The last four decades have seen continuous disinflation, falling interest rates and rising (within-country) inequality. It is normal for most people to extrapolate the present into the future, ‘lower for longer’, but it is wrong to do so. In their new book, The Great Demographic Reversal, which they will talk about at this event, Charles Goodhart and Manoj Pradhan ascribe much of these past disinflationary trends to globalisation, especially to the stunning rise of China, and to the rising number of workers and ratio of workers to dependents – a demographic ‘sweet-spot’ – as the fall in the number of young outdistanced the increased number of retirees.
But both of these forces are now starting to reverse and so will, in turn, past disinflationary trends. The main counter-argument is Japan, which has aged but not inflated. But Japan’s ageing occurred when the rest of Asia was flooded with available labour, and Japan’s industry off-shored to maintain competitiveness. Meanwhile debt ratios, almost everywhere, both in the public and private sectors, have escalated, especially now with the COVID-19 crisis, and this will cause politicians to pressurise central banks from raising interest rates. The result will be slower growth, owing to a slower-growing workforce, inflation and a steeper yield curve.
Charles Goodhart was the Norman Sosnow Professor of Banking and Finance at the London School of Economics and Political Science until 2002; he is now an Emeritus Professor in the Financial Markets Group there. Before joining LSE in 1985, he worked at the Bank of England for seventeen years as a Monetary Adviser, becoming a Chief Adviser in 1980. During 1986, Goodhart helped to found, with Mervyn King, the Financial Markets Group at LSE, which began its operation at the start of 1987. In 1997, he was appointed one of the outside independent members of the Bank of England’s new Monetary Policy Committee until May 2000.
Manoj Pradhan is Founder of Talking Heads Macroeconomimcs. Prior to this, he was most recently Managing Director at Morgan Stanley. He joined Morgan Stanley in 2005 after serving on the faculty of the George Washington University and the State University of New York. While at Morgan Stanley, Manoj worked on quantitative macroeconomics, emerging markets and global economics. He has a PhD in economics from the George Washington University and a Masters in Finance from the London Business School.
Simeon Djankov (@SimeonDjankov) is Co-Director for Policy and Research Fellow at the Financial Markets Group, LSE. He was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. Prior to his cabinet appointment, Djankov was Chief Economist of the finance and private sector vice presidency of the World Bank.
The Financial Markets Group Research Centre (@FMG_LSE) was established in 1987 at the LSE. The FMG is a leading centre in Europe for policy research into financial markets.
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The Great Demographic Reversal can be bought directly from Pages of Hackney by clicking here.
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