Japan's economy works better than pessimists think—at least for the elderly.

　　THE Japanese say they suffer from an economic disease called "structural pessimism". Overseas too, there is a tendency to see Japan as a harbinger of all that is doomed in the economies of the euro zone and America—even though figures released on November 14th show its economy grew by an annualised 6% in the third quarter, rebounding quickly from the March tsunami and nuclear disaster.

　　Look dispassionately at Japan's economic performance over the past ten years, though, and "the second lost decade", if not the first, is a misnomer. Much of what tarnishes Japan's image is the result of demography—more than half its population is over 45—as well as its poor policy in dealing with it. Even so, most Japanese have grown richer over the decade.

　　In aggregate, Japan's economy grew at half the pace of America's between 2001 and 2010. Yet if judged by growth in GDP per person over the same period, then Japan has outperformed America and the euro zone (see chart 1). In part this is because its population has shrunk whereas America's population has increased.

　　Though growth in labour productivity fell slightly short of America's from 2000 to 2008, total factor productivity, a measure of how a country uses capital and labour, grew faster, according to the Tokyo-based Asian Productivity Organisation. Japan's unemployment rate is higher than in 2000, yet it remains about half the level of America and Europe (see chart 2).

　　Besides supposed stagnation, the two other curses of the Japanese economy are debt and deflation. Yet these also partly reflect demography and can be overstated. People often think of Japan as an indebted country. In fact, it is the world's biggest creditor nation, boasting ¥253 trillion ($3.3 trillion) in net foreign assets.

　　To be sure, its government is a large debtor; its net debt as a share of GDP is one of the highest in the OECD. However, the public debt has been accrued not primarily through wasteful spending or "bridges to nowhere", but because of ageing, says the IMF. Social-security expenditure doubled as a share of GDP between 1990 and 2010 to pay rising pensions and health-care costs. Over the same period tax revenues have shrunk.

　　Falling tax revenues are a problem. The flip side, though, is that Japan has the lowest tax take of any country in the OECD, at just 17% of GDP. That gives it plenty of ro​​om to manoeuvre. Takatoshi Ito, an economist at the University of Tokyo, says increasing the consumption tax by 20 percentage points from its current 5%—putting it at the level of a high-tax European country—would raise ¥50 trillion and immediately wipe out Japan's fiscal deficit.

　　That sounds draconian. But here again, demography plays a role. Officials say the elderly resist higher taxes or benefit cuts, and the young, who are in a minority, do not have the political power to push for what is in their long-term interest. David Weinstein, professor ​​of Japanese economy at Columbia University in New York, says the elderly would rather give money to their children than pay it in taxes. Ultimately that may mean that benefits may shrink in the future. "If you want benefits to grow in line with income, as they are now, you need a massive increase in taxes of about 10% of GDP," he says.

　　Demography helps explain Japan's stubborn deflation, too, he says. After all, falling prices give savers—most of whom are elderly—positive real yields even when nominal interest rates are close to zero. Up until now, holding government bonds has been a good bet. Domestic savers remain willing to roll them over, which enables the government to fund its deficits. Yet this comes at a cost to the rest of the economy.

　　In short, Japan's economy works better for those middle-aged and older than it does for the young. But it is not yet in crisis, and economists say there is plenty it could do to raise its potential growth rate, as well as to lower its debt burden.

　　Last weekend Yoshihiko Noda, the prime minister, took a brave shot at promoting reform when he said Japan planned to start consultations towards joining the Trans-Pacific Partnership. This is an American-backed free-trade zone that could lead to a lowering of tariffs on a huge swath of goods and services. Predictably it is elderly farmers, doctors and small businessmen who are most against it.

　　Reforms to other areas, such as the tax and benefit system, might be easier if the government could tell the Japanese a different story: not that their economy is mired in stagnation, but that its performance reflects the ups and downs of an ageing society, and that the old as well as the young need to make sacrifices.

　　The trouble is that the downbeat narrative is deeply ingrained. The current crop of leading Japanese politicians, bureaucrats and businessmen are themselves well past middle age. Many think they have sacrificed enough since the glory days of the 1980s, when Japan's economy seemed unstoppable. Mr Weinstein says they suffer from "diminished-giant syndrome", nervously watching the economic rise of China. If they compared themselves instead with America and Europe, they might feel heartened enough to make some of the tough choices needed.