AI and shifting demographics offer bright future beyond Covid gloom

While we all have to get to grips with this grim prospect, it is often helpful to lift our sights from the immediate future and look to the decades beyond. To do this meaningfully you have to ignore the things that short-term forecasters worry about and identify major forces that will fundamentally determine long-term economic performance. What lies beyond Covid?

Three weeks ago I wrote about a just-published book by Charles Goodhart and Manoj Pradhan called The Great Demographic Reversal. It is certainly an exercise in big thinking, backed up with data. And it paints a picture radically different from the grim Covid-ravaged economy that we have to face today.

In a nutshell, their thesis is that the last few decades have been dominated by a surge in the global labour force brought about by the combination of rapid growth in the working age population in the west and the integration of China and other countries into the global trading system. In the decades ahead, this is going to change radically. India and Africa are unlikely to be able to “do another China” on the scale required.

Meanwhile, in many countries the normal working age population is set to shrink. It is already falling in Germany and parts of Eastern Europe as well as in Japan and China. The result, they say, is that we will enter a period when labour will become scarce, real wages will be bid up, inequality will fall and inflation will rise.

This is a scenario that you should take very seriously. But it is not the only plausible one. You may think the Goodhart and Pradhan view is optimistic – although it isn’t for all those who will be hit by much higher inflation.

Amid all the Covid-induced gloom, however, I can offer a different ray of optimism. Before the coronavirus struck, commentators and analysts were obsessed about the prospects for robots and Artificial Intelligence bringing another technological revolution. This vision now seems to have faded into the Covid gloom.

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