With 8 million in hand, should young people lie flat or continue to strive? - Huxiu#
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The lost thirty years, Japanese companies have been deleveraging, and this conservative sentiment has also transmitted to residents, resulting in a "low desire era" of low consumption and low investment, ⤴️ ^677f4fa6
This article discusses whether a young person with 8 million should choose to lie flat or continue to work hard. The author outlines three possible future development paths: Japanization, Latin Americanization, and Americanization, and analyzes the outcomes of lying flat and continuing to strive in each scenario.
• 💰 8 million does not guarantee future peace of mind, as its proportion relative to the entire economy may not be large.
• 🌍 The uncertainty of the future direction of the Chinese economy determines the outcomes of lying flat and continuing to strive.
• 🌟 Whether choosing to lie flat or continue to strive, one must consider potential future economic developments and personal happiness.
8 million, not enough for a "safe box"
A few days ago, I talked to a client about her son's worries:
Both parents have stable jobs, with an annual family income of 400,000. Their only concern is that after graduating from a private second-tier university, their son finds it very difficult to secure a satisfactory job. Additionally, the grandparents have a demolition compensation of 8 million, specifically designated for the grandson, which makes him even more indecisive. He is not actively looking for work, and even when he finds a job, he does not want to do it well, saying he does not want to compete anymore, does not want to get married or date. Fortunately, his consumption desire is also very low, feeling that the future relies solely on this 8 million.
She asked me whether, in this situation, she should let him lie flat or encourage him to continue to strive?
Some readers might think, with 8 million, does it matter whether one lies flat or competes?
The figure of 8 million seems large, but it may not allow you to hide in a safe box. Think about it, what is our current per capita income, and what was the per capita income 30 years ago? From 1993 to now, the M2 broad money supply has increased from 3.5 trillion to 300 trillion. The proportion of 8 million to the total money supply is equivalent to the proportion of 93,000 30 years ago. Based on this M2 growth rate, if you have 8 million now, in 30 years, it would be equivalent to having 93,000 30 years ago.
Of course, this cannot be said so definitively. After all, the past 40 years of China's reform and opening up have been a special phase, and the M2 growth rate may not be sustainable. Ultimately, whether this 8 million can make you feel secure depends on what path the future Chinese economy will take.
I outlined three possibilities—Japanization, Latin Americanization, and Americanization—and the outcomes of lying flat and striving are completely different under each scenario.
Japanization
If we are in a state similar to Japan's "lost thirty years," as discussed by the media this year, then holding 8 million, "lying flat" will be the optimal solution.
After the bubble economy burst, housing prices in Tokyo, Japan, fell for a decade before slowly recovering, reaching new highs only in 2021.
Not only housing, but almost all prices have also remained at 1993 levels, with CPI consistently below the inflation target.
The reason is that Japanese income growth has stagnated since reaching a historical high in 1997, with per capita GDP income remaining at the 1993 level.
Everything seems to have stopped; the "lost thirty years" is not just a metaphor.
But I must say, following in Japan's footsteps may not be a bad thing for ordinary people. The lost thirty years saw economic stagnation without national turmoil, and the happiness index of citizens continued to rise. The most important reason is that Japan has taken the Nordic path, with a sound social welfare system and a narrowing wealth gap.
A 2019 United Nations report showed that among the 20 countries with the smallest wealth gap globally, the Nordic countries ranked highest, with Japan at 11th, the highest-ranked Asian country. 90% of Japanese people consider themselves middle class.
In Japan, the salaries of company employees and leaders are only two to three times that of ordinary workers, and income disparities between different industries are not large. Teachers, farmers, manual laborers, and civil servants have similar income levels. Additionally, the hard work of Japanese civil servants has led to a decline in the number of young people pursuing civil service jobs.
