Auf Widersehen, Pet

by Edward Hugh


This, as many readers may well know, used to be the title of a UK TV sit-com about British building workers seeking to improve their fortunes by working in Germany, but now the times, it seems, have changed.

In 2004 more than 150,000 Germans reported to their town halls that they were going abroad—the highest number since 1884. The real figure is almost certainly much higher. Germany, once the economic engine of Europe, is on the point of becoming a country of net emigration. The museum in Bremerhaven may soon need a new wing with an aeroplane cabin or high-speed railway carriage, today's mode of departure.

This turn of events is not without irony. Until recently, politicians bickered about too many immigrants. Now it is emigrants they worry about. “A terrible development,” said Roland Koch, the premier of the state of Hesse, who once won an election by opposing a proposal to allow dual citizenship for Turks living in Germany. Business leaders are even more anxious. “More and more young people are turning their backs on Germany,” fretted Ludwig Georg Braun, president of the German Chamber of Industry and Commerce.

On the surface this may look like a case of overdone German angst. In the first six months of this year 69,000 Germans left the country, but 47,000 came back. The net outflow was 22,000 people, almost insignificant in a country of 82m people. However, according to Simone Eick, director of the Bremerhaven museum, emigration is likely to become a long-term trend.

The modest figures mask a more serious problem: brain-drain. Hard numbers are difficult to find, but anecdotal evidence suggests that many more academics are leaving Germany than are arriving, in contrast with countries such as the United States and Sweden that have a net “brain-gain”. According to a German medical organisation, about 12,000 German doctors now work abroad, many of them in Britain and Switzerland, which last year replaced the United States as the workplace of choice. Austria now ranks as the third-favourite destination.

What is curious about this situation is that the Economist doesn't seem to connect this outflow with the general demographic situation of Germany. This is, unfortunately, a lose-lose situation. Lack of internal demand inside Germany (which I argue is very much age related) produces slow growth and a stagnant labour market. Germany is suffering from a shortage of young people, and ironically this shortage is leading to more of them emigrating, and so the circle it seems continues. And as the Economist notes this outflow is even greater is you take cerebral cubic capacity (or, in economists terms, effective labour hours) into account.

Again, this situation is quite simply not sustainable: something at some point will break. This is not the first time we have here, at Demography Matters drawn attention to the knife-edge character of the situation Germany finds itself in, unfortunately I fear it will aslo not be the last.

The overall picture is however rapidly becoming clearer: in this 'population' game there will be winners and losers. Those who succeed in attracting population will be the winners, and those that don't, those whose population actually declines, will become the losers. Would that more people would stop trying to suggest that 'Demography Doesn't Matter' and started to do something before some of these countries enter an irreversible process of decline.

US: The Coming Demographic Tsunami

by Edward Hugh

Well, reading through this account of a recent speech by David M. Walker, head of the US Government Accountability Office, I have only one thing to say: Demography Really Does Matter.

Walker has committed himself "to touring the nation through the 2008 elections, talking to anybody who will listen about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government".

Walker is, it seems, more or less auditor general for the United States. Personally I couldn't speak with any authority about the dynamics of the US deficit, but I imagine Charles Walker can, and he should know what he is talking about, and if he doesn't, then he shouldn't be in the job he is in. T

The interesting thing about all this is that the US is one of the better cases (in terms of the general sustainability of its economic path). So is France, and look what Michel Pébereau recently said in his recent authoritative report for the French government:

Pébereau does not mince words: over a quarter of a century century French public policy has accumulated for itself a national debt has neither supported economic growth nor reduced unemployment. The debt is “asphyxiating” and unless the State acts to reduce its spending now France will “lose control of the financial situation” before the end of the decade.

And these are the moderate cases, there are far worse ones, Italy for example.

And as Walker himself says:

"You can't solve a problem until the majority of the people believe you have a problem that needs to be solved".

