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Weekend reflections

November 12th, 2010

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit(s). As always, civilised discussion and no coarse language please.

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  1. John S Cook
    November 13th, 2010 at 10:17 | #1

    Most countries now face significant demographic challenges where aging populations may need to rely on aging workforces. Longevity and quality of life depend on staying physically and mentally active; with opportunities to reduce skill shortages, maintain personal retirement incomes and reduce health care costs. Work-leisure, learning-pleasure and work-learning have often been seen as mutually exclusive and fundamentally opposed. Conceivably, learning, work, enjoyment, satisfaction and recreation might be seen as mutually reinforcing. Attitudes in this regard might already be changing.
    Some important issues are far from resolved. Does superannuation create unreasonable expectations given recent performance of some financial institutions? Do employers get what they deserve if they are having recruitment problems? Do academic institutions help or hinder learning if they are overly devoted to formal accreditation? Who can give occasional help to the auto-didactics who like learning but are put off by the financial barriers of formal accreditation?

  2. Ikonoclast
    November 13th, 2010 at 15:31 | #2

    The main demographic problem of the world is over-population and the attendant overshoot of the earth’s carrying capacity. From this point onwards, longevity and quality of life will depend on how quickly the earth’s carrying capacity decays and how quickly key resources run out. It will also depend on our response. Given our response to date (zero positive measures and large wasteful wars), I would say the outlook is exceedingly grim.

    Worrying about the usefulness of and opportunities for over 55s (this includes me) before introducing global emergency measures to stabilise population, resource use and climate change is kinda putting the cart before the horse.

    Frankly, in very long run evolutionary terms, if one (of species homo sapien) is over 55, then one is very much an anomaly. I expect the current cluster of anomalies (first world over 55s) will self-correct via natural processes within this century.

  3. Chad Satterlee
    November 13th, 2010 at 16:26 | #3

    Unfortunately media outlets are never any good at diagnosing “problems”. I know a number of young neo-liberals who ceaselessly forewarn of a looming ageing crisis that will burden them with higher taxes and lower living standards, but I’m very doubtful our increasingly ageing population poses any challenge at all, despite the suggestions of successive Intergenerational Reports.
    The most important consideration is the impost ageing will have on the productive capacity of the economy. There are only two possibilities. Either you’re in an economy with a surplus of labour (or you have unemployment). In that case, people retiring isn’t a problem at all because they’re essentially yielding jobs to other people who want to fill those jobs. Alternatively, you’re in an economy with a shortage of labour, running without any “slack”, or running under inflationary pressure. In that case, the price of labour should go up automatically, and so we could expect older people to work for longer because their rate of return would go up. So either way you go, the system should adjust without a great deal of disruption.
    Most of the attention tends to be on the cost issue. The Intergenerational Report says that age-related expenditure (including healthcare, pensions and suchlike) will increase to around $60 billion over the next 40 years. That’s really not a big deal. Nonetheless, the projections assume nothing changes; if you allow for minor flexibilities in the system, such as the introduction of a tax on inheritance (like they have in essentially every other country in the world), or the introduction of some sort of tax on capital gains of housing, for example, then ageing costs start to look very manageable. If you couldn’t get such taxes passed (the rich might form an alliance to ensure their estates are held together through generations), it may be the case that the costs will have to fall on active wage earners. But wages are only a big issue if you’re poor; if you come from a background of wealth, and you stand to inherit wealth, then wages aren’t so important. So it’s really going to impact across classes differentially, more so than across generations, as some people suggest.
    What Australia should really be (but alas isn’t) doing is increasing the human capital of the current younger generation, since they’re going to be the older generation later. We could also make continual employment more attractive for older people by, perhaps, making more part-time jobs available, and reducing age discrimination in the workforce etc. As was noted previously, it only becomes an issue if the economy is such that there’s a shortage of labour. If so, then it becomes a lot easier for retired people to move into the workforce on a 0.5 basis, or a 0.3 basis, or whatever, and all of that is a productivity gain over what you have with complete retirement.

  4. John Armour
    November 13th, 2010 at 20:00 | #4

    I totally ( well, almost) agree Chad, especially in relation to the hyped-up issue of cost. The real constraint will be the availabilty of “real’ resources, like medical services, physical infrastructure, specialised labour. That means training, education, or human capital as you expressed it.

    At the risk of opening up another debate however, I’d say that looking for the answer to the supposed funding problem in tweeking the tax mix is not the way to go. It only makes sense if you accept that the government remains ideologically bound to the Government Budget Constraint, accepting if you like that the government is just like a household, which it isn’t.

