How Demographic Changes Will Affect Your Portfolio - With Manoj Pradhan - Talking Heads Economics

welcome back to patrick boyle on finance today i'm interviewing minoj pradhan on the topic of demographics and what this means for investors and financial markets minos studied with me at london business school and just published his new book called the great demographic reversal along with former bank of england monetary policy committee member charles goodhart demographics is the study of population and the breakdown of factors such as age race sex and socioeconomic groups and what's of great interest from a finance point of view is how these factors can play a major role in the great trends that drive economic performance and investing outcomes minoge is a former university professor who went on to become the global head of economics at morgan stanley which is the world's leading investment bank before founding talking heads macro a few years ago minoj is a regular contributor on cnbc bloomberg television and basically all of the other financial news networks that you have heard of we're very lucky to have him here on the channel today he advises a number of the really the top macro hedge funds out there in fact i want to be able to give some of the names of the the funds that he advises but that's all confidential but you have to trust me that it's a it's a very impressive list minos has probably had the best record out there in terms of his predictions over the last couple of years so his advice on economic and monetary policy trends is very much in demand right now as i'm sure you can imagine menos is the go-to expert on the topic of population demographics and in his new book he explains how a huge demographic change is occurring right now in the developed world which will affect every area of the investment landscape in the coming years i'm going to put a link to his book in the description below for those of you who would like to check it out on amazon it is great to have you here minoj and we'll kick off the interview with minogue telling us about his new book we've just released uh this book it's been published by palgrave macmillan a few weeks ago and it's called the great demographic reversal and we talk about aging societies uh the subtitles uh waning inequality and an inflation reversal and uh it's it's broadly about i think the the the huge turnaround and demographic forces that are coming not only in the advanced economies but actually to every single large economy that has been primarily responsible for delivering growth and i think the the effects of that are are very counter-intuitive uh and really not what markets are pricing and right now uh and i think i think that's why the book uh was important to write we enjoyed writing that a lot well i guess to start with can you tell me what has the demographic story been leading up to now and how it's changing or how is it changing sure i mean you know it's it's it's it's been a story that has delivered a consistent performance over the last 30 or 35 years um and and you can you can think there are two parts of the story which created what we call a demographic sweet spot right and the first one which people usually give a lot of lip service to but don't really integrate into their analysis is the rise of china and it's not just china's gdp growth it's not just their credit growth when you think about the labor force the labor force of china slowly got integrated into the global economy and the global supply chain since about 1990 and particularly since the wto accession in both the us and the world and when you add eastern europe along with that it represents an almost hundred and twenty percent increase in the workforce of the advanced economies now mind you the advanced economies themselves were going through this uh profound change after the baby boomers uh where their workforce was expanding as those uh those children during the baby boom time started entering the workforce so on the one hand you had china and eastern europe entering uh the the global labor market and at the same time you had the working age population of the advanced economies expanding and so what economists call the demographic dependency ratio which is a ratio of the young and old divided by the number of workers was actually falling down quite a lot and that meant the workers were able to support the dependence and the economy to a much larger extent and produce a lot as well so when you put these two together i think they created what we call in the book a one-time historical shock to labor supply which created persistent effects over the last 30 or 35 years and i guess labor being a factor of production just means if there's more of of given factor of production there's more production and i guess equally consumption right absolutely um but it also created a couple of other uh you know substitution effect kind of stories right so for example one of the things that people have talked about a lot is that companies are not really investing and this is a story that has even played out in the last 10 years after the financial crisis into this pandemic right one of the problems was that the corporate sector just doesn't seem to be investing and from their point of view you can see it if labor is cheap it's abundant and you can offshore a lot of these lower end activities to places like china and emerging markets which are doing it for a tenth of the price then you protect your profitability so that created also these perverse incentives not to invest in the business and if you look at it from the economics side that meant that you don't really invest a lot you employ a lot of people which means productivity falls and that has created all kinds of problems uh over the last uh 30 or 35 years as well now when you say productivity false does that is that essentially that you're bringing on maybe more unskilled workers and thus you know while you're employing a lot of people they're less productive than skilled workers is that what that means or no it's a it's it's a good question it's a little bit of both so what