• Everyday economics and Aging populations and birth rates

    Part 1: What To Do When More People Are Old

    Feb 19 • Behavioral Economics, Developing Economies, Economic Debates, Economic Growth, Economic History, Gender Issues, Government, Health Care, Labor, Lifestyle, Thinking Economically • 104 Views

    Years ago we were concerned with too many babies. Now we can worry about too few.

    The problem is the looming demographic imbalance. As we live longer and have fewer babies, a nonworking older segment of the population becomes disproportionally dominant. And with their numbers come their needs. Health care. Pensions. Housing. Income.

    One solution is higher fertility rates. In South Korea, the government is considering a new kind of entitlement. Create marriage incentives through loans that cover the expense of the wedding process. Then (hopefully) more young couples will have babies who grow up, enter the labor force, and eventually outnumber the elderly.

    But, temporarily, a larger youth demographic makes the problem worse. Children and teens also add little income.

    What to do?

    For today, let’s just compare populations to see who will have the biggest demographic imbalance. Tomorrow, in Part II we look at where the baby solution could work.

    The Oldest Populations

    In each of the graphics, the light purple sections display what the young and old non-productive population consumes while the darker mid-segment is the income that labor produces for everyone. You can see that Japan has the biggest problem with an aging population consuming increasingly more as its labor income shrinks. Meanwhile, even by 2100, Nigeria has relatvely few old people to support.

    Increasingly a higher proportion populations, the number of the elderly is growing.

    Aging populations  dependency chronology India and Nigeria

    Viewed as a ratio, we have labor income over consumption. So, as consumption gets bigger, the fraction, i.e. the ratio, gets smaller.

    And indeed, for the U.S (.79 in 1950 to .65 in 2100). and Japan (.66 in 1950 to .57 in 2100) the number falls. For India, though it first rises and then slides back to where it was (.76 to .86 to .78) while Nigeria enjoys a rising consumption ratio (.63 to.81) which means it has more income to support its dependents.

    Our Bottom Line: Redistribution

    With expanding elderly populations and a moderate fertility rate, developed countries like the United States will have redistribution decisions. In the public sector, we are talking about shifting labor income into the tax dollars that fund entitlements and pensions and education.  Meanwhile, in the private sector, more informally, families will be making similar decisions about the time, money and energy they shift to the old and the young.



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  • everyday economics and drone regulation and Amazon drone deliveries

    Drones and Property Rights In the Air

    Feb 18 • Businesses, Economic Debates, Government, Innovation, Lifestyle, Regulation • 105 Views

    The FAA has just issued a draft proposal on drones that could affect this delivery:

    Where are we going? To regulation and innovation.

    The FAA Approach

    Here are the FAA’s first set of proposals for drone regulation:

    FAA drone regulation

    A Property Rights Approach

    Seeing drones from a different regulatory perspective, a Pepperdine law professor suggested we start with assuming that people have the right to prohibit any aircraft or object from occupying a 350 foot high column of space above the land they own. As a result, drone regulation would take us to what the courts have said about property rights. Looking back at the common law, the courts have said, “to whomsoever the soil belongs, he owns also to the sky.”

    But, Supreme Court Justice Douglas (1946), said the common law doctrine was outdated in a case where a farmer’s chickens were were so frightened by low flying military aircraft that they ran into a wall and died. Douglas did conclude though that the farmer had property rights that extended to “at least as much of the space above the ground as he can occupy or use in connection with the land.” Flying at an altitude of 83 feet, the planes had violated the farmer’s “property.”

    The same property rights approach could apply to drone regulation. This diagram displays where an Amazon drone could fly:

    Property rights, regulation and drones

    From: Center for Technology Innovation at Brookings


    Our Bottom Line: Regulation

    You can see that whether we are looking at drones, Uber, shadow banking or any other innovation, it is tough to decide the relevant precedents when we establish a regulatory framework.

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  • Everyday economics and Identifying the economic consensus and how average Americans disagree.

    How Much Do Average People Agree With Economists?

    Feb 17 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Economic Thinkers, Government, Thinking Economically • 113 Views

    First, a quiz…

    Do you agree or disagree that…

    • Congress should eliminate the mortgage tax deduction that lets homeowners get tax breaks on their mortgage interest payments?
    • Congress should eliminate the corporate income tax?
    • Congress should replace income and payroll taxes with a progressive consumption tax?
    • Carbon emissions should be taxed?
    • Marijuana should be legalized?

    Unless you are an economist, if you agreed with any of the these statements, you are not typical.

    Using two surveys, researchers from the University of Chicago’s Booth School and Northwestern compared the opinions of typical Americans to what economists believe. The results? Not only do the two groups minimally agree, but the larger the economists’ consensus, the less everyone else seems to think they are right. And, told that economic experts disagreed with their conclusions, the average American group barely budged.

    In the following table, representing economic opinion, EEP is for Economic Expert Panel while the “average American” expressed an opinion through the FTI, the Financial Trust Index. The numbers under “Agreement” are a percent indicating how much of the group agreed with a statement. Moving down the second column and comparing it to the fourth column, you can see at the bottom of the list that there was a 70 percent gap between how the economists and the rest of us feel about a carbon tax.

