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Sunday, June 29, 2014

Japan Inflation At A 32 Year High?

Just in case anyone was in any doubt last weeks newspaper  headlines blared it out for us loud and clear - Japanese inflation is back, and has even hit levels last seen in 1982. (Click on image below for better viewing).

In fact consumer prices in Japan rose at an annual rate of 3.4% in May according to the Bank of Japan's preferred measure, driven higher from one month to another by the growing impact of the April sales tax hike. The May surge in inflation follows a previous jump to 3.2%  in April, up from 1.3% in March. Apart from the tax hike, the delayed impact of last years yen devaluation is still being felt: electricity charges rose 11.4% year on year in May, gasoline was up 9.6%, while fresh seafood prices climbed 14.3%.

However, stripping out the effect of the higher tax, Japan's core consumer-price index rose 1.4% in May according to statistics office estimates (see BoJ chart below), below the 1.5% increase the previous month. This underlying inflation fell, even while the headline core index rose, which is why I say the "growing impact" of the tax hike, since it is clear that businesses passed on more of the tax rise in May than they did in April. The slowdown in price growth was the first since September 2013, and BoJ governor Haruhiko Kuroda also recognized last week that ex-tax core inflation is "expected to slow to around 1%" in the summer, as the effects of higher imported energy prices diminish.

But beyond the waning impact of rising energy prices, a second factor is likely to put downward pressure on Japan prices: the continuing shortfall in domestic demand. Household spending was down 8% year on year in May, following a 4.6% drop in April.

And it's not hard to fathom why consumption is so weak: wages excluding overtime payments and bonuses fell for a 23rd month in April. In fact real wages fell 3.8% year on year. With the purchasing power of salaries falling, and weak demand for credit it is hard to see how consumption wouldn't be falling - maybe not as sharply as in May, but falling all the same.

On the positive side,  Japan's unemployment rate hit a 16-year low of 3.5%  in May. At the same time, the availability of jobs rose to its highest level since 1992, with the jobs-to-applicants ratio for May hitting 1.09, meaning there were 109 jobs available for every 100 job seekers. The data showed the job market tightening across the economy, from construction to auto manufacturing to education.

In fact it isn't just unemployment that is falling - employment is also rising, and was up by just over half a million workers over the last twelve months taking the number of jobs in the economy to a post crisis high.

But if the number of people employed is rising, why isn't what Prime Minister Abe calls the "virtuous cycle" starting to work, with jobs growth producing income growth to spur consumption, so lifting corporate profits and investment spending? Part of the answer lies in the kind of jobs being created. The growth in the number of workers on short-term or part-time contracts means that total earnings (as opposed to basic wages) across the economy are not rising. Employment was up 0.9% while disposable income among worker households FELL 3.4% in real terms. The numbers just don't add up.

As the Economist (who prepared the above chart) puts it, "workers used to be protected by an expensive system of lifetime employment. But firms place new entrants on short-term, ill-paid contracts. Nearly two-fifths of the workforce now falls into this “irregular” category."

The Price Of Permanent Stimulus

Nothing, as we know, comes free, and Abenomics is no exception. Apart from the problem of inducing consumption on the back of falling real wages, the country's external balances are also suffering.  Japan logged its 23rd successive month of trade deficits in May, as exports and imports both declined. The May deficit  was 909 billion yen ($8.8 billion), as exports to the U.S. fell by nearly 3 percent from a year earlier. Exports fell 2.7 percent to 5.6 trillion yen ($54.9 billion) while imports dropped 3.6 percent to 6.5 trillion yen ($63.7 billion).

The current account surplus is also deteriorating and plunged 76.1% in April when compared with the previous year. The current account balance was the lowest seen in April since1982 according to the Japanese Finance Ministry.

All this notwithstanding, with the Bank of Japan buying almost all new issue Japan Government Bonds, yields remain incredibly low. As the FT's James Mackintosh points out the yield on the 7-year bond fell to just 0.28% last week, only 6bp above its all-time low.

As James notes, rising inflation and falling bond yields don't mix well in the longer term, and don't offer much prospect of a serious market beyond BoJ purchases, unless of course the inflation is not sustainable.  The black line in the following chart shows an index of inflation-linked JGB real yields, while the other two show the 7- and 10-year yields minus inflation.

Really there isn't that much mystery about what is going on in Japan. Falling working age population is steadily reducing the country's potential growth rate (as the chart below from the Bank of Japan illustrates), and while structural reforms may help raise productivity and offset the decline on the supply side to some extent, they won't address the underlying structural demand shortage problem. So it could be that at the end of the day the only lasting legacy of the Abenomics experiment will be a seriously distorted economy and a pile of sovereign debt which will be hard to ever pay down and will make raising interest rates in the longer term really problematic.

More detailed arguments to justify the idea that Abenomics is unlikely to achieve its objectives can be found in my recent short book - The ABE of Economics (for more information visit my webpage). The book is available with Amazon as an e-book. It can be found here. You don't need to buy a Kindle to read this book. You can download a free app from Amazon.

Friday, June 20, 2014

Will Japan Re-enter Deflation in April 2015?

Reading the most recent statements from Bank of Japan Governor Haruhiko Kuroda or Finance Minister Taro Aso you would get the impression that the days of deflation are now well and truly numbered in Japan. Martin Schulz, economist at Fujitsu Research Institute in Tokyo, goes even further. “Deflation is over in Japan,” he told Bloomberg Television First Up’s Angie Lau . Even Japan’s industrial leaders now believe inflation is here to stay: the country’s inflation rate will be 1.5 percent in the spring of 2015, and 1.7 percent in 2017, according to average forecasts in a Bank of Japan survey conducted in March this year.

But is such optimist justified? According to the Bank of Japan's favored index, which includes energy but not the cost of fresh food, inflation stood at an annual 3.2% in April. Sounds good if what you want to do is generate inflation.

But before getting too excited, it is worth bearing in mind that inflation one month earlier has stood at only 1.3% on the same measure. The difference between months is, naturally, the result of the impact of the 3% sales tax hike which came into force on 1 April. Without that, inflation would have been much lower since the base effect of the 20% yen devaluation is now starting to work its way out of the calculation. Indeed stripping out energy costs (which are the principal knock on cost effect of the devalued yen), inflation in April was but 2.3%, notably below the size of the tax hike. So the question which should be being asked is what will the level of annual inflation be in April 2015, assuming that is there are no further yen devaluations or tax hikes to help push the number back up again? Analysts at Credit Suisse seem pretty clear (see chart below), we’ll be back in deflation again.

