The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival

by Charles Goodhart

The rise in income and wealth inequality, and the slow rate of growth of real wages among the less skilled, had led an increasing proportion of voters in many advanced countries to lose faith in their political institutions, and to believe that the elite has ceased to care about them. For the first time since World War II, many, perhaps most, of the populations in our countries do not see any strong likelihood of an improvement in either their or their children’s economic well-being over future decades. For this bleak outlook, they largely blame globalisation and competition from abroad, including the offshoring of manufacturing production, competition from immigrants taking up unskilled jobs in their own countries, and the failure of the elite to respond to their concerns. The result has been a rise in political populism and a crisis of economic liberalism. There was no political backlash before the GFC in 2008 because rising inequality within countries was offset by the general economic well-being of these years, often described as the ‘Great Moderation’. Indeed, in many ways, these were the best 15(plus) years for general economic success in the history of the world. Growth was steady, unemployment was low, inflation was stable and more people taken out of poverty than in any prior equivalent period.