• many babies cultutral

    Which Countries Want You to Have a Baby?

    Apr 20 • Behavioral Economics, Demand, Supply, and Markets, Economic Growth, Government, Health Care, Households, Labor, Lifestyle, Macroeconomic Measurement, Media, Regulation, Thinking Economically • 14 Views

    It is a recipe for demographic disaster when you have too many old people and not enough babies.

    The problem is the size of the working age population. When countries like the US are affluent enough to provide support to the aged, transfer payments are funded by the labor force. So, the larger the younger group, the lower the individual burden.

    Japan is close to the top of a list of countries that are growing old. With an elderly dependency rate that could reach 60 by 2050 (60 people aged 65+ for every 100 people, 19-64), government policy is encouraging dating and mating. Appreciably below the 2.1 replacement level, Japan’s fertility rate is 1.41. Trying to reverse the trend, the Japanese government has targeted population growth with $29.3 million.

    Yotaro, the Japanese robot baby in this video, is supposed to make parenting irresistible:

    Comparably, Singapore has a fertility rate that recently rose to 1.3 per woman. As with the US and Japan, it is the working population, whether through government transfers, elder care or just by contributing to the affluence of their economy, that will need to sustain their parents and grandparents. Much more proactively than Japan, Singapore has increased the incentives to have more children by upping government assistance for fertility treatments, for paternity leave and married couples’ housing. In addition, the more children you have, the higher your medical account subsidy–S$6000 for the first 2 births and S$8000 each for your 3rd and 4th child.

    In Europe, countries with family friendly incentives include France, Germany, Finland, Denmark. Train fares and movie tickets are cheaper in France if you have 3 or more children. Offering, “parent money,” Germany gives a generous “baby bounty” for a second child.

    Looking at the Old Age Dependency Rate (ODR), you can see why European countries are offering “baby bounties:”

    From: "

    From: “The Old Age Healthy Dependency Rate in Europe”

    Our bottom line takes us to a structural economic shift in which entitlement programs are only the tip of the iceberg as land, labor and capital, savings rates, and the production of goods and services are affected by aging populations.

    Sources and Resources: Whether looking at a Washington Post description of the “Do It For Denmark” campaign, the Yotaro video, an excellent paper from MIT or articles from Bloomberg, Quartz and IB Times, the resources about the expanding aging demographic in the developed economies are varied, occasionally fun, and sometimes worrisome.

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  • High Gas Price Control

    The Reason the Price of Gasoline Has That 9/10

    Apr 19 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Government, Households, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 28 Views

    If you asked me how much I pay for gas, I would say $3.49 a gallon.

    Actually, though, the sign says $3.499. And that means, because the gas station rounds up, I am paying $3.50.  Doesn’t $3.50 sounds like a lot more?

    The 9/10 of a cent story begins in 1932 with the Federal Revenue Act. The Great Depression had just begun, government revenue was down and President Hoover worried about balancing the budget. The revenue bill he signed included excise taxes on gasoline, chewing gum, soft drinks, matches and telegrams.

    In 1932, the new federal gas tax was a penny per gallon. A .5 cent increase the next year was actually a large amount because gas was close to 20 cents a gallon (equal to $3.45 today at the BLS Inflation Calculator). With layoffs multiplying and unemployment close to 25%, 1.5 cents or 7.5% extra is a lot. Aware of how consumers would respond, retailers sought to minimize the increase by using decimals. Then and now, 21.5 cents a gallon sounds much less than 22 cents.

    Subsequently, the excise tax on gas slowly ascended to 2 cents in 1951, 3 cents in 1956, 9 cents in 1983, 9.1 cents in 1986, 14.1 cents in 1990 and finally to 18.4 cents in 1993, its current amount. Meanwhile, it took until the 1970s for gasoline decimal pricing to gravitate to a constant 9/10.

    That tiny 9/10 of a cent has made a big difference to retailers. During 2006, the bottom line of a Palo Alto, California retailer suffered when he switched to full-cent pricing. Posting $2.99 rather than $2.999, his customers assumed he was rounding up. Meanwhile on the 2500 gallons he sold daily, he was losing $23.00 in profits. Multiply that by 300 days or so and you get $7000. Soon, he was back to fractional pricing.

    Gasoline prices are a perfect example of how we are thinking at the margin on the demand and supply sides. Even a tiny 9/10 of a penny extra can have a big impact.

    And finally, I found it interesting that most articles said retailers rounded up the fractional price per gallon. However, the explanation I read from the Association for Convenience & Fuel Retailing said that the total was either rounded up or down, not each individual gallon.

    Sources and Resources: Just having subscribed to Dan Lewis’s Now I Know, and reading his post on gasoline prices, I started looking further at that 9/10 of a cent and discovered some fascinating explanations and history, here and here.

