Japan Plunges Back into Recession

November 20, 2014


It was reported on Monday (see above-linked article) that Japan officially slid back into recession in the 3rd quarter.  The economy contracted 1.6% (annual rate) in the 3rd quarter, following an even larger contraction of 6.7% in the 2nd quarter.  This came as a shock to the business community, which had expected a resumption of growth.

Japan is a poster-child for what happens to an economy that is badly overpopulated.  Japan is approximately ten times as densely populated as the U.S.  Because its people live in such dense, overcrowded conditions, per capita consumption there is a fraction of what it would be otherwise.  Low consumption would mean low employment, were it not for the fact that Japan runs a massive trade surplus in manufactured goods.  (It actually runs a deficit for overall trade because it’s also heavily dependent on imported raw materials in order to manufacture those goods.)  Without that surplus of trade in manufacturing, Japan’s economy would collapse into something resembling a third world country.

Once South Korea, followed by China, began muscling in on its export business, growth in Japan’s economy ground to a halt.  It’s been in a state of recession more often than not for the past two decades.  During that time, it has racked up an enormous national debt, the largest in the world, in order to prop up its economy.

In 2012, Shinzo Abe was elected prime minister of Japan, thanks to his promise to revitalize the economy through a combination of tax cuts, a huge boost in spending on infrastructure, and massive money-printing by Japan’s central bank – a program that came to be known as “Abenomics.”  Once the economy was kick-started, then the plan was to raise sales taxes in order to once again begin addressing the debt issue.

At least that was the plan.  It worked great at first.  The Japanese people were given lots of free money and they spent it.  The Japanese stock market soared.  But then came the tax hikes and the party was over.  The economy quickly collapsed back into a deep recession.

What economists don’t understand is that macroeconomic growth in a society plagued by severe over-crowding is impossible, and nowhere is this more evident than in Japan, one of the most densely populated nations on earth.  A point is reached where falling per capita consumption erases any gains that further population growth may provide.  This effect can be masked by deficit spending, but that tactic can only be sustained for so long.  Ultimately, the Japanese people are doomed to a failing economy and worsening poverty.

This opinion piece by James Saft does a good job of illustrating how boxed-in the Japanese economy has become, and how he and economists still don’t get it – that population growth is the root of the problem, not the cure – by implying that all would be well if Japan’s central bank could simply “print people.”

What Japan’s people need, more than anything else, is simply room to breathe.  Less densely populated, they could live in real homes instead of rabbit hutches.  They could drive real cars and park them in their own garages.  They could have lawns and gardens.  They could play golf on golf courses that currently don’t exist.  The quality of their lives would improve by leaps and bounds.  But, with fewer of them, the Japanese macroeconomy, as its traditionally measured, would be smaller and economists would be sounding the alarm.

It never ceases to amaze me how economists are incapable of recognizing or acknowledging how dumb their reliance on never-ending population growth in a finite world is.  Japan is a perfect example.

The End of Growth

October 22, 2014


Last week, markets were in a steep sell-off, driven largely by increasing worries about global economic growth.  (See the above-linked Reuters article from last week.)  In the wake of the Great Recession, years of interest rates at zero and money printing by the central banks of the U.S., Europe and Japan have yielded pretty disappointing results.  Europe is once again on the brink of recession.  And Japan has either been in recession or been on the brink for decades.  And slowing economic data in the U.S. is making it look as though we won’t avoid backsliding into recession either.

We’ve all seen cartoons depicting pessimists standing on street corners wearing sandwich-board signs declaring that “the end is near.”  Well, folks, it’s time to face facts.  When it comes to economic growth, the end is, in fact, here.

Let’s begin with a step back – way back – to World War II.  The imperialist ambitions of both Germany and Japan had similar roots.  Both nations were badly overpopulated, short on resources and long on unemployment.  Both embarked on huge land grabs.  In the wake of the war, in 1947, the Global Agreement on Tariffs and Trade – the precursor of today’s World Trade Organization – was implemented, with the primary goal of preventing such wars by giving Germany and Japan easier access to resources and more access to U.S. markets, thus alleviating the high unemployment that fostered Hitler’s rise to power.

No problem, at first.  Americans had done without for years, with the nation’s manufacturing capacity devoted 100% to the war effort.  There was a lot of catching up to do and Americans’ appetite for goods seemed insatiable.  The economy boomed and the federal government was able to cut spending and whittle away the debt it had racked up during the war.

The infrastructure and economies of Germany and Japan were rebuilt.  Slowly, the new trade regime enabled imports from those nations to erode America’s trade surplus.  First came Volkswagens and a sprinkling of Mercedes and BMW’s from Germany.  Those were followed first by motorcycles from Japan, and then Hondas – pathetic little cars that were painted in paisley and sold as jokes, but they got their foot in the door.  By the early 70’s our trade surplus was gone.  We oscillated between surplus and deficit for a few years.  We ran our last trade surplus in 1975.  Since then, we’ve experienced 38 (soon to be 39) consecutive years of trade deficits.

