Next few decades will be 'very difficult', influential economist warns

Charles Goodhart, an influential economist, warned that the next 30 to 40 years will be very difficult for British workers, particularly younger individuals. Goodhart, an emeritus professor at the London School of Economics and former senior official at the Bank of England, made this observation on the Peter McCormack podcast. He noted that the early decades of the UK's inflation-targeting era coincided with a period of globalization, during which Western countries shifted manufacturing industries offshore and focused on services.

This led to falling nominal and real interest rates, making it easy for central banks to implement policies in line with government desires. However, this period was temporary, and central banks faced challenges in bringing inflation back to target after the Great Financial Crisis. Goodhart argued that the long-term decline in interest rates contributed to the housing crisis faced by younger people today.

He also highlighted the increasingly tough job market for young university graduates, exacerbated by AI. Goodhart suggested that to address the demographic and fiscal realities, the UK government should shift taxation away from incomes and profits towards assets like land and property. He warned that any heavy taxation on assets would face opposition from the wealthy.

Goodhart also noted the increasing political polarization, attributing it to the failure of the middle ground in policy-making. He suggested that the combination of declining birth rates, China's rise, and the end of the Soviet empire have created significant challenges for younger workers in the coming decades.