Do Macroeconomists Ignore Demographics (and Secular Stagnation)?

Reader Steven Kopits makes an astounding claim about macroeconomists (including me, and Jim Hamilton, et al.):

…macroeconomists see demographics as outside their domain. Consequently, there’s a tendency to try to force the rules-of-thumb and economic models from the 1980s – 2000s on the current environment. That’s why John Williams says he’s surprised unemployment could go so low. If he had worked through the Japan numbers (happy to send you the spreadsheets), he’d see very clearly what’s happening. And that’s true for Jim or Menzie or Ken Rogoff or Jeff Frankel. Spend two days and work through the exercise. It would change the understanding of the macro environment.

As I remarked, I somehow remember Larry Summers talking about this topic of demographics in relation to secular stagnation at a prominent venue (I was in the audience, I do believe), and having taught in my Spring 2015 macro policy course a paper examining the impact of demographic transitions, particularly on monetary policy. Why, yes – and here is the abstract to Eggertson and Mehrotra (2014). (For the math impaired, the paper is dated over five years ago.)

In this paper we propose a simple overlapping generations New Keynesian model in which
a permanent (or very persistent) slump is possible without any self-correcting force to full
employment. The trigger for the slump is a deleveraging shock which can create an oversupply of savings. Other forces that work in the same direction and can both create or exacerbate the problem include a drop in population growth, an increase in income inequality and a fall in the relative price of investment. High savings, in turn, may require a permanently negative real interest rate. In contrast to earlier work on deleveraging, our model does not feature a strong self-correcting force back to full employment in the long-run, absent policy actions. Successful policy actions include, among others, an increase in the inflation target and an increase in government spending. We also establish conditions under which an income redistribution can increase demand. Policies such as committing to keep nominal interest rates low or temporary government spending, however, are less powerful than in models with temporary slumps. Our model sheds light on the long persistence of the Japanese crisis, the Great Depression, and the slow recovery out of the Great Recession.

Why is it that people who have only a passing knowledge of macroeconomics seem altogether too willing to show their ignorance of wide swaths of the literature?

A version of the Eggertsson-Mehrotra paper is now published in the January 2019 American Economic Journal: Macroeconomics (published by the American Economics Association).

59 thoughts on “Do Macroeconomists Ignore Demographics (and Secular Stagnation)?

  1. Steven Kopits

    “In this paper we propose a simple overlapping generations New Keynesian model in which a permanent (or very persistent) slump is possible without any self-correcting force to full employment. ”

    So this paper is wrong right out of the gate, as we are currently well beyond full employment across the OECD by the traditional standards of the last forty years. If this represents the state of the art in macroeconomics, then let me confirm that the economics profession is clueless about demographics.

    1. The Rage

      Which due to slowed population growth has probably dropped full employment down to 2-3% in the US(my guess Japan is 1-2% for example). Yup, that is “secular stagnation” which is structural. Slowing structural economic growth create a slowdown in labor markets, which the churn slows down and people drop out of the labor force at a higher rate which reduces the unemployment rate’s structural “full employment” rate.

      We have seen this result since 2002: bored people.

      1. The Rage

        Just for show, to get down to 2000’s peak, the U-3 would have to fall down to 2% on the U-3 and 5% on the U-6. That is because the churn was stronger during the late 20th century growth cycles and thus LFPR was hitting its peak with the Boomers. Both the 80’s and 90’s had slow recoveries by initial post-war boom calculations, but the length coupled with strong enough job growth to keep churn up+the Boomer peak drove unemployment up.

        The economy is still quite noticeably weaker than the 90’s and a bit weaker still than the 00’s housing bubble fueled peak. I don’t think the recession ended until the 2nd quarter of 2018 into the averageness we have now.

        1. Willie

          Do you expect things to revert somewhat as the large Millineal cohort take the place of a slowly diminishing Baby Boom cohort? Or is this a one way phenomenon. If it is a two way phenomenon, we should be seeing the reversion. The oldest Millineals are now pushing 40.

      2. Steven Kopits

        True for Japan. For the US, really only emerging in the last few years in terms of employment or initial unemployment claims. (I would say we saw it develop anecdotally in New Jersey around 2007. A typical manifestation is when stores are advertising jobs rather than their products.)

