Abstract
The ageing of the population at a high speed has the following influences on social security as well as on the balance and growth of the economy. First of all, as the cost of social security (including social services) increases remarkably at the earlier stage of ageing, the disposable (after tax) income and private consumption of the present labour force generation tend to increase at a lower growth rate than that of the GNP. At this stage a Keynesian policy is required. Secondly if pension systems are based on terminal funding scheme, the ageing of the population increases savings (net increase of the amount of the pension funds) at the earlier stage of the ageing of the population. Thirdly, there is a time lag between the increase of social security benefits and the decrease in the personal savings ratio. The high ratio of savings and the shortage of aggregate demand as well as the high pressure for export in the recent Japan can partly be attributed to the above factors. It is important to note that no invisible hand works to adjust the investment/savings gap. However, Japan will proceed to the next stage of the ageing of the population in the 1990s, when the Japanese economy may fall in "the Japanese disease" which will be caused mainly by supply-side factors. Five policies to cope with the coming difficulties in the Japanese economy are suggested in the last section of the paper.
