime the
population will be steady. (.3 mortality). If each female has 2.6
children, then the population is growing.

The CIA provides updated information on fertility rates for most
countries. The information is interesting. There may be some clues in
it if you believe Keynes. The link is here. A few highlights:

-The EU has a broad based problem. Germany’s fertility rate is 1.41, the UK at 1.66.

-The US is at a ratio of 2.05. Well below the rate for indigenous
population growth. Our numbers look better when the death rate
(declining) and immigration (legal and illegal) are taken into
consideration. It will be interesting to see this year’s census data. I
think the illegal population is way down. The US looks good compared to most
other industrial countries.

-Russia is at 1.41. This country does not do well on the longevity
statics either. Good thing they have tons of oil. Hint - buy Resources
not Retailers if you want to invest here.

-Afghanistan and Iraq have fertility rates of 6.5 and 3.9
respectively. They are having lots of babies. Iran on the other hand
had a fertility rate in 2009 of just 1.71. That probably confirms
something we already know about the domestic situation in this country.
If you were calling the shots in Iran and were looking at this number,
you might just conclude that it would be better to make a 'move' sooner
versus later.

-India is a standout. Not only do they have a big population, they
are having babies. The fertility rate is 2.72. The population is
climbing steadily. This will continually boost domestic demand.

-China was the big surprise. The fertility rate is one of the
lowest. It stood at 1.79. The UN has a forecast that it will remain at
1.8 for the next fifteen years. China is trying to create demand
domestically as they have lost a lot of exports. They do that with
deficit spending, but it is not supported long term by the fertility

-Japan is near the bottom of the big countries at 1.35.

-Brazil looks good on this list at 2.4.  This country keeps popping up when you think of where money should go.

I’m not sure of the importance of this. It certainly does not mean
anything in a given month or a year. But over the longer-term these are
powerful forces. The fertility rates have come down in almost all
countries on a steady basis for the past 25 years. We are still growing
globally, but at a lot smaller pace. It’s hard to assume that
“productivity” is going to make up for these declines. It’s easier to
conclude that average global growth in the next twenty years will be
lower then it was in the priort two decades.

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Privatus's picture

Is it just me or does the Original Court Economist(tm) look like Freddie Mercury's aunt?

DosZap's picture

"China was the big surprise. The fertility rate is one of the lowest. It stood at 1.79. The UN has a forecast that it will remain at 1.8 for the next fifteen years. China is trying to create demand domestically as they have lost a lot of exports. They do that with deficit spending, but it is not supported long term by the fertility rate."

Where's the surprise here?.

China has had a ONE child per family law in place for many,many years.
Also the abortion rate for female babies is astronomical.

Men, are the expected caretakers of elders, and thus, a family almost HAS to have a male........

Not to be gross(but it is), not only do they abort like no tommorrow, they cook and sell the aborted chidren, in open markets.!.

And, this from the NEW economic powerhouse of the planet.........

masterinchancery's picture

Rome was substantially depopulated well before the collapse of the western Empire.

Anonymous's picture

"I think the illegal population is way down."

Come to California, I think I found them.

Bruce Krasting's picture

My comment was from a narrow point of view. Ouside the NYC area the population of illigals exploded from 2000-2008. But then the jobs went and many went home. In Ossining and Peekskill NY the the numbers are down by 20+%.

That is a significant reversal of this mega trend. You say things are unchanged in Cali. I accept that. It is 14 degrees here today. There are no jobs. Living is expensive. So they are going to where it is warm and the living is easier. California.......

Leo Kolivakis's picture

Declining pop + the fact that Japan is so insular, they do not have enough immigration to make up for this loss. But they have tons of savings, for now. Thanks Bruce.

Anonymous's picture

I liked the article, but the graph reminds me that correlation still does not equal cause. Otherwise, you should be able to show a similar curve of exploding Japanese population up until 1989 to match the rising edge of the Nikkei bubble, right?

Bruce Krasting's picture

Not at all sure that the study of fertility rates has any bearing on equities and economic activity in the short-run. But in the long run it has to be a driving factor.

I think there are significant benefits to a society/economy of a delining birth rate in the early stages of that trend.

There are less current family expenditures when their are less babies. At first this tends to increase "wealth/savings". This drives an increase in consumption/demand and an expanding economy.

But at some point in the cycle the reverse starts to happen. A low birth rate leads to an aging population. It forces increased social cost for old people. There is less young people to pay for that and there are less young people who are consuming all the things that they consume.

When the forces go from good to bad there is a long lead time. In Japan's case it was 8 years.

