Demographic decline, end of growth, and the euthanasia of the capitalist class: macroeconomic dilemma for the three East Asian economies

China, Japan, and South Korea are expected to experience large and sustained decline of population between now and the end of the 21st century. By the second half of the 21st century, the East Asian economies’ per capita real GDP growth rates will be unlikely to offset their projected population decline rates. Zero or negative economic growth would lead to a major macroeconomic dilemma. As private net investment collapses, private net saving will have to be absorbed by government deficit. The combination of large government deficits and zero or negative growth will result in explosive growth of government debt-GDP ratio with destabilizing political consequences. The dilemma may be resolved if the government decides to invest in revenue-generating productive assets. Revenues from a large stock of state-owned assets can help to reduce or eliminate government deficits. Moreover, if private net investment stops and only the state sector makes new investment, eventually the state sector will own most of the means of production creating the economic conditions required for a new economic system.