Charles Goodhart takes care of his wife Margaret, sick with dementia, the hours go by. “It takes a long time, a lot of emotional energy,” he says sitting in front of the screen in his London home, a crowded library behind him. Contrary to what might be thought, the proximity to the 85-year-old threshold has not made this economist a carefree man towards the world to come. Senior position in the Bank of England for almost two decades and professor for 17 years at the prestigious London School of Economics, last summer he published The Great Demographic Reversal —No edition in Spanish—, a work in which he defends that the aging of society will bring inflationary pressures, rate hikes by central banks and difficulties in sustaining pensions and the expensive system of care for the elderly, but also less inequality. When he is not paying attention to his spouse, Goodhart immerses himself in the media and academic debates opened by the book, co-authored with Manoj Pradhan – with whom he coincided at Morgan Stanley – or reads and studies current affairs. “I’ve rarely been busier than now,” he says.
Foresight exercises are not always well regarded. The report Spain 2050 He received criticism from the opposition to the Government for looking to the future with the country still mired in the eye of the pandemic hurricane. Goodhart does not see daily management incompatible with turning on the high beams. “I don’t think it’s good to ignore longer-term trends, especially when they are changing.” The document prepared by the Spanish experts mentions the term aging 60 times, but the profusion of monthly data on growth, debt or inflation sometimes makes us forget the power of the demographic phenomenon in the economic equation.
In full escalation of life expectancy – despite the interruption caused by the shock of the pandemic – when the word aging comes to the fore, the first thought turns to how pensions will be paid, and increasingly, the concept of intergenerational justice is gaining ground. Is the future of young people being mortgaged? “The intergenerational debate will change shape. It now relies heavily on housing because its price has risen so sharply in many countries. And unless your parents are relatively wealthy and you inherit a house, if you are young and have no parental support, it is extraordinarily difficult to climb the real estate ladder because the entry is so expensive, ”Goodhart reflects.
But that concern will change to another: “the elderly require a lot of public support. Medicines, care, pensions … And with more elderly and fewer young people working, the only way to sustain the current level of benefits and medical support for the elderly is to raise taxes on the young. They are going to face much higher taxes on their income and consumption, and they are not going to like it. So the intergenerational debate is going to revolve around the generosity of supporting the elderly through taxes ”.
But as Goodhart explains, the derivatives of aging go much further, and some of them may even have a positive reverse. “It will bring a decrease in inequality because there will not be enough workers. Globalization and the demographic boom of the last 20-30 years led to a huge increase in the supply of available labor around the world. It more than doubled over the course of about 25 years. Nothing like this has ever happened. Any employer could shift its production from high-wage factories to low-wage economies. From places like the United States, France or Spain to others like China and Eastern Europe. Now that’s changing very quickly because the working-age population in China is starting to decline. “
The Chinese Government has seen the ears of the wolf. Just over two weeks ago it announced that it will allow married couples to have three children to alleviate the aging of the population. “Beijing is starting to freak out about its demographic future. And that will happen all over the world. The lack of workers will raise wages because they will have more bargaining power. And if there is no tightening of fiscal policy, which is unlikely for political reasons, and central banks raise rates to curb inflation, asset prices will fall, and with them the income of the richest. So the most precarious workers will benefit and the richest, who have had two or three absolutely wonderful decades, will have things a little more difficult. “
“The big problem is aging, not covid”
Talking about a lack of workers in Spain, the country with the second highest unemployment rate in Europe after Greece, may sound implausible. But the global market is much larger. And the Chinese demographic dividend, the one that has allowed it to cement its economic development on a young, abundant and cheap labor force, is increasingly in question despite the 1,411 million inhabitants of the Asian giant. Goodhart is not sure that allowing a third child is going to be a panacea. “Before the 1960s, the birth rate depended on how many times a couple had sex. Now there is planning. Before the elderly depended on their children to support them in their old age, now people see them as an expense rather than a barrier against poverty. There is no reason to believe that simply allowing women to have more children will encourage them to have them, although it can help end gender distortion by persuading more women not to abort even if their first child is a girl. “
There will be sectors and countries that are saved from burning. Tourism, nursing homes or the pharmaceutical industry have, in principle, nothing to fear from this phenomenon. Neither are continents like Africa and countries like India, with a very young population. The case of Nigeria is especially striking: according to the UN, it will double its population in 2050, over 400 million inhabitants, more than the US will have. Can it help to relieve the old West? The British economist believes not. “The identity concerns that sparked Brexit and Trump’s victory are going to prevent mass immigration. The other option would be to bring the capital and the factories there, but the problem is whether the African countries have sufficient administrative capacity, good governance, and trained personnel ”.
For Goodhart, “the big problem facing the world is aging, not covid.” And how it will disrupt our way of life is probably undervalued. “There will be fewer and fewer people working and more needing help. When I talk to a group of students I usually tell them that they will have to work until they are 70 years old, and surely beyond that age. Ideally, medicine would find a way to deal with neurodegenerative diseases, we would all live fit and happy until we were 100 years old and then everything would end more or less quickly, but we already know that we cannot count on that ”.