        So what do you want to do about it? Is deflation ok, or not? Does the Fed have the firepower it needs for the next recession when ST interest rates are 2% and the Fed usually drops interest rates by 4-5% during a downturn?

        1. Steven Kopits

          In fact, if you check the numbers, you’ll find the 65+ age group started growing faster than the 15-64 age group in 2011, as I recall.

          1. Moses Herzog

            @ Stephen Kopits
            You’re such a flaming moron, you really don’t deserve a response. But I reply to Barkley Junior, so why not you as well?? You know, if you just go to , one of the more popular and better managed websites online, and do a keyword search for demographics how far you have to go?? It gives an article directly related to demographics and age. The date of the post is October 14, 2019.
   <—-The article comes with a large FREE eBook on aging populations covering the world globe.

            There's another article discussing diversity (something I assume you're against "Princeton"Kopits) in students studying Economics in the UK.

            That article post is dated all the way back to October 15 of 2019. Perhaps you can remember what dumb-a$$ comments you were making on some blog that long ago autumn day Mr. Kopits.

            There are tons of open discussions about demographics at economic conferences, in research papers, and included as important variables in econometrics numbers. The easiest ways to find them is to NOT be tunnel-visioned about only the things which only hurt affluent white Americans. Maybe you can try that out someday. Here’s a good one to start with:

            “Princeton”Kopits, I want you to know, I have lived a long enough life I don’t fool myself that you take any of this comment to heart. I have enough life calluses now not to be that naive to think any more than a minuscule minuscule percentage of people like you change. But I type this more for the chance that if any of Menzie’s students read this blog, they can observe a few older adults who have caught on to these things at much slower pace than the young adults of their generation have—and we older generation might not be a total disappointment to them.

          2. Barkley Rosser


            Hmmm. So this is your reply to my truce offer? Let me simply note that Menzie not only corrected you during the fussing over the Nobels but did so twice. You really need to think about that, if you are capable of doing so.

      3. Randle Reece

        I look at the employment/population and labor force participation rates for the male 25-54 age bracket and find a story that needs more explanation.

        In the past, the 25-54 group has been pretty similar, top to bottom, in participation rate. You don’t get the distortion of more teens going to college on the bottom end, or the influence of accelerating retirements in the 55-up group. And focusing on men takes out the completely different patterns in the data for women.

        As of September 2019, an estimated 89% of the male 25-54 population was counted in the labor force. Those numbers peaked at 92% in 2000 and 91.4% in 2007. Moreover, this participation rate has been in decline ever since the 1970 recession. In the late Sixties, this group’s labor force participation was 96%.

        This is the broad demographic bracket most likely to want to work in the United States, and something is driving workforce participation down from cycle to cycle. We can talk about the impact of incarceration rates, disability rates, and the employability of the least educated, but something’s missing. (This is where someone remarks about video games and living in Mom’s basement.)

        1. Willie

          Graduate school may be a part of the answer. There is little likelihood of 30 years and a gold watch doing the same thing for the same company any more. These guys are not all playing video games in mom’s basement. Some are getting degrees of various kinds so they can make more money in the future. Not all of them, of course, but I have known plenty who did not even look for work outside academia until the age of 30, and I have also known plenty who have gone back to school. Some of them full time even.

          I have no statistical data to back this observation, so take it for what it is worth.

      1. pgl

        Papa-Oom-Mow-Mow is a lot more coherent and informative than anything Princeton Stevie pooh ever wrote. But thanks for the recording as it is a classic.

    2. pgl

      You know something Stevie pooh. You should just STFU. On the one hand you claim we are persistently below full employment because of your magic potion DEMOGRAPHICS. And now you say any paper that says were could ever be below full employment is wrong because some measures say we are currently at full employment. You have made Menzie’s point here – you do not get ANYTHING. But do continue to annoy us with your arrogance combined with sheer stupidity. It is what you excel at!

    3. Barkley Rosser

      “currently well beyond full employment across the OECD”? I count at least six OECD nations with unemployment rate over 10 percent. The overall Euro area Unemployment rate is over 7 percent. The OECD average is a bit over 5 Percent. Methinks you are overstating things with that remark.

