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Wednesday, April 27, 2011

Too much, too young




Too much, too young


Watch your wallets: the baby-boomers are beginning to retire



WHEN MOST LABOUR was agricultural, people generally toiled in the fields until they dropped. The idea of formal retirement did not become feasible until work moved from farms to factories. In 1889 Otto von Bismarck famously introduced the world’s first (modest) pension scheme in Germany. In the 20th century, when universal suffrage became widespread, a period of retirement after work was seen as a mark of a civilised social democracy.
After the second world war pension provision increased markedly, but the number of elderly people was still quite small (see chart). In the 1970s and 1980s caring for them seemed easily affordable. Many countries even reduced their retirement ages.
































The demographic picture looks different now that the baby-boomers are starting to retire. In 1950 there were 7.2 people aged 20-64 for every person of 65 and more in the OECD. By 1980 the ratio had dropped to 5.1. Now it is around 4.1, and by 2050 it will be just 2.1. In short, every couple will be supporting a pensioner.


There are ways of reducing the burden. The current generation of workers could save more now. If they put more money into funded pension schemes, the extra saving might encourage more investment and thus boost economic growth. A wealthier society would find it easier to afford paying pensions. Countries with PAYG schemes could raise taxes now, reducing the deficit and thus the debt burden on the younger generations.Europe and Japan are facing the biggest problems. The average dependency ratio in the European Union is already down to 3.5, and is heading for 1.8 by 2050. In Italy it is forecast to be nearly 1.5 and in Germany nearly 1.6 by then. Japan is on track for a startling 1.2. Since the average pensioner currently draws a total of about 60% of median earnings, from government and private sources, the system is likely to become unaffordable. In a sense, it does not matter how the benefits are paid for. If they are unfunded, they come from workers’ taxes; if funded, they come from investment income. But the income has to be generated by someone.
We want it now
But more savings or higher taxation now would require those currently at work to defer consumption. They may not be willing to do so. And given the weakness of developed economies in the wake of the financial crisis, governments may not want to see consumption go down in the immediate future.
In the OECD public spending on pensions benefits has been growing faster than national output, rising from 6.1% of GDP in 1990 to 7% in 2007. It is forecast to reach 11.4% of GDP by 2050. Those forecasts already take into account the planned rise in retirement ages and a likely drop in replacement ratios and thus assume that voters will approve of pension reform even as the baby-boomers become a potentially powerful voting block of retired people.
But that assumption may not be safe. Turnout in elections tends to be higher among the elderly than among the young. As Neil Howe and Richard Jackson of the Centre for Strategic and International Studies in Washington, DC, have written: “In the 2020s young people in developed countries will have the future on their side. Elders will have the votes on theirs.”

Monday, April 18, 2011

Are we better off?

The number I find most startling here is the number of food stamp recipients, 43,200,000, that is a much larger number that I ever imagined.  Overall, I would say Obama's management of the economy, based upon these numbers, looks very poor.

