• Aging Populations

    Apr 30 • Developing Economies, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically, Uncategorized • 833 Views

    Just remember 4-2-1-whenever you think of Chinese demographics.

    4 refers to 2 grandmas and 2 grandpas, 2 is their adult children and 1 is the next generation.

    The social fabric of China is shifting. In rural areas, the elderly population is growing as the young leave their parents and move to the cities. For those in urban areas, families are smaller, many with one child. With families separated, their traditional caring network is uprooted.

    What does all of this mean? A family centered culture will have fewer children with siblings. In the home, a nation with an inadequate old age pension system will have fewer adult children to care for the aged. Meanwhile, at work, there will be relatively fewer people in the labor force supporting a larger old age cohort.

    Our Bottom Line: China is one of many nations that will have to cope with the economic implications of an aging population. As of 2011, neither China nor the U.S. was among the world’s 10 “oldest” countries with relatively large populations of people age 60+. At the top of the list is Japan (31%) and then Italy (27%) and Germany (26%). Greece is #7 (25%), and Portugal #8 (24%).

    However, China is among a list of countries whose over 60 population will increase by the greatest percent. Between 2011 and 2050, Harvard researchers say that China’s aging population will rise 21% and represent 34% of their population by 2050.

    And that returns us to 4-2-1.

    I especially recommend this new World Bank report for up-to-date information on China’s aging population. Also, my facts about Chinese demographics came from a Working Paper from Harvard,  The Economist, here, the New England Journal of Medicine, here, and the Population Reference Bureau (PRB), here.

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    Bank Robbers and Structural Unemployment

    Apr 29 • Businesses, Economic History, Financial Markets, Money and Monetary Policy, Uncategorized • 629 Views

    The number of bank robberies is plunging. Maybe it’s outsourcing…just like manufacturing?

    During 2011, the number of bank robberies declined to a 9-year trough of close to 5000. The reason, according to one analyst, is technology.

    As we spend more online and swipe more at Starbucks and elsewhere, we need less currency. Consequently, bank tellers need less cash. The result? Less to rob. A typical bank robbery now nets $8623. Three to five years ago, the total was between 10 and 15 thousand dollars. Maybe hacking, a more lucrative approach, is taking over the trade.

    Our Bottom Line: Just like manufacturing, the skills needed for a successful bank heist are shifting. Economists might characterize the trend as structural unemployment. With jobs digitizing, the fundamental structure of the U.S. economy is changing. Whether it’s jobless buggy whip makers when the auto took over or unemployed typewriter workers because of computers, structural unemployment demands new skills.

    Similarly, the skills needed by a successful bank robber or lower level assembly line worker have been replaced.

    You can see some interesting data from the FBI on bank robberies here. Looking at the numbers, I wondered why Connecticut and Texas had a disproportionately high number of bank robberies. Also, Monday is the least typical day for a heist. For the analyst who formed the hypothesis about declining bank robberies, here is a Bloomberg interview from their “Weird Wall Street” series. And finally, for an historical summary of the structural changes in manufacturing, this Economist article on “The Third Industrial Revolution” was good.

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    What Should Not Be Sold?

    Apr 28 • Demand, Supply, and Markets, Economic Debates, Economic Thinkers, Thinking Economically, Uncategorized • 737 Views

    Assume you just learned that your mother paid someone to write the (warm and loving) toast she expressed at your wedding. Is that okay?

    During Bloomberg radio’s On the Economy, referring to a purchased wedding toast, Harvard professor Michael Sandel asked our opinion about what should be sold.

    Should money let us…

    • Move to the front of a line at airport security checkpoints?
    • Upgrade to a nicer cell at a California prison? (It could cost $82 a night in Santa Ana, California.)
    • Access a high speed lane during rush hour?
    • Get accepted by a prestigious college?
    • Avoid military service? (During the Civil War, it took a $300 payment to the government to be excused.)
    • Buy U.S. citizenship?
    • Get kids to read books?

    Our Bottom Line: When, by paying for a good or a service, do the dollars crowd out a greater good for society?