And it seems that the majority of people, in the US and elsewhere, are in denial on the problem:

Polls suggest that Americans have only a vague sense of their government's long-term fiscal prospects. When pollsters ask Americans to name the most important problem facing America today — as a CBS News/New York Times poll of 1,131 Americans did in September — issues such as the war in Iraq, terrorism, jobs and the economy are most frequently mentioned. The deficit doesn't even crack the top 10.

So the big fear is that something, somewhere will end up 'happening', and then people will start to wake up. I simply hope that the 'happening' in question will not be prove to be too dramatic and devastating for those history has appointed to serve as example. Meantime, here's some more from the Walker speech:


Walker's challenge is to get people not just to think about it, but to pressure politicians to make the hard choices that are needed to keep the situation from spiraling out of control.

To show that the looming fiscal crisis is not a partisan issue, he brings along economists and budget analysts from across the political spectrum. In Austin, he's accompanied by Diane Lim Rogers, a liberal economist from the Brookings Institution, and Alison Acosta Fraser, director of the Roe Institute for Economic Policy Studies at the Heritage Foundation, a conservative think tank.

"We all agree on what the choices are and what the numbers are," Fraser says.

Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation. That's almost as much as the total net worth of every person in America — Bill Gates, Warren Buffett and those Google guys included.

A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today.

And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.

People who remember Ross Perot's rants in the 1992 presidential election may think of the federal debt as a problem of the past. But it never really went away after Perot made it an issue, it only took a breather. The federal government actually produced a surplus for a few years during the 1990s, thanks to a booming economy and fiscal restraint imposed by laws that were passed early in the decade. And though the federal debt has grown in dollar terms since 2001, it hasn't grown dramatically relative to the size of the economy.

But that's about to change, thanks to the country's three big entitlement programs —
Social Security, Medicaid and especially Medicare. Medicaid and Medicare have grown progressively more expensive as the cost of health care has dramatically outpaced inflation over the past 30 years, a trend that is expected to continue for at least another decade or two.

And with the first baby boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses of those two programs are about to increase dramatically due to demographic pressures. People are also living longer, which makes any program that provides benefits to retirees more expensive.


One last point. This is not simply a question of a 'boomer generation'. The whole point of this blog is to examine why the phenomenon is much bigger than this, and to examine the implications of this fact. As Ben Bernanke says, we are in the midst of a demographic transition


As a consequence, the anticipated increase in the share of the population aged sixty-five or older is not simply the result of the retirement of the baby boomers; the "pig in a python" image often used to describe the effects of that generation on U.S. demographics is misleading. Instead, over the next few decades the U.S. population is expected to become progressively older and remain so, even as the baby-boom generation passes from the scene.

Indeed here even the phrase "and remain so" may itself be misleading, since the median age may well rise and rise and rise, depending on the future evolution of fertility and longevity in the US. So of this transition all we are able to say at this point is destination uncertain, end-point unknown.

Accounting For The Costs of Ageing

by Edward Hugh

This article which appears in todays FT seems to me to raise issues which are extremely important, indeed it gets to the heart of the matter:

A radical new approach to government accounting that would require the US administration to account for the cost of future social security payments year by year as people build up entitlements will be proposed on Monday.

The proposal by the federal accounting standards advisory board (FASAB) – which would also require the government to account for benefits accrued under Medicare and other social insurance programmes in the same way – is unprecedented internationally. It would radically change the presentation of US government finances, in effect bringing forward the cost of rapidly increasing social security and Medicare obligations and greatly increasing the reported fiscal deficit.

As the FT notes the proposal is unprecedented internationally, but is exactly what is needed. Assessing sustainability in public finances involves having relatively accurate knowledge of two things: accumulated liabilities, and future rates of economic growth. The 'unprecedented' component in the FASB proposals would go a long way towards improving the situation vis-a-vis the first item, the second one, of course, still needs a lot of thought and work.

The FT has obtained a copy of the FASAB preliminary views paper which will be released on Monday. In it, the independent board majority argues that “for social insurance programmes an expense is incurred and a liability arises when participants substantially meet eligibility requirements during their working lives”.

