The Great Demographic Reversal
Book Author: Charles Goodhart and Manoj Pradhan
Less population growth means less inflation. That seems like down-to-earth common sense.
Less population growth means more inflation. That’s the counter-intuitive conclusion explored in "The Great Demographic Reversal" by Charles Goodhart and Manoj Pradhan. Ever so slowly, the earth moves beneath our feet.
Whether you end up agreeing or not, the big value of their book is how it draws essential connections between demographic shifts and broad economic forces such as global growth trends, inequality, debt, taxes, and trade. The authors want you to see how a changing population can reorder the economic landscape we currently take for granted.
The book starts by setting the stage with a historical review of how demographics has dramatically and directly influenced key economic trends during the past 40 years. The combined integration of China’s and Eastern Europe’s working age population into the global economy starting in the 1990s and accelerating in the 2000s led to a substantial increase in global labour supply. In parallel, the US and many other wealthier nations had favourable dependency ratios (workers age 15-64 compared to dependents) plus benefited from an increase in the participation rate of women in the workforce.
But now, the demographic trends are turning. Both China’s and Eastern Europe’s labor booms have plateaued, and in wealthier nations the number of retirees is climbing relative to working-age individuals. Goodhart and Pradhan also highlight something not often discussed in macroeconomic models: the growing challenge of caring for an aging population. Dementia and related mental health burdens will affect not only care systems but also the workers who must support them, with a ripple effect across societies and economies.
All this adds up to a core conclusion: a lower global labor supply and more dependents could push wages and prices higher. In short, fewer people can mean more inflation.
The authors explore what might happen next. Increased tension between government leaders and central banks is likely to result in less central bank independence. Thus, while rising inflation may have upward pressure on nominal short-term interest rates, real short-term interest rates are expected to decline or even be negative, directly impacting the risk of holding cash. Over time, long-term bond yields are less likely to be forgiving of this structural shift in central bank policy. This will be directly linked to fiscal policy, as finance ministers will avoid the painful decisions of reducing government spending and instead prefer to use inflation to erode government debt. Of course, this approach may create other risks.
What if Goodhart and Pradhan are simply wrong? After all, Japan’s population has been shrinking for years, and Japan is known for deflation, not inflation. The authors counter this by arguing that Japan’s experience played out in a world with a rapid growth of global labor supply. Japanese companies could outsource and invest abroad to offset domestic labor shortages. In the coming decades, they argue, global conditions will not provide that alternative.
Could places like India, Nigeria, or other countries with younger populations supply enough new labor to offset the crunch? The authors do not see this happening at the global scale we need.
What about technology replacing workers? They believe technology will complement rather than fully substitute human labor, especially in service sectors like healthcare where human interaction is a core part of the job.
The authors finish off by exploring the possible risks of a debt trap, some possible policy recommendations, and adding a pandemic postscript.
Why I Recommend This Book
Demographic trends are like tectonic plates shifting beneath our feet. We barely notice them in a single year, but over decades they set the contours of our world. “The Great Demographic Reversal” asks us to step back from day-to-day headlines and look at the slower, deeper currents shaping the future.
I don’t fully agree with all their conclusions or policy prescriptions. Still, I’m grateful for their clear and detailed point of view. If they’re right, the next few decades will deliver many surprises to those who dismiss demographics as dry statistics. Even if they’re off on some points, their argument serves as a crucial reminder that many core assumptions of the economic system during the last 40 years may not hold.
It’s easy to give credit or lay blame at the feet of central bankers, politicians, or CEOs, especially as economic conditions shift. But this book reminds us that some forces are larger than individual decision-makers. In the face of these structural shifts, we can still choose how we respond at the personal and local level. The decisions we make about our careers, savings, investments, and the communities we support will influence how we adapt, even if we can’t singlehandedly reverse a demographic tide.
Less population growth means more inflation. At a minimum, it makes for an interesting conversation starter. Understanding these slow-moving demographic shifts won’t give you direct control over the future, but it can help you navigate it more thoughtfully and perhaps even bend the future in a better direction.
