My presentation in Tokyo (October 30, 2026) promoting a degrowth agenda

A UK Guardian editorial last week (November 3, 2026) – The Guardian view on Labour’s growth obsession: a different economics is possible – challenges the dominant obsession with achieving ever faster levels of GDP growth that, in part, is linked to the fictions advanced about fiscal capacity – viz, nations must have growth to generate the tax revenue to pay for government services. On October 30, 2026, I gave a presentation in Tokyo challenging this obsession and advancing the idea that Japan is perfectly placed to lead the world into a degrowth phase of human development, one that will help reduce the ecological footprint and underpin an environmentally sustainable future. In this post, I provide a summary of the presentation.

Background

The title of the presentation was “Fiscal expansion: scope and issues” and the context was the current plan by the Takaichi government in Japan to introduce a major fiscal stimulus to kick-start a higher growth rate.

I covered two broad areas in the presentation:

1. What scope is there for fiscal expansion and is the labour market really that tight in Japan?

2. Would a low growth (degrowth) strategy be the smartest approach given the constraints.

Within those areas three policy priorities were outlined:

1. Maximise potential of population.

2. Ensure benefits from growth are more fairly distributed.

3. Reduce ecological footprint.

I also put the talk in the context of the many challenges that Japan currently faces as summarised by this slide:

The articulation of the challenges is broadly accepted within the Japanese policy circles.

What is controversial is the way to address them.

There are two dimensions to this controversy.

First, the mainstream view is that the only way ahead is for faster economic growth.

Second, this view is presented with the claim that any fiscal expansion aimed at generating such growth risks fiscal collapse and the usual arguments are made about bond markets refusing to fund the government, that bond yields will go through the roof, that the yen will plummet in value and exacerbate the already high inflation risk, etc etc.

The second contextual element is that Japan is currently locked in a mindset of deflation (as summarised by the following slide):

Since the asset bubble collapsed inthe early 1990s, fiscal policy has been biased towards austerity.

You might ask how is it possible to run large fiscal deficits continuously since that period and build up a sizeable public debt profile and be running an austerity bias.

The reality is that the spending behaviour of the non-government sector has been so constrained that fiscal policy had to expand to fill the spending gap.

Which introduces an important point or nuance.

When I talk about austerity I am referring to how close the fiscal stance goes to filling the overall spending gap, the latter being the difference between the spending required to achieve full capacity utilisation (and full employment) and the actual spending.

If the non-government sector is choosing to save some of its income in each period, then the only way the economy can avoid recession (declining output and employment) is if the government sector net spends (that is, runs a deficit) to offset the non-government saving.

Otherwise there is a leakage from the expenditure-income loop (from the saving) which is not remedied by an equal injection (the deficit).

So an austerity bias does not necessarily mean a zero fiscal deficit or fiscal surplus.

It just means that the government chooses not to fill the spending gap.

Austerity might also mean a very large fiscal deficit – just not large enough, given the non-government spending and saving decisions.

Since the bubble burst, Japanese corporations have been sitting on large stocks of retained earnings because they have been reluctant to invest in new productive infrastructure.

Likewise, the government capital expenditure has been weak.

Further, corporations has been reluctant to hire regular workers, preferring to replace those permanent positions with casual or non-regular appointments.

This has meant that overall wages growth has been poor and this has influenced the consumption patterns of workers (overall described as restrained).

Fiscal sustainability

The next slide covered the usual Modern Monetary Theory (MMT) arguments about fiscal capacity and I won’t rehearse them here.

Essentially, Japan can never have a public debt crisis everyone knows that the Japanese government can always meet its liabilities.

The fiscal limit is the real resource availability and fiscal responsibility requires government to ensure no wasted resources.

Fiscal sustainability is about working within the real resource space, and, for a currency-issuing government is nothing to do with financial space.

I pointed out that the rising bond yields had nothing much to do with the fiscal positions taken by governments but everything to do with the massive demand for funds from the frontier AI companies at present.

I offered this quote from the Australian Treasurer (Sydney, October 22, 2026) on the AI boom to put it into perspective:

Capital expenditure by the five largest hyperscalers in 2023 was $230 billion. It’s now forecast to quadruple to over $1.1 trillion …

To finance this, corporate bond issuances by hyperscalers have exploded. Annual issuance averaged around US$40 billion five years ago, but is now projected to average around US$400 billion ($570 billion) in the next few years.

I also noted that the Bank of Japan currently holds 46.7 per cent of all outstanding Japanese Government Bonds and has demonstrated that it can completely control bond yields at whatever level it chooses simply by being able to outbid any other buyer in the secondary bond market.

