Do the tools we use to regulate our economic system work anymore?

The U.S. is in the grip of the worst inflation the country has endured in decades. In the wake of a steep interest rate hike, Federal Reserve Chair Jerome Powell faced bipartisan grilling from the Senate this week about the plan to rein in inflation. But will those actions be enough? Straight Arrow News contributor Peter Zeihan argues that as the U.S. and the world’s population gets older, tools such as interest rates may no longer be viable methods to regulate our economic system.

Excerpted from Peter’s June 23 “Zeihan on Geopolitics” newsletter:

The nature of the economic system so many governments are attempting to grapple with right now is unprecedented in modern history. For much of the span of human history since industrialization, governments could reasonably promise their subjects some kind of more. The promise of more held that the economy–no matter the political system in charge of it–could be expected to grow, largely through population growth and rising demand.

Enter the End of More. A central theme of my equally cheery-titled new book, The End of the World is Just the Beginning, the pie for many countries is as big as its going to get. This is especially true for countries staring down terminal demographies: Germany, Italy, China, Japan. With population growth firmly in the rear view mirror, these countries can’t rely on a baby boom to spur consumption-led growth.

Which brings us to our current problem with inflation. Central banks’ primary tool in battling inflation is through raising interest rates. Making borrowing more expensive usually dampens demand, thereby pressuring prices to fall. The trick is not dampening demand too much, and risking recession. For the world’s oldest populations, this is going to be an near-impossible balancing act. 

And now for a bit of good news–The End of the World is now officially a New York Times best seller! On behalf of myself and my entire team: thank you, thank you, thank you.