 
January 2009
TODAY
% chg
Source
Avg.. Retail price/gallon gas in U.S.
$1.83
$3.104
69.6%
1
Crude oil, European Brent (barrel)
$43.48
$99.02
127.7%
2
Crude oil, West TX Inter. (barrel)
$38.74
$91.38
135.9%
2
Gold: London (per troy oz.)
$853.25
$1,369.50
60.5%
2
Corn, No.2 yellow, Central IL
$3.56
$6.33
78.1%
2
Soybeans, No. 1 yellow, IL
$9.66
$13.75
42.3%
2
Sugar, cane, raw, world, lb. Fob
$13.37
$35.39
164.7%
2
Unemployment rate, non-farm, overall
7.6%
9.4%
23.7%
3
Unemployment rate, blacks
12.6%
15.8%
25.4%
3
Number of unemployed
11,616,000
14,485,000
24.7%
3
Number of fed. Employees, ex. Military (curr = 12/10 prelim)
2,779,000
2,840,000
2.2%
3
Real median household income (2008 v 2009)
$50,112
$49,777
-0.7%
4
Number of food stamp recipients (curr = 10/10)
31,983,716
43,200,878
35.1%
5
Number of unemployment benefit recipients (curr = 12/10)
7,526,598
9,193,838
22.2%
6
Number of long-term unemployed
2,600,000
6,400,000
146.2%
3
Poverty rate, individuals (2008 v 2009)
13.2%
14.3%
8.3%
4
People in poverty in U.S. (2008 v 2009)
39,800,000
43,600,000
9.5%
4
U.S.. Rank in Economic Freedom World Rankings
5
9
n/a
10
Present Situation Index (curr = 12/10)
29.9
23.5
-21.4%
11
Failed banks (curr = 2010 + 2011 to date)
140
164
17.1%
12
U.S.. Dollar versus Japanese yen exchange rate
89.76
82.03
-8.6%
2
U.S.. Money supply, M1, in billions (curr = 12/10 prelim)
1,575.1
1,865.7
18.4%
13
U.S.. Money supply, M2, in billions (curr = 12/10 prelim)
8,310.9
8,852.3
6.5%
13
National debt, in trillions
$10..627
$14..052
32.2%
14


Just take this last item:  In the last two years we have accumulated national debt at a rate more than 27 times as fast as during the rest of our entire nation's history.. 


Sources:
(1) U.S. Energy Information Administration; (2) Wall Street Journal; (3) Bureau of Labor Statistics; (4) Census Bureau; (5) USDA; (6) U.S. Dept. Of Labor; (7) FHFA; (8) Standard & Poor's/Case-Shiller; (9) RealtyTrac; (10) Heritage Foundation and WSJ; (11) The Conference Board; (12) FDIC; (13) Federal Reserve; (14) U.S. Treasury

Tuesday, April 5, 2011

The Dependence Economy

Very interesting data.  The axis lines are a bit misleading but overall an interesting look at dependency in the U.S.     


The Dependence Economy

Over the weekend I attended a talk by Credit Suisse’s chief economist, Neal Soss, on the structural and cyclical challenges facing the economy. The cheekily titled chart below — showing how much more dependent Americans have become on government money, including in many cases Tea Partiers — is taken from his presentation:
transfer payments as a share of personal incomeSource: Bureau of Economic Analysis, Credit Suisse
The red line shows what share of personal income comes from wages — that is, what Americans earn from working. The blue line shows what share comes from  transfer payments, which are made to individuals, usually by the federal government, through social benefit programs like unemployment insurance, disability insurance and Social Security. (Note that the two lines use different scales, shown on the vertical axes, and that the scale for wages does not start at zero.)
As you can see, the share of income that Americans earn by working has been falling, from more than two-thirds of their income in the mid-1950s to just over half of their income today. Meanwhile, they have been growing more and more dependent on money from social benefits programs, growing from about 4 percent in the mid-’50s to about 18 percent in February 2011.
Certainly part of the reason Americans have been getting more dependent on government money is that the job market is so poor. Unable to find work, many Americans are getting most, if not all, of their income from unemployment benefits.
But the lousy job market accounts only for the spike at the end of the blue line (and likewise the steep slide at the end of the red line), where the numbers correspond with the Great Recession and its aftermath. The chart shows that the overall trends long predate the financial crisis.
These underlying trends are partly because of demographic changes; an aging populace means that an ever-smaller share of Americans are working, and so a larger share are receiving Social Security benefits and Medicare, which is also getting more expensive. Policy changes, more Americans’ going on disability and growing inequality, which in some cases may be leaving more Americans on the dole, are also likely contributing to the growing Dependence Economy.
Whatever the causes, these  trends are not infinitely sustainable. The money for transfer payments has to be transferred from somewhere, after all — and if not from other people’s wages, then from China and other foreign creditors. But foreign creditors won’t foot the bill forever without an exit strategy.