Examples of income in certain industries and positions
Moreover, Japan's social welfare is very comprehensive, and the wealthy and inheritances are subject to high taxes. Therefore, although there are not many significant economic opportunities, the entire society remains stable, and as long as ordinary people's lives do not face crises, their sense of happiness is still strong.
If China really heads toward Japan's "lost thirty years," young people can indeed not invest, not buy houses, not get married, and live off 8 million savings at 10,000 a month, along with a not-so-demanding job. Not competing can be truly happy; long live lying flat.
The question is, can we really achieve "Japanization"?
The reason Japan could achieve "decline yet happiness" is that Japan stagnated from a position of being "one of the countries with the highest per capita income globally." After thirty years of stagnation, it remains one of the countries with the highest per capita income, coupled with huge foreign exchange reserves, which is why the Japanese government dared to expand government debt crazily to maintain the basic economic framework.
This is also our biggest problem. Our current per capita income and GDP cannot be compared to Japan's back then, and our aging population is similar to Japan's at that time—this is the issue of becoming old before becoming rich.
In this situation, rather than discussing whether we will "Japanize," we should first discuss how to avoid "Latin Americanization," which refers to intensified social conflicts leading to social unrest and the failure of all economic policies.
Latin Americanization
Latin Americanization refers to countries like Mexico, Argentina, and Brazil, which experienced rapid industrial growth but suddenly faced long-term stagnation after entering the middle-income phase. It appears similar to Japan, but the difference is that during economic stagnation, Latin Americanization is also marked by repeated debt crises, unstable regimes, and hyperinflation.
The biggest "chronic disease" of Latin Americanization is long-term large-scale inflation. In 2001, the exchange rate of the peso to the dollar was 1:1, but by April 2023, it had become 1 dollar to 163.80 pesos, with the black market reaching 1,000 pesos.
The most severe consequence of large-scale inflation is the destruction of a country's middle class, leading most people to fall to the bottom of society and widening the wealth gap. In the example at the beginning of the article, 8 million RMB now exchanges for 112,000 USD; if this standard depreciates, it may only exchange for 0.68 thousand USD in the future.
Hyperinflation, in essence, is the "indiscriminate plundering" of national wealth from citizens. Of course, the state is a concept; this wealth is actually transferred to a very small number of people who hold tangible resources.
Therefore, if we unfortunately "Latin Americanize," choosing to "lie flat" would result in the middle class falling back into poverty, leading to a very tragic future, where one lacks the ability to maintain the purchasing power of current wealth and cannot participate in the wealth transfer game. "Striving" may offer a glimmer of hope, but it is very difficult for ordinary people.
Why does Japan experience deflation while Latin America faces inflation, despite both being in economic stagnation?
I believe there are two main reasons: economically, Latin America did not make large-scale investments to achieve heavy industrialization before entering the middle-income trap, with a savings rate that is too low, relying on foreign investment. Once a global economic crisis occurs and capital flows back, there is no self-rescue capability. This contrasts with the three East Asian countries, which completed heavy industrialization at the beginning of industrialization, maintaining savings and investment rates above global levels.
More importantly, politically, Latin Americanization represents a failure of national governance, with the public lacking confidence in the government, leading to constant regime changes. Policies swing between extreme left and extreme right:
When the right comes to power, it promotes liberalization, attracts foreign capital, and widens the wealth gap. To balance revenues and expenditures, it cuts social welfare, causing public dissatisfaction, leading to the left coming to power, implementing social welfare policies, reducing poverty while regulating the economy, and expanding government spending, resulting in a new round of inflation, which again triggers public dissatisfaction, leading to the right returning to power... The country falls into a vicious cycle of public distrust and government shortsightedness and populism.
In contrast, under East Asian cultural characteristics, the Japanese can endure stagnant wages for thirty years and tolerate changing policies, experiencing three severe global crises, with significantly stronger trust and patience toward the government.