Leaving aside the sustainability issue, the type of inflation Japan has been experiencing since the advent of Abenomics – driven by rising energy costs and tax hikes – also constitutes a problem. It has been described by Bloomberg journalists Tsuyoshi Inajima and Brian Swint as the "wrong kind", a way of putting things which highlights the amount of confusion there is out there about just what it is that the BoJ is doing and what it is supposed to be achieving.

To back their point they cite Klaus Baader, chief Asia Pacific economist for Societe Generale in Hong Kong to the effect that “this isn’t the kind of inflation we want in Japan to break the deflation mindset. We’d like inflation that is a reflection of higher wages, whereas this is pure cost inflation that decreases purchasing power.” So now we learn that Japan doesn’t need just any old inflation, it needs a very specific kind, which could be described as “demand pull”, but this brings us straight back to the original problem: domestic demand in Japan just isn’t strong enough to generate this kind of inflation, and nudging up inflation expectations for a couple of years won’t change anything substantial in this regard. Possibly the type of cost push inflation Japan is experiencing is the "wrong kind" for adherents of the Abenomics approach, but it is more than likely the only kind they are going to get. If the structural lack of demand argument I have been advancing is valid, then this means there is permanent downward pressure on costs in an environment of constant oversupply making inflationary wage increases difficult to envision. Indeed, as reported by another group of Bloomberg journalists (Masaki Kondo, Mariko Ishikawa and Yumi Ikeda) , reality itself belies such expectations, since Japan's wage index hit a post 1992 low at the start of 2013. And the downward drift has continued. In April 2014 the average basic salary fell for the 23rd straight month, declining 0.2 percent to 243,989 yen, while average real, or inflation-adjusted, wages decreased 3.1 percent from a year earlier, marking the largest year-on-year fall in more than four years.

Rising inflation and falling wages don’t seem like the sort of combination to make for a sustainable recovery. Indeed it seems so off-mark as to make you wonder whether official sector economists really thought through what they were doing before embarking on this experiment.

The thing is this, given all the doubt which exists about the real roots of Japan's problem, and the fact that it may well be a permanent structural problem and not a temporary liquidity trap one, is it really justified to run such a high risk, all-or-nothing experiment? Even Paul Krugman seems to have changed his assessment various times since the  problem started and while he still fully supports the general approach being taken he now thinks the natural rate of interest may remain permanently negative and that fiscal stimulus might be necessary on a permanent basis (liquidity trap without end, amen).  What makes people nervous is the thought that if the central bank can't deliver on its promise to deliver inflation then a loss of confidence might ensue, and all those dubious risky asset positions might unwind suddenly, just like an earlier set did in 2008.

And there are plenty of people in Japan who have been pointing this out all along. Seki Obata, a Keio University business school professor for example, who in 2013 published a book "Reflation is Dangerous," argues exactly this, that "Abenomics" is exposing Japan to considerable risk without any clear sense of what it can accomplish. Obata also makes the extremely valid point that there is simply no way incomes can rise across the entire economy because the baby boomers are now retiring to be replaced by fewer young workers with post labour reform entry-level wages. Japan's overall consumer spending power will therefore fall, rather than rise as Abe hopes. "Individual companies may offer wage increases, but because of demographics it is simply impossible to increase the total amount that is paid out in wages," says Obata. "On the contrary, that amount will shrink." Simple logic you would have thought, but logic in the face of irrational exuberance scarcely stops people in their tracks.

As far as I can see, all of this  points to one simple and evident conclusion: that Japan needs deep seated cultural changes, especially ones directed to greater female empowerment and more open-ness towards immigration. Hardly matters for central bank initiatives, and indeed ones for which Shinzo Abe, who naturally has given his name to this new economic trend, is singularly ill equipped to carry through. Japan needs a series of structural reforms – like those under discussion around the third arrow – but these would be to soften the blow of workforce and population decline, not an attempt to run away from it. Monetary policy has its limits. As Martin Wolf so aptly put it, "you can't print babies".

The above is an extract from my new "mini book" the A B E of Economics.

The book is available with Amazon as an e-book. It can be found here. You don't need to buy a Kindle to read this book. You can download a free app from Amazon.

Sunday, June 15, 2014

Secular Stagnation Part II - On Bubble Business Bound

 "I now suspect that the kind of moderate economic policy regime...... that by and large lets markets work, but in which the government is ready both to rein in excesses and fight slumps – is inherently unstable."
Paul Krugman - The Instability of Moderation

"Conventional macreconomic theory leaves us in a very serious problem, because we all seem to agree that whereas you can keep the federal funds rate at a low level forever it's much harder to do extraordinary measures that go beyond that forever. But the underlying problem may be there forever. It's much more difficult to say, well we only needed deficits during the short period of the crisis if equilibrium interest rates can't be achieved given the prevailing rate of inflation."
Larry Summers - IMF 14th Annual Research Conference In Honor Of Stanley Fisher,

Discussion surrounding the Larry Summers speech to the autumn 2013 IMF research conference (text here) - where he suggested that what we might be observing in developed economies is a phenomenon similar to that which Alvin Hansen (writing in the 1930s) termed secular stagnation (see eg here) - has been intense, raising a plethora of issues, among them whether or not modern developed economies NEED to continually generate bubbles to sustain growth.

Naturally one part of the debate currently taking place revolves around whether or not secular stagnation exists at all. Here I think we can safely leave the heavy lifting part of the argument to Messrs Krugman, Summers et al who will through their ongoing work continue to defend the "aye" corner. The issue, at the end of the day is going to be an empirically testable one, even if - in a discursive space where rival world views are constantly in play - things are never, ever, quite that simple.

Permanent Fiscal Stimulus?

But there is another, equally important, part to this problem.  Suppose for a moment that the secular stagnation thesis is a valid one, and suppose - as I argue in the introduction to this series - that the phenomenon is the result of a slowdown in the rate of growth (turning eventually into contraction) in working age populations in one country after another. Then add to this the further supposition that the process is ongoing (ie not the product of a "baby boom" generation or any such similar "one off") and effectively irreversible.

If these three suppositions jointly and severely satisfy the minimum conditions necessary to warrant their being explored, then we have to face the possibility - as Larry Summers does (and as Eggertsson and Mehrotra attempt to do via the elavoration of  a  model) -  that the conditions might be given whereby what is called the "natural" (or equilibrium) rate of interest gets stuck in permanently negative territory and and thus become - to all intent and purpose - permanently out of reach. So, asks Larry, how can we justify the fiscal deficits we run as being purely counter-cyclical? Or, as Paul Krugman puts it after reading the Eggertsson and Mehrotra  paper, "I’m wondering in particular whether there is a possibility of sustaining the economy with permanent fiscal expansion".

