The Great Demographic Reversal, Ageing, Inequality & Inflation Revival by Charles Goodhart

Charles Goodhart and Manoj Pradhan join Jason Hartman, authors of The Great Demographic Reversal, to talk about interest rate and how long it will stay low. They discuss the effect of globalization and technology on inflation, and the importance of dependency ratio.

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Jason Hartman 0:29
It’s my pleasure to welcome Charles Goodhart and his colleague mannose. Pratt him and we are going to be talking about good hearts law in the new book, The Great demographic reversal aging societies, waning inequality, and an inflation revival. Charles Goodhart is member of the Bank of England’s monetary policy committee, and former professor at the London School of Economics, developer of good hearts small you can look that up in Wikipedia. But of course, we’ll talk about it today. And he is the son of Arthur Lehman Goodhart, who was the first American to be the master of an Oxford college, and the brother of House of Lords member William Goodhart, and leading British Conservative politician Sir Philip Goodhart, quite a pedigree and his new book. We’ll talk about that today. So I’m really looking forward to this. Welcome to both of you. Thank you. Yeah. First, I’d like to start off with Manos maybe? And can you explain your research and how you became affiliated with Charles.

Charles Goodhart / Manoj Pradhan 1:26
So Charles, and I worked on this idea when we were both at Morgan Stanley in the economics team. And that’s where we talked about what demographics would do how that might or might not stand in the way. And that was something that was taken on in a presentation to be is at the annual seminar, which then developed into a working paper. And that’s where we were encouraged to write the book. So we’ve written this book together, as it’s been fantastic working with him, and I’m enjoying every minute of it.

Jason Hartman 1:57
Excellent, excellent. Well, for either of you, what is the general thesis of the demographic reversal? What What do you mean, when you say that,

Charles Goodhart / Manoj Pradhan 2:06
we’re what we mean is that there were some very strong forces, causing disinflation reduction of inflation over the last 30 years. And these are now reversing, so that the forces have caused the inflation to come way down and be held down to about 2%, or even lower recently, again, to reverse now. And that’s going to reverse all the factors that we had earlier. So that the, the patient is going to start rising again, inequality within countries is going to go down. And they are going to be a very severe problem about dealing with debt. If and when interest rates start rising. There are two main forces really that have leading to the disinflation, the first one has been globalization, whereby first Eastern Europe after the fall of the Iron Curtain joined the world’s trading system. And then China did too, as well. And that has meant that the available working population for anyone who can shift their production from one place to another as more than doubled over the last 30 to 40 years, the blue line on the left, and was available to producers and manufacturers at the beginning of our period in about 1980. And the yellow line was the additional workers from Eastern Europe and China. And that increase in them relate to a huge increase in the working age population. And if you can see that chart, you can see that the yellow and the blue line start turning around at about 2010 and now start declining.

Jason Hartman 3:52
But let me just ask about that a little bit. So you’re saying that we would have much more inflation baked into the system, if we didn’t have globalization and probably technology as well. Those have been disinflationary, right.

