Saturday, December 5, 2015

The Zen of Zero

-- By Tom Phillips

What is to be done?
On a busy shopping street in Japan last month, we passed a bank with a big sign in the window, advertising savings accounts -- with interest of one-tenth of one percent!  That's big money in Japan, where zero is the new normal.  And despite the best efforts of the Federal Reserve, it may be the new normal in the US.

Consider: the national rate of inflation in November was two-tenths of one percent per annum, entitling Social Security recipients to a cost-of-living adjustment of zero. The interest rate on my money market retirement account is actually negative, after fees -- the investment company raises it to .01 percent to avoiding "breaking the buck."

In the booming days of the 1950s and 60s, the Fed's job was to keep down the fires of inflation, which continued to rage through the 70s and up to the 1980s.  Then the Fed under Paul Volcker poured buckets of ice-cold water on the economy.  Inflation has never fully come back, and since the financial crisis of 2008, it's barely there.  Now the Fed's job is to fan the flames -- trying to generate a little heat -- up to what was previously the "normal" level of two to three percent.  But nothing works.  Even with trillions of dollars pumped into the money supply, inflation flat-lined in late 2015.

What's the matter?  Economists keep looking for things to return to normal --i.e. post-WW2 growth and inflation.  Apparently they can't see that there's something new under the sun, something so big that it weighs on economic growth like a millstone, getting heavier by the year.

I had to go to Japan to see it.  The problem is us -- the legions of us on the Road to Dotage.

For the first time in human history, ordinary people are living into their eighties, nineties, hundreds. Women in Japan have a life expectancy of 87.  More than 25% of the Japanese population is 65 and over, up from 20% in just ten years.  The population is declining because the child-bearing generation isn't big enough to replace the aged.  No wonder Japan has zero growth and zero inflation. With an aging population, and a declining population, zero is an accomplishment. And in fact, Japan is doing all right with zero growth.  The streets are bustling, shops and restaurants are full, the factories continue to turn out Toyotas.  And the elderly are well cared for.

The United States isn't in the top ten nations for life expectancy.  But even here, it's risen steadily.  When I was a boy, I read in the World Book that I could expect to live to 63.  So I set my sights on 2005.  Ten years after that, I'm in excellent health, with no end in sight.

Old people are a much worse problem than welfare cheats. We don't work, we don't consume heavily, we take Medicare.  Many of us are mentally ill, or demented.  We're a drain on the public purse, and a pain to the private sector.  And we won't go away.

So get used to it, Janet Yellen.  You're one of us, too.  How can you expect go-go economic growth while we're shuffling around with our walkers?  For all our lives, growth has been the economic goal, but what's wrong with stability?  Zero is a good number -- a balance of youth and age, life and death, productivity and rest.

Copyright 2015 by Tom Phillips

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