Larry Summers doesn't go quite so far. In an article in the Financial Times - Why stagnation might prove to be the new normal - he recognizes there is a risk of producing bubbles when there is a continuous and unending  application of non-conventional measures, but then, somehow, he seems to duck the bigger question: namely what can realistically be achieved and at what cost. Rather than the issue being -  as presented by Keynes (see my intro to this series)  - how we manage the consequences of inevitable population decline, Summers asks us to think about  "how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity holding our economies back below their potential".

Naturally, there are assumptions here - large ones - that need to be thought about. Do developed economies really have a growth potential, above and  beyond that which is already being manifested. How do we know that? How can we confirm or deny the hypothesis? How can we be sure that long term growth potential is not simply being systematically negatively reduced by the decline in working age populations?

At the very minimum we are in need of one positive counter example, one which shows that there is an underlying potential waiting to be unleashed.

Today's Situation Very Different From 1930s

The current situation is very different from the one John Maynard Keynes contemplated in the 1930s in his General Theory. At that point in the evolution of our economies and our societies the more advanced economies were stuck in a long lasting depression, a depression whose general dynamics are still far from being adequately understood, but one which was at least partly being perpetuated by the ineffectiveness of monetary policy due to the presence of a liquidity trap. The problem at that time was not simply cyclical, and certainly attempts to address it offer pointers to how we can handle our present day one. But the 1930s problem was not not in-principle self perpetuating. Economies really were being held back, as subsequent history has shown.  

Today many economies are suffering the effects of a liquidity trap, but this time what we have is not simply a transient phenomenon since that trap is being generated by the impact of long term demographic changes in a way which was not the case in the 1930s - indeed you could speculate that in some countries the liquidity trap is a by-product of being stuck in a low fertility one. So the temporary application of exceptional fiscal and liquidity measures isn't going to resolve the "problem" (if problem - as opposed to inevitable and natural evolution in our economic and demographic regimes -  there be) since once the effects of these wear off the economy may simply return to its old lethargy. This outcome I fear is one we will see in Japan if the Abenomics stimulus is ever removed.

Thus we are not simply talking about what Keynes referred to in his Essays in Persuasion as "magneto trouble" (despite this being one of PK's favourite analogies), wherein "the economic engine was as powerful as ever — but one crucial part [the magneto]was malfunctioning, and needed to be fixed". Which, we may ask, is the component which needs to be "fixed" here - I reiterate - could it possibly be fertility?

That's why people are talking about permanent fiscal stimulus, assuming "stimulus" is the appropriate word here. If it is then the definition of  "austerity" transits into "failure to apply permanent fiscal  stimulus".  It's a new and different world, one where there is no "back" to head for, or as the American writer Thomas Wolf put it, "you can look homeward, angel", but "you can't go home again".

And Permanently Rising Sovereign Debt?

So to take the standard case, Japan, we might like to ask ourselves what the risks involved in carrying out such permanent stimulus actually are. Curiously the worry here isn't the standard one, hyperinflation. The Bank of Japan and the Ministry of Finance are pumping large amounts of "juice" into the economy, but trend growth is only being sustained at something just over 1% per annum, and outside periods of rapid yen devaluation or consumption tax hikes there is little to be seen in the way of demand led inflation.

The BoJ is currently buying virtually all new issue Japan Government Bonds (holding in doing so the interest rate on 10yr debt at around 0.6%) and the MoF is funding something like 10% of GDP in annual deficit spending by selling bonds to the central bank.

Despite such strong policy measures, the  only incontestable negative that stands out is the accumulation of  a lot of government debt. In the Japanese case, and to date, it amounts to something like 245% of GDP. Obviously such a high level of sovereign indebtedness commands respect, but is it really, really problematic? Paul Krugman isn't convinced. As he tells us in his article "The Japan Story" (2013), "while there is much shaking of heads about Japanese debt, the ill-effects if any of that debt are by no means obvious."

Time Out With MMT

In fact there is a whole school of thought - known by the name of Modern Monetary Theory - which would argue that the ill effects are not obvious since they don't really exist. It's just a question of keystrokes.  I don't consider myself any kind of expert on the doctrines of MMT, but this critique of Paul Krugman and Larry Summers by blogger Ralph Musgrave seems to be reasonably representative of the general line of thought.

On occasion Paul has been rather dismissive of MMT writings, but the thing is his principal objection has normally been that the implementation of their approach would lead to - wait for it - inflation. Now this tack is not so surprising since it used to be the accepted basis for any mainstream critique of systematic money printing. But here's the rub, right now we seem incapable of generating systematic inflation. Not only that PK himself has been fiercely critical - and with reason - of those who had been predicting we were. In fact most of Paul's critique of MMT seems to date to an epoch before we started to ask ourselves whether the natural rate of interest might not have turned permanently negative. As he said, in a critique of MMT made back in March 2011:
"The key thing to remember is that current conditions — lots of excess capacity in the economy, and a liquidity trap in which short-term government debt carries a roughly zero interest rate — won’t always prevail. As long as those conditions DO prevail, it doesn’t matter how much the Fed increases the monetary base, and it therefore doesn’t matter how much of the deficit is monetized. But this too shall pass, and when it does, things will be very different."
It's the "won't always prevail" bit which grabbed my attention. Now it is clear we are contemplating the possibility that it might, in which case the August 2011 observation that:
"the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money."
would seem to be no longer valid, either that or it is highly relevant to the discussion about whether or not Japan government debt really is so benign. I think you can't have it both ways. For my part I'm not at all sure PK is right in being so complacent about Japan debt, and indeed I have explored some of the possible Japan end-games with Claus Vistesen in our piece Japan's Looming Singularity. But even beyond potential financeability problems  (eg just how deep into negative territory can you take a central bank balance sheet and live to tell the tale), there are other more traditional problems which arise, especially if the supplier for the newly induced aggregate demand lies outside the borders of your economy leading the current account balance to go west (see my "The Growing Mess Which Will Be Left Behind By The Abenomics Experiment").

Why Then Is There A Risk Of Bubbles?

 The characteristics of liquidity traps are well known. Central banks increase their balance sheets (M1, base money) but this increase fails to feed through either to expansions in  broader money indicators (M3, credit to the private sector), or to real economic activity (employment, consumption) or even to inflation.

