The heavily taxed Swedes reportedly are among the world’s happiest people. Their cheerful disposition may arise from knowing the Swedish social security system offers real protections from life’s worst hardships. In contrast, the more gloomy Japanese worry their pay-as-you-go public pension system, never designed for people to live much past 70, is unable to support them in retirement. To end the fear, the government must place comprehensive social security reform at the top of the political agenda.

National governments can afford to give citizens generous pensions so long as growth and population rapidly expand. But when growth slows and population declines — as in Japan’s case — the infinite Ponzi scheme ceases to work. “Then the government must claw back the pensions of those already retired, tell those nearing retirement that their pensions are smaller than promised or tell young people paying into the system that they will not receive back the same amount they put in over their lifetimes,” explained economist Takatoshi Ito, now at Columbia University. Such worries underpin Japan’s deflationary mindset.

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