      1. Steven Kopits

        Would have been better phrased as ‘the average OECD unemployment rate is the lowest since 1980’. Most of the mature, advanced countries, excluding the southern tier, are largely near 40 year lows for unemployment. So, yes, you are correct.

        1. pgl

          Let’s recall what you wrote:

          “we are currently well beyond full employment across the OECD by the traditional standards of the last forty years.”

          Not only factually wrong but also your usual total bull$shit. Traditional standards? WTF are those Stevie pooh? More intellectual garbage from you that makes you think you are SO much smarter than anyone else? No Stevie – as usual your own words demonstrate how damn dumb you are.

  2. pgl

    Princeton Stevie boy brings this canard up a lot. He must think it is the ONLY issue ever and that he is the ONLY person who gets it. Of course Princeton Stevie boy has no clue what he is babbling about. But the poor little boy needs constant attention. I guess Fox and Friends should have him on every day.

  3. pgl

    When Summers wrote:

    “Stan, a set of older ideas that went under the phrase secular stagnation, are not profoundly important in understanding Japan’s experience in the 1990s, and may not be without relevance to America’s experience today.”

    The Stan was Stanley Fischer. I bet Princeton Stevie pooh has no clue who Dr. Fischer is. I just Googled “secular stagnation” and got over 1 million hits. But Princeton Stevie thinks macroeconomists are ignoring this? The term was introduced way back in 1938 by economist Alvin Hansen. Someone else that Princeton Stevie never heard of.

    BTW – the Hansen version of secular stagnation did not require this allegedly all important DEMOGRAPHICS boogey man that so scares poor little Princeton Stevie pooh.

      1. pgl

        If you think I read something you wrote 3 years ago – then you are delusional. Any sane person would not read something you wrote 3 seconds ago. OK – you heard of Hansen but based on your writings of late, you have no clue what his contributions even meant.

      2. pgl

        BTW Stevie pooh – that 2016 comment of yours never mentioned DEMOGRAPHICS. You bash anyone else who dares to write something without mentioning DEMOGRAPHICS but you do not hold yourself to the same standard. Yes – you are a total hypocrit.

    1. pgl

      “This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound (ZLB). Output-inflation dynamics and policy prescriptions are fundamentally different from those in the standard New Keynesian framework. Using a 56-period quantitative life cycle model, a standard calibration to US data delivers a natural rate ranging from −1.5% to
      −2%, implying an elevated risk of ZLB episodes for the foreseeable future. We decompose the contribution of demographic and technological factors to the decline in interest rates since 1970 and quantify changes required to restore higher rates.”

      Gee the abstract notes “the contribution of demographic and technological factors”. DEMOGRAPHICS. Yes – Princeton Stevie is both an IDIOT and a LIAR!

  4. Steven Kopits

    Did Larry Summers use the word ‘demographics’ in that speech? No he did not.

    He’s speaking of secular stagnation in November 2013, that is, during the Arab Spring oil shock when Europe was materially still in recession, as I recall. You’ll recall I referred to this period as a ‘crypto recession’ in the US and the period from Dec. 2007 to H2 2014 as the ‘China Depression’.

    Secular stagnation appears to be associated with depressions, rather than recessions. So we’re conflating three things here:

    1. ordinary recessions, amenable to treatment with interest rate reductions;
    2. depressions, which will be characterized by falling housing values and ST interest rates at the ZLB for years; and falling consumer credit for about the same time, and not materially amenable to treatment with interest rate reductions; and
    3. potential declines in GDP growth outside a recessionary environment

    The last of these results from demographic changes leading to weak GDP growth, but without a recession in the traditional sense. As I write in ‘Japan’s Lost Century’

    Importantly, a decline in Japan’s GDP cannot be unambiguously interpreted as a cyclical downturn. It is as likely to be a function of demographics. The key number to watch will be GDP / worker, which will tell us more about the health of the Japanese economy than will GDP in aggregate.

    So, aside from a single sentence, Larry is not talking at all about demographics and economics, but rather addressing issues related to the Great Recession (more precisely, the China Depression).

    1. pgl

      “Did Larry Summers use the word ‘demographics’ in that speech?”

      Lord you are both an IDIOT and a total pompous a$$ at the same time. Look – we get you are a worthless troll. So no need to keep proving it.

