An Interview With Charles Goodhart

McAlvany Weekly Commentary

Inflation & Interest Rates Higher For Much Longer Aging Population Is A Paradigm Shift Your Best Investment Is In Skills For Your Children "Now, I don't see how the fiscal problems that we face can be met without a significant shift of taxation onto property. If that is so, then the valuation of housing will be cut back. And that means that until the tax rates have adjusted to a form which will make the fiscal system sustainable over the long run, there is likely to be reductions in housing and property prices. So, that's not safe either during this transitional period. The only safe asset is actually human capital itself, and the best investment you can make is in the skills of your children." —Charles Goodhart Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. Well, we talked about this last week, Dave. Our guest is Charles Goodhart. And I'll tell you, the thing that's fascinating and really encouraging to me is a man with the history that he has, literally monetary policy, Bank of England all the way going back to the '60s, is still sharp enough to be writing books that are really sharpening knives all around the country. I know that you love talking to people who stay engaged like Charles. David: It's one thing if you have a rule named after you. So, John Taylor, previous guest on the Commentary, he has rules named after him, but I think you're in a different stratosphere when you have laws— Kevin: When you have law. David: —named after you. So, perhaps Newton's Law qualifies Newton to be in that Masters of the Universe category. I think Goodhart's Law gets him pretty close. From '68 to '85, he spent time at the Bank of England. And then from '85 to 2002, Charles was an educator. He was teaching at the London School of Economics and taught both banking and finance. This is a wonderful opportunity to re-engage. We had a conversation with Charles a number of years ago, and today's conversation is based on The Great Demographic Reversal. Last week on the Commentary, we overviewed some of the main themes within the book, and today we dig into the details. * * * Charles, towards the end of the book, you summarize this way. "If favorable demography and rampant globalization was largely but not wholly responsible for the faster growth and much of the lower nominal variables, inflation, and interest rates over the last three decades, then it simply stands to reason that the next three decades will see lower growth and faster inflation and higher nominal interest rates than recently." That seems to be a decent summary of the direction you go in your book, The Great Demographic Reversal. Charles: Summary is fine. David: Okay, your two highest conviction predictions are, one, a significant rise in inflation will be an issue for a long time to come accompanied by wages. And two, you expect a rise in nominal interest rates. You also see an increase in productivity along with an increase in labor's share of the economy. So, let's dive into this thesis. Your thesis starts in China and continues there as an aging population reshapes the global economy. Connect the demographic glide path with those key economic impacts. Charles: Well, the birth rate is going down everywhere except for Africa, and going down quite sharply, which means that the working population, its growth is going to slow, and in many countries is actually going to fall. It has been falling in Japan now for about a decade. It is now falling, and falling really quite sharply, in China. It's beginning to fall in Western Europe and North America. The only thing that is holding the working population stable at the moment in North America and Europe is immigration. And immigration has actually increased more than we expected when we wrote the book. It's increased a lot since COVID was beaten. And one of the problems, the great uncertainties about the future,