By contrast, the government representatives argue that the liability arises only when the benefit amount is “due and payable” as under current accounting rules.

The majority independent directors want the government to start providing for the future cost of social security and other benefits when workers become fully insured after 10 years in covered employment.

They say the current arrangement is “flawed” because it “fails . . . to recognise the accruing cost of social insurance programmes in each reporting period”.

Adopting the proposed new rule would bring the government more into line with the private sector, an approach that has considerable support within a section of the Republican party and may in this instance be of interest to Democrats too.

However, it would break with international public accounting practice, which essentially treats social insurance offered by sovereign governments as a political commitment to pay future benefits rather than a financial liability.

The Organisation for Economic Co-operation and Development has written to the FASAB saying it is “very concerned” about the proposed rule change.

The letter, signed by Barry Anderson, head of the OECD’s budgeting and public expenditures division, says that “classifying these transactions the same as private sector liabilities is wrong” and could confuse the public.

Sweden, and Migrants From Romania and Bulgaria

by Edward Hugh

The change of government in Sweden seems to mark something of a change in the attitude towards economic migration. The new governemnt of Fredrik Reinfeldt seems to be happy to accept an inflow of workers from Romania and Bulgaria when they join the EU in January:

"The Swedish government is unlikely to introduce restrictions on Bulgarian or Romanian workers," a press secretary for Swedish Prime Minister Fredrik Reinfeldt, Roberta Alenius, told AFP, confirming comments made earlier by Reinfeldt.

The Scandinavian country together with Britain and Ireland were the only members of the EU to welcome workers from the 10 countries which joined the club in 2004.

Alenius stressed that Sweden's four-party coalition government had not yet discussed the issue and that the ultimate decision would be taken by parliament.

"Sweden did not impose restrictions for the last 10 countries. It should be the same for these two countries," Reinfeldt told Swedish news agency TT.

This is rather different to the state of play of the debate in the UK right now:

The UK government is to abandon its 'open-door' policy to eastern Europe by restricting the inflow of Romanian and Bulgarian immigrants when their countries join the European Union in January.

In a dramatic U-turn that has been attacked as a sop to the anti-immigration lobby, John Reid, the Home Secretary, will unveil plans to prevent thousands of people from Romania and Bulgaria coming to Britain to work. His move comes after sustained criticism that Polish immigrants are entering the country in unsustainable numbers.

Understandably the Romanian community in the UK seems to be up in arms:

The letter from senior Romanian figures in Britain to Downing Street, signed by a number of leading cultural and social organisations, claims that Romania is being unfairly treated following hostile media coverage. Urging Blair to 'follow your beliefs', it says: 'We are deeply concerned about the denigrating campaign of the past weeks in the British media that does significant harm to the true image of Romania. The numbers of Romanians who intend to come to work in the UK after 1 January, 2007, have been highly exaggerated.'

Opening the doors would fuel economic growth and 'drastically reduce incentives' for illegal labour, the letter says, adding that the typical immigrant would be young and single and 'it is unlikely that he/she would overburden the UK education and health system'.

But interestingly arguments similar to those currently being heard in the US seem to be gaining ground:

However, Labour MPs say their constituents are uneasy about rapidly changing communities and wages being undercut by eastern European workers.

Of course the interesting thing now will be to see what the opposition, lead by David Cameron, have to say. Will they follow the lead of their Swedish Colleagues, and will the voters support them?

Too Little Too Late?

by Edward Hugh

This is a short post, just to let everyone know that even if last week was a quiet week, we are still in the land of the living.

The title of this post refers to a comment Sterling put in Claus's last post. Really I very much agree. These most recent statements from Joaquim Almunia having something of a pathetic ring about them.