Is there any predictive value to this? I don't think so. But it is interesting none the less.


Anonymous's picture

Its not just the birthrates that matter but who is having the children. In the UK,e.g., birthrates are high in what they call 'sinkhole estates' and we call public housing projects and Muslim ghettos but amongst university educated women a child is rare thing.

In the US the barrios and black ghettoes have no shortage of children but unless we want to be a nation of inmates and groundskeepers such offspring maybe a net burden on the economy not a plus. In fact, because of the breaking down of
class and social barriers, those who are on the bottom rung
of society maybe there for the simple reason that they have climbed as far as they are able. A below average IQ will not
take you far in the modern world absent the ability to run, jump or rap.

DurangoKWest's picture

Overpopulation is Overrated.  Ever heard of the law of conservation of energy?

Anonymous's picture

Declining population may not be good for 'making money', but it is good for our Earth. It is time to move away from the cities, regrow our forests, and go on a ten thousand year long 'hold down'.

Why not houses in the forest? Why not 4 hour work day, the rest spent reading all the books and looking at all the videos never looked at? For entertainment we can have our own homegrown 'stuff', have our own home distillery, take up itinerant walking rather than fly in airplanes.

That sort of thing takes back the Earth for the future. In any event, it is time to shift our gears and get into cloning ourselves. That way, we can meet again for real some sunny day, because we will be living in a household that endures for a thousand years, not a family that forgets itself in two generations.

PierreLegrand's picture

Hey lets live like Hobbits! Weeeeeee! We no need no workee we only need fun! Food grows on tree's and we just harvest it...for those who don't live next to trees that grow food...they get to die weeee. We all gonna live like hobbits!

George Orwell's picture

So you think that declining population is "bad"?  Having an ever increasing population is good for the economy?

Has it ever occurred to you that we will not have enough natural resources to support an ever growing economy?  Here is the wiki on rare earth:


And here is the New Scientist article on Earth's rare metals.


Most of the world's rare earth elements come from China.  And because they are rare, the Chinese are starting to cut back on exports.


To put this in a way that you might understand:  there is not enough indium in the world to produce a LCD TV for every family in the world.  Get it?  We cannot grow forever.  Rare earth elements are called rare earth for a very good reason.  They are VERY FUCKING RARE.


Having a declining population or a steady state one is a GOOD thing.  It means raising the quality of life for everybody.  And for the investing public, it means investing for dividends rather than capital gains.  Because ultimately, dividends are real.  Capital gains is another way of saying we need more fools to come in after us to pay a higher price for whatever it is that we bought.


George Orwell

Mr Shush's picture

Earth is not the totality of everything, nor does it contain the totality of resources which are in the medium-long term available to humanity. It is certainly true that long term economic growth requires off-world colonisation, which in turn requires advances in space flight and terraforming, and the development of a large scale energy source which is not based on fossil fuels, most likely nuclear fusion or high efficiency solar based on nanomaterials. It seems to me, however, that such developments are likely to occur. Why would anybody believe that we are at or even near the peak of possible technological development? In fact, given sufficient cheap energy, it will almost certainly be possible to manufacture rare earth metals out of other elements on an economically viable basis in the not so distant future.

PierreLegrand's picture

The common enemy of humanity is man.
In searching for a new enemy to unite us, we came up
with the idea that pollution, the threat of global warming,
water shortages, famine and the like would fit the bill. All these
dangers are caused by human intervention, and it is only through
changed attitudes and behavior that they can be overcome.
The real enemy then, is humanity itself."

- Club of Rome

"We need to get some broad based support,
to capture the public's imagination...
So we have to offer up scary scenarios,
make simplified, dramatic statements
and make little mention of any doubts...
Each of us has to decide what the right balance
is between being effective and being honest.
- Prof. Stephen Schneider,
Stanford Professor of Climatology,
lead author of many IPCC reports

"We've got to ride this global warming issue.
Even if the theory of global warming is wrong,
we will be doing the right thing in terms of
economic and environmental policy.
- Timothy Wirth,
President of the UN Foundation

"No matter if the science of global warming is all phony...
climate change provides the greatest opportunity to
bring about justice and equality in the world
- Christine Stewart,
former Canadian Minister of the Environment

"In Nature organic growth proceeds according
to a Master Plan, a Blueprint. Such a ‘master plan’ is
missing from the process of growth and development of
the world system. Now is the time to draw up a master plan for
sustainable growth and world development based on global
allocation of all resources and a new global economic system.
Ten or twenty years form today it will probably be too late."