Charles Goodhart / Manoj Pradhan 4:08
And again, on the right hand side, you can see the increase in the working age population from year to year, which is on jumping upwards, again to just around 2010. And from now on, is going to go rapidly downhill. There’s partly because say, China is gay and much of Europe, the working age population is actually going to shrink in other countries, because of the decline in the birth rate, working age population will at best stagnate. And this was further reinforced by the change in the ratio of dependents that is the young or too old, too young to work, and those who are above the retirement age. Now, the globalization actually reduced world inequality, because they shifted production to a manufacturing From the high wage countries like the US and Europe, to the low wage countries like China and Eastern Europe, and you will see the left hand column, and the ratio of the wages of the American worker to the Chinese worker, which was about 35. As far back as 2000 is only about five, that’s a huge change. The Chinese workers have done extremely well, the American workers have done extremely badly. And the same is true to a lesser extent by Western Europe and Eastern Europe. And since there are many more Chinese, and Asians, South Koreans, Vietnamese, and so on, there are Americans and Europeans that has made the world inequality has declined, while inequality within each country has actually been increasing quite sharply, because the workers, particularly the relative down skilled have had a very bad time. In addition to that as being effective, the dependency ratio, the number of young has been declining quite sharply as the birth rate has gone down with a number of the L has been increasing very rapidly, particularly the oldest old weren’t likely to double over the next 15 or so years. And as you get older, their likelihood of having an incapacitating illness, like dementia or Parkinson’s or just arthritis increases and increases, which means that there is a huge need for additional carers. And the need for Medicare, the need the need for medical assistance, the need for personal assistance of care for the old is going to mean the expenditures on this are going to be rising very sharply, with a result that even before the COVID-19 effect, affected the world, the likely increase in public sector and in debt, public sector debt was growing. I just rapidly and because the Coronavirus has increased this even more so. And of course, the private sector is now massively increased its debt. So the debt ratios that we now have around the world have been just jumping up very, very sharply. And if interest rates go up, and unfortunately, we think they’re likely to do so that he’s going to put a huge burden both in the public sector and on the private sector. Now, our viewpoint on this is both rather grimmer rather than more pessimistic than the mainstream, which expects is going to be interest rates are going to be terribly low, for exceptionally low for a very, very long time, lower for longer than that it’s called, we don’t agree. The main reason I think, why the mainstream view this is because of the experience of Japan. And now I’m going to hand it over to my colleague Manoj, who has done much more work on Japan than I have. So man is a very interesting case study for sure. So these low interest rates, so your basic thesis then is the low interest rates won’t last.

Jason Hartman 8:20
And when they go away, it is going to place significant hardship on the economy and widen the divide even more so right?

Charles Goodhart / Manoj Pradhan 8:31
Absolutely. And the best way of getting out into higher debt is to grow faster. But here the decline in the growth of the working age population. In many cases, an absolute cutback in the working age population is going to mean the growth of anything is going to slow down even further from the relatively slow levels that we’ve had over the past 10 years or so. Because the rate of growth of GDP, the overall economy is a function of the number of workers times the increase in their productivity and productivity has been poor. And the number of workers coming into the system is now going to actually reduce, so we’re going to have fewer workers, it would take a productivity miracle for us to be able to grow out of this particular problem.

Jason Hartman 9:21
Okay, so we do have a couple of crosscurrents, though. Number one being obviously automation, you know, still someone needs to operate the robots. Right. You know, number two is and you alluded to it, I’ve been talking a long time about the exploitation of Africa for you know, the next move for offshoring being Africa, but Africa is a much different case than China. You know, it’s a lot of little countries with conflicting sort of tribalism and, you know, language. I mean, Africa is just a whole different thing than than China, isn’t it?

Charles Goodhart / Manoj Pradhan 9:54
Oh, absolutely. And I’m going to talk about China as well, sure, but we see The decline in the working age population being such and the need for personal care for the old. And if you’ve ever had anything to do with dementia, you will know that robots just don’t cut it. What you need is an emotional support. And the emotional quotient of a robot is absolutely zero.

Jason Hartman 10:21
You mean you’re talking about the care of elderly now? Talking about manufacturing, on the assembly lines and such? Yeah, I get it. You’re talking about two issues, sir.

Charles Goodhart / Manoj Pradhan 10:31
So the we’ve talked, we’ve talked about quite a few things. In fact, some of the objections that you’ve got things that we have covered in the book, and they fall into a broader set of categories, along with Africa, India, and parts of South America also have dependency ratios that will not rise and be challenging for quite a while more. The second issue is that perhaps older people can work much later on in their lives. The third one is automation. And in fact, the last one that I’ll cover very shortly is one of the things we’re seeing are likely to happen with aging. Why isn’t it happened in Japan? But let me let me walk you through

Jason Hartman 11:08
a couple of the things is aging itself out of existence with its, you know, low, very exceedingly low birth rates? Same with Western Europe and Russia? No, no birth rate, and ageing populations in all cases. But go ahead.