Unfortunately, Almunia is but a pale shadow of his EU predecessor (Pedro Solbes) in this context, a fact which is curious since the two come from the same country and the same party. As I pointed out to Claus, back in 2003, Pedro Solbes arranged a conference in Brussels on the issue of pension systems and their sustainability (anyone interested in this topic from a European perspective might find it useful to leaf through the papers). In his address to the conference, Solbes said the following:

* Our conclusions are worrying. On the basis of current polices, a clear and unequivocal risk of unsustainable public finances exists in at least half of EU Member States. Even countries which at first sight appear to be in a good position, face daunting challenges. Both reforms, with which I will deal later in the speech, and budgetary discipline have to remain high on the economic policy agenda. High debt countries, face a particular challenge as they are de facto obliged to run large primary surpluses and achieve ambitious debt reduction targets in order to ensure sustainability. This implies an enormous and sustained real budgetary effort. Alternatively sustainability in some countries appears to be based on sustaining very high tax ratios over several decades. The tax burden is a matter for Member States to decide, but there are questions as to whether high tax rates can be sustained in the face of globalisation and the increased mobility of tax bases. These conclusions underline the need for further increasing the focus on the debt level and long-term sustainability in the Stability and Growth Pact. Indeed, the upgrading of analysis on ageing populations was a central element in the proposals adopted by the Commission last November.


but the core challenge is economic growth.

* Over the past forty years, we have become accustomed to increasing levels of prosperity on the back of sustained increases in labour supply and high levels of productivity growth. However, ageing populations means that these sources of growth cannot be taken for granted in the future. The population of working age in Europe will start to shrink as of 2010 as the post war baby-boom cohort enter their retirement years. Unless offset by increases in productivity growth, a fall in the supply of labour will mean that the potential growth rate will fall. We have estimated that the pure impact of ageing populations will result in the potential growth rate falling by some 0.8 percentage points. A drop of this amount may appear small, but its cumulative effect would be a shortfall in GDP per capita of some 20%. Let me be clear. I am not suggesting that living standards will fall by 20%, but rather that they will be lower than what could be expected to be in the absence of demographic change. These changes in the labour market are not long-run concerns. Our recent economic forecasts show that these effects are already emerging in some EU Member States.


* A fall in potential growth is not only a concern because it will lead to a relative decline in prosperity vis à vis other industrialised countries. It is a major problem because it will make it ever more difficult to meet the expectations and demands of a growing elderly population. Much of the pension entitlements which citizens are accruing in public systems today are based on an assumption of a potential growth rate of around today's growth level.

Really Solbes has understood the problem pretty well, which is more, I fear, than can be said for Joaquim Almunia. (Policy watchers might like to note that Almunia was despatched to Brussels following the surprise victory of Zapatero's PSOE part in the March 2004 elections. The switch had two purposes, to bring back economic 'heavyweight' Solbes to strengthen Zapatero's team, and to remove mediocre 'machine man' - and heir apparent to the discredited Felipe Gonzalez - from eye's reach and harm's way, so there could be a 'new broom sweeps clean' policy. Of course Europe's loss is Spain's benefit, but that hardly seems to be the important point given the gravity of the issues involved. This topic has simply been drifting since Solbes went, and Almunia's recent efforts do nothing to convince me that anything substantial has changed).

The report itself can be found here. If time permits next week I will try and offer some comments.

A Big Step for European Policy Makers?

It could certainly seem so, at least if we measure it as awareness of a serious problem. Consequently, the EU commissioner of monetary policy affairs Joaquim Almunia will point to the possibility of an age driven crisis in a speech (report?) on Thursday. The only thing that wonders me is that Italy is not on the 'list'!? And sadly, no talk of immigration and also the discourse seems to be stuck in the old discussion about dependancy ratios and the prolongation of retirement age. Furthermore, the 'three-pronged strategy' to get public budgets back into shape seems to miss a big part of the point; how can (should) these countries do this and what will it mean for economic growth going forward?

So as I stated; points for awareness but not much more.

The FT has the story ...

'Public finances in six European Union countries are at “high risk” because of the continent’s ageing society, Joaquin Almunia, EU monetary affairs commissioner, will warn on Thursday.