happens is you get um you get a lot of the lower uh level activities being shipped off to emerging markets where they can be done very well and what that implies is that the lower skilled workers and the advanced economies tend to be far more in the line of fire and an economic downturn so their jobs become that much more fragile their incomes don't rise as much so you get this widening gap in the advanced economies which has been inequality and the huge uh and rightly so you and cry about that story has been laid at the feet of globalization mind you that hasn't been bad for emerging markets so the classic story is the inequality between countries has actually improved a lot where emerging markets have caught up particularly china and india have done very well but within the advanced economies because of this global play the inequality story has gotten a lot worse what has added to it the inequality has fallen globally if you look at everyone there's less inequality but in developed economies there's greater inequality yes that's exactly what's happened and what's what's added to the problem is that you know you think about just the basic concept right you add such a huge number of workers uh into the global economy and the cost of labor is going to fall you you offshore a lot of these processes to emerging markets and and and the inflation story also tends to become a lot softer and so that has had a plus and a negative effect number one is that real wage growth or wage growth adjusted for inflation in the advanced economies really hasn't gone anywhere so most of the improvements that we've seen have accrued to capital that's been one part of the story but the second also is that you know people who are borrowing money have enjoyed an unprecedented boom because interest rates have been falling for the last 30 or 35 years and it's no surprise that we've seen house prices going up because if the cost of borrowing is falling in an economy which is consistently growing and showing uh you know improvements in employment over that period you have jobs you have enough money and the cost of borrowing has gone down to an extent where you think well you know this is an affordable situation for me so portfolios have done well house prices have done well interest rates have fallen and and in many ways we've had a very sweet situation because falling inflation has kept the pressure of almost anyone attributing a lot of that to central bank success but we think in the book what we're trying to argue is a lot of that if not everything is due for a change and an abrupt reversal now one more thing i wanted to ask you about is the ages of these populations because you you mentioned like a lot of the asian economies as i recall they have much younger work forces right then then we'll say the united states and in particular places like japan yes i mean you know that there is a split i mean the the funny split is is twofold one along the lines that you mentioned where the southern part of asia is not going to see as much aging so if you look at places like india and indonesia the dependency ratio again you know the ratio of the old plus the young divided by the number of workers which kind of talks about how much can your labor force support the entire economy of those who can't work those dependency ratios for places like india and indonesia latin america and particularly uh africa are going to become headwinds for growth only after 10 20 30 40 years so a lot of places have very young population compared to the advanced economies compared to germany compared to china compared to japan but what changes i think is that these are not the economies that are generating the bulk of global growth at the moment right so all the places that are responsible for contributing to global growth in a big way right now are seeing that dependency ratio rise and one quick thing to keep in mind also is the the the problem of aging or the story of aging is being complicated by one really important factor which is the age into which we live so the the age expect life expectancy has gone up so long that a large number of the increase among the elderly is going to be of what we call the oldest all so it's not the people in the 60s and the 70s it's people in the 80s and the problem with that is when you move from 60 to 70 the the incidence of dementia increases fourfold when you move from 70 to 80 the incidence of dementia increases another fourfold so as you get into much much much older population the need for caring for a lot of these people who are living much longer lives suddenly takes on a huge amount of a labor force that is already contracting so you multiply that problem of demography and an agent population by taking some of the people who are young and could work in the economy into looking after the elderly i i was kind of uh joking the other day we shouldn't be concerned with who the next president is in the united states we should be concerned with who their carers are because that's gonna be a charge it is it is a fascinating time because i think also you're you're you're hitting upon a point there as well i mean there's a lot has been made about the fact that both candidates are on the older side but also what's important is uh an increasing block of the voters are older and you know i mean just putting it mildly the elderly don't go out with molotov cocktails right they go and vote so try try turning the benefit system or the pension systems in a way that is adverse to their demands and you'll just be voted out of power it's a very very very powerful block uh which will make sure that the spending on pensions the spending on health care benefits and so on and so forth become a huge part of a growing problem that we really haven't taken on board us so far how do you expect with this change in demographics how do you expect this to affect the investment landscape um you know things like inflation interest rates and you know stock performance things like that well i i mean i think in a very profound way so you know it's impossible to have all of the puzzles fitted in