At about the same time, America’s budget deficit began to grow again too.  It had to, to offset the trade deficit’s drain of money from the economy.  Soon, new terms began to creep into the American economic lexicon:  “redundancy,” “down-sizing,” “right-sizing” and “outsourcing.”  American manufacturers began closing their doors en masse, unable to sustain a profit margin in the face of the onslaught of foreign companies snatching up American market share.

Even with their new-found trade surpluses and manufacturing jobs cannibalized from American manufacturers, the Europeans and Japanese both found it necessary to lean heavily on deficit spending, just as America was doing, to keep a lid on unemployment.  Rising productivity enabled manufacturers to meet growing demand without growing employment at the same pace.

At the end of World War II, the world’s population stood at just under 2.5 billion.  Today it has nearly tripled.  All of this growth has been concentrated in urban areas.  Cities have expanded and grown vastly more crowded, and it’s a fact that people living in crowded conditions consume less out of necessity.  Growth in the global labor pool outpaced the rate at which workers were absorbed into the economy, putting downward pressure on wages.  And that situation grew exponentially worse when China was factored into the global trade equation, growing the global labor pool virtually overnight by 25%.

For a time, government deficit spending, used primarily to fund social safety net programs and other programs designed to supplement incomes and prop up a perception of wealth, sustained consumption and kept the economy growing.  But that tactic has run its course.  National debts have risen to worrisome levels.

Developed economies looked to China to pick up the slack by developing its economy, turning 1.3 billion people who had nothing into western-style consumers.  By that measure, China has been a huge disappointment.  Collectively, they consume a mountain of goods, but nowhere near enough to even consume their own productive capacity, much less to develop into a market for other nations.  Their growth is faltering and it looks like their domestic consumption will settle at the same diminished level as Europe and Japan.

Growth is now virtually dead and all the deficit spending in the world can’t prop it up.  Economists won’t admit that fact and adamantly refuse to give any consideration to the fact that population growth lies at the heart of the problem.  But markets don’t care, and what we’re witnessing is an adjustment to a no-growth world.  Interest rates have fallen to zero.  Bond yields, projected to rise as the economy “recovered” never did, and are now sliding backward to near-zero levels.  Central banks’ hands are tied, left only with thinly-disguised money printing programs to fall back on to provide stimulus to the economy, a tactic that’s already begun to make them nervous about unintended consequences.

The world’s economy is reaching a critical and dangerous point, where the inverse relationship between population density and per capita consumption begins to take hold in a big way that can trigger an irreversible downward spiral.  People consume less than they’d like for two reasons – because they lack space to make use of products, and because they are simply too poor to afford them.  When the proportion of people in the first condition reaches a critical level, the downward pressure on wages begins to make everyone poorer, accelerating the downward pressure on consumption.  Governments’ and central banks’ resources and abilities to hold this economic force at bay will soon be exhausted.

Economists had better extract their heads from that place where the sun doesn’t shine, and soon, if this economic fate that they don’t understand and are unable to see is to be avoided.  I fear that they won’t.  Growth isn’t always desirable.  Sometimes it’s cancerous.  Left unchecked, population growth will soon present the one challenge that none of them are clever enough to overcome – worsening poverty that gets so bad that it throws the world population into decline.  In essence, if economists and world leaders aren’t smart enough to manage our population to a level where all can enjoy a high quality of life, their stupidity will surely drive it to a level that no one wants.


Americans Continue to Grow Poorer During “Recovery”

September 19, 2014


One of the consequences of the inverse relationship between population density and per capita consumption is declining incomes as the demand for labor fails to keep pace with the growth in supply.  As per capita consumption goes, so goes employment.

I published Five Short Blasts in 2007, just before the onset of the “Great Recession.”  That unemployment rose and incomes declined during the recession was no surprise and provided no proof of my theory.  But a report released last week by the Federal Reserve does.  The Fed released it’s 2013 update to its tri-annual “Survey of Consumer Finances.”  (Link provided above.)  The latest survey shows the changes in consumer finances during the 2010-2013 period, a period of recovery, following the previous release which covered the 2007-2010 period of recession.

The survey found that while Americans grew substantially poorer during the 2007-2010 period of recession, they have continued to grow poorer during the so-called “economic recovery.”  Median incomes fell yet another 5% after falling 8% during the recession.

Median net worth fell another 2% during the “recovery” after falling 38% during the recession.

Wealthy Americans, the top few percent of wage earners, have fared much better.  Their incomes have risen 4% during the recovery and they have completely recovered their much-smaller loss in net worth that occurred during the recession.

