WRITE DIRECTION: Tough financial times ahead, says noted economist.

I HAVE been reading with great interest the views and experiences of noted British economist Charles Goodhart, who turns 90 this year.

Emeritus professor at the London School of Economics, Goodhart was once a senior official at the Bank of England.

His view is that the next 30 to 40 years are going to be very difficult economically for most of us in Western society compared to the wonderful years between 1950 and 2020, which produced 70 years of prosperity.

Goodhart now conducts hour-long podcasts, discussing the macro-economic trends which are making life increasingly hard for the average worker.

He believes that the early decades of these inflation-targeting times began in the 1990s, which included Australia and coincided with manufacturing industries being pushed offshore, then shifting domestic production to providing services.

This saw nominal and real interest rates falling simultaneously in all Western countries, which made things very easy for central banks. However, these trends contributed to the housing anguish for young people who experienced asset values increasing quickly during those decades.

As interest rates decline, asset values rise, Goodhart says. It means that younger people trying to enter the workforce today are finding it increasingly tough. With our unemployment rate edging up to 4.7 per cent this is not seen here as a huge issue, as a rate of 5 per cent has been seen historically as full employment in Australia (with the view that the 5 per cent are not seeking employment).

He went on to say that in coming decades, ageing populations will also put younger workers under an increasing tax burden as the government would need to increase taxes to look after older people.

This problem will get worse as the political divide increases due to political polarisation and the fact that the economy is dividing into those that have the financial resources to live how they might like to, and those who don’t.

Goodhart saw the immediate issues being caused by falling birth rates, ageing populations, rising dependency ratios, combined with increasing debt levels that politicians have, so far, been unable to deal with.

By John BLACKBOURN