This is the first in what are likely to be a series of stream-of-consciousness type posts about a project I am working on. If you need to find a culprit you could complain to New Economist who effectively set me up by saying of economics bloggers that we "as a group we're not quite there yet in terms of shaping the news agenda or coming up with important economic ideas". There are signs that en-bloc we may be begining to push the boat out a bit on the news agenda front, and the second part, the not coming up with important economic ideas, well that is like a red rag to a bull. Ripping-off the late and dearly lamented Gilbert Harding, I'm here solely and exclusively with this purpose in mind.
OK, now for the stream of consciousness: basically I am extraordinarily disatisfied with the state and use of contemporary macro theory. This isn't an ideological issue, its not about Keynesianism or monetarism, I can't abide austrianism, I am neither in or out of the neo-classical tradition, I take the parts I like and screen out the bits that irritate. No, its more a feeling of ontological excess, a kind of proliferation of parameters and models when some really simple nuts and bolts elements seem to be getting ignored.
Of course I'm talking about population dynamics here.
The important lesson that I think we have learnt in the last few years is that it is not population size which is important, but the age structure of the population. Perhaps, more than anyone else it has been the work of David Bloom which has clarified this point, and you can find a simple introduction to his work here.
I'll have a lot more to say about this another day, but I think I want to put him up now as an initial pointer.
Today I have been reading my way through some papers by Ralph Bryant and in particular this one on the cross border implications of demographic changes. Bryant, as well as hiss Brookings and IMF colleagues Hamid Faruqee, Delia Velculescu, Elif Arbatli, Ralph C. Bryant, Gary Burtless,Marc de Fleurieu and Warwick J. McKibbin have been quite tireless and effective in bringing to the fore a number of important and otherwise neglected issues. Since I will probably end up being fairly critical of them, it is important to set this out at the outset.
Basically what the work of this 'collective' has achieved is the bringing of some clarity to the issues lying behind what has come to be known as the global savings glut, and what are also fashionably known as the the substantial global imbalances.
What the work of Bryant et al definitively establishes afaiac is that changing population structure - whether through increasing longevity or through declining fertility (and as Bryant paciently points out the two are different, and have differing implications) - has identifiable implications for national saving and invest schedules, and for balance of trade and current account signs.
What the linked Bryant paper attempts to do is model a comparative assesment of the trajectories of two economies - effectively home and abroad - with differening trajectories towards the same steady state population-end in an open-economy environment. Whatever the issues of detail, what he does establish is that the demographic path matters, or to put this in a more concrete context the differences between Japan and Germany on the one hand and the US on the other are intelligable within this kind of framework.
Warwick J. McKibbin has a specific exploration of the Japan situation here.
There is also this presentation to look at, where Bryant and de Fleurieu begin to cast a critical eye over some of the issues which arise in their work.(Or come to think of it, you might find the whole contents of this meeting just plain interesting).
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