Charles Goodhart / Manoj Pradhan 11:23
That’s it. You’re absolutely right. It’s a very dramatic story. And you know, you’re going to see that in Germany, you’re going to see that in North Asia, you’re going to see that in Russia, where there are other issues related to the rate at which males are not surviving into late ages. But let me address some of the questions you’ve had. First, I think technology, we want to think that technology has the ability to crush a lot of the employment in repetitive tasks. The reason for that is that, as Charles was saying, and that’s why the robotics story about looking after the elderly is important. If robots can look after the elderly directly, what we need is a reallocation of labor from one part of the economy to the other. So to the extent that many jobs will be crushed in manufacturing, that is actually something we’re counting on. If that doesn’t happen, our thesis becomes profoundly more powerful. And let me explain why. What happens is, if you look at the demographic projections of the UN population statistics, they’re scary enough as it is, but what we don’t realize because we’re not seeing those numbers is as the elderly begin to dominate the population, and they follow the working age population, many more of them are going to live to a much longer age. And as they live longer and longer, the risk and the incidence of dementia rises almost exponential. Now, these are diseases that we live with for a very long period of time. They need carers, they need attention, which is what Charles was alluding to. And this is what Charles and I call socially productive work, we do have to look after people who have contributed to our societies. But it’s not economically productive in the classic sense, the services being produced are consumed at one time by the elderly, and the elderly themselves, then don’t go on to produce anything else. So the demographic picture will become even more dire if we start deflecting some of that available labor force to look after the elderly, without crushing jobs in manufacturing. So we need that story to play itself out. We’re depending on that story to play itself out. The second part,

Jason Hartman 13:28
Okay, so first off when when you say you look at the UN statistics, and they’re scary enough, what exactly do you mean by that? Do you mean population growth? Do you mean the age distribution of populations in these different places we talked about? Because we’ve got coming at us and empty planet eventually. Right? But not for a while. So you know, that’s a curve, right? But go ahead. And

Charles Goodhart / Manoj Pradhan 13:54
so you’re right, actually, both the metrics that you suggested it’s, it’s not just the size of the populations, in fact, the labor force, it’s also the composition, which is that it’s not the young that are forming a large increase in what economists would call the dependency ratio, which is the sum of the young and the old, supported by workers. It’s the elderly who are not going to rejoin the labor force. But it’s also one more thing, which is that the incidence of these headwinds that you describe is happening in all the economies that today make up the bulk of the contribution to global growth. Every theater in the global economy, that is a large mover and shaker is going to see a demographic decline, which will be a significant headwind, and the likes of India and Africa and southern American states have the ability to grow fast, but like you said, they don’t have the administrative infrastructure. We don’t think they have the ability to build human capital quickly and together that means they can’t really export labor because that’s politically just impossible at the moment. They can import capital to an extent that they will do well. But they can’t import it and transform it into an output at the rate that will offset the demographics that are available in the rest of the world. That’s just not going to happen, we think. Okay, so

Jason Hartman 15:12
tell us why the dependency ratio is so important. And well maybe ferret that out a little bit more for people, if you would? Well, let

Charles Goodhart / Manoj Pradhan 15:19
me let me take that on. First of all, two reasons why a increase in the ratio of workers is disinflationary. The first one is that you don’t hire a worker, unless they produce more than you pay them over, obviously. And what’s more, the workers have got to save for their own retirement. So the higher the ratio of workers to dependence, the more disinflationary the system is well dependent, the young and the old consume, but they don’t produce, and therefore, by definition, they’re more inflationary. Moreover, when the number of young started to decline, and we got all the increase in consumer durables, there was an enormous increase in the participation rate of women. And that meant that there was a shift out of home production, which did not count towards GDP, to into women working in the labor force, which did count towards GDP. So in a sense, the rate of growth of output was considerably over, over exaggerated during the years when the dependency ratio was improving.

