The Great Demographic Reversal

Abstract

The rise of China and demography created a 'sweet spot' that has dictated the path of inflation, interest rates and inequality over the last three decades.But the future will be nothing like the pastand we are at a point of inflexion, accelerated by the Coronavirus pandemic.As that sweet spot turns sour, the multi-decade trends that demography brought about are set for a dramatic reversal.Many of our conclusions are controversial.Neither financial markets nor policymakers are prepared for a significant rise in inflation and wages, or a rise in nominal interest rates.Our other predictions are more benign -productivity will rise and labour will reclaim a greater share of national output, reducing the inequality that has led to so much social and political upheaval.Regardless of whether we are right or wrong, the effects of the 'Great Demographic Reversal' will be pervasive across finance, health care, pension systems, and both monetary and fiscal policies.Our book was written before the Coronavirus pandemic struck, but, as we add in a postscript, this latter will have the effect of accelerating the change in trends that we emphasize, especially the decline in globalisation, the resultant rise in costs and greater complications in handling explosive debt ratios.This view further magnifies our differences with most current mainstream analysis.We believe that the mainstream view of the longer-term future is plain wrong.Of one thing we are sure, the future will be nothing like the past. The Demographic 'Sweet Spot': How the Fundamental Forces of Demography, China and Globalisation Shaped Our Economies in Recent Decades The Rise of China…The single most important economic development over the years from 1990 to 2018 has been the rise of China and its integration into the global trading economy.Chairman Deng Xiaoping reversed Mao Zedong's disastrous policies during the 1980s by combining socialist ideology with an opening to pragmatic market economics, using the slogan 'socialism with Chinese characteristics'-that led to Chinas eventual inclusion in the World Trading Organization (WTO) in 1997.The integration of China into the global manufacturing complex by itself more than doubled the available labour supply for the production of tradeable products among the advanced economies (AEs).So we start the rest of this book with a Chapter on China.

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