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Article Artículo

More Nonsense on China's Demography

It is amazing how often we hear that China is experiencing some sort of crisis because of its aging population. This is supposed to lead to a situation in which it won't have enough workers to support an aging population.

If folks have been following events in China recently its big problem is too few jobs and unemployment. It has closed a number of coal mines in recent years, leading to the loss of tens or even hundreds of thousands of jobs in the coal mining industry. Currently, it is hugely subsidizing its steel exports to keep its steel factories running. Without these subsidies, hundreds of thousands of workers could lose their jobs. There are comparable stories in many other industries.

So China's big problem for the foreseeable future is going to be too many workers, that is 180 degrees at odds with the too few workers story that the demographic crisis people keep pitching, as in this Reuters article that appeared in the NYT today. This piece includes the ominous warning:

"For the first time in decades China's working age population fell in 2012 and the world's most populous nation could be the first country in the world to get old before it gets rich."

Actually, China is pretty close to getting rich. If the I.M.F.'s projections prove correct, then it will be as wealthy as countries like Portugal and Greece by the end of the next decade. (This assumes that the per capita growth rate over the rest of the decade is the same as is projected from 2019–2021.) In an international context, that would count as "rich," and in any case many countries with lower per capita incomes already have high ratios of retirees to workers. Given its extraordinarily rapid growth over the last three and half decades China is far better positioned to care for its population of retirees than almost any other country in the developing world. 

Addendum: Numbers for Arithmetic Fans

In response to requests from Twitterland, I will show the simple arithmetic of why China need not be worried about its declining ratio of workers to retirees. This is highly stylized, but it should make the basic point.

CEPR / May 28, 2016

Article Artículo

Haiti

Latin America and the Caribbean

World

Election Verification Results Expected this Weekend: What to Expect and What Comes Next?

This Sunday the month-long verification commission that is analyzing Haiti’s elections is expected to release its results. No matter the outcome, Haiti and the international community are bracing for the worst. The U.S. embassy warned yesterday that protests are expected both on Sunday and on Tuesday, when the electoral council said it will announce a new electoral calendar. Rosny Desroches, who led a U.S.-financed local observation mission, predicted a “climate of tension and pressure” after the verification report is released, according to Miami Herald journalist Jacqueline Charles.

Provisional president Jocelerme Privert, who took office after ex-president Michel Martelly’s term ended, created the verification commission after widespread condemnation of fraud following August’s legislative elections and October’s first-round presidential elections. After virtually all of Haiti’s opposition political parties and civil society organizations denounced the continuation of the electoral process without such a commission, Privert said it was needed to restore confidence and credibility to the elections. The U.S. and other actors in the international community, after first trying to prevent the verification, have largely accepted it, while still trying to limit the possible outcomes.

"We hope it is very, very quick and does not change the results of the election," State Department Haiti Special Coordinator Kenneth Merten said on a trip to Haiti in late April.

Though little information has come out about the verification commission’s work, it has been analyzing records at the Central Tabulation Center, where tally sheets and other elections materials were counted and archived, for the last few weeks. The Organization of American States (OAS), previously the most vocal proponent of the election’s credibility, is monitoring the commission’s work.

While the exact outcome is unknown, there are three main scenarios which could result from the commission’s work. It could largely confirm the findings of a previous evaluation that found widespread irregularities and fraud, but recommended moving forward with the cancelled second round between PHTK’s Jovenel Moise (the hand-picked successor to Martelly) and Jude Celestin of LAPEH. It could exclude one or more candidates due to fraud, opening the runoff to third-place finisher Moise Jean Charles of Pitit Dessalines or it could determine that due to the magnitude of the problems a new first round election should be held. Either way, certain political factions and their supporters are bound to be aggrieved, fueling the expectation that the commission’s conclusions will provoke “tension and pressure.”

If the first-round is simply ratified and a second round between the top two finishers in the October vote is called for, the same actors who took to the streets and denounced widespread fraud will likely remobilize. On the other side, PHTK will try to resist either a first round rerun or, more importantly, the exclusion of its candidate due to fraud. From the beginning, PHTK has denounced the verification as a smokescreen to oust Jovenel Moise.

For the international community, led predominantly by the U.S., there remain a few primary objectives; containing any widespread violence and political instability, especially with U.S. presidential elections upcoming and blocking a return of Lavalas to the presidency. After helping to overturn the 2010 election results and ushering Martelly into the presidency, then backing him and his PHTK party for the last five years with billions in aid and diplomatic cover, the U.S. has invested quite a bit in the party’s political success. Still, the threat of similar protests to what occurred in late 2015 and early 2016 from opposition parties and civil society also weighs heavily.