    Sadly, we have been taught to reflexively shudder with horror when the word “deficit” is mentioned.

  5. gregh
    November 13th, 2010 at 20:38 | #5

  6. Chris Warren
    November 13th, 2010 at 21:18 | #6

    Interesting weekend reading – or at least I thought so.

    Ned Davis Research and Comstock Partners Inc. have produced some interesting visual devices.

    First – the long term trend in debt w.r.t. GDP, is not the sort of info students get through university study.

    http://www.scribd.com/doc/33671563/Total-Credit-Market-Debt-as-a-of-GDP

    The second, serves to give the context. The global economy is may now be heading into the currency devaluation stage. Presumably tariffs and protection are likely future options. Why would you permit free trade, if your competitors artificially increase the attractiveness of their products through devaluation or through frantic, last-ditch, printing money? Our education exports are fundamentally threatened if it becomes much cheaper for students to purchase American courses in easy-to-come-by Yankee dollars. Our losses are transferred to America.

    http://www.scribd.com/doc/33671598/The-Cycle-of-Deflation

    Unfortunately the public service, governments, media, and academics do not really believe that their much loved economic system floats on a bubble. They deal with the issue only as it arrives on their plates and in the terms it arrives. For example, the debt crisis – completely foreseeable – arrived and only then did the world take notice, but the terms that were presented were – “bail capitalism out – or we ruin society”.

    While all this looms Australia is throwing away 16 billion dollars on skanky military planes (Super Hornet and Joint Strike fighter) to replace F111′s. [AustFinReview 13 Nov, p27].

    16 billion dollars would provide the necessary funds to switch half Australia’s coal industry to safe renewables.

  7. Chad Satterlee
    November 13th, 2010 at 21:18 | #7

    I completely agree with you, John, on the role of the government and the insignificance of our deficit. However, aside from yielding useful results for public finances, wealth taxes have important moral foundations; being born into a wealthy family comes down to luck, and children who stand to inherit fortunes they did nothing to deserve should pay tax to compensate those who weren’t so lucky.

  8. Tony G
    November 14th, 2010 at 00:31 | #8

    Chad, you are advocating socialism; the only problem with socialism is it eventually runs out of other people’s money.

  9. Alice
    November 14th, 2010 at 06:36 | #9

    @Tony G
    Tony G on socialism – “the only problem with socialism is it eventually runs out of other people’s money.”

    Unregulated capitalism eventually runs off with other people’s money. Whats the difference Tony?

  10. John Armour
    November 14th, 2010 at 08:00 | #10

    “To them that hath shall be given”. It’s the divine right of the rich Chad !

    I have no problems with using taxes for redistributive social purposes. I just have a problem with the idea that taxes “fund” public sector spending (it’s not an idle thought balloon of mine, it’s an issue that attracts a fair bit of discussion on other economics websites).

    I just find the idea that we demand that the government that prints “our” money (putting it crudely), has to borrow it back from us so that it can spend it again, just a little odd.

    Back to the moral argument, it’s not just about the luck of being born into wealth. It’s also about exploiting the publicly financed infrastructure to accumulate wealth: to me a progressive tax is just an ex-post dividend from profits back to the public sector.

    Thankfully, there are lots of folk who eschew the midas-like obsession with wealth and find happiness and fulfulment in public service, teaching, researching, policing, and putting out bush fires.

    Your young neo-lib acquaintances probably think they’re mugs, but they’re nice people to know.

  11. Chris Warren
    November 14th, 2010 at 09:23 | #11

    @Tony G

    So which badge are you wearing now; dumb? dumber? or dumbest?

    You will find that all of Bill Gates, Rupert Murdoch’s, Kerry Packer’s and Frank Lowry’s money was expropriated from other peoples earnings.

    American capitalism has now officially run out of “other peoples money”, so as did Greece, Portugal, Iceland, and Ireland. Japanese capitalism is about to run out of other peoples money. If the flow of other peoples money does not continue to flow into Australia, then we will end up in the same predicament.

    It now appears that world capitalism in general is running out of money, so the only option is, either create more debt (ha ha) or for them to convert $1 into $2 by devaluation. Whoever devalues first – gets an immediate advantage.

    Under socialism, all profits are natural profits – ie not profits artifically boosted by adding in extra from other peoples money. So provided profits are limited to natural earnings, there is no possibility of ever running out of other peoples money.

    .