 When their balance sheets are leveraged in a more targeted sense, such as in programmes to promote specific sectors of bank lending, the risk of sectoral mini bubbles increases, as we are currently seeing in the UK.
I won't go into all this more here, since I have recently written extensively on the topic (see the Hot Labour Phenomenon), but it seems clear that a lot of the liquidity which is being pumped into the system by the ECB in an attempt to reflate economies on the Euro periphery is in fact arriving in cities like London, Berlin and Geneva (and specifically their housing sectors) producing all sorts of "bubbly" type activity and distortions in the domestic economies of the countries concerned, distortions which will prove hard to correct later, and may become highly negative in their effect should they eventually unwind.

All this liquidity may not have helped restore the real economies in the intended recipient countries, but it certainly - via "carry trades" and suchlike - made its presence felt elsewhere. Emerging market economies like India, Turkey, Brazil, Indonesia and South Africa saw their economies on the receiving end of large quantities of short term inward fund flows,  flows which pushed the values of their currency strongly upwards, overheated the domestic economies with credit and generated long lasting distortions.

Naturally, when the US Federal Reserve started to talk about tapering its bond purchases (in May 2013) the impact was felt in one emerging economy after another across the globe, as funds suddenly began to flow out, and the values of the respective currencies suddenly started to fall sharply.

So you can understand Reserve Bank of India governor Raghuram Rajan's frustration when he went to Frankfurt last year and complained to his audience: "We seem to be in a situation where we are doomed to inflate bubbles elsewhere." As Larry Summers notes in his Financial Times article: "In the past decade, before the crisis, bubbles and loose credit were only sufficient to drive moderate growth". What one might ask will be needed to achieve that "moderate growth" outcome this time round?

Wednesday, June 11, 2014

The "Hot Labour" Phenomenon

Strong growth. Rising real estate prices. Rapid job creation. Surging immigration. This list sums up the Switzerland of 2014 down to a tee. However, it also sounds like a description of what things were like in Spain in 2007 - shortly before the country's economy fell off a cliff. What follows is a conversation between financial journalist Detlef Gürtler and economist and crisis expert Edward Hugh about possible parallels and differences between the two booms, and the role of a new phenomenon which Hugh describes as "Hot Labour".

Hugh argues that this is a new phenomenon, and on the increase as a result of central bank bubble inducing activity. While immigration is a vital tool aiding economies to manage the population ageing process, it is important that economic activities be balanced and sustainable. Immigration which fuels boom/bust cycles is far from innocuous, and can harm a country just as much as a sudden stop in capital flows if the flows suddenly invert and  immigration is followed by emigration.   

Detlef Gürtler: Well Edward, you personally lived through one of the most important real estate booms in European history - the recent Spanish one. Is the real estate boom we are witnessing in Switzerland in any way comparable?

Edward Hugh: Before I start, I think it's worth pointing out that it goes without saying the Swiss are quite different from the Spaniards; and the Swiss economy is completely different from the Spanish one. In this sense every boom or crisis is in its own way different from anything before. That said, such "trivia" doesn't normally stop economists like me from trying to draw comparisons, even if in this case I have to be extremely careful, since while I know quite a lot about Spain I know much less about Switzerland. So perhaps you will help me.

Detlef Gürtler: Yes, economists do make comparisons, and you were even so bold as to draw one between the German 1990s housing boom and the one which took place in Spain after the start of the century.

Edward Hugh: Well this comparison isn't so strange as it may seem. Many talk today about Spain becoming the new Germany - in the sense of an export powerhouse - and while this idea may have a rather dubious basis in reality the shift from domestic consumption to exports is quite striking.

In both cases the subsequent "regeneration" was preceded by a significant consumer boom, in both cases there was a strong increase in real estate prices including a construction boom, in both cases there was an increase in household indebtedness, in both cases the current account deficit deteriorated. And then in both cases there was a rude awakening. The only real difference was one of scale, and in this case scale is important. Spain had what was at the end of the day the mother of all housing bubbles.

Detlef Gürtler: But in each case there was  a completely different historical background and there were very different underlying motifs.

Edward Hugh: Yes, of course. But does that really make a difference when it comes to economic ambition? East Germany's citizens in 1992 - just like their Spanish equivalents in 2002 - saw how big the distance was between their consumption level and the western (or northern) one, and since they could in each case contract debt on what was for them fairly favorable terms they decided to put history straight and to carry out a rapid catch up in consumption. Really, Europe as a democratic political project has some of the responsibility here, since there was no equalizing mechanism put in place, but at the same time people felt they were entitled to similar living standards.

One of the new MEPs from the newly formed Podemos party put it like this in a recent interview: "they have sold us a system in which they told us we would all be rich and we were all going to live very well, and there was a period like that, but all that’s over now."  

Detlef Gürtler: The Germans, on the other hand didn't find themselves with mortgages well below the actual value of the relevant property, while Spaniards are already facing this problem.

Edward Hugh: No, you're right, but this isn't the whole picture. Weren't there massive tax breaks for builders and developers in East Germany, tax breaks which were rapidly converted into 100% financing whereby the government effectively assumed the cost of write-down?.

Detlef Gürtler: Only in the prospectuses of tax-saving-scheme promoters. In fact, many investors ultimately remained sitting on a mountain of debt, debt which was higher than the long-term obtainable sale price for the property.

Edward Hugh: I see. In Spain, instead, creative valuation techniques were used. The economic end  result is the same: you lose the property but get stuck with a large part of the debt.

Detlef Gürtler: And how does Switzerland fits into this picture?

Edward Hugh: Well lets start with something which at face value seems positive. For many years there was virtually no inflation in Switzerland, sometimes the situation was more like deflation. Now a bubble economy without inflation, surely that would seem to be a novelty.

Unfortunately, when you come to look into things a bit more it isn't quite the novelty it seems to be. In fact Larry Summers, in his secular stagnation speech to the IMF 2013 research conference drew attention to this phenomenon. 
"Many people believe that monetary policy was too easy. Everybody agrees that there was a vast amount of imprudent lending going on. Almost everybody believes that wealth, as it was experienced by households, was in excess of its reality. Too easy money, too much borrowing, too much wealth. Was there a great boom? Capacity utilization wasn't under any great pressure. Unemployment wasn't under any remarkably low level. Inflation was entirely quiescent. So somehow, even a great bubble wasn't enough to produce any excess in aggregate demand."
So it seems bubble economies without inflation are becoming more common. The big question is why.

Detlef Gürtler: But if we look at real estate itself we see a different picture. In many market segments show annual price increases of more than ten percent.

Edward Hugh: Well, that is presumably in no small part due to investors from around the world seeking a safe haven for their money in Switzerland.

Detlef Gürtler: Yes. But especially since the franc was coupled to the euro these investors switched from the Swiss currency into Swiss real estate.

