“the implied answer was ageing”

Well in part yes, but there are other factors like global labour arbitrage (read China, India etc), and undocumented inward migrants. And there is technology and things like Moore’s law driving down prices in some sectors. It’s a complicated picture.

“because if the textbooks can be trusted at all, not all of the expected results of ageing are deflationary. In particular, the most commonly emphasized effect of ageing, more people leaving the work force than entering it, might be expected to be inflationary:”

I fully accept your point here. There is a whole school of thought, especially the ‘swedish school’ who would agree with you.

I am not bigotted, so I link to them on my demography page, I mean I think scientific investigation has to be open. Among the papers there is this one:

http://www.nek.uu.se/Pdf/wp2002_4.pdf

By Mattias Bru?r, which argues:

“We conclude that the source of information embedded in the age shares is something the Riksbank should consider when conducting monetary policy. When extending the forecasting horizon, the age model predicts a significant rise in the inflationary pressure after 2005 when the big baby boom cohort of the 1940s enters retirement.”

I think the whole problem needs to be treated in two stages. The first is to get a general recognition that age structures (or age shares) matter, and the second to then sort out how they matter. Refine the argument and hone it down. This is clearly the most difficult part.

I have approached this using a typically Brit empirical methodology. Japan is ageing, Japan has deflation, now is there a connection? Then you look at other rapidly ageing countries and you find disinflationary pressures. And so on.

“If the same amount of money chases a smaller quantity of production, supply-shock inflation ought to be the result”.

No, I don’t think this part of your argument works. Too much money too cheap leads to: assett speculation (and then Irving Fisher type debt deflation) and excessive investment (poor allocation of resources) which leads to overcapacity (and which we are certainly seeing, especially in China) and this is deflationary.

“While there are many other factors in play, perhaps the low interest rates we see at present are an intermediate stage that occurs when the boom generation has a great deal of savings out there seeking a return, but has not quite yet started leaving the work force in earnest.”

I think you’re on the right track here. There may be first and a second stage here. I’ve been thinking about this, we could get deflation and then inflation, I’m not sure. Sounds of thinking zzzzzzzzzz .

If this was intended as a rhetorical question on your part, then I presume the implied answer was ageing.

Which is interesting, because if the textbooks can be trusted at all, not all of the expected results of ageing are deflationary. In particular, the most commonly emphasized effect of ageing, more people leaving the work force than entering it, might be expected to be inflationary: at least at first, a reduction in labor supply ought to slow the growth of, if not reduce the size of, the economy, while the retiring generation’s accumulated savings keeps the money supply large. If the same amount of money chases a smaller quantity of production, supply-shock inflation ought to be the result.

While there are many other factors in play, perhaps the low interest rates we see at present are an intermediate stage that occurs when the boom generation has a great deal of savings out there seeking a return, but has not quite yet started leaving the work force in earnest.