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  • waiting line for social care china

    China’s Demographic Flipflop

    Apr 18 • Demand, Supply, and Markets, Developing Economies, Economic Growth, Government, Labor, Macroeconomic Measurement • 35 Views

    The wait list for the most popular retirement home in China has topped 10,000. With 1100 available beds and just 11 beds emptying annually, it could take 100 years for someone to get a spot.

    Part of the problem is that Chinese families had too many children and then too few.

    A baby boom under Chairman Mao and then the one-child policy that began during 1979 could have dire demographic consequences because of an increasingly elderly population. Expressed as an old age dependency ratio–comparing the number of people aged 65 and over to the working age population, 15-64–the proportion of older people per hundred who are working has steadily ascended to just over 11 in 2011. Looking ahead with UN projections, the ratio could soar close to 40 in 2050.

    China’s Old Age Dependency Ratios, 1960-2011:

    China's old age dependency ratios

    One source of the problem relates to China’s one-child policy. Previously, a slower growing population meant fewer children for parents to care for. On the other end, as a developing nation, the number of people over 65 was relatively low. In addition, leaving rural areas for factory jobs, young workers became more productive.

    Now though, with a bigger proportion of the population too old to work and a smaller working age cohort (because of one-child) to support them, the demographic is flipping. Compounding the problem, China is a developing nation with less affluence than developed nations that are also aging. Expressed perfectly by the Wall Street Journal, wealthier nations like Japan have a “deeper cushion of wealth to rely on.” Perhaps shaving off 3.25% annually between 2012 and 2030, for China the impact of an aging population on the GDP could be considerable.

    In addition, you have the challenge of caring for the elderly. Because of the one-child policy, married couples with no siblings have 4 parents to care for. In small urban apartments, 2 sets of in-laws?

    And yet China still is articulating its nine-seven-three approach. They expect 90% of the elderly to live at home, 7% to get government care and the 3% who can afford it, to live privately. Chinese legislators have also proclaimed that young adults have a filial obligation and businesses should provide vacations for parental visits. In 2012, a 77-year old Chinese woman successfully sued her daughter and son-in-law for neglect. Ruling that the children had to visit their mom at least once every 2 months and provide financial support, the court supported China’s “filial piety” tradition.

    Our bottom line: In a world with limited land, labor and capital, any decision to allocate resources to the elderly means less will be available to everyone else. As one commentator asked, “Will China grow old before it grows rich?”

    Sources and Resources: An article in the Telegraph provided a good introduction to China’s aging challenges as did Brookings and the Wall Street Journal. For the stats, I recommend the UN.

    Please note that several sentences first appeared in a past econlife.

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  • Tesla Licensing Restrictions

    Why Should Tesla Stay in New Jersey?

    Apr 17 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Government, Households, Innovation, Labor, Regulation, Tech • 32 Views

    At my local New Jersey shopping mall, there is a Tesla store… I think.

    It might have closed.

    During the 1920s, the auto industry and local governments agreed that the way to sell a car was through a network of local dealers. As a result, most states restrict or prohibit direct sales from car makers to car buyers. Because the Tesla store at the Short Hills Mall is run by Tesla, it violates NJ law.

    These are the states that restricted Tesla sales as of March 28:

    States that restrict Tesla sales

    Defending the dealer network concept, the president of the New Jersey Coalition of Auto Retailers said, “The franchise system that’s followed by every other automaker in the marketplace gives the consumers several choices. They can buy from any one of a number of competing dealers, and that drives competition.”

    By contrast, according to a Yale economics professor, “There isn’t a rational argument for why a new company should have to use dealers. It’s just dealers trying to protect their profits.” And Tesla has added, “”This is an affront to the very concept of a free market.”

    Agreeing, many economists would explain that Tesla faces the same type of supply restrictions as occupations that require licensing.

    In Texas, a salon shampooer needs 150 hours of classes while, until 2012, for a Utah hair braider, 2000 hours of cosmetology school was the rule. Similarly, a locksmith in Oklahoma has to pay a fee, take a test, and undergo a background check. The barrier for Tesla is the separate dealership it would need to find.

    Even when the costs outweigh the benefits, licensing types of requirements can it can be tough to eliminate. The problem is that the relatively small group that benefits from licensing can be quite vocal when challenged. By contrast, lacking one voice, millions of consumers have little impact. We could say that we have concentrated benefits and diffuse costs. 

    So, if Tesla prefers a retail model like Apple’s rather than Ford’s, how can New Jersey refuse?

    Sources and Resources: H/T to New Yorker writer James Surowiecki for his always excellent “Financial Page” and discussion of New Jersey’s prohibitions for Tesla in the April 21, 2014 issue. Complementing Surowiecki, CNN had the above map, NPR had a more recent discussion and in the past, econlife has looked at licensing.


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  • Frozen

    Apr 16 • The Pulse • 39 Views

    Disney’s ‘Frozen’ becomes the No. 1 animated film of all time and crosses the $1 billion dollar mark in the box office. Hot or not?

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