    Hw economic opinion from economists disagrees with average Americans

    From: Economic Experts vs. Average Americans

    There is definitely a chasm between economists and everyone else.

    Our Bottom Line: Economic Policy

    The economists who wrote the paper on the gap between economic opinion and average Americans conclude by saying that they suspect economists answer survey questions differently from the rest of us. If, instead, they were providing policy advice to politicians, the answers would be very different.

    Their conclusion concerned me.

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  • Everyday economics and monopoly games

    Monopoly Game Surprises

    Feb 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Entertainment, Financial Markets, Gender Issues, Government, Innovation, Labor, Money and Monetary Policy, Regulation, Thinking Economically • 116 Views

    In France, you could find real money in your monopoly game.

    Commemorating its 80 anniversary, manufacturers of the French version of the game are putting euros in 80 sets. The one set in which real money replaced every bill will be worth €23,000, another 10 boxes, €300, and the remaining 69 boxes, €169. A top secret operation in a Northeastern French town, packaging the real money sets involved being sure they would be identical to the other 30,000 that will be released. One company representative said there would be a slight difference in weight that only a precision scale could pick up.

    Where are we going? To why Monopoly is more than a game.

    Monopoly Messages

    The First Message

    The version of Monopoly that Parker Brothers introduced in 1935 was based on a game that people had been playing for more than 30 years. Called the Landlord’s Game, this original version was supposed to convey the immorality of people like John D. Rockefeller and Andrew Carnegie. As the game unfolded, depending on which of its two rule sets you used, you were supposed to experience the evils of monopoly or the benefits of sharing wealth. The game’s developer, Elizabeth Magie Philips, wanted players to realize the inequities of capitalism. (Do note that Parker Brothers purchased the rights to the game from someone who stole the idea and Ms. Philips never received her due.)

    A Second Message

    Agreeing that Monopoly conveyed a negative picture of capitalism, a group of economists at the University of Chicago said the reason was the rules. Instead, the game needed to portray a market economy more accurately. It needed more competition, more potential for innovation and a more realistic monetary policy framework. Joining the players one evening, Milton Friedman autographed a game board, adding “down with” above the word “Monopoly.”

    So, we have one person saying capitalism is flawed and others telling us it is the game that has the problem.

    Our Bottom Line: Monopoly Tradeoffs

    Knowing that the game of Monopoly is based on the evils of John D. Rockefeller, Andrew Carnegie, J.P. Morgan, and others like them, instead perhaps we should focus on the tradeoffs. Those gentlemen and others like them catapulted U.S. economic growth with the capital and financial infrastructure that they created.

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  • Everyday ecnomic and new kinds of cocoa beans

    The Reason For Our Chocolate Problem

    Feb 15 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Innovation, International Trade and Finance, Lifestyle, Thinking Economically • 154 Views

    The world is experiencing a chocolate deficit.

    Struck by frosty pod rot and other fungal diseases, the world’s cocoa crop has shrunk by 30 to 40 percent. Add to that weather problems in Ivory Coast and Ghana where we get 70 percent of the world’s cocoa production and you have us eating much more than we produce.

    Where are we going? To supply and demand chocolate problems.

    More Cocoa Beans

    On the supply side, the solution could be CCN 51. A new bean developed in Ecuador, CCN 51 is more resilient and prolific. There is only one problem…the taste. Words used to describe how CCN 51 tastes include sour, acidic, dirt. But still, chocolate makers are blending it with their traditional beans.  (Sound familiar? A new seed is more resilient but, like many strawberries and tomatoes, the good flavor is gone.)

    Increasing supply, CCN 51 moved Ecuador into a top South American producing slot.

    CCN 51 solves cocoa bean supply and demand problems

    From: WSJ


    But still, most production comes from Africa with Ivory Coast #1.

    Supply side of supply and demand for cocoa beans

    From: World Cocoa Foundation


    More Chocolate Eaters

    On the demand side, more affluence means more chocolate. That takes us to the BRICs (Brazil, Russia, India, China) and the MINTs (Mexico, Indonesia, Nigeria, Turkey) where we have an aspirational middle class whose diet is changing and single size portions that cost pennies for those who have less. We also have the Russian people who are already among the world’s top 20 chocolate eaters.

    Still per capita (kg) chocolate consumption in developing countries is tiny. China’s .2 kg is just 7 ounces.:

    Demand side of supply and demand chocolate consumption

    From: Confectionery News

    Among more developed economies, total chocolate consumption has pretty much plateaued. The Swiss top the list with a whopping 20 pounds of chocolate per person annually, at 9.5 pounds a year, U.S. per capita consumption is down slightly and, in Eastern Europe, it is going up.

    The biggest chocolate eaters (2014 per capita/kg):

    Demand side of chocolate supply and demand

    From: Confectionery News

    Our Bottom Line: The Power of the Market

    Chocolate is a market story. With no one saying grow more, the supply side of the market responded with innovation. Meanwhile, as developing nations move up the spending ladder, they are transforming the demand side of commodities markets.

    However, thinking of those new beans, I wonder whether all of us will be happy with what the market decided. And that will mean that we will still have a chocolate deficit.

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