This video interview between Morningstar's Valerio Baselli and economist Edward Hugh was conducted in Vienna during the Morningstar Investment Conference Europe, which ran from March 14 - 15, 2013.
Video Transcript:
Valerio Baselli: Hi, everyone. I'm Valerio Baselli, editor for Morningstar Italy. I'm in Vienna at the Morningstar Investment Conference Europe. I've the pleasure to be with Edward Hugh, macroeconomist and blogger.
Mr. Hugh, thanks for being here.
Edward Hugh: Nice to be with you.
Baselli: You just gave a really interesting presentation about the aging population’s effects on the economy. Why is such a subject so important, especially here in Europe?
Hugh: Well, firstly because European populations are aging; some are aging more quickly than others. Those who have had the lowest fertility for the longest period of time, like some of the countries in Southern Europe, are aging the most rapidly. But, I mean, this affects our economies in a number of ways, in particular it affects the levels of economic growth we can expect to achieve, as growth in the labour force comes to an end. It affects the level of the pension systems we can expect to have and affects the quality of health services that we can expect to pay for, because the demand on those services is obviously going to go up as we have more and more old people.
Baselli: So given the aging population trend, do you think that the status quo is sustainable? With status quo, I mean, as you said, the pension system and welfare in general.
Hugh: No, clearly it isn't. Clearly we designed the system that was built not to work in the longer term. It's like in football. I come from Barcelona and we just had a very interesting match with Milan. But sometimes the defenders don't see the attacking player coming because they are looking at the ball. And too many politicians and policy makers were maybe looking at the ball of economic growth and well-being and the good years, without thinking of what could come next.
Now we are entering the more difficult years. I mean, I think it's worth emphasising, this is the first time in human history, the whole history of our species, that we are going to have this kind of population dependency ratios. So, we are really entering the unknown, and what we've got from before has not been made-to-measure for what we’re going to have coming.
Baselli: Do you think that the people are really willing to lose these kinds of services? For example, the Italian election result is a really strong sign that the people don't want any more austerity programs. Don't you think that?
Hugh: Yes, I think absolutely. I live in Spain. I would say the situation is absolutely the same in Spain as it is in Italy. There's a very low level of confidence in the ability of politicians to manage situations, and there's a great deal of doubt and concern. And what people – simply they don't understand what the problem is or why it's happening, because there's nothing in their lives that really prepared them for this situation. So they really think the answer is to spend money, and they look at the United States and they look at Japan and they say, ‘why can't we be like Japan?’ without thinking that maybe Japan won't work.
Baselli: And [now] the last question: if the population is getting older and this has a tremendous effect on our economy and on our lifestyles, what is the solution?
Hugh: The problem is, as you frame the question, there isn't a solution. But what do I mean by that? I mean … we've grown up in a world, all of us, where we thought there were instant solutions to every kind of problem. Now, maybe people of my age, with the experiences we've had in life about our own personal situations or whatever it can be, find that the way we look at problems and look at solutions is different from the way your generation will be looking at them. In other words, we find a different way of approaching problems that we don't think of the whole picture all at once and try to solve it. We take part of the problem and work on it and try to advance, and then we take another part of the problem and we work on it and try to advance. At least I think that's a good recipe. So part of the solution to this problem is learning to recognise the problem exists. Once we recognise it – as Socrates said, ‘knowing you don't know is already knowing something.’
Baselli: Yes.
Hugh: And I think that's the way to go forward here, and to go improvising and developing measures, maybe on a piecemeal basis over time, but always seeking to improve the situation, but with a very realistic perspective on what the problem is.
Baselli: Well, Mr. Hugh, thanks for sharing with us your thoughts, and see you soon.
Hugh: You are welcome.