    2. Barkley Rosser

      Actually the trditional argument has been that depressions depress birth rates, which happened in the Great Depression, which makes demographics endogenous to the economy more than the other way around, although the specific Kuznets version of a long wave theory made that into a theory of long waves as slower population growth reduces demand for housing that reduces births, which then reduce housing demand when the baby bust group grows up.

      1. Steven Kopits

        Yes, I think this is correct. Depressions most certainly depress fertility rates. We can see that clearly in the Great Depression, for example.

        At the same time, fertility rates have also been facing a long-term downward trend.

        Almost all of the OECD is below replacement, as the graph below shows. The OECD as a whole fell below replacement levels in 1982. Germany is at 1.57 (2017) vs replacement of 2.1. Germany has been below replacement since 1970 and around the current level since the mid-1990s. In terms of fertility, it’s not much different than Japan in the last generation or so.

        1. Barkley Rosser


          I am unable to read the figure in your link. I am somewhat skeptical about some of your claims thought. I just specifically checked on France’s demographics relating to something going on over on MR. Last year France had about 748,000 births with about 615,000 deaths, which is above replacement rate. Of course,France has had an uptick of births in recent years, going against what are more general trends, which indeed are long term widely towards falling birth rates in most OECD nations.

  5. pgl

    If someone believes that we need a growing work force to avoid the EVIL GHOST DEMOGRAPHICS, one might advocate parents having more babies OR one might endorse allowing more workers to migrate here. Of course Princeton Stevie pooh gets his jollies by appearing on Fox and Friends to support Donald Trump’s racist anti-immigration policies. So is he just terribly confused or a total hypocrite?

    Oh wait – I forgot about the essential aspect of the Stephen Miller macroeconomic model that seems to drive Princeton Stevie’s thinking. It is WHITE people that matter. Now it all makes sense!

    1. The Rage

      Anti-immigration policies? Donald Trump???? Considering Trump has let missionaries more freedom in foreign matters, you should rephrase this post. Trump is a big body importer. He and his Russian allies traffick in a bunch of bodies everyday. Evangelical Christians then setup the “passage” for these “people” to be trafficked and tell them sanctuary is coming. Notice the Obama adminstration has some checks on these groups. This is what created the faux-border crisis mess in 2018.

      Trump is a con men like most of his kind. Manipulating the weak minded.

  6. Steven Kopits

    Iran will strike again, in October

    This is the piece to which I alluded a few weeks back, as published by The National Interest.

    One’s always starts analysis with some preconception, which is almost inevitably different by the time one finishes.

    Here are the key points on Iran:

    – Iran will strike again, probably in the next three weeks, probably something showy and oil-related
    – Iran does not want war, but
    – Iran is fundamentally unwilling to accept all of the administration’s Twelve Points
    – Iran would be willing to conclude a material deal quickly, within weeks, with terms substantially better than those achieved by Obama, and potentially more comprehensive than even the Twelve Points, if certain key concerns of Tehran were addressed
    – the President has about sixty days before events are likely to get out of hand

  7. macroduck

    The “what economists fail to understand” (or “have ignored” or “fail to consider”) line of argumentation is a subset of the broad “what my opponent fails to understand” disingenuousness. It is a common debating trick and is often heard from non-economists in criticizing economists. Like most debating tricks, they are pulled out when honest debate just won’t do.

    Here’s the thing: economists tend to miss things, follow fads, ignore inconvenient data, all the usual stuff. Economists are, after all, human. A lot of economists prior to 2008 didn’t understand the Keynesian model. A good many seemed to think the simplifying assumptions used to make analysis tractable are not assumptions, but actual descriptions of the economy. Some mistake accounting identities for behavioral equations. Sometimes, they mess up a cell in a spreadsheet or fail to test for robustness before declaring a 90% debt/GDP ratio a dangerous threshold for sovereign debt. But those are not typically the things the “what economists fail to understand” crowd usually claim.

    * “Economists didn’t understand that home prices could fall sharply.” — That was mostly mortgage bankers and was more “didn’t want to know”.

    *The MMT fanboy howl: “Conventional economists don’t understand that governments print money, so don’t need to tax.” — Yeah, they do. They just think it’s dangerous to go on about it.

