On aging, I was expecting a paper with some econometrics attempting to measure aging effects directly. So I was a bit surprised that it was simply a qualitative story, a not implausible story mind you, but a story nonetheless. I was left wondering what would have happened had the author chosen an econometric route. I noted form the references and text that Cochrane's Fiscal Theory of the Price Level is not directly considered if at all as an explanation of how inflation evolves. In a simple economic growth model, output growth usually boils down to population growth plus the rate of factor augmentation. And in a super simple monetary model, inflation is simply monetary expansion less the rate of output growth. Simplistically then, aging would lead to inflation unless monetary policy adjusts. Exploring these connections would seem to require taking some measurements and looking for more complex mechanisms. This is not a criticism of your review but rather the lack of breadth and ambition of the original paper. This seems to me to be an area worth some serious research.
"There is broad agreement amongst researchers that population ageing has a detrimental impact on economic growth through a reduction in the working-age population. There is less agreement on the impact on inflation, which amongst other things is influenced by age-dependent spending and savings behaviour. Wage developments will play a key role. A shrinking labour force could create structural labour market bottlenecks in certain sectors, trigger a ‘war for talent’ and force companies to pay higher wages and raise their selling prices. This would spill over to the rest of the economy. It shows the importance of supply-side oriented policies aiming to raise potential GDP growth, thus avoiding that the central bank would be forced to address the inflation challenge through tighter monetary policy, which would lower realised growth."
In that very last, tighter monetary policy wouldn't limit output growth because it would have been lower output growth itself which is creating inflation. One could think of monetary policy in that case as reverse accommodative in that it was simply tightening to pick up slack created by lower aggregate demand. In any event, this is complex which is why some serious measurements need to be taken. The labor market issues have to be handled directly as well. It is very clear anecdotally that many seniors have reentered the workforce as wages have risen in the service industries in full time, part-time and temporary jobs. Many seniors are particularly well suited for jobs which require people skills & are not physically demanding. And some may require domain expertise which younger workers are unlikely to possess. How significant that is, I don't know.
Has anyone really studied with a real anthropologist in Florida whether or not this is true - especially when the PERCEPTION of real returns is very high? Dr T is pretty much right. I can tell you having lived here in Florida. It is absolutely, without a shadow of a doubt, full stop, not true that old folks spend less money. Driving force of inflation right now involves the longer life expectancies from boomers associated with fat shots and government subsidized healthcare (e.g. no one wants to touch the "third rail" of Medicare and social security for existing recipients). All of that kicks in after you get old. Even if you have a job barely getting by, you can achieve significant wealth gains after 65 once you go on Social Security due to the pension like nature of the payments (e.g. you would be able to take on a new car loan because you knew the payment would cover it forever as opposed to never being able to take on debt if you had a very shaky job situation in retail at Home Depot). Look at the demographics for who is buying cars now and you see this effect. Combine that with continued sustained, voter approved tax cuts in these areas + migration to no tax red states from blue states and you don't peak with this rent-seeking behavior for a year or two longer due to demographics - then the tide goes out demographically.
"Older households save more but consume less, especially when real returns are low—amplifying secular stagnation effects."
On aging, I was expecting a paper with some econometrics attempting to measure aging effects directly. So I was a bit surprised that it was simply a qualitative story, a not implausible story mind you, but a story nonetheless. I was left wondering what would have happened had the author chosen an econometric route. I noted form the references and text that Cochrane's Fiscal Theory of the Price Level is not directly considered if at all as an explanation of how inflation evolves. In a simple economic growth model, output growth usually boils down to population growth plus the rate of factor augmentation. And in a super simple monetary model, inflation is simply monetary expansion less the rate of output growth. Simplistically then, aging would lead to inflation unless monetary policy adjusts. Exploring these connections would seem to require taking some measurements and looking for more complex mechanisms. This is not a criticism of your review but rather the lack of breadth and ambition of the original paper. This seems to me to be an area worth some serious research.
Those are some great points DrT.
The paper is definitely shorter and less comprehensive of ones that I usually highlight, but it had an interesting claim and story, as you mentioned.
I found this older paper that looks at the relationship statistically, and they found a weak negative relationship between populating aging and inflation: https://www.sciencedirect.com/science/article/pii/S0165176524000521
Additionally, this article by BNP Paribas (https://economic-research.bnpparibas.com/html/en-US/Population-ageing-wage-growth-inflation-9/11/2023,48869) makes some interesting points:
"There is broad agreement amongst researchers that population ageing has a detrimental impact on economic growth through a reduction in the working-age population. There is less agreement on the impact on inflation, which amongst other things is influenced by age-dependent spending and savings behaviour. Wage developments will play a key role. A shrinking labour force could create structural labour market bottlenecks in certain sectors, trigger a ‘war for talent’ and force companies to pay higher wages and raise their selling prices. This would spill over to the rest of the economy. It shows the importance of supply-side oriented policies aiming to raise potential GDP growth, thus avoiding that the central bank would be forced to address the inflation challenge through tighter monetary policy, which would lower realised growth."
In that very last, tighter monetary policy wouldn't limit output growth because it would have been lower output growth itself which is creating inflation. One could think of monetary policy in that case as reverse accommodative in that it was simply tightening to pick up slack created by lower aggregate demand. In any event, this is complex which is why some serious measurements need to be taken. The labor market issues have to be handled directly as well. It is very clear anecdotally that many seniors have reentered the workforce as wages have risen in the service industries in full time, part-time and temporary jobs. Many seniors are particularly well suited for jobs which require people skills & are not physically demanding. And some may require domain expertise which younger workers are unlikely to possess. How significant that is, I don't know.
Has anyone really studied with a real anthropologist in Florida whether or not this is true - especially when the PERCEPTION of real returns is very high? Dr T is pretty much right. I can tell you having lived here in Florida. It is absolutely, without a shadow of a doubt, full stop, not true that old folks spend less money. Driving force of inflation right now involves the longer life expectancies from boomers associated with fat shots and government subsidized healthcare (e.g. no one wants to touch the "third rail" of Medicare and social security for existing recipients). All of that kicks in after you get old. Even if you have a job barely getting by, you can achieve significant wealth gains after 65 once you go on Social Security due to the pension like nature of the payments (e.g. you would be able to take on a new car loan because you knew the payment would cover it forever as opposed to never being able to take on debt if you had a very shaky job situation in retail at Home Depot). Look at the demographics for who is buying cars now and you see this effect. Combine that with continued sustained, voter approved tax cuts in these areas + migration to no tax red states from blue states and you don't peak with this rent-seeking behavior for a year or two longer due to demographics - then the tide goes out demographically.
"Older households save more but consume less, especially when real returns are low—amplifying secular stagnation effects."