right now because things will change as we go along but at the moment our highest conviction view is that inflation will rise uh and that by itself if you look at what financial markets price in through what we call forwards right the the forwards give you um what future interest rate uh interest rates look like if you look at 10-year rates 20-year rates 30-year rates they're all extremely flat on the assumption that democracy is going to lead to slower growth and that slower growth is going to lead to lower inflation which by the way is what happens in a cycle but this is not a cycle story it's a structural story which we can talk about shortly but financially speaking i think the the very fact that interest rates are very likely to rise much higher than most financial markets are looking at means for equities the valuations become that much more difficult right if their discount factor is is rising uh then what you deliver in the future is going to have to the cash flows are going to have to rise as well which means equity performance becomes an important thing and particularly if growth is slowing and that is very true because as you said it's a factor of production and so if the factor of production uh is shrinking you have to work really hard to deliver growth so while many people think that technology is is a problem for our story in fact we depend on it and if you want equities to do well you're going to have to start picking up stocks which are really trying to do the task of labor in an efficient way and trying to raise aggregate productivity in the economy because just holding a portfolio of an economy if aggregate productivity isn't going up is not going to compensate you with returns of inflation is rising now the good news is productivity is going to go up right i mean when you think about it if you've got fewer workers who are becoming more expensive then you will tend to try and replace them as much as you can when the opportunity is right with machines which means the capital to labor ratio should rise and overall that may protect the few people emerging markets will do very well because they never had the capital so there's no real capital destruction through this new wave of technologies so you've got a portfolio that really has to ask the right questions you know how is how is the economy dealing with the wave of elderly that that is that is coming onto their doorstep how are they dealing with productivity and how are they trying to deal with debt inflation and interest rates you put that together and that that's the story that will start giving you answers to a better portfolio and investment thesis well it's an interesting thing that if if you're predicting higher interest rates higher interest rates at least a period of rising interest rates is not good for bond investors because if rates go up bonds go down um rising interest rates aren't good for equity investors rising interest rates aren't good for homeowners like if you want to invest in real estate the person who buys it from you will not be able to borrow as much because the high interest rates and thus you might expect the the value of homes to come down so it it becomes a much more challenging investment environment than uh than the period that the boomers lived through oh dramatically so and that's the problem with this uh with this uh dramatic turnaround and we think that's part of the reason that people don't really want to think about it too much subconsciously we don't want to hear news that more challenging times are coming but when they're upon us it's really hard not to acknowledge that times are hard so for the last 30 years you've had a bull born market because growth has been going you've you've seen equities do extremely well central banks have been treated like rock stars um and everything has been hunky-dory the boat has started rocking a little bit since the financial crisis but even in the aftermath of that we had no inflation and that has led to an increase in the in the demand for theories like modern monetary theory which say look just issue debt as much as you want and you really don't have a problem as long as it's issued in your own currency but if inflation starts rising and interest rates start rising then you get all kinds of complicated questions servicing debt is hard not just raising debt so the existing stock of debt is going to require some pretty serious answers about how to deal with it debt forgiveness is an important one how you deal with is absolutely critical equity returns are not going to be easy that means you're going to have to really deliver cash flows as i said in the future and when it comes to housing i think you'll also see constraints on house prices rising which means you won't see construction booms very easily now one of the places as i mentioned that can deal with rising interest rates is emerging markets because you see the returns in those economies can be high but again for the last five years emerging market growth uh interest rates have been terrible because the rate of return in their economies has gone down too so i think wherever you look there's a period of really hard work that's ahead of us and the easy pickings of the last 30 or 35 years that many of us have gotten used to i think we'll have to leave those behind and really earn our money in the investment horizon so should we if if the investment world is going to be more challenging going forward what about wage growth like should should younger people expect to see wage growth which hopefully will make up for the difficult uh investment environment yes that that's that's one of the compensating factors and that's why i keep mentioning that productivity has a much better profile ahead because without rising productivity if you've got a labor force that is shrinking it would not be clear that wages would go up but if productivity rises because firms have an incentive to replace workers of one kind with machinery which in turn will give rights to other opportunities so on and so forth typically speaking they are able to protect their profitability and