Jason Hartman 16:31
Okay, let it that’s, that’s really interesting. So what you’re saying is that the domestic work, if the home is not counted in GDP, are as we all know that. And so when women shifted into the workforce, the GDP numbers went up. As you as you would think that there’s more production, there’s more people in the workforce. But what what’s put what does that mean? So in other words, that wasn’t, well, it wasn’t increased, but it wasn’t I mean, I don’t know, you know, then there, then there became legions of housekeepers. So

Charles Goodhart / Manoj Pradhan 17:05
Well, yeah. And the thing is that when somebody buys a clothes washer, that adds to GDP, when they wash clothes at home by themselves, it does know that to GDP, so we’re shift from washing everything by hand at home would used to be the way things were done. They’re having a close washer, and going out to work in the labor force and producing more led to a sharp rise in the rate of growth of output overall, but the number of clothes that actually got washed, didn’t change very much. So what does that mean? What where do we go with that as

Jason Hartman 17:43
well won’t see that kind of increase in the future, because the women are already in the workforce now. Exactly. So that benefit to growth is, is being done. And now we’ve got the opposite effect with the rate of growth of the number of retired, increasing very sharply. So the dependency ratios are not going to worsen because the number of people who are old and retired is going to increase as a considerable proportion of the total population. And they need a great deal of care and looking after, as Manoj said, dementia increases exponentially. Once you get over 85, the likelihood of needing a considerable amount of support and care. And there has to be done by people, it can’t be done by robots increases to something like about 70% of the of those of that age group. When you get to buy over 90, it increases it to almost 100% 100 centenarians can’t look after themselves. Fair enough. However, you are making one assumption which may be valid for a long time, but probably not forever is that, you know, there won’t be treatments queuers advanced, you know, I mean, of course, that’s a possibility. But the slow process, indeed, and you certainly

Charles Goodhart / Manoj Pradhan 19:05
can’t rely on it, and rely on the ability I the medicine has done wonderful things in dealing with cardiovascular with dealing with cancer, with dealing with cataracts and things like that everything under the neck, they’ve dealt with magnificently. But the success so far in dealing with problems related to the working with the brain is actually been horribly disappointed. 90, so drugs that are being tried, only about two or three have had any beneficial effect whatsoever. And even that has been slight.

Charles Goodhart / Manoj Pradhan 19:41
Jason, let’s look at it this way. I mean, you know, first, we would love to be wrong. It really would give us immense pleasure to know that there has been a way out of here and a few a small laundry list of things that could prove us wrong or the following. If we get a cure pretty much the way we’re looking for a cure for COVID. If we can get a cure for dementia And old age related diseases or as the who has been pointing out, a lot of it can be prevented people could work to later on in their life. Second is if a lot of work could be transformed from physical work to mental work, being old helps you do that. But physical work is still hard when you’re aging. Second is, if AI turns out to be an absolutely fantastic game changer for productivity, not just for the few jobs that we can see immediate impact in, but just all around everywhere, including caring. And the last bit really is if policymakers don’t have to wait for a crisis to show up at their doorsteps and take action now, to really address some of the issues we raised in this book. But we don’t see any of that happening at the

Jason Hartman 20:43
VA. That’s very much wishful thinking on the part of government. Okay, so go on, you know, I’m looking at the table of contents, you cover a lot of things in this book, let’s switch gears and, and, you know, grab it in another area that you want to cover. I just want to make sure we get all this out.

Charles Goodhart / Manoj Pradhan 20:59
Well, one of the one of the key things that we get asked, and and you alluded to this yourself, right, which is that the tip of the spear, or the blueprint for an aging society, has already been seen many argue in Japan. So Japan’s been aging for a very long period of time. Like you’re saying the concerns are that they don’t really have much immigration inward. So their population growth is really dwindling into nothing. And if all of that is true, why haven’t we seen our thesis playing out there? Why have we seen in many cases, the opposite. And Johnson? Oh, we’ve looked at this topic. And our argument is that the way Japan has been treated has been symptomatic of a lot of the problems that we see in the analysis of the global economy.

Jason Hartman 21:43
It has been one reason why don’t you see your thesis playing out? You mean inflation, right? inflation is because Japan has huge debt levels, about 230% of GDP, and it has an aging population. But it also has, you know, it’s really like the last three decades, you know, I mean, not not even two decades anymore, when so why don’t you see it playing out?