Edward Hugh: And obviously this increase is not (or is only insufficiently) taken into account in the consumer price inflation rate. Here again we find a similarity with Spain where the large rise in house prices was not reflected at all in the official consumer inflation rate. So despite official price stability life feels like it is becoming significantly more expensive, especially for those looking for a new apartment.

Normally when addressing the question of whether a real estate bubble exists or not, it is important to think about leveraging, about  whether the home purchases are financed by credit. If real houses are paid for with real money paid, and this money comes from the outside, the economic effect could be seen as more economically similar to exports: A foreigner buys a piece Switzerland. If the price falls back, it is largely a problem for the external investor, not for the Swiss themselves or the Swiss banks.

On the other hand, if all this "speculative" activity drives up property prices in a deflationary environment where wages are stationary, the affordability problem creates a different issue for Swiss nationals.

Detlef Gürtler: And what about the British market? Would you say this is currently more driven by "irrational exuberance" than Switzerland ?

Edward Hugh: Great Britain has at the present time  the fastest growing economy among all industrialized countries. But why should Britain suddenly have become a stellar economy, an exceptional out-performer? Again all this euphoria in the UK really reminds me of Spain, since Spain in its day was also considered to be an "out-performer", experiencing a major economic miracle.

 London house prices are up 18% year on year, and the current account balance is worsening. At the moment national insurance data indicate that roughly 600,000 economic migrants are arriving in the UK annually. Not as many as in Spain during the boom times - either in absolute terms or proportionally - but still a significant number. Because the immigration is mainly focused on London, it is leading to large distortions which affect the whole economy. The new arrivals need homes, but naturally they start without work and are not looking to buy. They end up renting - in maybe groups of 3 or 4 - and are thus able to collectively pay rental prices which a normal family cannot afford. Hence the buy to rent business become interesting.

Sadly many of the young Spaniards arriving (maybe 60,000 a year) are fleeing the consequences of one bubble only to inadvertently fuel another.

Detlef Gürtler: But isn't this an example of exactly the kind of labour mobility the EU in general and (the euro zone in particular) wanted to see? People move from countries and regions were there is little work to those where there is plenty? This pattern of behavior was legendary in the USA. Isn't it good that it now comes to Europe?

Edward Hugh: Well, yes and no. The key point is that the employment growth needs to be sustainable. Look at Spain, nearly half a million former immigrants left the country last year. And yet one more time it is important to understand that Euro Area countries have a different set of institutional arrangements to the ones which apply to US states. When Detroit went bust, the Federal Government was there to act as backstop.

When such activity is not sustainable there is a self perpetuating component which is highly undesirable. As Londoners feel better off since the value of their home has risen the borrow and spend more. They become more leveraged.  This boost to economic activity in turn attracts new immigrants, which push up rents even further and with them property values, making Londoners feel even richer, and so on. As a result you get what you could call an unbalanced but self-reinforcing economic recovery. Hence the "superstar economy" aspect.

So the point is that while developed economy societies need positive migration flows as they age, they don't need just any old kind of flow, otherwise you could end up with problem bigger than the one you started with.

Detlef Gürtler: Thus, labor mobility has a procyclical effect. Where the economy runs well , the process works through increasing migration with everything getting better and better and better, until that is the day bubble bursts.

Edward Hugh: What we are talking about here is a new phenomenon. When people say our economies are becoming "bubblier"  they normally are thinking in term of financial flows. This is the area first are in which the self-reinforcing dimension of the process was evident. Think of what happened to small countries like Iceland or New Zealand in the run in to the global financial crisis.The Danish economist Carsten Valgreen coined the phrase global financial accelerator to describe what was happening.

Detlef Gürtler: You mean the way in which large speculative inflows produced a boom, which the respective central banks tried to contain by raising interest rates, but somehow these increases in interest rates only served to attract more speculative funds. 

Edward Hugh: Yep this was the the original pattern, but it's different now. This is in fact the most important thing which has changed since the German property boom of the 1990s. Migration flows have started to  play a role which is just as important as the financial flows one. The migrant flows we are seeing today are exceptionally large, and have the characteristic that - just like capital flows - they may reverse rapidly. You could call this the global labour flow accelerator. I am convinced that we are dealing here with something new, with a hitherto hardly recognized phenomenon - namely speculative labour flows, or if you prefer" Hot Labour ".

Detlef Gürtler: "Hot Labour "? Never heard of it .

Edward Hugh: Neither had I, till I saw what was happening in Spain. As we mention above, I started speaking about this in 2006.

Detlef Gürtler: Did you invent the expression yourself?

Edward Hugh: No, I got the idea from someone called Pepe .

Detlef Gürtler: Pepe ? Which Pepe ?

Edward Hugh: Well I don't know him personally, or even his full name . Pepe was a commentator who showed up on my Blog. He used this term to distinguish those immigrants looking for a new home, a new life, and a new society to integrate in, from another group, those just moving for work or adventure without for any clear plan.  Locate work quickly, and if a crisis hits then change country.  Possibly this is not a conscious initial decision, but this is how it works out in practice.

Many young Spaniards working now in London or Berlin seem to fit this category. They don't really plan to emigrate, they just want to survive what they perceive as a "difficult period".  If asked in a survey about how they see their future they will normally say they are working abroad "temporarily" and will eventually return home. In fact they may never return home, emigration is a process which is not the product of a firm initial decision, but they also may be forced to move on quickly if the economic recovery where they have foudn work becomes volatile.

So the distinction between immigrants and Hot Labour could be thought of as following the same pattern as a similar one which describes in capital flows, where people have long distinguished between foreign direct investment and speculative investments , as in the expression " Hot Money ".

Detlef Gürtler: In the case of capital flows it is not so hard to differentiate one from the other : direct investment normally relates to plants and machinery, Hot Money is normally associated with securities such as stocks and bonds. How would you differentiate the various migrant populations?

Edward Hugh: First of all : not at all. The vast majority of immigrants change countries for economic reasons, but this does not tell us  anything about whether and how quickly they will leave the destination country if an economic crisis breaks out.

Detlef Gürtler: What would be " fast " in migration dimensions?

Edward Hugh: Well you could say a "fast " wave of migration today is one which turns around in a  period of say five years. Previously such waves were conceptualized in terms of generations. So now we should really not take for granted that all the immigrants who come in a boom phase will remain in the country in the longer term.

Detlef Gürtler: As were the experiences with the boom and crisis cycles in Germany and Spain?

Edward Hugh: The 1990s German phenomenon largely predates the modern phenomenon. At the end of the nineties immigration stalled but hardly reversed. This was probably largely due to the noticeable influx of people of German descent coming from Eastern Europe - they came because there was an opportunity to do so, but they were more like classical immigrants, they came to stay.