    Having been captivated by Dr. Sandel’s Bloomberg interview (4/25, On the Economy, iTunes), I looked for more. This Stephen Colbert interview was very funny. And then I found classes that were even better. I also recommend Dr. Sandel’s book, What Money Can’t Buy: The Moral Limits of Markets.

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    Coin Matters

    Apr 27 • Demand, Supply, and Markets, Economic History, Economic Thinkers, Households, Innovation, Labor, Money and Monetary Policy, Uncategorized • 846 Views

    Hearing that Zimbabweans had a limited supply of coins, I recalled one person’s response to Starbucks’ price hike to $2.01 for a tall coffee in NYC: “I can’t believe it. Now I need to walk around with pennies?”

    I guess we take change for granted.

    When Zimbabwe replaced its currency with the U.S. dollar, happily, they no longer had to cope with (the unimaginable) 489 billion percent inflation rate. But, using the U.S. dollar meant they had limited ability to make change. No one would trust any currency minted by Zimbabwe. But where to get enough pennies or nickels or dimes? They couldn’t.

    Imagine buying $15.76 worth of groceries. You expect 24 cents change. Most of the time in Zimbabwe, there is no coin to give as change. What to do? Many people just buy more. Gum. Candy. A pen. Something that will take the purchase to an even dollar amount.

    Having the right amount of money circulating in the right denominations is tougher than we might expect. I have begun to read a fascinating tale from 18th century Birmingham, England when currency problems prevented button manufacturers from paying their employees. The reason was an insufficient supply of small denomination currency from the mint. Responding, the button manufacturers produced their own coins and their employees accepted them.

    The Bottom Line: For a commodity to function as money, we have to accept is as a unit of value, a medium of exchange, and a store of value.  So, perhaps we are right to take the penny for granted. Although others elsewhere may need it, maybe we no longer do.

    You might enjoy this NY Times article about the situation in Zimbabwe. Then, I recommend continuing with economist George Selgin’s charming tour of early 19th century Birmingham, England and its token (coin) makers and also looking at his book, Good Money.  For a shorter description, Marginal Revolution presents a good overview of small coin shortages. And finally, econlife talks about the “annoying penny.”


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    Aging Benefits

    Apr 26 • Economic History, Gender Issues, Government, Households, Macroeconomic Measurement, Uncategorized • 800 Views

    When you combine better health care with generous pensions you get (choose one):

    • happy retirees
    • happy politicians
    • insufficiently funded national pension programs
    • the eurozone
    • the United States
    • other


    To select an answer let’s begin with 1935. Just passed, the Social Security Act will start giving benefits to people 65 and older in several years. With 41.9 workers for every retiree in 1945 and 16.5 in 1950, the revenue source was more than sufficient. Moreover, life expectancy was 58 for men and 62 for women. (Adults who reached 21 did have a 50-60 percent chance of reaching 65 and beyond.)

    Fast forward to 2012. The average man lives until approximately 76 and the average woman, 81. The worker retiree ratio for 2012 is 2.8. And as more baby boomers retire, it will get worse.

    The Social Security Trustees just announced that because current workers’ checks could not cover retirees’ obligations, the system had a deficit during 2010, 2011 and probably for 2012. The good news is that they have a Trust Fund to cover deficits. The bad new is that the Trust Fund will probably be empty in 2033. That means benefits will have to plunge or taxes soar or the age of eligibility change. Or maybe the unexpected will occur and all will remain okay.

    More daunting, in Europe, by age 55, more than one third of the population of all countries has retired except for Sweden, Denmark and Finland. You know the eurozone situation– huge pension obligations, free access to health care, retirement length averaging 13-20 years, and unemployment averaging 10.8 percent in February.

    Returning to the quiz, what might you fill in for “other?”

    You might want to look at this historical chart of worker beneficiary ratios since 1945, pp. 52-53 in Trustees 2012 report and at the chart of life expectancy for Social Security in one of their historical documents. For Europe, I got my statistics from this article which uses Eurostats as its source.

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