Demography and Populism

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Presentation transcript:

Demography and Populism Congres Grip op je Vermogen Den Haag, 7 Oktober 2016

Menu of the day Secular stagnation and interest rates … and the introduction of the pill Implications for: ECB policy and EU Pensions Your portfolio World trade and populism

A quiz Five statements You know an example of a Bubbly Asset? ECB policy is doomed Interest rates will soon get back to normal Lower Sovereign Debt solves the Debt Crisis Ageing societies need funded pensions Bubbles are bad You know an example of a Bubbly Asset?

Fall in real interest rates

What is the role of demography?

Savings and the life cycle wealth 6 annual salaries 25 65 80 age Large cohorts! Small cohorts

Expected effect on German real interest rate

Japan preceding the Euro-zone? 1970’s: fastest growing economy in world Would it overtake the US? Real estate crisis in 1990 Deflation and low interest rates Bankruptcy life insurance companies Low growth Response: very high sovereign debt Was Japanese policy response a success?

Japan’s real interest rate http://angrybearblog.com/wp-content/uploads/2014/04/japan-real-int.png

Further analysis Taylor rule: hence, lower interest rates ZLB problem Plea’s against ECB policy equivalent to a minimum wage on capital market Monetary policy to its end, hence: fiscal Large savings surplus: cheap funding! No inflation: relatively cheap equity

House price in Britain

... and France

What about Germany?

Remedies No regret: Structural reforms Good for growth anyway Boost investment, hence helpful for I = S Higher inflation target ECB: 2% to 4% Evidence shows higher inflation harmless (Barro) Raise the retirement age! Reduces savings Extend PAYG social security systems!

Discontinuity in world trade source: CPB, BCG

Declining support for globalisatioin Article Summers in FT Strong evidence: it is the economy, stupid! Autor for US Brexit Early on: Schram/Van Riel: Germany in 1930s Trump, Le Pen, AFD, Wilders Strongly related to city versus country side

Land rents versus level of education Table 1 Contribution of various characteristics of the log construction index h Land rents versus level of education

Possible responses Better distribute the benefits of globalisation Remarkable: Strong spatial seggregation, nevertheless Netherlands only exception to increase divide Better social security, in particular for elderly Better access to education Higher wages! At the same: adjust to it