Economists are baffled.  I’m not, and you shouldn’t be either.  As long as the U.S. continues to mis-apply free trade to nations grossly overpopulated and as long as we continue to exacerbate our own worsening population problem, declining incomes and worsening unemployment is inescapable.  People living in crowded conditions consume less.  It’s impossible to avoid.  When people consume less, less is produced and employment declines.  It’s all really quite simple – simple to anyone willing to open their eyes and ponder the economic consequences of a growing population – something that economists are still unwilling to do.

“The Best and the Brightest”

July 8, 2014


This story (link provided above) is a couple of days old but still relevant, given the continuing and escalating anger over the illegal immigration situation that has a hundred thousand children per year pouring across our border.  As busy as things have been for me this past week, I couldn’t let it pass.

Commenting on the issue, President Obama remarked that:

It’s in our DNA. … We shouldn’t be making it harder for the best and brightest to come here.

The statement is so illogical and insulting to the American people that journalists should be ashamed for letting it pass without challenge.  First of all, what we’re talking about here is the entry of illegal immigrants.  No one is giving them IQ or aptitude tests upon crossing the border to determine whether they represent the “best and brightest.”

Secondly, the remark implies that America is short on “best and brightest” qualities – that too many Americans are among the “worst and dumbest,” making it necessary to import superior people.  It also implies that the degree of goodness and intelligence is something inherent in one’s make-up – something that can’t be developed through education and training.  It says we’d rather  import people with skills and training that may be in short supply (though the data proves that we have no such situations), rather than invest in training and education.  It says that if you’re in a disadvantaged situation in America – tough.  We’ll import someone else and give them all the advantages.

And a question that’s never asked is why the “best and brightest” want to come here in the first place.  The stated reasons are because they are fleeing this or that or, more often, because they’re seeking a better life.  What’s unsaid is that those are euphemisms for what they’re really fleeing – the effects of overpopulation in their home countries.  So how much sense does it make to pursue immigration policies that guarantee that our own country will eventually come to the same fate?

The arguments in favor of high rates of immigration are pure BS.  The president is merely caving to business interests who want to maintain downward pressure on wages through an over-supply of labor and who, secondarily, see a growing population as a growing customer base that will swell the bottom line.  Who cares that it steadily erodes the quality of life of everyone but the top 1%?

Immigrants are no magic elixir for our economy.  They are merely people, no different that the rest of us.  In the final analysis, the only effect of immigration, legal or otherwise, is to grow our population.  Any discussion of immigration policy that isn’t in that context makes no sense whatsoever.  We have to begin by asking ourselves whether it makes sense to add workers to the labor force while fifteen million Americans are still out of work.  Does it make sense to add oil consumers when we’re already heavily dependent on imported oil?  Does it make sense to add carbon emitters when the challenge of meeting commitments to reduce carbon emissions already threatens to erode our quality of life?  Does it make sense to increase the demand for social safety net services when we already can’t afford them?  Does it make sense to increase the stress and strain on our resources and environment when they’re already near the breaking point?

I voted for Obama in the first election because I thought he favored the interests of the American people over the interests of global corporations.  What a disappointment.  Contrary to outward appearances, he clearly either lacks the intelligence to connect the dots between population growth and a host of critical issues (perhaps he doesn’t represent the “best and brightest?”), or is just another politician beholden to the deep pockets who put him in office.


Per Capita GDP in Decline

July 3, 2014

The country is in an uproar over the immigration crisis that Obama’s refusal to enforce the laws has left us in and, at the same time, I find myself with limited time for writing posts.  You can read opinion pieces on the immigration mess anywhere and everywhere right now.  So I though a better use of my time would be to focus on the recent downward revision in GDP (gross domestic product) and use it as an example as to why America’s ridiculously high rate of legal immigration – not to mention Obama’s refusal to enforce the border and deport illegal immigrants – is so bad for the American economy.

The BEA (bureau of economic analysis) last week dramatically lowered its final reading of GDP for the 1st quarter to an annual rate of decline of 2.9%.  The harsh winter took much of the blame.  Adjusted for inflation, GDP still remains higher than it was in the 3rd quarter of 2013.  And it’s risen by nearly a trillion dollars since the 4th quarter of 2007, when the recession first began.

But you shouldn’t care about overall GDP.  What matters is each American’s slice of the pie, or per capita GDP.  When population growth is taken into account, per capita GDP fell to its lowest level since the 2nd quarter of 2013.  And it’s barely budged in the past seven years (going back to the 4th quarter of 2007 again).  Here’s the chart:  Real Per Capita GDP.

