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

by Charles Goodhart

overall growth and total hours worked will slow down as ageing advances (which we can see because β3—which represents the coefficient on the aged profile of the population—is negative for growth and even more so for total hours worked); both the proportion of young and old are inflationary for the economy—this can be seen clearly by the coefficients for inflation of β1 and β3; and both the investment and the personal savings ratios fall thanks to demographics—as seen by a negative value for β3 for both investment and the personal savings ratios. These conclusions fit with our own thinking about the effects of demographics, in that: Growth is the first and most obvious casualty, with a decline in overall growth; and total hours worked will inevitably fall. However, human happiness depends on many other factors besides per capita gross domestic product. So, a slowdown in growth does not necessarily imply an equivalent reduction in overall happiness; Both higher proportions of young and old are inflationary, and it is only the working cohort that can be deflationary for the economy. Both of the former are net consumers and it is only the latter cohort that can offset the demand for goods and services by producing those goods and services; and Both the investment and personal savings ratio will decline, though we add (as we previously have) that we believe savings will fall faster than investment.