Krugman Sees Japan’s Shrinking Population as Crimping Growth

Nobel Prize-winning economist Paul Krugman said Japan’s slow growth results from the country’s shortage of people and the output increase of the working-age population is “not that bad.”

“Japan has a big long-term problem, which is basically a shortage of Japanese,” the Princeton University economics professor said in an interview on Bloomberg Radio’s “Taking Stock” with Pimm Fox yesterday. “They have terrible demography. Once you take that into account, their growth per working-age person is not that bad.”

Japan’s population last year declined by 212,000, the biggest drop on record, according to an estimate by the nation’s health ministry. That’s the largest reduction since the ministry started recording the data in 1947 and a sixth straight year of declines.

The number of births fell by 18,000 to a record low of 1.03 million last year, the Japanese health ministry said last month. About 26 percent of Japan is older than 65, according to data compiled by Bloomberg.

“Every time the Japanese did spend more, their economy perked up,” Krugman said. “Every time they pulled back it fell back.”

Japan’s gross domestic product shrank at an annualized 3.5 percent pace in the third quarter of last year.

Last month, Prime Minister Shinzo Abe’s government said it would spend 10.3 trillion yen ($110 billion) to boost growth.