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In today’s “On the Square” article, senior editor David Goldman shows how bad demographics lead to bad economies. In Fed Proposals to Counter “Deflation” Are Misguided , he writes that “Demographics drive deflation, and our demographics are not good.” For one thing,

an aging population saves, and savings are deflationary. As people near retirement, they must substitute future goods (savings instruments entitling them to consumer in the future) for present goods (consumption)—so the price of present goods falls.

The government may attempt to substitute its own spending for household spending but it never quite works, no matter how many public works projects the government sponsors. Japan poured more cement than anyone else—and the decade was still lost.

He’s referring to Japan’s famous “lost decade,” and argues that the United States is about to lose one too.



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