But now we are seeing a different phenomenon in Germany, suddenly we have seen a shift in the direction of migrant flows. During the early years of this century the number of people leaving Germany and the number arriving more or less balanced. In 2008 and 2009 in fact more people left than arrived. But since 2010 the number arriving (and the difference between those arriving and those leaving) has steadily increased. The result has been that the German population, which was expected to start falling, is now rising. And since most of those arriving are in younger age groups the same is true of the working age population.

Provisional estimates from the German Statistics Office,  suggest 1.226 million people emigrated to Germany in 2013, an increase of 146,000, or 13%, from 2012. The last time immigration on this scale was recorded in Germany  was in 1993. On the other hand some 789,000 people left Germany in 2013, 77,000 (+11%) more than in the previous year. The result was net immigration of 437,000 – also the highest figure since 1993.Naturally such a large number of people entering is producing a pressure on property prices in just the same way as in London, especially in Berlin and Bavaria.

Detlef Gürtler:  How does this recent German experience compare with Spain?

Edward Hugh: In Spain, both the growth and the subsequent decline have been very rapid. Between 2000 and 2010 the Spanish population grew by more than fifteen percent, from 40 million to 46 million. The number of non Spanish nationals in the country rose sixfold - from one million to 5.8 million .

Now all of this has completely inverted: in 2013 alone approximately half a million people left, most of them former immigrants. The National Statistics Office estimates that the country's population could fall by 2.5 million between now and 2023. The long term consequences for Spain, and the Spanish economy are hard to foresee at this point, but they are hardly going to be positive.

On the other hand people continue to arrive in Spain, principally from sub-Saharan Africa. This is a more classic immigration trend. People are not simply coming for work, they are also coming in search of a new life. Even though economic conditions are difficult most of these will stay and eventually take their lives forward.

Detlef Gürtler: Was the initial intention of most of the migrants who came to Spain during the first decade to stay?

Edward Hugh: I would say for the majority this was not initially the case. Back in 2002 I interviewed a group of Bulgarian immigrants about their intentions. The results were predictable enough. Certain groups who might have felt themselves disadvantaged in their own country - women, gays, religious minorities - wanted to make a long term change, but the majority felt they were in Spain temporarily, to earn some money and go home. This is what most of the literature on the topic explains. But most of the people I interviewed are still in Spain. This is normal. Time passes, you put down roots. Finally you have no real "home" to go back to.

Actually I would say that personally this is my own case here in Catalonia.

A somewhat similar phenomenon can be observed among the large number of female care and domestic workers who arrived from Latin America. This immigration was also a new phenomenon, since the women who arrived had largely been married and had children who were being looked after by grandparents. They sent virtually all their earnings home every month, possibly to buy a home. Some of these women have now left, but since caring for elderly at home is a growing occupation in Spain, and many Spaniards are reluctant to do it, the majority are still here, and increasingly they bring their children to Spain to live with them.

But many of the immigrants from Latin America , Romania and Morocco were employed in the construction industry and services sectors like bars and restaurants are leaving in large numbers. How long can they support themselves in a foreign country without work? So despite the fact they might prefer to stay, many are now leaving.

Detlef Gürtler: And how does all this compare with Switzerland ?

Edward Hugh: Well in  immigration terms Switzerland has a net population growth of about one percent per year (most European countries have very little natural population growth), putting it somewhere between the nineties German value (of about 0.7 percent per year ) and the most recent Spanish one (about 1.5 percent growth per year).

Detlef Gürtler:  Yes, and the immigration trend has recently accelerated. Already it is noticeable that something more than a normal recovery phase upswing is in motion. The older Swiss learned in school that their country had around six million inhabitants. The  younger ones found the number had already risen to seven million . In 2013 we found that for the first time the country had more than eight million inhabitants, and many forecasts now predict that the number can easily reach nine million. This in a country with a total fertility rate of around 1.5.

Edward Hugh: It is interesting to note that the Global Property Guide single out immigration for mention in the context of recent house price movements in Switzerland. "One factor has been an increase in the number of immigrants which has led to higher demand for houses. From 2007 to 2011, net migration into the country reached 365,500 people"

What Spain has shown us is that such trends do not necessarily last forever. Anyone with high rates of immigration and a nicely booming economy should also consider that substantial outward migration can occur when the economy weakens. If we are talking about a boom-bust then naturally things are much worse. Sustainability has to be a key idea we get our heads around in this context.

Detlef Gürtler: Unless, of course, the immigrants had come to stay, as was once the case in Germany , with the German-born migrants from Eastern Europe.

Edward Hugh: Yes, but this doesn't seem to be to be the Swiss case. Switzerland is very open when it comes to labor flows when there is work, but much less open when it comes to the subsequent integration of migrants.

Detlef Gürtler: And with an extremely liberal labour market jobs in Switzerland can not only be created  very fast, they can also be deleted very quickly.

Edward Hugh: Which makes Switzerland quite vulnerable to a Hot - Labour type phenomenon, with the capacity  for a very rapid job creation phase followed by a rapid job destruction one. If that were to happen, then people shouldn't be surprised if an economic downturn transforms itself into a veritable downward spiral. When there is work, the new migrants are made to feel somewhat welcome, but when they are without a job, just how much support is available for them? Very little it seems.

Detlef Gürtler: So it's like a game of Monopoly, where at some point you simply get sent back to "Go", the original starting point.  It looks like in Spain at the end of the recession many economic data  looked more like those of the year 2000.

Edward Hugh: Would that you only got sent back to the starting point! On some indicators - unemployment for example - Spain by 2020 may still be worse off than it was in 2000. The age structure would be another example. Those currently leaving the country in droves  in order to seek employment elsewhere  are predominantly young and well educated. Those who remain are either older,or without either skill or qualification. There is a massive human capital loss, and population ageing is accelerated.

Detlef Gürtler: How do such movements affect things like pension systems?

Edward Hugh: Well the initial inward surge is, of course, very positive. Pensions look much more sustainable, but if things go wrong then suddenly they aren't and pension reforms become urgently necessary. Spain has now had two of these since the crisis started.

Detlef Gürtler: But that is looking at things from the point of view of the receiving country. What about the sending one?

Edward Hugh: Well obviously, migrants moving from countries with very low fertility - like Eastern and Southern Europe - leave a serious hole behind them. One which threatens the future of the pension systems there.

Switzerland, with its island type location and the very Hot - Labour  type context can simply wring its hands over the situation as people who have contributed to the welfare system for years suddenly leave. But in the European Union, with its formal commitment to some sort of a politically shared project, there will inevitably be pressure for another kind of solution, one which involves some sort of common pension system.

