If the economy overheats, expect a downfall

The previous four Notes for Discussion focused on demographics, and how this constitutes the anchor for the size of the macroeconomy. Within the overall envelope of demographic development, countries can temporarily grow faster than warranted by population growth to the extent that a reservoir of unemployment exists from which to draw additional labor resources, until unemployment is reduced to a "natural" level; and then the economy's growth potential is back to demographic developments.

The previous Notes also stressed that demographics determines the size of the economy, but not the standard of living. The latter depends not on the size of the economy but on efficiency, as promoted by a continuous search to use resources better through structural reform. This, we captured by looking at the evolution of labor productivity over time - how many goods and services can one unit...

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