A shrinking labor force relative to dependents in advanced economies will work to quell income inequality within countries, while a stretch of stronger growth from emerging economies versus the Western World will continue to help income equality increase between nations.
Perhaps most importantly, Goodhart and his predecessors' works offer a compelling rebuttal to the theory of secular stagnation––essentially that we'll need negative real interest rates to achieve subpar growth and full employment.
"It puts that in contention, and it puts it in contention with reference to data rather than hyperbole, and puts it in a theoretical framework that people can engage with," said Threadneedle's Toby Nangle. "We can start to think about what data we should be looking for to test this, and luckily enough, we're looking to the fact that dependency ratios in developed markets and some emerging markets have already reached inflection points just about now."
So the Japanification of advanced economies is far from set in stone.
Unlike many other economists, Goodhart does not believe the demographic backdrop of an aging population is inherently deflationary. The pool of labor around the globe that kept wages suppressed domestically on the island nation has nearly run dry. Japan, in other words, was a victim of circumstance.
More generally, in order to meet the obligations of the state, the shrinking pool of workers will be forced to pay higher taxes at the same time that they'll be in a position to haggle for better wages.
"This is a recipe for a recrudescence of inflationary pressures," wrote Goodhart. "The present concerns about deflation are fleeting and temporary; enjoy it while it lasts."
All the while, it's not as though septuagenarian retirees will have a particularly high savings rate.
Nangle also explained what how shifting demographic dynamics could affect portfolio management going forward.
"Somewhat annoyingly, one of the key takeaways from this analysis is that actually, core duration, government bonds, may not be such a good portfolio diversifier," he said. "If [the] backdrop is for secularly rising real bond yields, back towards old fashion levels, and discount rates rises, correlations are likely to be somewhat higher between risk assets and government bonds."