- Club of Rome,
Mankind at the Turning Point

"The concept of national sovereignty has been immutable,
indeed a sacred principle of international relations.
It is a principle which will yield only slowly and reluctantly to
the new imperatives of global environmental cooperation.
- UN Commission on Global Governance report

"Democracy is not a panacea. It cannot organize everything and
it is unaware of its own limits. These facts must be faced squarely.
Sacrilegious though this may sound, democracy is no longer well
suited for the tasks ahead. The complexity and the technical nature
of many of today’s problems do not always allow elected
representatives to make competent decisions at the right time.
- Club of Rome,
The First Global Revolution

"In my view, after fifty years of service in the United Nations system,
I perceive the utmost urgency and absolute necessity for proper
Earth government. There is no shadow of a doubt that the present
political and economic systems are no longer appropriate
and will lead to the end of life evolution on this planet.
We must therefore absolutely and urgently look for new ways."

- Dr Robert Muller,
UN Assistant Secretary General,

"A keen and anxious awareness is evolving to suggest that
fundamental changes will have to take place in the world order
and its power structures, in the distribution of wealth and income.
Perhaps only a new and enlightened humanism
can permit mankind to negotiate this transition.
- Club of Rome,
Mankind at the Turning Point

"We require a central organizing principle - one agreed to voluntarily.
Minor shifts in policy, moderate improvement in laws and regulations,
rhetoric offered in lieu of genuine change - these are all forms of
appeasement, designed to satisfy the public’s desire to believe that
sacrifice, struggle and a wrenching transformation
of society will not be necessary
- Al Gore,
Earth in the Balance

"Adopting a central organizing principle...
means embarking on an all-out effort to use every
policy and program, every law and institution...
to halt the destruction of the environment.
- Al Gore,
Earth in the Balance

"Effective execution of Agenda 21 will require a profound
reorientation of all human society, unlike anything the world
has ever experienced a major shift in the priorities of both
governments and individuals and an unprecedented
redeployment of human and financial resources. This shift
will demand that a concern for the environmental consequences
of every human action be integrated into individual and
collective decision-making at every level.
- UN Agenda 21

"The current course of development is thus clearly unsustainable.
Current problems cannot be solved by piecemeal measures.
More of the same is not enough. Radical change from the
current trajectory is not an option, but an absolute necessity.
Fundamental economic, social and cultural changes that
address the root causes of poverty and environmental
degradation are required and they are required now.
– from the Earth Charter website

"The goal now is a socialist, redistributionist society,
which is nature's proper steward and society's only hope
- David Brower,
founder of Friends of the Earth

"If we don't overthrow capitalism, we don't have a chance of
saving the world ecologically. I think it is possible to have
an ecologically sound society under socialism.
I don't think it is possible under capitalism

- Judi Bari,
principal organiser of Earth First!

"Isn't the only hope for the planet that the
industrialized civilizations collapse?
Isn't it our responsiblity to bring that about
- Maurice Strong,
founder of the UN Environment Programme

"A massive campaign must be launched to de-develop the
United States. De-development means bringing our
economic system into line with the realities of
ecology and the world resource situation.
- Paul Ehrlich,
Professor of Population Studies

"The only hope for the world is to make sure there is not another
United States. We can't let other countries have the same
number of cars, the amount of industrialization, we have in the US.
We have to stop these Third World countries right where they are
- Michael Oppenheimer,
Environmental Defense Fund

"Global Sustainability requires the deliberate quest of poverty,
reduced resource consumption and set levels of mortality control
- Professor Maurice King

"We must make this an insecure and inhospitable place
for capitalists and their projects. We must reclaim the roads and
plowed land, halt dam construction, tear down existing dams,
free shackled rivers and return to wilderness
millions of acres of presently settled land
- David Foreman,
co-founder of Earth First!

"Complex technology of any sort is an assault on
human dignity. It would be little short of disastrous for us to
discover a source of clean, cheap, abundant energy,
because of what we might do with it
- Amory Lovins, Rocky Mountain Institute

"The prospect of cheap fusion energy is the
worst thing that could happen to the planet
- Jeremy Rifkin,
Greenhouse Crisis Foundation

"Giving society cheap, abundant energy would be the
equivalent of giving an idiot child a machine gun
- Prof Paul Ehrlich, Stanford University

"Our insatiable drive to rummage deep beneath
the surface of the earth is a willful expansion
of our dysfunctional civilization into Nature
- Al Gore,
Earth in the Balance

"The big threat to the planet is people: there are too many,
doing too well economically and burning too much oil.
Sir James Lovelock,
BBC Interview

"My three main goals would be to reduce human population to
about 100 million worldwide, destroy the industrial infrastructure
and see wilderness, with it’s full complement of species,
returning throughout the world
-Dave Foreman,
co-founder of Earth First!