In this public mindset, the government has enough time during periods of balance sheet decline to try various monetary and fiscal policies, gradually finding a rhythm to stop deflation, control unemployment rates, and maintain basic production stability;
Additionally, the globalization of enterprises has also provided the government with sufficient fiscal and tax space to balance between improving social welfare and stabilizing the economy, ultimately emerging from thirty years of deflation this year.
Of course, the Japanese public's trust in the government is not unconditional. Prime ministers often become victims of ineffective policies, serving as buffers to alleviate public dissatisfaction, resulting in 16 prime ministers over 30 years. However, since the main government institutions remain stable, policies do not undergo drastic shifts between "extreme right and extreme left," preventing major social unrest.
From both East Asian cultural characteristics and the level of industrialization completion, China is more likely to Japanize rather than Latin Americanize. However, China has faced many issues in recent years: the advantages of latecomers have been exhausted, the demographic dividend has been used up, leaving only a small number of engineering dividends, extreme internal competition in manufacturing, and enterprises facing non-trade barriers abroad...
Of course, if the above issues can be resolved, there is still a possibility of Americanization—replicating the path the U.S. took to emerge from the economic recession of the 1970s.
Americanization
In the 1970s, the U.S. also experienced long-term economic stagflation—concurrent inflation and recession—mainly due to two oil crises leading to sustained high inflation, and the U.S. manufacturing sector faced comprehensive challenges from Japan and West Germany, resulting in a decline in competitiveness and a painful deindustrialization process.
The U.S. ultimately emerged from long-term stagflation through the power of technology, seizing the opportunity of the third industrial revolution of the 20th century, shifting the industrial structure from traditional manufacturing to information technology, finance, consumption, and high-end services.
To understand whether China will follow this path, one must first consider a question: The industrial structures of the U.S. in the 1970s and Japan in the 1990s share certain similarities. Japan, at the turn of the century, also faced the opportunity of the internet revolution. Why couldn't Japan seize it and emerge from long-term recession like the U.S.?
The rise of the U.S. technology industry is fundamentally due to the vitality of society; there is no excessive welfare, and the wealth gap has stimulated young people's entrepreneurial motivation. There are also mechanisms in place to maintain a certain degree of mobility across all social strata. This vitality attracts top global talent and capital into Wall Street, providing funding for various stages of development for tech startups.
In contrast, the decline of Japanese enterprises is largely due to government protection of large enterprises, which has led to complacency among Japanese corporations and prevented the most innovative Japanese small businesses from emerging.
In recent years, the seven giants driving the U.S. economy are all technology companies, with the oldest, Microsoft and Apple, originating from the Silicon Valley startup teams of the 1970s. Meanwhile, typical tech giants like IBM and Kodak have since declined. Technology is an industry that requires the new generation to push the old; protected large enterprises can only execute "catch-up strategies" and cannot fulfill the mission of innovation strategies.
Adjusting the industrial structure is very painful. Faced with the outflow phenomenon due to high manufacturing costs, there are two responses: one is Apple's approach, outsourcing manufacturing to reduce costs while focusing on high-value-added areas like R&D, design, and sales to maintain a leading position; the other is the Japanese approach, continuing "vertical integration" under the guise of protecting intellectual property, retreating to high-end markets based on temporary manufacturing advantages, while ceding mid- and low-end market shares to Chinese and Korean companies. Once the latter gains market and profit and increases investment in R&D, Japanese companies ultimately cannot even maintain their high-end market.
In the electronic information industry, Japan and the U.S. were not far apart in the 1990s, but now Japanese companies are not only far behind the U.S. but also lag behind some Chinese and Korean companies.
Many criticize the U.S. economy for being overly financialized and dollarized, leading to hollowing out of industries and sowing the seeds of future recession. However, this criticism applies even more to Japanese companies. During the yen appreciation phase, Japanese companies transferred production capacity overseas, and during the yen depreciation phase, they moved production capacity back domestically, hoping for internal upgrades while relying on currency fluctuations. This is one reason why Japanese companies' globalization has not brought the same competitive edge as U.S. companies.
