Japan’s ageing population problem might be the worse in the world, but it’s one that all developed economies are facing. The problem seems so intractable that Yale economist Yusuke Narita’s suggestion that the elderly commit mass suicide made international headlines. That is not a serious policy suggestion, but radical measures are needed. Charles Goodhart argues that instead of the state financing the day to day lives of retirees via a state pension, it should instead prioritise financing the increasing medical care costs of the elderly.

Japan has the highest proportion of elderly people in the world, with 29% of the population being over 65. These numbers, combined with an increasing life expectancy, bring along a host of problems. Older people tend to need more medical care, which is both expensive and requires a lot of human resources. In most developed countries, the state provides a large part of the support needed, meaning an increasingly smaller number of young people in employment foot the bill via taxes. This raises issues about economic growth, but perhaps more importantly, intergenerational justice.

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This is where the Yale economics professor named Yusuke Narita comes in. A recent New York Times profile of the 37-year-old triggered outrage at his suggestion that the solution to Japan’s ageing population problem is “mass suicide” or “mass seppuku”, essentiallyself-disembowelment, something practised by dishonoured Samurai in the late 19th century. He has since watered down his claims, saying that they were merely “abstract metaphors”. But an earlier comment by him in which he qualified his “mass suicide” suggestion, drawing a distinction between the necessity of the policy and “Whether that’s a good thing or not, that’s a more difficult question to answer” indicates that he meant what he said.

Despite Narita allegedly having quite a following amongst Japan’s disaffected youth, his proposals are clearly impractical, immoral, and almost certainly deliberatively provocative. But the problem of Japan’s ageing population remains in urgent need of a solution. What is more, this is not a problem unique to Japan, most developed countries have an increasingly older population, and are already facing versions of the same issues. The state alone cannot plausibly provide for all the needs of people who might come to live 20 or 30 years beyond their working life, and neither should it. Higher taxation is going to be inevitable, but the state should prioritise financing the “losers” of the health lottery, rather than the normal day-today living expenses of the elderly. Individuals are going to have to finance their own retirement plans, if the state is going to be able to support those who truly need care.

To be clear, the underlying problem is NOT age as such, it is medical dependency or the need for care in order to carry out the normal activities of daily living, something that rises sharply with age. If the aged remained relatively fit and healthy (and then died from some sudden organ collapse), they would not require large fiscal support from the state.  But, largely due to neurological diseases, such as dementia in its various forms, and Parkinson’s, for which medical science as yet has found no cure, but also to other factors such as arthritis, falls with brittle bones, osteoporosis, etc., the elderly do end up needing the state’s support.

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As things stand,the old (75 - 85), and old-old (85+) are now the fastest growing segments of the populations in virtually all developed economies

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These diseases not only require personal care, often initially from family members, but as they worsen also from employed carers who make up an increasing share of the declining working-age population, thereby removing them from the production of other goods and services.  It has been estimated that some 20% of the Japanese working-age population may in future be required to provide care.  What is more, many of those suffering from these types of neurological diseases can go on living for years.  The suggestion of robots as carers, which often comes up as a possible solution to this problem, is not convincing.  Imagine a robot, with all the limitations they currently come with, trying to coax a dementia sufferer into taking their medication! 

The problem, however, is in urgent need of a solution; the statistics are worrying.  Demographers divide the aged into three groups:  young-old, 65 to 75; old, 75-85; and old-old, 85 plus.  The associated proportion of those who are medically dependent in these groups are, in turn, about 25% amongst the young-old; nearly 50% in the old; and over 75% amongst the old-old.  As things stand, the old (75 - 85)_, and old-old (85+) are now the fastest growing segments of the populations in virtually all developed economies. 

If medical science could cure, or at least limit, the onset of such neurological diseases, even that meant a further extension of life expectancy, then ageing would not be nearly as serious a problem.  But we cannot just assume that that will happen.  Perhaps research funding should be directed to those fields which would most greatly reduce the likely dependencies on years of requiring care.  But even then, the prognosis would be uncertain since the brain is a much more complex organ than, for example, the heart. 

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Perhaps what’s likely, at least in the near future, is that medicine will become able to identify those more prone to such neurological diseases.  But would people really want to know in advance that they are likely to develop dementia, or Alzheimer’s?  What would one do with that information? The likely large growth in the potential number of those who develop some kind of neurological disease will inevitably raise the question of enabling easier access to assisted dying.  But then again, the choice would have to be made at an early stage when the sufferer was still compos mentis, and how many would want to go, even if they had the opportunity?  Nevertheless, the question of euthanasia when faced with awful diseases will become more pressing, even though it may have little quantitative effect over all. Narita’s ‘mass suicide’ is not plausible and certainly not desirable. 

At the moment, care for those who cannot undertake everyday activities without assistance is not fully supported by the state. But the onset of dementia and Parkinson’s is a lottery, and the state should provide full insurance, or at least partial insurance, against a bad draw.  Despite the lottery nature of the need for care, the latter is being underfunded by the state, and very expensive for the individuals who have to shoulder it.  In the absence of a cure for dementia, how should all this be financed? 

My view is that the state should indeed be financing the support needed by those suffering from bad luck in health, instead of providing for people’s predictable, non-care, old age expenditures in the form of a general state pension. Individuals should, in general, be much more responsible for financing their own normal day to day life in older age, than they are at present.  This won’t be easy to achieve, of course.  In a recent Financial Times article, Martin Wolf notes how savings rates are relatively low in the UK, compared, for example, with the Singapore Provident Fund, which required much higher regular deductions from wages and salaries in order to provide for pensions. That would be one route. 

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A world with a much larger share of medically dependent, and a much smaller working age population, with lower overall economic growth, will undoubtedly require a much higher general level of taxation to meet the burden of supporting the medically dependent

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Another possibility is that every tax payer, at regular intervals, say when they reach the age of 40, 50 and 60, should be required to submit a retirement plan.  In that plan the taxpayer would have to state their future expenditure plans during retirement and how they intended to accumulate wealth up to the age of retirement to finance such expenditures, without support from the state, on the assumption that each lived up to the normal mean expectancy of life.  But life expectancy varies according to such factors as sex, income and location.  Thus, a rich married woman living in Surrey would have to accumulate a much larger wealth than a poor single man living in Middlesborough, before the former can receive a state pension.  Then people whose plans were insufficient to meet planned expenditures would not be able to retire until they did. So, the idea would be that retirement age would vary until such retirement did not in general cause a burden on the state.  Thus, state pensions would only commence for those living beyond normal life expectancy.  An exception would have to be made for the very poor, who could not meet minimum consumption needs over their lifetime on any reasonable and feasible financing strategy. 

What this inevitably means is that a world with a much larger share of medically dependent, and a much smaller working age population, with lower overall economic growth, will undoubtedly require a much higher general level of taxation to meet the burden of supporting the medically dependent.  A continuing problem is how to levy such extra taxation without having severe distortionary effects, reducing the incentive to work and to save and invest.  This strongly suggests shifting the burden of taxation away from taxes on income and capital.  Two suggestions that I made elsewhere are that we should move strongly and rapidly towards taxation on land and on carbon.  But the latter is a large subject for separate discussion.