pay people a certain increasing wage rate okay if you want to think about it another way i mean think about how we're going to pay for health care right partly uh you're gonna have to pay for health care by taxing the people who are working partly the case right partly you'll pay for it with inflation so on and so forth but when you tax the people who are working it's not like they have no say in this at all and they're not really worried about what you get on that paycheck if a large part of it is going to get taxed away they are interested in what you pay them after taxes yes so the after tax wage is going to see upward pressure because of the bargaining power of the working class and that will protect their wage rate and put it in line with productivity growth so you get some offsetting of these portfolios for an individual investor but you also get better opportunities uh working in in the labor market because your wages are protected to a larger extent now how should things a lot of the viewers of this channel are in the kind of 20 to 30 year old age group the kind of i guess kind of they call them generation y and the millennials uh how should things work for them because obviously the millennials got off to a difficult start you know joining the workforce during the financial crisis and that was a difficult start and then we see uh the coronavirus issues right now how should things go for them going forward actually your viewership has increased since you started the channel uh my son who's in his teens is also watching it quite avidly now he really enjoys it so i i don't know if you should stick to the 20s to 30s demography cohort it's got a wider range than that but but the point you're making is is is an important one in fact uh in the book uh we also spend a little bit of time saying how their behavior has changed things the fact that a lot of them find it absolutely okay to stay at home where you know 20 or 30 years back it used to be a question mark about why you haven't left home after you're 18. today it's completely fine um staying on with your with your family and in fact everyone benefits is that entire story but what that does for the the bank of mom and dad is you get a lower you get a smaller period of time because you're partly financing their lifestyles uh you get a smaller period of time to save for your retirement so by the time you get for your retirement there is pressure on you as well so it's not just that the the young are relieving some of the pressure on themselves with no cost they are branching out later on in life but there is there is a little bit there is a little bit there to be said about their role because what happens is there are two factors to look at one is housing and i always talk about housing because for an individual investor usually the largest amount of wealth they have hidden in their portfolios is the house that you're living in so so we need to think about and the comment you made about house pricing is very important uh what happens is survey after survey has shown that the elderly do not like to move now one of the main reasons i started this business because um i wanted to spend a lot more time with my dad and and with my family and my father does not even like sleeping in a separate room from the one he's used to so those overnight trips he's in his 80s those overnight trips that we used to make to relatives and friends houses they're all a thing of the past in a very similar way there's enough data that suggests that the older you are the more reluctant you are to move so what happens is the stock of housing unlike the stock of capital goods or restaurants or office spaces is not flexible along with uh technological change in population growth so what you see on the high street is all the retail stores are closing at a much faster rate and they're being replaced with services restaurants and cafes and that simply means that uh you're you're really going to see a transformation of the high street but when it comes to the housing market the stories are slightly different and the stories are different in the sense that you are going to remain in your house and once the young branch off into something else then they will have to look out for houses for themselves and so that means the housing investment side of the story doesn't fall by as much and you can actually retain an investment process which is not falling down along with demography and population growth so one of the questions that millennials often ask is at what point do they get to afford a house and when they do actually end up affording a house do does the price at least remain stable for them what what do you think about that or do they just have to wait to inherit no i think i think prices can remain stable we're not we're not arguing here that prices are going to collapse um and and the reason for that prices would collapse if the elderly as i said if the elderly moved out of their houses the houses that they occupy right now which they bought very cheap and are very expensive and uh possibly old houses which have you know multiple areas of the house large property spaces if they vacated those and moved into smaller places which actually makes sense you know since you don't want to manage a large one but the point being since much of the existing housing has gone into ownership because of the boom on the housing market in the last few years or the last couple of decades and those are occupied going to be occupied increasingly by people who stay at home the young will have to buy new properties which means you're not getting as many properties flowing on in the form of supply into the market which will drive the price down they remain put they live a lot longer they occupy that fixed investment and so the investment that is rotating around will have to be new built and prices will remain supported it's not you're not going to see the boom that you saw i mean if you graph house prices you know as well as i do what they look like i mean it's just a exponential increase i don't think that increases in our futures but at the