Mr Almunia will say Cyprus, the Czech Republic, Greece, Hungary, Slovenia and Portugal face the biggest threat of a financial crisis in the medium or long-term. Europe’s three biggest economies – Britain, France and Germany – are at “medium risk”.

Mr Almunia will warn that the entire EU needs to do more to prepare public finances for a demographic shock. Without policy change, the average debt to gross domestic product ratio of all EU members will rise from about 60 per cent to almost 200 per cent in 2050.

Meanwhile, the effects of an ageing population could cause Europe’s potential annual growth to fall to 1 per cent, less than half the current rate.

In a report on the sustainability of Europe’s public finances, Brussels hopes to put further pressure on national capitals to run balanced budgets or surpluses in the medium-term.

In the past five years, Britain, France, Germany and Italy have run annual deficits of close to or above 3 per cent of GDP, a situation Mr Almunia believes is storing up big problems.

He will advocate a “three-pronged strategy” to put finances on a public footing, including running balanced budgets to reduce public debt at an accelerating rate.

Employment rates, at 63 per cent in 2004, should be raised towards the EU target of 70 per cent as a priority, with a particular focus on keeping older people in work

He will urge renewed efforts to reform pensions, healthcare and long-term care systems. Earlier this week he said: “The challenge is considerable and inaction is not an option. Our capacity to cope with the impact of ageing depends on our political will to apply today the necessary reforms.”

Mr Almunia says Greece, Hungary and Portugal need to strengthen their fiscal positions as a matter of urgency. Some countries face an increase in public spending of up to 5 per cent a year because of ageing. However, Germany, France, Austria, Italy and Sweden, have made “remarkable” strides in reforming their pensions systems.

Vladimir Spidla, EU employment commissioner, will on Thursday join Mr Almunia in the call for change.

He will say it should be easier for people to reconcile family and professional lives in an effort to raise birth rates and stem population decline. He will call for older people to be more readily included in the workforce and to receive new qualifications and training.'

Illegal immigration in Europe and the UN's new migration forum

The Economist has this great story on illegal immigration into Europe and the attitudes of rich and poor countries towards a UN Migration Forum. It highlights the problems that the large EU nations face in approaching immigration policy:

Immigrants now make up 8.7% of Spain’s population. Those turning up so telegenically in the Canary Islands are, at 21,000 over a year, just a detail. Most step off flights from Latin America, and walk straight into jobs on building sites or as household helpers. Spain benefits in many ways, but Spaniards are worried that immigration is out of control.

Spain’s ad hoc approach—along with much of Mediterranean Europe—is to encourage illegal migrants by granting periodic amnesties. France, home to between 200,000 and 400,000 illegal immigrants, mostly from West Africa and the Maghreb, is now trying a new tactic: throwing them out. But that, too, is proving less than satisfactory.

Nicolas Sarkozy, the hard-talking French interior minister and the centre-right’s leading presidential candidate for next year’s elections, insists he will never accept “mass regularisation” of illegal immigrants. But various failed attempts by the French government to expel them—one long-running saga involves squatters in a disused university building in Cachan, outside Paris—have shown that getting tough produces few results either.

It then goes on to discuss the new UN Migration Forum. Not surprisingly, politicians are too beholden to their interests groups to approach this topic; so it has been pushed primarily by the private sector--which (for now at least) has the most at stake in the debate:

Might there be another way to go? Some prominent figures in the Western world are proposing a new way of looking at things. Migrants who seek jobs should be encouraged and rich and poor countries should agree on how to manage the process. Peter Sutherland, chairman of BP, an oil company, and Goldman Sachs, an investment bank, has spent the past year leading a quiet but successful campaign to usher into existence a UN-backed Forum on Migration and Development. This will act as a repository for clever ideas on how to get the best from migrants, on encouraging more efficient sending of remittances and on discouraging illegal migration.

