Some time ago, I wrote about what I regard as the lunacy of deliberately cheapening one’s own currency, and how I cannot fathom how increasing the (in real terms) price one pays for everything one buys (imports) and simultaneously reducing the amount one gets paid for everything one sells (exports) could conceivably be regarded as beneficial to one’s economy.

As further proof that I just don’t “get” economic policy, here is another bit of accepted wisdom that seems nuts to me. The following quote is from the most recent (and last) issue of the always entertaining and incisive newsletter “Things that make you go hmmm”, by Grant Williams, but you can find similar opinions expressed by many other economic commentators:

“[T]he fact that Japan’s population is now declining by roughly 20,000 people every month has seemingly crept up on the world and taken everybody by surprise. . . .

“The only answer to Japan’s demographic problem is mass immigration. Simple.”

I don’t see it. All other things being equal, it seems to me self-evident that if you take a group of N people who own assets of aggregate value X, the average net worth of the members of the group is X divided by N. If you make N smaller, the average net worth has to go up. QED.

Of course, all other things aren’t entirely equal, because part of the problem with Japan’s demographics is that the age distribution is changing so that there are more geezers, who presumably don’t or can’t work, and fewer young workers (as of 2010, 13.2% of the population is under age 14, 23.1% is over 65).

I get that. But that’s a technological problem, and if there were ever a country that is well equipped to solve it, it would be Japan. Particularly as to the problem of taking care of legions of elderly, my bet is, Japan, Inc. will easily develop robotic and other automated solutions that will more than compensate, and most likely make huge profits selling those solutions to other countries with aging populations.

Yes, the GDP might go down, slightly, for a while. Even the per-capita GDP might dip. But in the medium and long-term, the net worth per capita has to go up (unless, of course, they give away too much of it through misguided devaluation of the currency). And keeping in mind that GDP, as ordinarily calculated, includes a great many “outputs” that are of pretty questionable benefit (the entire cost of the government bureaucracy, for starters), I think I’d rather have the higher net worth.

Granted, if you got to a point where there were a demand for your output, at profitable prices, exceeding what you can produce with the working population that you have, it might benefit you to find more workers. But I don’t — at all — get the impression that that is the case in Japan, or for that matter anywhere else nowadays. Are Japan’s factories finding themselves unable to fill orders due to a shortage of labor?

But even if it turned out to be necessary to forego some production — if the population goes down faster than GDP does, isn’t everyone better off?

The other way in which all other things aren’t necessarily equal has to do with debt. If a country is a net debtor, then reducing population seemingly implies that there are fewer people to pay the debt, so each one has to pay more. But that argument doesn’t apply to Japan, for two reasons. First, Japan isn’t a net debtor. As of 2009 (the newest numbers I could quickly find, I don’t want to make a dissertation out of this), Japan’s net international investment position was plus 56.1 percent of its GDP. In other words, Japan is owed more money than it owes in debt.

Second, even if Japan were a net debtor (which it might become thanks to “Abenomics”) that still wouldn’t change the result — that X divided by N gets bigger as N gets smaller — unless the net external debt were so large that it would exceed the net value of all of Japan’s assets. The only way that result would change is if Japan had so much external debt that it were literally insolvent.

Anyway, I guess if the economists are right, I’m in the right place. At least according to the conventional wisdom, the Philippines has wonderful demographics (34.6% of population under age 14, only 4.3% over age 65). We don’t seem to be as rich as Japan, but I’m sure that’s just an illusion.

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