same time we're not talking about price collapses that would happen as i said if the elderly moved out there was no productivity growth only inflation um then i think the story becomes a lot harder because the asset the the asset that housing is does not really find the ability to protect themselves but i don't think we're getting into such a dramatic case for something that is going wrong with demography there are other things that are going right and we have to we have to look at one against the other the final thing to keep in mind is in this environment that we're talking about a lot of the inequality that we have seen within the economies that we initially discussed gets reversed right because if if the wage growth of uh the population is far better protected and the returns to capital because of rising uh equity markets and the booming bonds kind of toning itself down then the gap between the rich and the poor becomes smaller and so your ability to buy houses which are not at massively inflated prices is also something that runs contrary to the cost of borrowing if you've got decent wages you don't need to leverage up so much but at the same time the house price growth which is not exponential is something that you can jump on to you know what things are like right now if you haven't bought a house in the last 20 or 30 years it's really hard to get on that housing ladder and that's what a lot of millennials are finding out on the one hand if you bought a house you'd love it to triple and quadruple its value but if you if you're looking to buy a house which a lot of people in trouble as you said over the last 10 or 15 years were just about getting going on their feet i i think they find it relatively easier because house purchases and affordability come a little bit more in sync with their wages which are rising the gap between the two becomes lower and it's another sign of waning inequality that i think is going to be a hallmark of the next 20 or 30 years now i know you are an advisor to probably all of the top micro hedge funds out there i know you're not able to say who they are but obviously you you discuss these opinions with some of the uh greatest minds in the area of macroeconomics are your views consensus views or are your views quite different like is this is this a new idea or is this old stuff i would say it is definitely out of consensus it's a it's a it's a idea that i think people worry about but it's very much in the in the left tail of their distribution uh for growth they think it's a downside risk that can materialize in the future i think they like our story but here are just two or three things that they fret about and we fret about right for example the way i described china's integration into the economy how inflation fell how uh interest rates came down and therefore we led into an asset price and dead boom i think that part everyone agrees with so in in a sense they agree with the fact that falling interest rates and falling dependency ratios which means a demographic boom are perfectly consistent with each other but then when we come to the reversal of demography where the dependency ratios are going to rise then i think the reluctance to accept that well some of these other things are going to have to reverse as well that's when the acceptance stops so really if you if you think about it on a logical basis the burden of proof should be on the people who argue that no inflation and interest rates are not going to rise to explain why that break is going to happen when it stayed steady for the last 30 years but of course we are we're putting the thesis forward so it's upon us to explain it but that's where the breakdown usually comes they don't have a problem with the past because it's kind of hard to argue with that we've seen it but in the future there are all kinds of reasons and and typically speaking the the the objections that are put forward are about threefold the first one which we completely agree with is that debt is going to make raising interest rates very hard if interest rates start rising and inflation starts rising then servicing debt becomes harder and that slows the economy down to some extent that's true but if inflation rises it also reduces the real burden of debt and the amount of debt we've accrued is going to have to be dealt with at some point or the other it's it's very difficult to think that we'll always be in this world where you can accrue as much debt as you want interest rates will remain rock bottom it just doesn't work that way i mean you and i know that the the financial crisis was attributed to massive amount of housing debt which was unsustainable and then we cut interest rates to a point where global debt went even higher and with this pandemic it's gone higher still so that's something we're going to have to deal with the second point that they make is automation and robotics so so in acute way to put it is people wonder if automation is telling us we're going to run out of jobs why we worry about demography which is telling us we're going to work out of uh uh run out of workers the truth must be somewhere between them um and as as i said we depend on automation because looking after the elderly is not something that robots can do at least not now and ai can't do which means you're going to take a lot of workers into looking after the elderly so we need automation a lot and the last thing people say well you know if your thesis is right why didn't it happen in japan so japan is uh the the tip of the spear if you will for demography uh and what happened in japan was they had a very difficult uh few years as their labor force declined um and they went through a period where inflation was falling wage growth was weak and they had a lost decade after their bust and that's the road map that people have taken i mean we can get into it but for reasons that people haven't considered i think they're learning absolutely the wrong lessons from japan but that's the that's the pushback that we generally get from as you said some of the best minds out there on the investment uh in the