Unlike the World Trade Organisation, which he used to head, Mr Sutherland is promoting not a rule-making agency, but an up-market arena where experts can propose “smart” approaches to regulating a huge and growing global phenomenon. (The total number of migrants in the world rose to 191m in 2005 from 155m in 1990.) The forum is expected to organise at least one high-profile inter-governmental meeting a year, with the first to be hosted by Belgium next summer. Reflecting enthusiasm for the project, representatives of 127 countries attended a preparatory session in New York last month.

While it would probably be more useful to have a forum which was actually empowered to look for international agreements on migration, this is a good starting point. Globalization means an increasing international flow of goods, capital, and labor so, at some point (if not now), it will reach a point where some authority is absolutely necessary to manage the process. Migration, as everyone on this blog knows all-too-well is even more important because of its ability to dull the demographic sword hanging over aging societies. Why then are these the same countries that are dragging their feet the most?

The new organisation is supposed to empower politicians in rich countries who have the courage to argue in favour of welcoming newcomers. Most rich countries want firm assurances that yet another full-blown organ of the UN system is not being created. Some, including the United States and Australia, have been sceptical that any further global action should be considered.

But poorer countries want to see a strong body emerge, with the legitimacy, in their eyes, that comes from its connection with the UN system. The new forum is something of a compromise. It does have the blessing of Kofi Annan, the UN's secretary-general, but it will be funded and managed by individual countries, not by the UN itself.

The problem as I see it is that the public in the developed countries sees immigration as a fundamentally short-run issue: immigrants are seen as making periods of slow growth even tougher on the average worker (which is probably true); and not for their long-term contribution to the 'health' of the labor force. They are seen as outsiders deriving undeserved benefits from that which 'belongs' (wages, profits, government services etc.) to the domestic constituents; rather than as those who can themselves assimilate into the receiving society, given a certain amount of time and tolerance. Immigration is undoubtedly in the interests of rich nations over the long-term--but only if they can learn to integrate the 'outsiders' into their societies.

There is another element to it too: for the most part, international immigration is an economic decision and it has economic consequences. Theoretically speaking, labor will (gradually) flow to where it can generate the best 'returns'. It brings with it a form of added competition (as do foreign goods and foreign capital) which stimulates the receiving country's economy.

At one point, in the US at least, competition was a sacrosanct principle in policymaking. The impetus for deregulation came from the acknowledgment that competition was the best driver of economic growth and the best way to make the economy more flexible. Could it be that the 'advanced' countries are tiring of this important idea?

Nigerian census results, still waiting

Originally the first census results of the most populous country in Africa: Nigeria should have been released by now. Unfortunately in a country where ethic and religious issues are always close to the surface anything, even statistics, can become political. So it´s understandable the authorities are taking their time for the correct figures. Even more if you remember the last census in Nigeria was about 15 years ago and had an undercount by about 20 million people.

While there have been a few issues with censustaking itself, I do not think they will affect the endresults. At least not in a major way, in a census the respons rate is very high and there are a number of statistical techniques you can always use to get good estimates even if the local data is not perfect. Plus this time, sensitive issues like religion were ignored. However, some locals might still see things otherwise.

The results could be interesting, but for now we´ll simply have to wait...

NIGERIA. Oct 2006. Nigeria, Africa's most populous country, is due to release the results of a census conducted in Mar 2006, but will probably postpone any announcements until after the 2007 general election. Censuses are controversial in Nigeria because rival ethnic and religious groups have tried to use them to assert their numerical superiority and claim a larger share of oil revenues and political representation. Splits between Nigerian Muslims and Christians and among the country's 250-300 ethnic groups are so incendiary that census officials decided to not ask citizens this year about their religious affiliation or ethnicity.

...

The country hasn't conducted a census since 1991. Most estimates put the population anywhere between 120-million and 150-million.

Ben Bernanke and the Coming Demographic Transition

by Edward Hugh

Ben Bernanke's speech yesterday should prove interesting for all readers of Demography Matters. The speech is interesting not so much for his views on the US social security system as such, but for the way he conceptualises the problem. This IMHO is a huge step forward. We are in the midst of an ongoing demographic transition. Here are some extracts:

The Coming Demographic Transition: Will We Treat Future Generations Fairly?