Charles Goodhart / Manoj Pradhan 22:04
They’re actually actually it’s interesting. You said, and let’s use that as a starting point, right? I mean, the first point you look at is they really did have a lost decade, there’s no doubt after the asset price bubble burst, they really had lost decade. But since then, they’ve had 1% GDP growth, which doesn’t look fantastic at all. But when you consider that the population in the working age population has been falling, the workforce has been falling by 1%. The difference between the two which is productivity is 2% a year. If you offer 2% a year productivity growth through the advanced economies, they bite your hand off today. So they’ve done very well on that front. The second thing to keep in mind is Japan is not an autarkic society, there was no way that Japan was blocking off either the disinflationary forces, or the impact of this massive labor supply shock at its borders. So Japan going into inflation, while China was deflating the rest of the world, is incomprehensible. When we look at Japan, and we look at it as a closed society, and we say, Well, this is what happened in Japan, they went to deflation because of its demography, what we’re effectively doing is we are saying that Japanese corporates and and the policymakers there, disregarded the rest of the world. And they absolutely did not one of our key contributions to that debate is finding new data and new evidence from Japan’s own ministries, that shows very clearly that Japan’s corporate sector looked at the domestic economy and said, That’s not where I want to invest. Where I do want to invest is in China, North Asia, Brazil, Poland. And indeed, if you look at what’s been happening there, the ratio of overseas to domestic production not only of manufacturing, but of employment services, profit, everything has been increasing at a very steady pace for the last 30 years. So Japan behaved in a profit maximizing manner outside within its economies, its labor force was treated as we all know very differently from the rest of the world, you could not really fire those with employment for life contracts. So Japan moved them from manufacturing to services where you could better protect their hours, and they move to part time workers. So I think Japan on our point of view has been mis diagnosed. And using that as a roadmap for what is yet to come is an extremely misleading story, which is why we have market prices where they are right now. And they’re about to be proven wrong.

Jason Hartman 24:30
And when you say market prices, are you referring to the stock market, partly to a low to a large extent, I mean, interest rates.

Charles Goodhart / Manoj Pradhan 24:38
So if you look at where interest rates are, and this is the point you made earlier, which is that, you know, there Japan’s debt has skyrocketed and what has allowed them to remain that high, which is a point Charles, as made many times is that the cost of servicing that debt has fallen to incredibly low levels. And so what we’ve seen for the future is everyone’s expecting interest rates over the next 10 2030 years are going to remain very low, which means there is no pressure on stock markets and the impact on currencies as unknown. If we are right, we’re going to start with those interest rates being at the wrong level. And all of the subsequent changes that will reverberate through the risky asset spectrum will then be a function of that initial change. And we’ve been living in a remarkably favorable time and capital. And with the result that what has happened is being debt ratios everywhere have gone up very, very sharply. But interest rates have fallen just as sharply. So debt service ratios have remained flat or even decline. So the burden of a debt has not been increasing. But interest rates can’t go down anymore, and are very likely to rise somewhat, in the aftermath of a pandemic. And with the reduction in the working population that we see coming. And with the greater protection is at the end of globalization, the return of business to each country is one of the features of the COVID palette pandemic, was it every country became even more national, they, they all insisted on keeping their own drugs and personal protective equipment. The COVID pandemic has moved globalization even further

Jason Hartman 26:24
backwards, the COVID pandemic has really promoted the Trump agenda at the end of day Trump back in 2015. And 16. You know, he This is all the stuff that he was talking about. And you know, he’s getting it through COVID, if not his own efforts, obviously. But you know, I think there’s some sense to that, I mean, countries should make their own PPV and some of their own things and their own vaccines. And, you know, some of that should be done onshore, you know, this is just my personal opinion, we can’t be dependent, you know, every country can’t be totally dependent for emergencies, style needs on other trading partners that need them themselves, right. And

Charles Goodhart / Manoj Pradhan 27:04
you have to be aware of the implications of that. Because in the past, with globalization, any employer could turn around and the workers and say, if you insist on having a higher wage, so be it. But we will move the production offshore, and you will no longer have a job. That is no longer going to be the case I’m the effect of globalization and the massive upward supply shock in the labor force. And the shift of labor out of manufacturing where they were relatively well, concentrated and unionized, to the service economy to the gig gig economy, has absolutely trashed the bargaining power of labor. Oh, I know. And the bargaining power of labor is going to come back.