investment community now one of the things i think that's really exciting about your book is that it's so fresh you know you you basically just uh it's just gone into print uh what a week or two ago and you were writing this during the coronavirus pandemic and there's many books that probably might have touched on these ideas but they they might be out of date already because of this world-changing event that happened does this show up much in your book and how does it change the story so it it does show up and luckily for us what has happened is in fact when we were writing the book a fair bit of it was written before and we've had a chance thanks to the timing of the publication we've had a chance to amend some of it there is a a postscript which really talks about specifically about the effects of the coronavirus on the thesis of the book now as it turned out when we were writing that book we thought a lot of these effects might be four five six seven eight nine ten years out into the future coming along slowly at the very least five because you know the the period that we've come out of raising inflation all of a sudden after such a deep cyclical shock which as you know took the world 10 years to get out of from the financial crisis we were just about coming to a place where for example the the output gap in the united states had just become positive so that uh activity was above what we call its potential level so that you know people were starting to use their resources over time we were just hitting that place and then suddenly we went into this massive pandemic uh which naturally makes people think that well we're going to have a massive amount of deflation but but everyone who's watching this will know that the amount of resources that fiscal and monetary policy makers have thrown at the problem without which we could easily have gone into a catastrophic economic situation ends up accelerating a lot of the the points that we make in there so inflation as it turns out is is likely to materialize far quicker and without the protection that we had from demography in the last 35 years china's labor force has already started moving global demography is already at a tipping point without that protection from a labor force that continues to expand making it easier to shift production to china the geopolitics the spending that we get from fiscal policy the fact that it's not the banks this time who are in trouble and therefore the central banks cannot just inject money into them it's the households and the companies that are really suffering so fiscal policy has to act that matters because you know you give money to banks they depend on the rate of return if they're getting a reasonable rate of return their investors are very happy but people like you and i if we are getting money monetary injections or fiscal injections what we care about ultimately is our consumption what firms care about is market share about their production of goods and services so the money that they get is far likelier to translate into actual consumption and production choices which is something we didn't have in the decade before this but right now that ends up meaning that the effects of inflation are likely to be accelerated uh the effects that we thought would take five years will probably take two now and that has really fast-tracked that thesis and that's an important part of the book if it had gone completely against what we were arguing so if we had been arguing for deflation and instead the coronavirus had created inflation it may have been a much harder cell and we would have been scrambling to cover ourselves and say well you know if it hadn't been been for this we would have been right right now we have the luxury of thinking well this this terrible pandemic has just actually accelerated the economic effects that we thought would take much longer now obviously i would say to people if you're a big macro hedge fund and you want to learn everything that you can learn about demographics speak to minos and the team at talking heads but a lot of my viewers might find this stuff really interesting are there any sort of online resources or is there anything that if someone has an interest in demographics and learning how that will affect the markets is there any online resource that you'd recommend there are but before you get into that the the couple of things that i would suggest your readers think very carefully about just how demographics get integrated into a lot of these financial models that we talk about now you and i as we've had many discussions uh over the last few years uh we've often talked about investment but usually our investment horizons are a few months ahead a few years ahead that's about it for many hedge funds the investment horizon might be even shorter than that but typically you're investing an hour to three but okay but it makes the point right the the problem being that over these horizons if you want to do any forecasting you can't really put in demography because over six months or a year i mean how much is democracy going to change by over that time the interest rate structure the equity market structure all of that will have changed by a dramatic amount and as you know for statistics we need variation without variation you don't get identification so integrating these model these uh variables into econometric models or statistical models has been so hard so we tend to think of them and say look demography is really important but in my models it really doesn't show so we can ignore it for now and think of it as a problem for the future so you want to start your readers want to take a look at effects of demography and papers written on demography that tend to have an investment horizon of 10 years 20 years 30 years now luckily for you as it turns out you've got a very young audience that is looking at decades of portfolio investment which which means that they should be thinking about demography because it will play out over their lifetimes if your audience was 70 and 80 maybe their portfolios would not have possibly changed that much