In coming decades, many forces will shape our economy and our society, but in all likelihood no single factor will have as pervasive an effect as the aging of our population.

This coming demographic transition is the result both of the reduction in fertility that followed the post-World War II baby boom and of ongoing increases in life expectancy. Although demographers expect U.S. fertility rates to remain close to current levels for the foreseeable future, life expectancy is projected to continue rising. As a consequence, the anticipated increase in the share of the population aged sixty-five or older is not simply the result of the retirement of the baby boomers; the "pig in a python" image often used to describe the effects of that generation on U.S. demographics is misleading. Instead, over the next few decades the U.S. population is expected to become progressively older and remain so, even as the baby-boom generation passes from the scene. As you may know, population aging is also occurring in many other countries. Indeed, many of these countries are further along than the United States in this process and have already begun to experience more fully some of its social and economic implications.


...........many observers have noted the difficult choices that aging will create for fiscal policy makers in the years to come, and I will briefly note some of those budgetary issues today. But the implications of demographic change can also be viewed from a broader economic perspective. As I will discuss, the broader perspective shows clearly that adequate preparation for the coming demographic transition may well involve significant adjustments in our patterns of consumption, work effort, and saving. Ultimately, the extent of these adjustments depends on how we choose--either explicitly or implicitly--to distribute the economic burdens of the aging of our population across generations. Inherent in that choice are questions of intergenerational equity and economic efficiency, questions that are difficult to answer definitively but are nevertheless among the most critical that we face as a nation.

Indeed, framing the issue in generational terms highlights the fact that the economic implications of the coming demographic transition go well beyond standard considerations of fiscal policy and government finance, important as those are. For reasons that I will explain in a moment, the aging of the population is likely to lead to lower average living standards than those that would have been experienced without this demographic change. How that burden of lower living standards is divided between the present and the future has important implications for both intergenerational fairness and economic efficiency.

Indeed, framing the issue in generational terms highlights the fact that the economic implications of the coming demographic transition go well beyond standard considerations of fiscal policy and government finance, important as those are. For reasons that I will explain in a moment, the aging of the population is likely to lead to lower average living standards than those that would have been experienced without this demographic change. How that burden of lower living standards is divided between the present and the future has important implications for both intergenerational fairness and economic efficiency.

Of course, it is not hard to see that Bernanke still casts the problem in terms of the traditional compositional (dependency ratio) impact, without getting into either the ageing and productivity, or the life cycle saving and consumption issues. Nonetheless this speech still constitutes a huge step forward in the battle to get all this onto the international policy agenda.

Women Driving Global Growth?

by Edward Hugh


Aude Zieseniss de Thuin (that's quite a name that, isn't it?) has a comment article in today's Financial Times on the economic role of female labour force participation. The article itself is behind the great firewall, but it does draw our attention to an earlier Economist article which was fairly interesting (and which we here at DM somehow missed). As de Thuin points out, one of the key phrases in the Economist article was:

“Over the last 10 years the increase in women [in the workplace] in developed countries has made more of a contribution to global growth than China has,”

Or in other words, and as she says, "the arrival of this new workforce has done more to encourage global growth than increases in capital investment and improvements in productivity". This conclusion is drawn by the application of a simple, rough and ready, growth accounting framework, the rise in female participation improved collective productivity by changing the ratio of the non-economically-active (or economically dependent) population to the total population. There is no great mystery here.

The Economist drew our attention to a number of important details. In the first place, they provided a breadown of female labour force participation by country.
















In the second place they use this comparison to highlight the fact that it is not increasing female participation as such that affects fertility, but rather an unsupportive institutional environment - whether in the home or in society at large.

It is sometimes argued that it is shortsighted to get more women into paid employment. The more women go out to work, it is said, the fewer children there will be and the lower growth will be in the long run. Yet the facts suggest otherwise. Chart 3 shows that countries with high female labour participation rates, such as Sweden, tend to have higher fertility rates than Germany, Italy and Japan, where fewer women work. Indeed, the decline in fertility has been greatest in several countries where female employment is low.

