posted on 08 March 2017
by FEE, fee.org
-- this post authored by Daniel J. Mitchell
When I warn about the fiscal and economic consequences of America’s poorly designed entitlement programs (as well as the impact of demographic changes), I regularly suggest that the United States is on a path to become Greece.
Because of Greece’s horrible economy, the link above has obvious rhetorical appeal.
But there’s another nation that may be a more accurate “role model" of America’s future. This other country, like the United States, is big, relatively rich, and has its own currency.
For these and other reasons, in an article for The Hill, I suggest that Japan is the nation that may offer the most relevant warning signs. I explain first that Japan shows the failure of Keynesian economics.
I then highlight how Japan shows why a value-added tax is a huge mistake.
And regular readers know my paranoid fear of the VAT taking hold in the United States.
But here’s the main lesson in the column.
The combination of demographic changes and redistribution programs is a recipe for fiscal crisis.
To be sure, as I note in the article, Japan’s demographic outlook is worse. And that nation’s hostility to any immigration (even from high-skilled people) means that Japan can’t compensate (as America has to some degree) for low birth rates by expanding its population.
Indeed, the demographic situation in Japan is so grim that social scientists have actually estimated the date on which the Japanese people become extinct.
Though I guess none of us will know whether this prediction is true unless we live another 1750 years. But it doesn’t matter if the estimate is perfect. Japan’s demographic outlook is very grim.
By the way, the problem of aging populations and misguided entitlements exists in almost every developed nation.
But I mentioned in the article for The Hill that there are two exceptions. Hong Kong and Singapore have extremely low birthrates and aging populations. But neither jurisdiction faces a fiscal crisis for the simple reason that people largely are responsible for saving for their own retirement.
And that, of course, is the main lesson. The United States desperately needs genuine entitlement reform. While I’m not overflowing with optimism about Trump’s view on these issues, hope springs eternal.
Republished from International Liberty.
About the Author
Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.
This article was originally published on FEE.org. Read the original article.
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