Ed Hugh:
Cassandra Redeemed: The main argument about demography is that patterns of saving and borrowing are age-related... Franco Modigliani... Milton Friedman.... [S]aving and borrowing patterns are (like most economic processes) nonlinear, that is they have a “U” or inverted “U” form (Joseph Rowntree was the first to notice this in his late 19th-century studies on poverty in the U.K.). So very, very young societies (like Niger or Uganda, with median population ages under 20) have a huge problem saving, since the youth dependency ratio is massive. At the other end, countries like Germany, Japan and Italy (median ages all around 45) save heavily, and borrow relatively little (in the private, household and corporate sectors). What will happen as they age further is an empirical question and open to debate, since it may well be that as median ages rise further their situation can become symmetrical with that of Uganda or Niger (only in this case with the elderly dependency ratio being the critical factor)....
Italy is simply Germany or Japan without the industrial competitiveness. As a result there is a permanent demand deficiency which the government steps in to try and fill (which is why government debt to G.D.P. is over 100 percent)....
Now, the “younger” societies (this term is evidently relative) are those with median ages still under 40. This is where we can see the credit-driven housing booms – the U.K., the U.S., the Baltics, Spain, Ireland etc. It should be striking that there is not one case of a society with a median age over 42 having a housing bubble (ever). Societies like Greece, Portugal, Hungary etc. are... are aging, and domestic demand is weakening as a driver of growth. Like Italy they are not sufficiently competitive, and hence there is political pressure to pump up demand via the fiscal deficit route.... Basically, the problem of the euro is not one of fiscal deficits, but of lack of competitiveness in many peripheral economies... and the fact that, basically for demographic reasons, the economies which make up the zone are not converging.
