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

by Charles Goodhart

You might think that the requirement that the public sector has to run a deficit to maintain macro-economic balance would be celebrated as a ‘good thing’, a chance for more public expenditures and less taxation. But this has not been so. Historically, continuing deficits on the scale of the last two decades (see Diagram 5.10) have only been observed in wartime and have often required a combination of both persistent austere fiscal surpluses and (unexpected) inflation to tame. For peacetime, the scale and level of public sector deficits and debt has now become unparalleled after the GFC. What is worse is that the extrapolation of current trends for income and for the support of the old, as evidenced by the longer-term projections of the Congressional Budget Office (CBO) in the USA and the Office for Budget Research (OBR) in the UK, show that the debt ratio is likely to rise at an exponential rate,