"Current lifestyles and consumption patterns of the
affluent middle class - involving high meat intake,
use of fossil fuels, appliances, air-conditioning,
and suburban housing - are not sustainable.
- Maurice Strong,
Rio Earth Summit

"The Earth has cancer
and the cancer is Man
- Club of Rome,
Mankind at the Turning Point

"A cancer is an uncontrolled multiplication of cells;
the population explosion is an uncontrolled multiplication of people.
We must shift our efforts from the treatment of the symptoms to
the cutting out of the cancer. The operation will demand many
apparently brutal and heartless decisions
- Prof Paul Ehrlich,
The Population Bomb


"I don't claim to have any special interest in natural history,
but as a boy I was made aware of the annual fluctuations in
the number of game animals and the need to adjust
the cull to the size of the surplus population
- Prince Philip,
preface of Down to Earth

"A reasonable estimate for an industrialized world society
at the present North American material standard of living
would be 1 billion. At the more frugal European standard
of living, 2 to 3 billion would be possible
- United Nations,
Global Biodiversity Assessment

"A total population of 250-300 million people,
a 95% decline from present levels, would be ideal
- Ted Turner,
founder of CNN and major UN donor

"... the resultant ideal sustainable population is hence
more than 500 million but less than one billion

- Club of Rome,
Goals for Mankind

"Little by little a planetary prayer book is
thus being composed by an increasingly united
humanity seeking its oneness
. Once again,
but this time on a universal scale, humankind is
seeking no less than its reunion with 'divine,'
its transcendence into higher forms of life. Hindus
call our earth Brahma, or God, for they rightly
see no difference between our earth and the divine.
This ancient simple truth is slowly dawning again upon
humanity, as we are about to enter our cosmic age
and become what we were always meant to be:
the planet of god
- Robert Muller,
UN Assistant Secretary General

"What if Mary is another name for Gaia? Then her capacity for
virgin birth is no miracle . . . it is a role of Gaia since life began . . .
She is of this Universe and, conceivably, a part of God. On Earth,
she is the source of life everlasting and is alive now;
she gave birth to humankind and we are part of her
- Sir James Lovelock,
Ages of Gaia

"Nature is my god. To me, nature is sacred;
trees are my temples and forests are my cathedrals.
- Mikhail Gorbachev,
Green Cross International

"The spiritual sense of our place in nature...
can be traced to the origins of human civilization....
The last vestige of organized goddess worship
was eliminated by Christianity.
- Al Gore,
Earth in the Balance

masterinchancery's picture

Great post.  Bottom line= America Alone.

Bruce Krasting's picture

thanks for all this info. Did I hit a nerve?

Anonymous's picture

Come on Orwell,
declining population is favorable because we will not run out of LCD's in the short term?
Maybe they will convert LCD TV's into legal tender, so that even a declining population will somehow be able to pay the national debt and some 100 trillion FRN in unfunded liabilities.
Oh wait, maybe printing presses are made of rare earth elements und you are right...

Anonymous's picture

generally speaking, you're right -

bit not all equities must perish. companies that help along a transition / migration to a slower, more efficient, lest wasteful world will find capital and will allowed to grow and prosper.

yes - abandon the concept of 'growth' - but not the idea of investing in change. think water desalinization, energy, public housing and transportation, etc -

what's not addressed in the art above is hydrocarbon resource depletion. there may be plenty of coal and nat gas, but oil production is clearly falling - and mainly for involuntary (reservoir depletion) reasons.

demand falls. supply falls faster. energy technologies and service companies
(as an example) who can harvest unconventional crudes and bitumens and who can transform coal to clean liquid fuel will find equity capital - in spite of an overall contraction.


enjoyed your post - thx

dnarby's picture

Seems like to me as Japan (and other nations) populations age, they will sell assets (stocks & bonds) to live off of.

That will increase selling pressure on stocks.

This is IMO the central problem with the 'wealth effect'.  You have to sell a stock to realize a gain and have something to spend.

john_connor's picture

Exactly.  Unless one holds stocks for (gasp) solid cash flow generating dividends that will be passed on to the next generation.  Too bad no one does that anymore.

Chopshop's picture

great piece, Bruce.

Maynard had virtually no understanding of psychology let alone practical psychology; his entire MO was predicated upon course game theory in the abstract.

while best known for "Class of Civilizations", Samuel P. Huntington's most prescient work may very well be found within "Who Are We? The Challenges to America's National Identity" ... while Strauss & Howe have garnered most of the pioneering "credit" for folks like Dent to stand upon, Huntington's work is simply seminal in the field.