So under what strange scenario would a government that can dominate bond markets allow the latter to send it broke?

Even casting the issue in that way is unnecessary – the Japanese government doesn’t even have to sell debt to the private markets.

So it can either not sell debt at all – game over; or the Bank of Japan can control yields whenever it wants to – game over.

Two dimensions of real resource availability

In assessing the scope for fiscal expansion I chose to focus on two dimensions of resource capacity:

1. Demographic trends – Will there be enough workers?

2. Environmental constraints – Ecological footprint considerations.

On the first, the following slide summarised the issues:

Japan’s population is ageing and by 2050 it is projected to have fallen to 105 million (from current 123 million) and have a much older profile.

The mainstream argument is that this presents a massive financial problem for governments – viz. how will the government fund the pension system and provide ever increasing hospital care.

The solution then espoused is that the government has to ‘save up’ (by running fiscal surpluses) which requires cuts to spending now.

The financial arguments are spurious.

A currency-issuing government will always be able to fund pensions and health care.

The issue is whether there will sufficient real resources available (for example, doctors, nurses etc) which can produce the required goods and services.

The challenge is to ensure that the younger generation of workers is more productive than the previous generations, given that there will be less workers supporting more dependents (as the dependency ratio rises).

The other problem is that focusing on financial affordability, which then leads to spurious demands for spending cuts often target educational and training funding etc and those cuts actually undermine the productivity challenge.

A whole generation of kids buzzing around on scooters delivering food is hardly going to prompt a productivity revolution.

The solution for the demographic challenge is to ensure younger generations are highly skilled and have the investments in technology and infrastructure that will allow those skills to produce at high levels.

The demographic challenge is also linked to the debate about whether there is a shortage of labour or not.

Is there a shortage of labour?

This is clearly a question that must be addressed when we assess the scope for fiscal expansion.

The MMT focus on real resource availability necessitates that we establish that the government would not just be competing for workers already in productive use, which would generate inflationary pressures.

The next slide juxtaposes two recent quotes and I said that while they appear to be contradictory they are in fact both accurate.

There has been a lot of focus on the construction industry, given that the government plans a significant injection into that sector by way of infrastructure spending.

The next slide shows the history (from 1960) of Japanese government capital expenditure and employment in the construction sector.

I have done more advanced econometric modelling to explore the relationship shown.

The overwhelming result is that total employment in the Japanese construction has historically been driven by the scale of state procurement contracts available.

After the bubble burst and the Japanese government was intimidated by mainstream economists into invoking an austerity bias, one of the main areas that the fiscal constraint was evident was capital investment.

Phase 1 shows this translated into a major decline in construction sector employment.

After the GFC, we entered what I call Phase 2.

The government aware of the need for increased fiscal support (albeit not enough of it) increased capital expenditure a bit but construction employment continued to fall, albeit at a slow pace.

The reason is that the sector came up against the demographic constraint of a declining population.

But the supply shortages went beyond the demographic decline.

Younger people eschewed working in the sector because the conditions are brutal (particularly in terms of the weather extremes), the pay has been historically poor, the hours of work long, and the workplace relations are typified as authoritarian, with bullying by the bosses common.

Further, misogyny is common which is highly unattractive to women workers who might consider entering the sector.

Further evidence of labour shortages in construction come from examining the job-openings-to-applicants ratio across the occupations.

This measure is compiled by the Ministry of of Health, Labour and Welfare of Japan and is a broad measure of the relativity between labour demand and labour supply.

The higher the ratio the greater the shortage of workers.

A ratio of 1 means that for every job on offer there is someone wanting to take it.

At the aggregate level the ratio in August 2026 was 1.18 which indicates a mild shortage of workers.

The purpose of the slide is to demonstrate that there is massive variation across the occupational space.

For some of the white collar jobs – there is a surplus of workers.

Those three occupations alone account for more than 21 per cent of total employment or more than 15 million workers.

A ratio of 0.29 (General office occupation) means that for every job opening there are around 3.5 workers seeking the job.

So in those occupations there is definitely not a shortage of workers.

However, in Structural construction the ratio is 8.25 meaning there are more than 8 jobs on offer for every applicants – a massive shortage.

Also I noted that the share of non-regular employment in total employment has been rising well above the OECD average since about 2008.

Non-regular workers now are at 21.3 million or 36.3 per cent of the workforce.

These jobs are typically low-paid, precarious, and low productivity.