because they've already allocated most of their wealth the the places that they can look at the the united nations who develops these population statistics always has very very very interesting work the world health organizations uh the the world bank all of these open resources you really don't have to pay for too many of these they have written excellent excellent uh uh articles defining demography defining what happens in there but as your readers read this they want to be very careful that in many of these articles what they will see is it's almost taken for granted that demography leads to lower growth and therefore it leads to lower inflation but i i just i just want to make this part clear in a cyclical horizon that is absolutely true right because you're pushing potential you're pushing output growth below potential which means you have a lot of people who want uh over time but actually they're getting their hours cut factories are not working restaurants are not full that's what happens in a recession so the slack creates inflation downside right it reduces inflation and economy what we are arguing is that demography is going to lead to potential itself coming down so gdp growth need not fall below potential it may equal potential at a very low level that does not cause inflation that could still end up being inflationary but but but let's let's take a look at another perspective right let's say there are only three people left in the world a frightening part because a third person would be viewing this conversation and no one else so we might as well include him or her in there but let's say there are only three people available right and and uh two two of you let's say you and and uh one very smart reader are actually working in here i'm not working which i love uh doing actually but all three of us consume right now the act of consumption by itself is an inflationary act because there's a given set of goods and services that we find in the supermarket for three people we go in there and we create demand for it okay the two of your working and the act of production is disinflationary because you too can add to the shells that we buy from and that creates a disinflationary effect so now you see what's going on for the two of you to set off the inflationary impulse from the three of us is relatively easy if it turns out i'm working which i you know i prefer not to do i prefer to retire but let's say i'm the one who's supposed to work and the two of you are uh retired and you're kicking your legs up for me to offset the consumption of the three of us becomes twice as hard and that's the problem that the as more and more people stop working the inflationary impulse coming from all of us who consume will be harder to offset by a smaller number of people who are working and creating this inflation so that pieces that is prevalent almost universally that demography is deflationary primarily as i said because of japan which is something that we deal with in the book that thesis is prevalent everywhere so when your readers do read it i'd love for them to be able to look at that and separate data from opinion that's a very important part of that make up your own mind i'm not saying we are we are absolutely right of course we can be wrong there are 100 things that could go wrong between now and the next 30 years but it's it's just that a lot of the demography arguments are are tainted we believe with a very narrow view so the the studies are only about the us or they may be only about japan or they may be only about germany and what you want to do is you want to take a global view put all of it together you want to take a far more open-minded view on the duration of this investment horizon because if you only look for two years demography may not matter much well thank you very much for this it's actually been uh it's been even more fascinating than i thought it would be i will put a link to menosha's book in the description of this video below um it's available both in kindle and in print format right now obviously when i next see you i have to get my copy signed you you can't sign any other copy so that i then have a collectible yeah absolutely as the as they say in uh in notting hill if you can find an unsigned copy it'll be fantastically valuable we've signed we've signed a few already by now but yeah you're welcome i'll send one over to you great well thank you very much for coming on the channel um if you're able to you know do check out the comment section below manoj because i'm sure a lot of the uh the the viewers will have all sorts of things to say and all sorts of questions and often it's a it's a very busy comment section once these videos go up so hopefully uh if if you'd be willing to answer a few questions sure would be really helpful and i cannot recommend menosha's book more it's really i think the the best economics book i've read this year so thank you that's a very kind endorsement thanks patrick i remind me to buy you a few extra beers for that one when we meet next uh no but i'll be more than happy to to take comments and and reply as much as i can it it really was enjoyable i don't even know how quickly the time has gone by so i enjoyed this a lot thanks for having me and you know i i if it means i'll have to write a few more books to get back on your channel i'll start working on them right away i enjoyed it i will look forward to raising them talk to you later bye thanks patrick bye [Music] you

Channel: Patrick Boyle

Views: 19,289

Rating: 4.9555964 out of 5

Keywords: finance, trading, trading and pricing financial derivatives, patrick boyle, on finance, cfa exam, level 1, level 3, kings college london, business school, queen mary university of london, quantitative finance, financial derivatives, demographics, manoj pradhan, macroeconomics, demographic trends, inflation, interest rates, millennials, emerging markets, charles goodhart, Ageing Societies, Waning Inequality, and an Inflation Revival, economics books, monetary policy committee

Id: SHf0oma3QDA

Length: 42min 47sec (2567 seconds)

Published: Thu Sep 24 2020