Why economics needs to wake up to ageing populations

Why economics needs to wake up to ageing populations

Economics generally pays surprisingly little attention to demography, even though the ageing and shrinking of the population in so many parts of the world is a striking and new phenomenon in human history.

Take Italy. Last year the country recorded the smallest annual number of births since the Risorgimento of the mid-19th century and nearly a third of its population is over 60.

There has been an absolute decline in the number of people in Italy since 2015, even accounting for net inward migration.

It is an extreme case, but the rest of the west, most of eastern Europe and China will follow. Yet in economics, humans are abstracted as “labour input”, substitutable by machines, while demographic trends occur beyond the time horizon of macroeconomic models.

The implication of modern economic growth models — that the real growth rate clearly depends on the number of workers, either through the ideas in their heads or the skills they deploy — is little discussed. So The Great Demographic Reversal by Charles Goodhart, a respected academic, and Manoj Pradhan, a former managing director at Morgan Stanley, is a welcome exception.

Source: Financial Times