It seems that if higher female labour participation is supported by the right policies, it need not reduce fertility. To make full use of their national pools of female talent, governments need to remove obstacles that make it hard for women to combine work with having children. This may mean offering parental leave and child care, allowing more flexible working hours, and reforming tax and social-security systems that create disincentives for women to work.

The Economist's points are well made here, but they should not blind us to the fact that, with the noteable exception of the US, fertility levels in all the other societies referred to are still significantly belwo replacement, so a 'mother' friendly environment helps, but it doesn't resolve the problem. This also doesn't tell us either how those societies - like Japan, Germany and Italy - which now have significant 'fiscal overhangs' are going to find the resources to ever remedy this deficiency.

RNAi

by Edward Hugh

The latest Nobel in medicine could not pass without some sort of comment on this blog. Now the work of Andrew Fire and Craig Mello concerns techniques which help us better understand the way that specific genes can be turned on and off, and thus accumulate evidence of gene function in the cellular metabolism. Specifically the two scientists are credited for their discovery of “RNA interference” (or RNAi). This is described by wikipedia as:

a mechanism in molecular biology where the presence of certain fragments of double-stranded ribonucleic acid (dsRNA) interferes with the expression of a particular gene which shares a homologous sequence with the dsRNA. RNAi is distinct from other gene-silencing phenomena in that silencing can spread from cell to cell and generate heritable phenotypes in first-generation progeny when used in the roundworm Caenorhabditis elegans.

As wikipedia notes this procedure has important implications for the study of model organisms through its role in gene 'knockdown':

RNAi has recently been applied as an experimental technique to study the function of genes in model organisms. Double-stranded RNA for a gene of interest is introduced into a cell or organism, where it through RNAi causes an often drastic decrease in production of the protein the gene codes for. Studying the effects of this decrease can yield insights into the protein's role and function. Since RNAi may not totally abolish expression of the gene, this technique is sometimes referred as a "knockdown", to distinguish it from "knockout" procedures in which expression of a gene is entirely eliminated by removing or destroying its DNA sequence.

And the relevance of all of this for our concerns on this blog? Well the 'knockdown' technique is obviously extremely useful in studying the molecular mechanisms which are associated with, among other things, ageing.

RBA Conference on Demograhy and Financial Markets

In the post just below this on Edward already pointed to some papers from this conference and also noted that he had to post on it. I have chosen to take this one for him and present you to the papers on the conference held by the Reserve Bank of Australia back in July. The conference was also duly noted by New Economist back in July and to follow her thinking here is consequently a; 'high quality smörgåsbord'

• Global Demography: Fact, Force, and Future - PDF
  David Bloom, Harvard University

• Asymmetric Demography and Macroeconomic Interactions Across National Borders - PDF
  Ralph C Bryant, The Brookings Institution

• Optimal Private Responses to Demographic Trends: What Can Theory Tell Us? - PDF
  Henning Bohn, University of California, Santa Barbara

• Demographic Change and Asset Prices - PDF
  Robin Brooks, International Monetary Fund

• Demographic Change, Saving and Asset Prices: Theory and Evidence - 658K PDF
  Axel Boersch-Supan, University of Mannheim

• Will China Eat Our Lunch or Take Us to Dinner? Simulating the Transition Paths of the U.S., EU, Japan, and China - PDF
  Laurence Kotlikoff, Boston University

• How Will Ageing Affect the Structure of Financial Markets? - PDF
  E Philip Davis, Brunel University

• Financial Innovation for an Ageing World - PDF
  Olivia Mitchell, University of Pennsylvania and John Piggott, University of New South Wales

• Population Ageing, the Structure of Financial Markets and Policy Implications - PDF
  Todd Groome, International Monetary Fund

This is defnititely one to put into you del.icio.us account or whatever tool you use to archive stuff of particular interest.