    *”Economists don’t understand demographics.” — Demographic transition. Growth accounting based on labor force and productivity changes. Malthus.

    “What economists fail to understand…” is a bit like “Everybody knows…”. It almost always announces that something ignorant is about to be uttered. Economists need to be taken to task for errors they actually make.

    1. 2slugbaits

      *”Economists don’t understand demographics.” — Demographic transition. Growth accounting based on labor force and productivity changes.

      I think this gets to the heart of the matter. Sometimes the issue of demographics is treated as a business cycle phenomenon and the focus is on how demographics affects aggregate demand; e.g., negative labor market clearing interest rates can lead to an upward sloping aggregate demand curve. So the prescription includes some mix of the usual macroeconomic policy tools. But sometimes the demographics issue is discussed in terms of growth accounting along the lines of some Solow flavored model. That requires a different (and quite possibly unknown!) set of policies. To put it in somewhat crudely, is secular stagnation an aggregate demand problem or an aggregate supply problem? As a non-economist my beef with the profession is that sometimes economists talk past each other and only describe problems in terms of their home areas of expertise. So business cycle economists treat secular stagnation as a continuing business cycle problem of perpetually weak demand; OTOH growth accounting economists treat secular stagnation as a problem with the residual. And finance economists offer yet another explanation. Is this a consequence of the increasing specialization we see across the academy; e.g., physics, math, economics, literature, history, etc.?

      1. Steven Kopits


        I tend to think of ‘secular stagnation’ as either an aggregate demand problem (in which I don’t really have confidence) or a productivity growth problem related to investment and technological innovation.

        The aging demographics issue is neither of these. You can have full employment, presumably strong demand on the per worker level, and historically typical productivity growth rates, and still have weak aggregate GDP growth. That’s the case I am arguing for Japan.

        1. pgl

          “I tend to think of ‘secular stagnation’ as either an aggregate demand problem (in which I don’t really have confidence) or a productivity growth problem related to investment and technological innovation.”

          OR? You really are STUPID. You do get that investment is part of aggregate demand. Oh wait – you do not understand any of these words as oyu are just a pretension and arrogance blow hard.

          Your argument for DEMOGRAPHICS also shows how utterly dumb you are. Every economist I know care about real GDP per capita. So if a nation with zero population growth has real GDP rising at 1% per year – that’s actually pretty damn good.

          Hey Stevie – thanks for confirming what all of us already knew. You absolutely suck at macroeconomics.

  8. Frank

    Hello Steven Kopits,

    Several weeks ago you mentioned petroleum imports/exports. I was looking at the August 23, 2019 balance sheet at the time:

    I am just an agricultural science technician and petroleum is not my field (pun).

    I have been occasionally checking that line 33 in the EIA Petroleum Status Report.

    From what I can tell, the October 4, 2019 does indeed show line 33 is negative.

    Line 4 Crude oil net imports 2823
    Line 21 Other net imports (9) -2853
    = = = = = = = = = = = = = = = = = = = = = = =
    Line 33 Net crude oil and Other -30

    Footnote (9) Includes finished petroleum products, unfinished oils, gasoline blending components, fuel ethanol, and NGPLs and LRGs.

    I did notice, however, that line 14 is a good bit lower (1.7 million barrels day less):

    08/23/19 line 14 Crude Oil Input to Refineries 17408

    10/04/19 line 14 Crude Oil Input to Refineries 15656

    Petroleum is not my field and I was just monitoring line 33 on the EIA Weekly Petroleum Report balance sheet per Steven.


    1. Steven Kopits

      So, if you’re interested in whether the US is a net importer or exporter of crude and petroleum products, I would recommend looking at the Short Term Energy Outlook, which the EIA publishes usually around the 10th of the month.

      On the STEO home page, click on ‘All tables’, which will download the latest STEO spreadsheet. On that spreadsheet, you want to look at the tab labelled ‘4atab’. On line 46, you will see a row labed entitled ‘PAIMPORT’, which is the net position for crude and product imports (exports) for the US.

      This indicates that the US will have become a net exporter this month — a huge achievement.

      As for refinery inputs, bear in mind that these are quite seasonal, and we are near the low point for fall maintenance now, whereas we were near the seasonal high in July. The monthly report is generally better if you don’t need up-to-the-minute data.