Charles Goodhart / Manoj Pradhan 27:51
I think, if you just to put Charles’s point in a slightly different way connecting to the initial comment you had is is where do we where do we stop that story? If it is for national and public interest that you produce PP at home, and disregard profit considerations? I would have no objection to that. But then you could take that story on to a few other industries where you could make similar arguments could be endless. Yeah. And that’s

Jason Hartman 28:16
why I’m just saying to, you know, it just seems logical that some of this gear, you can’t be just completely dependent. But the look at that’s neither here nor there. That’s just my opinion. Okay, I could be wrong. But we don’t want. You’ve got a diagram in the book, where you talk about stagflation. And I’ve predicted that that is the era in which we are moving into, I don’t know if it’ll be the 70s style stagflation, but I think we are going to see a higher inflation. And I think we are going to see a real shift in employment and so forth, the you you’ve alluded to it in kind of different ways. And I’m just wondering, do you think that’s what we’re coming into stagflation? And for the inflation component of that, you say inflation is coming? And I agree with you, by the way? How much like, Can you put a number on that? And are you talking about us when you say that, or global or both?

Charles Goodhart / Manoj Pradhan 29:11
I think we’re lucky if we can hold inflation rate of about four or 5% per annum

Jason Hartman 29:17
as an official number, like a CPI number, which most people believe that’s understated, you know,

Charles Goodhart / Manoj Pradhan 29:23
but at the moment, I’m because of the shift in the consumer basket, what people buy the current CPI figures for inflation and almost meaningless and certainly underestimate the true rate of inflation at the moment. They’re not by an enormous amount.

Jason Hartman 29:41
Let me get an opinion from you on that. Do you think the true rate of inflation is is 50% higher than the CPI is a double the CPI CPI of zero? Well say the CPI is at their target rate of 2% when it is okay. percent I understand, but let’s just say it’s two with Ben, is it really three? Or is it really four, you know, is probably live around two. Okay.

Charles Goodhart / Manoj Pradhan 30:10
And that’s that that’s more in, in Europe? I’m not, I wouldn’t like to be dogmatic about what the US situation.

Jason Hartman 30:18
Okay. All right, fair enough. Fair enough. Okay, so but but stagflation is that where we’re coming into

Charles Goodhart / Manoj Pradhan 30:24
the patient? Yes, the question of stag, I’m we’re in some ways, we’re quite optimistic in that we do think that productivity per worker is going to improve, because in order to retain remain remain competitive manufacturers who are able to maintain an enormous profit margin, by shifting everything to low wage countries abroad, will now have to invest in order to make their workers where unit wage costs are likely to rise more productive in order to cut cut down on labor costs. So we think that productivity per worker will rise as he did in Japan, we think that investment will corporate investment will go back up, and then productivity will recover, but will do very well, if we do as well as Japan. And you talked about three last decades. We think that given the demographic difficulties that Japan faced, during the last two decades, they’ve actually done very well. And we will all and that includes US and the UK, be doing very well, if we can increase our productivity per worker to the level that Japan has managed to do.

Jason Hartman 31:38
Yeah, look, Japan is impressive, intellectually and technologically. And in terms of ambition, I mean, their workers are extremely ambitious, they work very hard, very many hours in Japan. So so fair enough, I was sort of including the demographic problem into the mix. And China, by the way, has a demographic problem coming up in a decade or so as well. So you know, the one child policy is about to really rear its head. Go ahead, manouche. But I really want to make sure that I know we’ve been going long, I want to make sure because I’d be totally remiss if I did not ask you a little bit more about good hearts law. So I do want to get to that before you go. But I knew you were gonna say something.