... and India is the future of democracy.  period.

JohnKing's picture

Fuck Maynard Keynes.

Synthetic money, mind games, yeah..yeah mo money, what is money.

Anonymous's picture

F the Austrians.. Does wealth creation need to be tied to the amount of Gold in a countries vault? The government creates the money that is soaked up by productivity and innovation in the private sector. You are screwed up

JohnKing's picture

The government creates the money that is soaked up by productivity and innovation in the private sector.


No, the government is creating money, diluting the value of store and giving it to well connected failures, not innovators and the productive element. It's nothing but a scam.

Anonymous's picture

Is that where "the money" is going?

GM is productive? Great at producing job banks that paid $35 per hour to do crossword puzzles.

AIG is innovative? JPM and GS innovative? It was securities fraud of epic - no historical - proportions. Just because a bunch of corrupted elected officials managed to decriminalize it long enough doesn't mean that the fraud didn't happen.

Fannie and Freddie? Productive and innovative? It was an innovative way to take down the US and Global economies. And upper management there did produce vast personal fortunes for themselves.

And you say F the Austrians?

DoChenRollingBearing's picture

Demography is destiny (or something like that) someone once said.  I think that keeping an eye on demography is always a good thing when pondering investments overseas.

Of the BRICs, so it looks like Brazil and India have population growth ahead of them.  I would never invest in Russia (I am a small cog), and China is very opaque.

Re overseas, I will stick with the country I know the best: Peru.

Oh, and buy gold & PMs and short-term corporate bonds.

Species8472's picture

"Demographics is destiny."



Anonymous's picture

You're wrong, if you were speaking with respect to a population from a subset of the global population, to say:

"If each female has 2.3 children in her lifetime the population will be steady. (.3 mortality). If each female has 2.6 children, then the population is growing."

I'll acknowledge, that you did say, fertility was just one factor...

but, making a correlation between the price of equity and fertility, is like making a correlation between the number of seeds planted on a tree farm and the size of the trees. Keynes was talking about population. Fertility, is just a linearly additive component of the rate of change of the population.

Population growth is a much better number to look are some YoY numbers, from 2008.

Japan -0.05%
US 0.95%
India 1.34%
China 0.55%

Bruce Krasting's picture

How can I be wrong when you reach the same conclusion? From yr numbers I conclude:

-Japan is a standout and looks bad.

-India is at the top of the chart.

-US looks 'good' by comparison.

-China is a surprisingly small number.


What I said.....

TJW's picture

One of the best books I've read on this is "The Coming Generational Storm" by Kotlikoff and Burns. "Fewer" by Wattenberg and "The Empty Cradle" by Longman are also both very good, but the economics slant of "The Coming Generational Storm" would probably appeal most to the majority of readers on ZH. What we're dealing with today might well prove to be less than a dress rehearsal for what's coming once the Baby Boomers retire en masse, especially throughout the developed world with relatively few people of working age and enormous transfer programs to support.

KevinB's picture

Mark Steyn America Alone - covers all the bases.

TJW's picture

You're right. "America Alone" is also very good. And it's the most compelling read of the bunch, at least for me. In fact, the two that I've read twice are "America Alone" and "The Coming Generational Storm." The world is in deep on this matter.

Neo-zero's picture

Harry Dent's The great depression ahead lays out a great case for demographics being the driver of economic booms.  He's been "sort of" right on his longer term market predictions before.  I say "sort of" because he does update them as political black swans come into play.  

Species8472's picture

Dent's first book, 'Our Power to Predict" laid out his thesis. All the others where just his way fo trying to make some $


charles platt's picture

Keynes' musings would seem to be quite theoretical. So far as I know, we have no prior experience of an industrialized nation experiencing a population decrease.

TJW's picture

Actually, we have quite a few examples of industrialized nations experiencing population collapse. This time is rather different, however, because it's largely voluntary. (Populations have fallen during war.) From what I've read, demographers maintain that no nation has ever survived a fertility rate of 1.3 or less. That value is known as "the lowest of the low," and historically it's been a point of no return. Last I checked, Europe had at least 17 nations with fertility rates at or below that level.

Anonymous's picture

Except Japan for starters as stated above (didn't you read the article).

Orly's picture

With fewer people and fewer young people, what are we going to do with all this stuff?

Strips malls and suburbia, urban sprawl.

The problem can be reversed by buying derilect land in the inner city and rehabbing it to be more modern and convenient than the 'burbs.