  9. Dwight L. Cramer

    To answer the original poster’s (rhetorical?) question, people feel free to comment on macroeconomic issues without an in depth familiarity with the relevant professional literature for the same reason that people who aren’t familiar with the professional literature of political science feel free to comment on politics and, for that matter, people ho haven’t read MoneyBall feel free to comment on the World Series. This blog is full of the first (amateur political commentary), not so much the second (sports fanalysis).

    If in my dotage I were casting about for a field of scholarship to enter, demography would be on the short list. Apologies to present company, I don’t think macroeconomics would be.

    1. Steven Kopits

      Actually, we know more about the literature than you might think — but we know it indirectly.

      We know that John Williams was surprised by the low unemployment rates. But we also know that Williams is a really, really smart guy who heads a bank full of really, really smart people — and they all read the literature and make sure Williams has on his desk the things he needs to know. So if Williams was surprised, the Fed as a whole was surprised (at least the ‘mainstream’ institution — I would bet one or two guys at the Fed made the same points I did, but they have something of a renegade reputation), and that means none of them found the model I am proposing in the literature search. So Williams’ surprise, to a certain extent, can be construed as a literature review.

      Similarly, Jim Hamilton is a very thorough, extremely competent economist. He is a great teacher — he can explain complicated concepts in terms a layman can understand. Now, his recession lecture was given to students. So it’s a pedagogical presentation, and Jim notes that investors want deflation protection — it’s right there in the data — but he doesn’t say why. Jim Hamilton does not throw stuff on the blackboard and leave it at that if he has some organizing principle to share. Therefore, if Jim didn’t provide an explanation for why we transitioned from an inflationary to a deflationary mindset, it’s because he’s not sure himself. And if there’s relevant literature to be read, I have confidence that Jim would have read it. So again, Jim’s silence gives us insight into the state of theory on the matter.

      To be sure, I have not reviewed the maco literature on demographics. I shared a model because I felt it holds together, but clearly, I have not tested it exhaustively, as Barkley above implies. But it’s pretty clear from the statements of those whom I can presume to have read the literature that the model I am proposing is not in wide use.

      1. Menzie Chinn Post author

        Steven Kopits: Actually, the lecture was not given specifically to students but rather to a generalist audience. There were students in the room, but I’m not sure they were the majority.

    2. Steven Kopits

      As for macroeconomics: When I was doing graduate work in economics, I found the institution put a huge premium on making the work hard. It was all about who was smartest and toughest, and who could understand the most arcane math.

      Now, this has its place, but it gives economics a ‘hard’ bias. And the thing about accounting and demographics is that they’re not hard. You don’t need to be a genius to understand either of them — so then why bother to teach it in graduate economics? The problem is, of course, that both accounting and demographics are extremely useful. So economists — at least those who trained when I came up — tend to be weak on blocking and tackling skills, even though they have three semesters of esoteric econometrics under their belts.

      If you take Menzie as an example, he’s an excellent technical analyst. Regressions, correlation coefficients — he can do it with the best of them. But when it comes to fundamentals — to putting together the data into a coherent narrative, he’s not strong there. The notion that I can do a literature search from something Jim Hamilton didn’t say — Menzie doesn’t have that kind of analytics in his toolkit.

      So, I love economics. It’s an incredibly powerful tool for understanding human society and behavior. But the world and our understanding continue to evolve, and I feel there’s a need for a kind of generational change in the profession — not necessarily the people, but the mode of thinking.

      1. Menzie Chinn Post author

        Steven Kopits: Ya know, I have a book on the financial crisis. I wrote a Council on Foreign Relations Special Report. I’ve published in Foreign Policy and in Foreign Affairs. I wrote dozens of memos for the CEA. I’m pretty sure I can come up with narratives — they’re just not the narratives you believe in.

        1. Steven Kopits

          Well, you and I both know that appeals to authority will get you nothing with me.

          Let me give you an example to illustrate what I mean.

          At least three times now, I have asked whether the Fed has enough firepower to handle a recession at ST rates of 2%. This is a pretty important question, and well worth a post.