In the June-quarter 2026 the data showed that:

Unemployment = 2.5 per cent.

Underemployment = 4.3 per cent.

Broad underutilisation (sum of both) = 6.8 per cent.

The implication is that rationalisation of these jobs into more regular employment could free significant resources without impinging on output.

The conclusion I drew is that while there is a shortage of workers in some sectors, there are also surpluses of workers in other sectors.

Policy should be aimed at creating transitions for workers from surplus to deficit sectors.

Environmental constraints

The second focus I chose was to highlight the environmental constraints that must be considered when designing a fiscal expansion.

Typically, talk of fiscal expansion is tied in with a high growth obsession.

I questioned whether that was desirable given both demographic and environmental constraints?

I argued that a smarter growth (degrowth) strategy is more aligned with the constraints.

The next slide focuses on Japan’s ecological footprint, which relates the use of resources against the regenerative capacity of the biosphere.

The ratio shows the “amount of biologically productive land and water area needed to support your lifestyle, produce the resources you consume (food, timber, fiber), and absorb your waste (such as carbon emissions).”

The ratio for the entire globe is currently around 1.7 which means humanity is operating well beyond the regenerative capacity of our natural environment.

For Japan, the ratio is 4.3.

In part, this is because Japan’s biocapacity is highly constrained by its geography – a narrow coastal fringe with high population density and lots of mountains.

Most of the result for Japan comes from fossil fuel energy consumption and high food wastage.

I have pointed out before how Japanese houses are high energy users, in part, because, by design, they are poorly designed and need constant heating and cooling depending on the season.

However, the qualifications aside, it is irresponsible to be calling for faster GDP growth if it means higher rates of resource usage.

I then shifted into why degrowth is plausible in Japan.

SMEs in Japan comprise around 99 per cent of enterprises and account for around 70 per cent of total employment.

The SME ownership in Japan is highly weighted towards older workers:

• Greater than 60 per cent of owners are over 60 years of age.
• Around 15 per cent are over 75 years of age.

There are also cultural constraints on ownership succession – selling a business when the owner gets too old to run it is not the norm and the preference is to hand the business to a male family member.

The problem is that younger workers do not want to take on their father’s businesses and so the attrition rate in these businesses is very high.

The Government has task forces set up to improve succession because it fears the attrition rate will undermine the growth potential for the nation.

There are major technology initiatives in place to help as the population shrinks.

For example the iCONSTRUCTION 2.0 program which aims to automative and use robots as much as possible in the construction sector.

But, I argue that the declining population and high attrition rate of SMEs provides a perfect basis for ditching the high growth obsession and instead consolidating activity into a low (zero) growth posture.

The criticism is that this would damage the material standard of living and thus be politically impossible to implement.

But Japan’s declining population does not need high rates of growth to maintain material standards of living.

The next chart shows why.

It shows per capita GDP since 1994.

The period shown covers the so-called ‘lost decades’ where GDP growth has been very low and often close to zero.

The point is that even with very low GDP growth, average growth per person has been steadily increasing, which means, on average, material living standards can rise with low growth.

Such a graph would be impossible for a nation such as Australia because our population growth is much stronger than it is in Japan.

So for nations such as Australia, the degrowth challenge is probably greater.

Of course, per capita GDP is just an average and it is clear that distribution matters.

The rise in non-regular work has created a large segment of workers with low pay and no other entitlements that are normal for regular workers.

At the top end of the distribution, things are quite different with rising affluence.

So a degrowth strategy has to consider redistributing income from top to bottom to make it politically palatable.

The composition of output also matters.

A nation, for example, could generate the above data and only produce military equipment, which can hardly be said to add to the material prosperity of the population.

Some policy options

I finished by briefly outlining a series of policy options that the Takaichi government should consider as it designs its fiscal expansion.

The emphasis has to be on redistributing workers from surplus sectors to deficit sectors, redistributing income from top to bottom, and investing in areas that will reduce the ecological footprint (renewables, energy efficient housing, better public transport, etc).

I spoke to these headings (but will not go into them here):

• Increase tax on high incomes and corporations.
• Incentives for workers to shift sectors.
• Technology investment.
• Increase minimum wage – to at least ¥1,500 per hour but preferably higher.
• Invest heavily in renewable energy.
• Invest in sustainable, energy efficient housing.
• Promote decentralisation by improving regional public transport.
• Promote the reduction in waste (packaging etc).

Conclusion

This topic is one of my major research foci at present.

That is enough for today!

(c) Copyright 2026 William Mitchell. All Rights Reserved.