The wrong diagnosis can often make the problem worse not better, as doctors know very well. But the message hasn't got across to policy makers. They refuse to believe that ageing populations spend less and save more - even though all the evidence confirms this commonsense observation. So instead, they have convinced themselves the world is facing a repeat of the 1930's Depression.
The tragedy, as future historians may well conclude, is that their wrong diagnosis risks causing the very disaster they are trying to avoid. A first sign of this comes from Italy, currently the world's 8th largest economy with GDP of $2.2tn. Italian paper Il Sole reports that 2012 oil consumption has dropped 11.4% in one year. It is now back at 1967 levels.
The chart above looks at the G-20 nations, who comprise 79% of the global economy:
• The Y axis shows GDP/capita in US$
• The X axis shows median age for each country
• The blue 'bubbles' are the size of each country's economy versus the USA
As it shows, the countries fall into 3 distinct groups:
• Rich but Old. These wealthy countries have median ages mostly over 40 years
• Poor but Young. These relatively poorer countries have median ages around 25 years
• Poor but Ageing. China and Russia are in their own group: China because it has lost 400m babies due to the one child policy; Russia because of its high cigarette and alcohol consumption
Today's mix of austerity and stimulus policies ignores these basic demographic facts. Italy's plight is thus the most obvious example of the failure of policy makers to tackle the real issues.