Japan’s experience as one of the first countries to have an aging population offers a glimpse of what’s to come for other countries on the same path. See what an older population could mean in terms of social policy, productivity, immigration reform, medical costs and more.----- Transcript -----Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.Robert Feldman: And I'm Robert Feldman, Senior Advisor at Morgan Stanley MUFG Securities.Seth Carpenter: And on this special episode of the podcast, we will talk about longevity, and what the rest of the world can learn from Japan. It’s Tuesday, February 6th, at 8 a. m. in New York.Robert Feldman: And it's 10 p. m. in Tokyo.Seth Carpenter: Over the past year, I am guessing that lots of listeners to this podcast have heard many, many stories about new anti obesity drugs, cutting edge cancer treatments. And so today, we're going to address what is perhaps a bigger theme at play here.Now, the micro human side of things is clearly huge, clearly important. But Robert and I are macroeconomists, and so we're going to think about what the potential for longer human lifespans is. For the economics. So as life spans increase, we're probably going to see micro and macro ramifications for demographics, consumer habits, the healthcare system, government spending, and long-term financial planning.And so, it follows that investors may want to consider these ramifications across a wide range of sectors. So, Robert, I wanted to talk to you in particular because you've been following this theme in your research on Japan -- which is perhaps at the earliest stage of this with the fastest aging population across developed economies.So, start us off. Perhaps share some more about the demographic challenges that Japan is facing and what's unique about their experience.Robert Feldman: Thanks, Seth. First, let me start by saying that Japan is not so much unique as it is early. For example, in the 1960s, Japan's total fertility rate averaged about two children per woman. But it hasn't been above two since 1975. Now it's about 1.34. Population as a whole peaked in 2010 and now is down by about 2.4 per cent.What about government spending on pensions and healthcare? Well, those went from about 16 per cent of GDP in 1994 to about 27 per cent now. So the speed of these increases is extremely fast. That said, Japan has one very unusual feature. Labor force participation rates have climbed quite sharply, especially for women. So, more people are working and they're working longer.But at the same time, Japan has actually been pretty successful in holding down costs of many longevity related spending categories. Japan has a nationalized healthcare system. So, the government has lots of power over drug prices, which it has held down. It’s shortened hospital stays. They're still too long -- but it has shortened them. It has also raised retirement ages and has a very clever pension indexing system.Seth Carpenter: All right, so if I can sum this up then, Robert. Japanese workers are working longer, the Japan economy is spending less on health care. So, does this mean that we can just say Japan has solved most or all of the challenges associated with longer lifespans?Robert Feldman: Well, it’s not exactly reduced spending on healthcare. It just hasn't gone up as much as it might have.Seth Carpenter: Okay, that's a good distinction.Robert Feldman: Yes. Anyway, Japan has not solved all the problems, not by a long shot. So, for example, productivity growth is very important for holding debt costs down. But productivity growth -- and I like the simplest measure, just real output per worker -- has been anemic in Japan.So, when productivity growth is low and aging is fast, it's kind of hard to pay the cost of longevity; even if labor force growth is high and Japan has been able to suppress ageing costs. That's the wrinkle here.Seth Carpenter: Okay. So then, if we shifted t