          If you posted on it, you and I are both aware that it would immediately move to center stage in terms of debates regarding monetary policy. It would cause something of a brouhaha, because Menzie Chinn of Harvard and the CEA and CFR would have implicitly floated the idea that maybe the Fed is under-gunned.

          I’m happy to discuss the topic, because I’d rather discuss weaknesses now rather than having to face a live-fire exercise later. If the Fed needs new weapons, let’s try to find them before they’re needed. And if I’m wrong, no matter. Confirming that the Fed is in fact well-prepared has no downside from my perspective.

          But you’re not willing to go there. And that prevents you from mixing it up, from discussing ideas without necessarily investing your prestige. It’s the fear of a dialogue heading into uncharted territory — perhaps to an outcome you would not prefer — which prevents you from engaging on some topics.

          This is not to claim superiority. Far from it: We all have our issues. I think, though, that fear pushes you more in the direction of technical analysis and away from fundamentals, particularly in those cases involving professional or ideological risk.

          1. Menzie Chinn Post author

            Steven Kopits: I wasn’t claiming you should believe me because I had published w/CFR, and in Foreign Affairs and Foreign Policy. I was citing them as instances where I could put together a narrative. (No appeal to authority here.)

          2. Barkley Rosser


            Menzie attended Harvard as an undergrad, but got his PhD from UC-Berkeley and is now at the University of Wisconsin-Madison.

    3. macroduck

      Mr. Cramer,

      Reasonably stated. There are, however, different kinds of non-specialist comment. Commenters can express curiosity, offer an anecdote, or offer strong criticism. The first two add to the conversation without much risk of misleading fellow readers. The third engages in hubris and can lead non-specialists to misunderstand the issue being discussed. The first two tend to broaden the conversation. The third will often lead to push-back from specialists who want to correct misperceptions. In the process, that push-back will tend to narrow the conversation.

      This is, I suspect, why correction of misguided criticism tends to be more sharply worded than most other responses. Hubris and error all wrapped up in one comment tends to mess up an otherwise beneficial conversation. Error, by itself, is often corrected without narrowing a conversation. A correction like “Actually, Keynes may never have said ‘markets can remain irrational longer than you can remain solvent'” tends to be offered without piling on. Claims that economists don’t understand demographics (or economics) as well as the commenter have that extra special element that brings on push-back.

    4. Willie

      I kinda think devoting time to economics will be something I do after my career is done. Provided there are any brain cells left to use.

    1. Steven Kopits

      Not a bad paper. It’s more about secular stagnation that demographics per se, but a nice discussion of thinking about secular stagnation.

      So what do we know from the two papers linked here?

      Rea interest rates are likely to be quite low. As a result, interest rate policy is likely to be substantially constrained and the nominal rates near the ZLB may be more common than not.

      So do traditional notions of cyclical monetary policy hold up?

    1. Steven Kopits

      Partially helpful.

      So, aging demographics knock GDP growth down by something less than half.

      Similarly, interest rate fall.

      The authors seem somewhat agnostic on inflation, although across the advanced economies, getting to inflation targets appears to be a challenge, even with rock-bottom interest rates.

      The piece does not, however, address unemployment rates, but rather allows for the possibility of aggregate demand gaps (secular stagnation) which are hard to generate in the model I have proposed. If society is constantly short of workers, what we have seen in recent times, then there cannot be a shortage of aggregate demand unless workers are somehow freakishly hoarding money. Consequently, by my way of thinking, you can’t stimulate such an economy with either interest rates or monetary policy in any meaningful way, much as we have seen in Japan.

      I think an interesting finding is the effect on productivity. This seems to be an emerging topic, but I am agnostic on how it may change in the future. In any event, if I believe the analysis, then not only will be the workforce be growing slowly or falling, as the case may be, but the productivity growth of those workers will be less than it once was. That’s not good.

  10. joseph

    Kopits: “If society is constantly short of workers, what we have seen in recent times … “

    What makes you think there is a shortage of workers? If there is a shortage of workers, why aren’t wages rising rapidly?

    If there were a shortage of workers, then efficient, profitable, high productivity companies would be bidding up wages to attract workers from inefficient, unprofitable, low productivity companies. Low productivity companies like Uber and Lyft wouldn’t exist. That isn’t happening.

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