When facing economic recession, Japanese companies also lack the "burning bridges" courage that U.S. companies possess. Japanese companies are terrifyingly conservative in their finances, often sitting on huge cash reserves without investing, improving employee benefits, or returning profits to shareholders, fully embodying a spirit of "surviving in chaotic times."
==The lost thirty years, Japanese companies have been deleveraging, and this conservative sentiment has also transmitted to residents, resulting in== ==a "low desire era" of low consumption and low investment== ==,== only the government is desperately leveraging, with the central bank directly buying half of the bonds and 5% of the stocks, barely maintaining the vitality of the entire economy. This is completely opposite to the thriving atmosphere of investment and consumption in the U.S. after the 1980s.
In this societal trend, individual choices cannot go against the tide of the times. Therefore, as mentioned earlier, the optimal solution for Japanese people during the "lost thirty years" is to "lie flat," while the worst solution is to "strive"—a few people fall into the fate of "the harder you work, the easier you fail."
Although Japan's economic recession began in the early 1990s, until 1995, most Japanese were still immersed in the dream of "Japan being number one in the world." Before the 1998 Asian financial crisis, many Japanese still believed this was just a short-term economic downturn, and many rushed to "bottom fish" in Tokyo real estate, thus burdening themselves with huge debts for life. For the next thirty years, they lived cautiously in fear of unemployment, a theme reflected in many workplace-themed Japanese dramas.
In contrast, "Americanization" offers the greatest opportunities to the most talented individuals. The optimal solution is to continue to "strive"; "lying flat" has become the worst solution.
The adjustment of the U.S. industrial structure, the rise of the technology information industry, and the outflow of manufacturing have lasted for a full 50 years, resulting in significant changes in income distribution across social strata. The new tech elite and the financial service culture in the tertiary industry have high talent requirements, while the blue-collar class in U.S. manufacturing has not benefited from economic development, suffering losses in globalization, with almost no increase in income.
In 1975, the average income of the top fifth of U.S. households was 10.3 times that of the bottom fifth; by 2019, this ratio had expanded to 16.6 times.
Many may not realize that many innovations are detrimental to vulnerable groups: the internet places those who are not good at finding information at a greater disadvantage; mobile payments leave those who cannot use smart payments stranded; quality education is unfavorable for children from poor families; many financial innovations can turn into scams for those without financial knowledge...
While innovative technologies may benefit society in the long run, in the short to medium term, they can render many traditional things worthless. The immense success of a few is often built on the loss of benefits for many, exacerbating conflicts among different interest groups in society. The various conflicts in American society today, with the left and right tearing apart national consensus, are directly related to decades of technological innovation and globalization.
Many people like to conflate national interests with personal interests. From a national perspective, one could say the U.S. is successful while Japan is failing; but from the perspective of personal happiness, it is hard to say that the average American is happier than the average Japanese.
Now let's look at inflation and deflation.
Some may ask, what if there were no 8 million?
The answer is similar: in the face of the country's great fate, your 8 million cannot change anything.
I previously wrote a public article titled "If you could choose, would you prefer inflation or deflation?," posing the question: Is inflation better or is deflation better?
Most people in the comments felt inflation is preferable, mainly based on past experiences, as most people are beneficiaries of economic growth.
In reality, inflation is the spear of the strong, while deflation is the shield of the weak.
While inflation may benefit everyone financially, this process often accompanies an exacerbation of wealth disparity, with most middle and lower-income groups suffering relative losses. Conversely, while everyone may incur losses during deflation, the faster decline in asset prices enhances the purchasing power of ordinary people, resulting in relative gains for most.
Of course, the premise is that society does not experience major turmoil. If it is "Latin Americanization," regardless of whether one is capable or not, whether rich or poor, the outcome is the worst. This is not alarmism; everyone should do their best to avoid this tragedy.
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