How the U.S. Can Avoid a “Lost Decade”

How the U.S. Can Avoid a “Lost Decade”

Printer-friendly version
a a
Type Size: Small

This week’s Economist has a Special Report on Japan’s Aging Population where we learn that its aging population may in fact be the driving cause of Japan’s two-decade long economic malaise.  According to the Economist, growth prospects and any future hope for emerging from the economic doldrums begun in the nineties are affected by  “… the decline in [Japan’s] working age population, those age 15 – 64, which has been shrinking since 1996.”   

After World War II, Japan’s working age population increased by 37 million and Japan went from ruins to the second largest economy in the world.  But if the demographics don’t change significantly, Japan’s growth will go into reverse “starting in 2012 when the first members of the 1947-49 baby-boom generation hit 65, and from then on demography will seriously aggravate Japan’s other  D-words, debt, deficits and deflation”. 

While Japan may be the first and most dramatically hit, aging populations will transform the economics and politics of all G-20 countries.   Lessons emerge, which can benefit the U.S. The President Obama’s “Debt Commission” Report will issue short term fiscal and monetary policy recommendations – just like Japan’s.  But it won’t be enough unless there’s an “Aging Plan” –something Japan did not have.

Near total focus in Japan on the short term debt and deficit issues masked the underlying demographic drivers for which different and more fundamental solutions are required.  Japan made this mistake, as highlighted in the Economists Report:  “Unless Japan takes steps to re-energize its shrinking, graying workforce, its economy will suffer.”  The realities of aging populations are fair warning.  As The Economist puts it, “The two lost decades of economic stagnation in Japan may turn out not to have been an aberration but a taste of things to come.”  

What Japan has needed in its moment of deficit and debt drag is an aging policy which could comprehensively and directly address the interconnecting issues of work, retirement, health and financial security.  As political scientist Takeshi Sasaki of Gakushuin University put it, “The generational issues are evaded by all political parties. They remain unconsciously wedded to 20th century demography.”  Japan’s failure to accurately describe the problem will have its most consequential impact on future generations, which is what the challenge of “aging populations” is really about here in America as well. 

Michael W. Hodin, Ph.D., is Managing Director, The High Lantern Group, Adjunct Senior Fellow at The Council on Foreign Relations, and Executive Director of The Global Coalition on Aging.


Executive director of the Global Coalition on Aging, Michael W. Hodin, Ph.D., is also managing partner at High Lantern Group and a fellow at Oxford University's Harris Manchester College.