Charles Goodhart / Manoj Pradhan 32:19
Yeah, I was gonna say I mean, if you think about it from an econ 101 point of view, right. I mean, it’s been a very long time since since I taught that class. But if you think about it, from that point of view, it’s interesting to contrast it against something like the 70s stagflation right there, what you would get is a negative supply shock, that would create a negative output gap. So you’d have unemployment at high levels, and you would get the inflationary impact. What we are arguing is different over here is that what you’re getting with a declining labor force is that potential growth itself is going to come down. And real factors in our case, as we have argued, are the ones that are going to lead a nominal variable, like inflation higher. So if you mean by stagflation, that you’re going to get lower growth than we’ve had in the past. That is absolutely right, because inflation will be higher, and growth will be lower. But it’s not the kind that you get massive amounts of unemployment, you get real relocation of labor from one sector to the other. But overall, we think with productivity and employment, it will actually benefit workers not only from a social but from an economic point of view.

Jason Hartman 33:24
Good. So the news is not all bad then right? It’s good in some ways, for sure. Right? Right. Okay. Okay, you want to wrap it up with good hearts law.

Charles Goodhart / Manoj Pradhan 33:34
When the government when the government or anybody in a position of power, makes a relationship into a target, then the previous relationship will tend to break down. Let me give you an example, not an economics. But shall we say from education, let’s say that there is a pretty good relationship between somebody is score in mathematics, and overall ability to deal with success in later life. So the government then targets a mathematical exam in order to try and raise standards. So you know, schools get graded on the result for this particular maths exam. The result of that is that every school then effectively focuses on getting their students to pass that particular maths exam, without necessarily having a grounding in a whole series of other kinds of important educational training, or necessarily knowing much about maths outside this specific areas in which are going to be tested in the exam. As a result, what you would find is the prior relationship between In mathematics ability, as tested by this exam, and subsequent success in life would collapse. Making something into a target changes the way everybody behaves. It changes the way the people who are subject to the target behave, and even changes the way that the authorities themselves behave. Again, to take an example, governments don’t like it, if the targets they have set are not met. So very frequently, they will actually change the way that things are scored, in order to ensure that a sufficient proportion of the population on doing this actually gives the targeted tow

Jason Hartman 35:46
now faster estimating that that’s, that’s really excellent. You know, it almost makes me call the mind to I’m sure you’ll say unrelated things, because I think they are unrelated. But, you know, they’re kind of in that. I want to say like the double slit experiment, and hawthornes law, or the Hawthorne experiment, I guess I should say, I don’t know if that became like a law, if you will. But you know, that you whenever you you make something a thing, then the focus changes and it skews it, it it abuses it, right, that indicator, right. Yeah. That’s very interesting. Very interesting.

Charles Goodhart / Manoj Pradhan 36:19
You remember the Westinghouse experiment?

Charles Goodhart / Manoj Pradhan 36:22
No, no, no, that

Charles Goodhart / Manoj Pradhan 36:22
one told me it’s a lovely Westinghouse experiment was it was a factory, and they tried to see what made the workers more productive.

Jason Hartman 36:30
And they changed. That was the lighting, right?

Charles Goodhart / Manoj Pradhan 36:34
Yeah, are they and then they change the period of the tea break, and they change the period of the of the break to go to the john and examines for every time they change something, productivity went up. And then they thought, well, I wonder what’s happening. And they started changing it the other way, productivity still went up. What was that? What made productivity go up? Was that accurate? People felt that others were interested in right. And because they were interested in them, they they worked actually harder. And and because they will being observed that change their behavior to the very fact of of undertaking changes and changing markets, changes behavior, and therefore changes the relationship.

Jason Hartman 37:20
Absolutely. Absolutely. Very good stuff. Do you have a website you want to give out or I mean, the book is available, of course, in all the usual places, and it looks great. By the way, you’ve got so many charts and graphs in here. I just I love that. Did you have a website you’d like to share anything?

Charles Goodhart / Manoj Pradhan 37:36
We don’t have ever website? I think we’re happy with just a book being pushed out there. Okay, good, legislated.

Jason Hartman 37:42
And the book is called the Great demographic reversal. Aging societies waning inequality, and inflation revival. Charles Goodhart and Manoj Pratt ham. So thank you so much for joining us today. Very interesting discussion. Thank you. Pleasure. Thanks for having us.

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