  12. Alice
    November 14th, 2010 at 11:15 | #12

    @Tony G
    Tony G

    If you dont think unregulated capitalism and excessively fattened banks in cahoots with insurance companies and courts are not fraudulenty running away with other people’s money you had better read this. I love Tabibi – he is one of the few who are really digging into the GFC and the monumental unchecked market fraud (failure is way too generous a term) that goes right to the core of modern financial systems

    http://www.rollingstone.com/politics/news/17390/232611?RS_show_page=0

    Tony G… Your brand of capitalism isnt working since right wing buffoons decided to take a pickaxe to existing moderate governments in industrialised nations, and thus government scrutiny. Its not capitalism. Its capital terrorism.

  13. Tony G
    November 14th, 2010 at 12:14 | #13

    Chris said;

    “You will find that all of Bill Gates, Rupert Murdoch’s, Kerry Packer’s and Frank Lowry’s money was expropriated from other peoples earnings.”

    Chris your statement is a textbook example yesterday of the way in which sheer hatred of people with money completely inverts the moral perspective of the left; The politics of envy is alive and well.

    No one is holding a gun to your head Chris and saying go into Westfield, buy the Australian or watch pornos care of Microsoft, you have a choice to part with your hard earned money; to put these transactions forward as ‘expropriation’ shows a complete inversion of moral perspective.

    Alice, the ‘difference’ is, taxation is theft or to steal a phrase from Chris, money “expropriated from other peoples earnings.”

  14. Chris Warren
    November 14th, 2010 at 14:47 | #14

    “hatred”, “envy”, “guns”, “porno”

    What on earth are you trying to say. Only propagandists load their verbiage like this.

    Of course its a textbook example. Once you have restricted competition, capitalist profit as distinguished from normal profits, emerge and fall to one side of the market according to politics.

    Westfield, News Limited, Microsoft obtain monopoly profits, often obtained through debt and cartel skulduggery.

    If a monopolist has the only bridge, or if all bridge providers operate as capitalists – then of course they will say;

    “No one is holding a gun to your head and saying go across this bridge”. But they can still charge monopoly prices without the gun.

    At least this is how it looks to those who have read the textbooks.

    ,

  15. John S Cook
    November 14th, 2010 at 14:57 | #15

    @Ikonoclast
    First point – population policy and impact on available resources is a concern – but some issues need to be addressed simultaneously rather than sequentially as matters of practical politics. The cart and horse is not entirely useful as a metaphor.

    Second point – having come out of retirement at age 68, enjoying full time research work immensely at age 72, learning at a faster rate than ever and with plenty of energy – I am not so sure that over 55 is an evolutionary anomaly. I find people at age 55 do not bring a sufficient life experience to some issues.

  16. gregh
    November 14th, 2010 at 15:06 | #16

    @Tony G
    Tony G your understanding of how choices are made is deeply flawed and this severely compromises your arguments. Many standard Psych texts will have helpful sections eg
    http://www.socialpsychology.org/texts.htm#attitudes

  17. jquiggin
    November 14th, 2010 at 15:47 | #17

    Please shift back and forth debates to sandpit

  18. gregh
    November 14th, 2010 at 16:26 | #18

    @John S Cook
    My understanding is that – historically – if one lived through childhood one had a pretty good chance of living much longer. The statistic is not so much average age at death but how much longer one has to live, on average, given how old one is now.

  19. Hayek’s horror
    November 16th, 2010 at 12:10 | #19

    A fascinating article by Jeff Frankel against those clowns arguing against QE2 in the States.
    ( see either Brad De Long or Mark Thoma).

    If you read his Cato article then Reagan did buggerall in deregulation. He merely gained credit for what Carter actually did.

    Interesting that Republicans always try and get the Fed to do their bidding but Democrats do not.

  20. Hayek’s horror
    November 17th, 2010 at 08:24 | #20

    I also see Paul Krugman making the valid point that those people arguing against QE2 are arguing with Milton Friedman.

    Those economists such as Taylor and Holtz-Eakin must know that surely?

  21. S. Baxxerzy
    November 20th, 2010 at 08:23 | #21

    A problem is the the crippling efficiency of the credit approval agencies and concomitant denial of re-access to the capital markets by those conned by “too big to fail” miscreants of Wall Street. The dampening of the credit multiplier by such institutional shifts is little studied in monetary policy. As long as misinformed IVY League graduates dominate monetary and fiscal policy there will continue be too much meddling and too little belief in invisible hand.

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