Since the end of 2007, per capita GDP has risen by only $317 per person, an annual rate of increase of only 0.09%.  That includes all Americans, and it’s been widely reported that all of the gains are concentrated in the top 1% of Americans.  Take away that top 1%, and per capita GDP has actually declined during the supposed “recovery” that has taken place since the end of the recession.  And that’s in spite of a trillion dollars in stimulus spending by the federal government and four trillion dollars of stimulus provided by the Federal Reserve.  Imagine how bad it’d be if we took away that $5 trillion that has been poured into the economy in the past seven years.

Declining per capita GDP is one of the outcomes predicted by the inverse relationship between population density and per capita consumption (which is inextricably linked to per capita employment).  As our population continues to grow beyond its optimal level (thanks entirely to both legal and illegal immigration), it’s inescapable that per capita GDP will decline, even as overall GDP continues to grow slowly.

In other words, immigration is the driving force behind a decline in Americans’ quality of life.  Yet, the deep pockets that fund our politicians continue to advocate for increased immigration and population growth.  They want more consumers to grow their bottom lines.

Obama Directly Responsible for Immigration Mess

June 11, 2014

As reported in this CNN article (and virtually everywhere else this week), the southern U.S. border has been overrun by a tidal wave of unaccompanied, underage illegal immigrants.

Of the 1,200 or so crossing the Rio Grande in eastern Texas every day, up to 400 are unaccompanied children…

Prior to Obama’s refusal to enforce immigration laws, about 8,000 unaccompanied children entered the country illegally each year.  Now the rate is 400 per day – almost 150,000 per year – and that’s just one small section of the border in Texas.  Word has gotten out in Mexico and Central America that if you’re a minor and you can make it here, then you’re here to stay and the American Dream is yours.

The Obama administration has often complained that we don’t have the resources to deport all of these illegal immigrants.  Yet it has found the resources to bus this new wave all across the southwest and to set up housing for them.  Couldn’t it much more easily simply bus them back to the border?  At that point, they’re Mexico’s problem and if Mexico doesn’t like it, it’s time to get tough with Mexico and demand that they begin enforcing their own borders.

This situation is an outrage and the vast majority of the American people are absolutely fed up.  The media is also widely reporting the defeat of Republican Eric Cantor this morning, and his support for immigration “reform” and amnesty is being cited as the major reason why.  All congressmen and senators should sit up and take note.

This isn’t a rant against immigration, it’s a rant against a breakdown in common sense that fuels population growth at a time when that’s the very last thing that this country needs.  Of the approximately 18 million people added to our ranks in the last seven years (almost all of it through immigration), not a single one has found employment.  (The employment level is the same as it was seven years ago.)  But all are exacerbating our dependence on foreign oil, our challenge to reduce carbon emissions and our growing dependence on safety net programs to feed and house a growing population living in poverty.

Good riddance, Eric Cantor.  Too bad we have to wait three years before a similar change in president.


Citibank Commercial

December 8, 2013

I saw this Citibank commercial today and it just about made me ill.  It begins with Jonathon Rose, a developer, noting that America’s population is projected to grow by 90 million people over the next 40 years, and he speaks of what a great challenge it will be to grow and develop cities to handle all these people, and he speaks glowingly of how wonderful it will be. 

Wonderful for developers like him and, of course, it won’t do their financiers – like Citibank – any harm either.  Both will make a killing.  But consider this:  America’s population grew by 90 million over the last 40 years.  Do you think we’re better off for it?  The fact is that the top one or two percent of Americans are better off.  But the middle class has fallen behind.  And poverty rates are at a record level.  Unemployment (the real kind, not the number that the Bureau of Labor Statistics publishes) hovers just above 10% and 17 million Americans are out of work. It wasn’t like this 40 years ago.  And 40 years from now, today’s economy will look like the good old days.

I bring up this commercial because it illustrates one of the key points that I tried to make in Five Short Blasts – that beyond some critical population density, the interests of business and the interests of individual citizens – once in alignment – begin to diverge.  It’s in the best interest of business that the population continue to grow forever.  As the population grows, so too does total consumption of all products.  As total consumption grows, so too do corporate profits.  If 310 million people in the U.S. consume 310 million widgets, and 400 million people will consume 350 million widgets, then you’ve sold an additional 40 million.  What do you care if the per capita consumption of widgets has declined and, along with it, the number of people with jobs?  As long as your company is making the widgets, you’re doing great.

But unless you’re someone high up in the Widget Co. hierarchy, you’re not doing so well.  Because per capita consumption has declined, unemployment is higher and it’s putting downward pressure on your wages.  You’re fearful of losing your job – with so many people eager to do your job for less.  And your world is a dirtier, more crowded place, one in which rising poverty is taking its toll on government’s ability to provide an adequate safety net. 

So whose interests do you think will hold sway, yours or Citibank’s?  Where do you think your congressman will turn for campaign donations – to you or to Citibank?  And then who do you think he/she will listen to?


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