People in the UK are want to complain about EU labour mobility, and arrivals from Eastern Europe, but countries like Latvia, for example, are hardly going to be sustainable if something isn't done.  It seems to me to be quite irrational for a country to enjoy a boom as a result of immigration, one which in addition means many urgently necessary structural reforms are pushed aside, while another country suffers only the negative consequences of emigration, getting stuck in a long depression while the entire pension system is pushed towards collapse. And then just a few years later the economic situation and the migratory pattern rotates one more reproducing the twin picture of complacency and collapse .

Detlef Gürtler: The technical term for the EU institutional change you mentioned is "intra-European Compensation", which probably means what the Germans call "Social union ".

Edward Hugh: Right. If the Euro and the EU are to continue then this would seem to be inevitable. Or do you expect the Germans to declare that they, in the future, will maintain their pension level thanks to the contribution of Spanish immigrants? And that this outcome is socially just, just because so many Spaniards have benefited from coming to Germany and are willingly depositing their contributions in the German pension box to show their gratitude?

But wouldn't it be totally economically irrational that a  common currency which is set up with totally inadequate institutional support, which overseas the generation of economic imbalances that cannot be corrected via either currency appreciation or depreciation, simply washes its hands of the search for a just solution. Other mechanisms must be established to allow these countries to recover and restore some sort of balance.

Detlef Gürtler: Balance? But don't many agree with George Soros when he argues that financial markets don't tend towards equilibrium, but fall into boom-bust cycles over and over again. Can it be that the the markets for human capital behaves similarly?
Edward Hugh: That could be, and that is the phenomenon I would like to draw attention to. However, the possibility has not been sufficiently explored so far,  so let's just leave this outcome today as an "educated guess". But whether we are talking about booming labor markets, like Germany, Switzerland, Great Britain, or busted ones, like those in Spain and Greece we are producing a lot of data with which it should be possible to either confirm or refute the conjecture.

And one last closing point. I have long favored (and continue to favor) sustainable immigration as one way to manage population aging (see my Message To Central Bankers Target Median Ages!: 2006, or my reply to Marty Feldstein "The Effects of the Ageing European Population on Economic Growth" of the same year). But for such a policy to work as intended we need to stop trying to reflate economies which for demographic reasons are trying to disinflate, and develop policies which are appropriate to the times we live in. The first step along this road is recognising that we have a problem.

The above is an adapted translation from German of an interview which originally appeared in the magazine GDI Impuls.

Friday, June 6, 2014

Secular Stagnation Part 1 - Paul Krugman's Bicycling Problem

"What’s really happening fast is the demographic transition, with Europe very quickly turning Japanese."
Paul Krugman - For Bonds, This Time is Different

Ever since Larry Summers gave his game-changing speech at last autumn's IMF research conference the back-and-forth flow of arguments about secular stagnation has been almost non-stop (indeed Larry himself now has a webpage dedicated to the topic). First to dive into the swimming pool after the sounding of the starting pistol was Paul Krugman, with a series of blogposts and NYT articles (here, here, here, here, here, here, and here).  These were followed/accompanied by a series of commentaries (both for and against), and then finally we got to one of the potential end points of the argument, the "negative natural interest rates for ever and ever" model produced by Gauti Eggertsson and Neil Mehrotra (here) - summarised by Krugman in his memorable "Stagnation Without End, Amen" post.   A fuller bibliography of major milestones in the secular stagnation issue can be found at the foot of this post, but I'm going to eat up most of the column space here looking at just one Krugmans arguments - the one contained in Demography and the Bicycle Effect - since in many ways in goes right to the nub of the issue.

The background to the argument (as originally, even if prematurely, explored by Alvin Hansen, Günar Myrdal and even John Maynard Keynes himself in the 1930s) is that the population dynamics set in motion by the industrial revolution of the late 18th century have reached a historic turning point. In the two centuries or so that have elapsed since what many term the modern growth era got going three related but distinct processes co-existed in time:

1/ positive trend population growth
2/ positive trend economic growth 
3/ steadily accelerating technical change

You could call these the "stylized facts" which characterize the modern growth era, but the secular tendency in two of them  is about to undergo a seismic shift. At some stage during the 21st century global population will peak, and then gradually start to decline, probably forever more. In fact in some countries (principally in Eastern Europe, but also Japan, Germany, Spain, Portugal, and Greece) population is already falling. All of Europe will likely head in this direction sometime in the 2020s, although there is considerable uncertainty still about the actual path dynamics of this process since in addition to birth rates immigration rates also play a part. At the present time some countries in Europe (the UK, Germany, Switzerland) are in receipt of large numbers of migrants annually, while others are losing working age population precisely to the aforementioned trio.

Hence the significance of the fact that Paul Krugman uses the expression "demographic transition" (for the first time to my knowledge) in the quote which opens this post. We are not talking here about some one-off problem (although often observers have spoken about Japan in just these terms), but a generalized phenomenon, a transition, something which eventually will affect all countries on the planet and our entire species. Previously people have tended to use the expression "demographic transition" to refer to the increase in the proportion of working age population and total population that accompanies the drop in fertility from high levels in less developed economies. The expression "demographic dividend" has often been used to describe the boost to economic activity this shift entails. Normally people assumed that this process would come to a halt around the 2.1tfr replacement level, but in one developed economy after another this hasn't happened, and those in which it has have been more the exception than the rule. So now reality pushes us towards a broadening in the definition of that transition towards acceptance of a later phase wherein populations age, and ultimately decline, a process which is greatly accelerated in those countries which have experienced long term very low fertility.

What Alvin Hansen and others started to think about in the 1930s was what the consequence would be for the second of the secular process which have characterized the modern growth era  (positive economic growth). What happens if populations (or better put working age populations) start to shrink? The kernel of their argument is summed up (here) by Paul Krugman as follows:
"To have more or less full employment, we need sufficient spending to make use of the economy’s potential. But one important component of spending, investment, is subject to the accelerator effect: the demand for new capital depends on the economy’s rate of growth, rather than the current level of output. So if growth slows due to a falloff in population growth, investment demand falls — potentially pushing the economy into a semi-permanent slump."
Pretty simple really, but isn't this just what Keynes says at the start of the General Theory, sometimes the simplest things are the hardest to see. Especially if our natural intellectual disposition leads us towards assuming the opposite. Apart from the theoretical simplicity, the idea is backed by plenty of empirical evidence. It has become clear in one country after another that there is a steady falling off of economic growth after the rate of working age population growth peaks and then starts to decline.

