Following the speeches of Mark Francois MP and Andrea Jenkyns MP, we are delighted to publish Professor Tim Congdon CBE's presentation to the Bruges Group annual conference on March 7th 2020.
The Demographic Fate of Nations
Women need to have 2.1 children on average in order to replace the current generation. Suppose that they have less than 2.1 for four generations, and that the fertility rate then returns to 2.1. What happens to nations' populations in successive centuries?
Further Destabilising Factors
As successive generations fail to replace one another, the ratio of elderly dependents to the working-age population increases. The increased dependency ratio then leads to a higher tax ratio, because of the cost of pensions and health care.
The economic stagnation/contraction and high tax burden associated with the decline in the working-age population and the rise in the dependency ratio cause the young – particularly the talented and well-educated young – to emigrate. A quote from The Economist of 11th January 2020 read "wage bargaining, regulation and so on need to converge to stop imbalances between countries building up." Less well understood is that demography could also tear the union apart.
I (Tim Congdon), in an article in the March 2020 issue of The Critic, wrote "Andrej Plenkovic is the prime minister of Croatia, which currently holds the EU's rotating presidency. In an interview with the Financial Times at the end of last year he described depopulation as 'a structural, almost an existential problem for some nations'. A few days later he warned that freedom of movement across the continent was 'killing' small nations. Plenkovic was worried not because freedom of movement allowed in too many immigrants, but because it gave talented young people in medium-income small nations (on the Baltic Sea and in the Balkans) the opportunity to emigrate to larger and richer nations like Germany and France (and also to the UK before Brexit)."
What Happened to the Money?
The emphasis in the Kirstin, Kirkham and Theodoridis paper is on cost-push influences on inflation, from wages, commodity prices and import costs via the exchange rate. The quantity of money is not mentioned at all, as if the monetary theory of national income determination (and national wealth determination) did not exist.
This sort of research – with inflation related to cost pressures and not to the quantity of money, was fashionable in the UK in the 1950s, 1960s and 1970s, when the UK's inflation performance was deteriorating drastically relative, for example, to Switzerland and Germany. Swiss and German economists emphasised the importance of money to inflation.
Why Did the Exchange Rates Fall?
If too much of one kind of money (i.e., the pound sterling) is created relative to another kind of money (i.e., the Deutschemark or the Swiss franc), its relative value is likely to decline. The ultimate cause of the UK's rapid inflation in the 1970s, and to some extent in the late 1980s, was excessive growth of the quantity of money and irresponsible monetary policy. Can we have Confidence in the UK's Monetary Policy and Budget Management? I don't know, but the current intellectual trends in the UK and elsewhere are in the wrong direction. The widespread denial of the monetary causation of inflation, and the slide into large budget deficits in the Anglophone world, may be setting the scene for a repetition of the inflationary disasters of the late 1960s, 1970s and 1980s. Presentation by Professor Tim Congdon CBE to The Bruges Group annual conference, Saturday 7th March 2020.