The Japan case (as shown above) is clear enough, but the start of this process is already observable in China, where working age population is currently peaking, and where growth rates have now fallen from the earlier double digit levels to ones in the 6%/7% range. People are even alarming themselves by saying we'd better get used to the idea of 5% growth, but in fact this easing in growth rates has little to do with a housing slowdown. Rather it is structural and long term, and Chinese growth rates will eventually fall to the level of Japanese ones (see my 2008 "Has China's Economic Growth Now Passed It's Peak"). Or does anyone seriously think China can keep going on the basis of attracting immigration?

What we are seeing then is that as working age population growth drops towards zero, so GDP growth weakens. The question is, as it turns negative will GDP growth (as opposed to GDP per capita growth) also turn negative. The answer is it depends. A simple approximation to a growth accounting model of the type used by IMF, OECD etc to calculate trend growth in an economy would be the following:

GDP growth = growth in working age population + TFP (total factor productivity) growth

Now, if working age population growth turns negative, then GDP growth can only be positive if productivity grows faster. One conclusion is very obvious here, handling the later stages of the demographic transition is all about managing the rate of working age population decline. This can be achieved to some extent via lengthening the working life, raising the participation rate, or having immigration. Even so, we may arrive at a point were GDP trend growth rates drop below zero. This situation is very near to being the case in Japan, Italy and Portugal, among others.

So we could be moving to a world were eventually both population and GDP decline. What about technology? Well this will need to be the subject of a separate post, but it is highly likely that the rate of technical  change will continue to accelerate, so we could have the peculiar situation that while GDP notional falls, and keeps falling, materially we feel a lot better off.

Well, after this excursus, let's go back to Paul Krugman's bicycling issue. Basically Paul has started to run into a problem that Claus Vistessen and I ran into on our Demography Matters blog. If the world is overpopulated, and there is a constant pressure on natural resources, then why are you economist types worried about falling populations? Wouldn't it be a positive for the planet?
"whenever I raise these points, I get questions from people who ask why I don’t regard slowing population growth as a good thing. After all, it means less pressure on resources, less environmental damage, and so on".
Now naturally at the moment in the US we are talking about slower population growth, but in Japan and parts of Europe - and eventually as we have seen probably everywhere else - population and working age population are already falling. But still, if slowing population growth is going to be a problem for an economy, then sure as hell falling population could be.
"What’s important to realize, then, is that slower population growth indeed could and should be a good thing — but that what passes for sound economic policy is all too likely to turn this potentially good development into a major problem. Why? Because under the current rules of the game, there’s a strong bicycle aspect to our economies: unless they’re moving forward sufficiently rapidly, they tend to fall over."
So what's the issue here? What he calls the current rules of the game (is it in our power to change them?)? Or the bicycle effect, which implies that we are perpetually "condemned to grow", since as Paul says, if our economies don't move forward fast enough they tend to fall over. This is what I intend to examine in the posts which will follow.

To close this introduction to my series on Secular Stagnation I would like to cite the end of the Keynes speech I mention above (here):

"A too rapidly declining population  would obviously involve many severe problems, and there are strong reasons......why in that event, or in the threat of that event, measures ought to be taken to prevent it. But a stationary, or slowly declining population may, if we exercise the necessary strength and wisdom, enable us to raise the standard of life to what it should be, whilst retaining those parts of our traditional life which we value the more now we see what happens to those who lose them"

"In the final summing up, therefore....... I only wish to warn you, that the chaining up of one devil may, if we are careless, only serve to loose another still fiercer and more intractable."


In this introduction we have seen that population decline may now well be inevitable, as may a turning negative of economic growth. This need not make us poorer, depending on how we:

a) develop technology
b) manage the process

As Paul Krugman warns, the current economic and financial "set up" implies the bicycle needs to constantly move forward, something which may prove more and more difficult to achieve. We therefore need as Keynes said, to exercise the necessary strength and wisdom. That is to say we need to adapt the current rules of the game to the new reality, and learn to manage the process. Is simply blowing bubbles the best way to handle this sort of epochal change? That is the topic we will turn to next.


 E. Cary Brown: Alvin H. Hansen's Contributions To Business Cycle Analyisis, 1989 (here)

Willem H Buiter: The Simple Analytics of Helicopter Money, Why It Always Works, Cepr 2014 (here)
Willem H Buiter, Ebrahim Rahbari & Joe Seydl: Secular Stagnation: Only If We Ask For It, Citi Global Economics View January 2014

Gauti Eggertsson & Neil Mehrotra: A Model of Secular Stagnation, 2014 (here)

Alvin Hansen (1939), “Economic progress and declining population growth,” American Economic Review.

John Maynard Keynes: Some Economic Consequences of a Declining Population, Galton Lecture, 1937 (here)

Paul Krugman: Inflation Targets Reconsidered, Sintra May 2014 (here)

Paul Krugman: For Bonds, This Time is Different, NYT 2 June 2014 (here)
Paul Krugman: Demography and the Bicycle Effect, NYT 19 May 2014 (here)
Paul Krugman: Secular Stagnation in the Euro Area, NYT 17 May 2014 (here)
Paul Krugman: Stagnation Without End, Amen (Wonkish), NYT 9 April 2014 (here)
Paul Krugman: Monetary and Fiscal Implications of Secular Stagnation, NYT 19 November 2013 (here)
Paul Krugman: A Permanent Slump?, NYT 17 November 2013 (here)
Paul Krugman: Secular Stagnation, Coalmines, Bubbles, and Larry Summers, NYT 16 November 2013 (here)

Paul Krugman: Monetary Policy In A Liquidity Trap NYT 11 April 2013 (here)
Paul Krugman: The Japan Story, NYT 5 Feb 2013 (here)
Paul Krugman: Japanese Relative Performance, NYT 9 February 2013 (here)

Paul Krugman: Japan: What Went Wrong? June 1998 (available in Japan section here)
Paul Krugman: Further Notes On Japan's Liquidity Trap, June 1998 (available in Japan section here)
Paul Krugman: It's Baaack: Japan's Slump and the Return of the Liquidity Trap, Brookings Papers on Economic Activity, 2:1998 (here)

Gunnar Myrdal: The Effects of Population Decline. Godkin Lectures, Lecture VI, 1938 (here)

Masaaki Shirakawa (2014):Is inflation (or deflation) “always and everywhere” a monetary phenomenon?, BIS (here)
Masaaki Shirakawa (2012): Demographic Changes and Macroeconomic Performance, Bank of Japan  (here)

Larry Summers (2014):On secular stagnation (here).

Timothy Taylor: Secular Stagnation: Back To Alvin Hansen, 2013 (here)