“It seems the primary concern [of the U.S.] is Pitit Dessalines and Fanmi Lavalas…they are seen as a greater danger because of presumed popular support,” an international official involved in the elections recently told me. The U.S. has consistently maintained they favor no particular candidate or party.

Jake Johnston / May 27, 2016

Article Artículo

Robert Samuelson Wants the Fed to Raise Interest Rates and Throw People Out of Work

Yes, what else is new? The basic story is that Robert Samuelson has discovered a wage series that shows, "many workers are actually receiving modest increases." Samuelson tells readers:

"...the study [the one showing modest wage growth] exerts pressure on the Fed to raise interest rates."

The series that has Samuelson so excited is a wage series that tracks the same workers over time. It looks at full-time workers and compares their wages this year with their wages last year. It will exclude anyone who was not employed full-time in both periods and it also will miss anyone who moves, since it is a household survey.

My friend Jared Bernstein has already given a good argument as to why the Fed should not jump on this new series as an excuse to raise interest rates. Let me add three additional points.

First, the gap between this series and the other wage series can be explained by an increased premium for longer tenured workers. More than 4 million workers leave their jobs every month. This series is picking up only the people who stay in their full-time job or leave their job and find a new full-time job, but do not move. That exlcudes a very large segment of the labor force. Suppose this group is getting an increased wage premium. Why is this a rationale for the Fed to raise to interest rates? In this respect, it is worth noting that the wage gains shown by this measure are still almost a full percentage point below the pre-recession pace.

CEPR / May 27, 2016

Article Artículo

Latin America and the Caribbean

Hillary Clinton’s Memoir Deletions, in Detail

As was reported following the assassination of prominent Honduran environmental activist Berta Cáceres in March, former Secretary of State Hillary Clinton erased all references to the 2009 coup in Honduras in the paperback edition of her memoirs, “Hard Choices.” Her three-page account of the coup in the original hardcover edition, where she admitted to having sanctioned it, was one of several lengthy sections cut from the paperback, published in April 2015 shortly after she had launched her presidential campaign.

A short, inconspicuous statement on the copyright page is the only indication that “a limited number of sections” — amounting to roughly 96 pages — had been cut “to accommodate a shorter length for this edition.” Many of the abridgements consist of narrative and description and are largely trivial, but there are a number of sections that were deleted from the original that also deserve attention.

CEPR and Ming Chun Tang / May 26, 2016

Article Artículo

The Trump Supporters in Econ Departments and Central Banks Everywhere

Eduardo Porter used his NYT column this week to remind us that we have seen people like Donald Trump before and it didn't turn out well. Porter is of course right, but it is worth carrying the argument a bit further.

Hitler came to power following the devastating peace terms that the allies imposed on Germany following World War I. This lead to first the hyper-inflation that we will continue to hear about until the end of time, and then austerity and high unemployment that was the immediate economic environment in which Hitler came to power.

The point that we should all take away is that there was nothing natural about the desperate situation that many Germans found themselves in when they turned to Hitler for relief. Their desperation was the result of conscious economic decisions made by both the leaders of the victorious countries as well as the leaders of the Weimar Republic. (It is not as though the latter had any good choices.) Nothing can excuse support for a genocidal maniac, but we should be clear about what prompted the German people to turn in that direction. 

When we look at the rise of Trump and other right-wing populists across Western Europe, we see people responding to similar decisions by their leaders. The European Commission has imposed austerity across the euro zone largely at the insistence of Germany. It is not clear what economic theory explains the infatuation with austerity, but nonetheless it is now the golden rule across Europe. The U.K. has gone in the same direction even though it is not bound by the euro rules. Even Denmark has been making cuts to its health care system and other aspects of its welfare state in spite of the fact that its debt to GDP ratio is less than 10.0 percent and it is running a massive trade surplus.

CEPR / May 24, 2016

Article Artículo

Maximum Potential Employment and the Jobs Gap

In 2007, the employment rate – the percentage of all Americans 16 and older who have a job – averaged 63.0 percent. The rate fell as low as 58.2 percent during the recession, and has since recovered to just 59.7 percent.

There are significant questions about how much of the drop reflects weakness in the economy as opposed to just an aging population. Between 2007 and 2015, the share of the population aged 25 to 54 – the ages when we expect people to be employed – fell from 54 to 50 percent. Over the same period, the share of the population 55 and older increased 5 percentage points from 30 to 35 percent.

However, it’s also the case that employment has fallen within most age groups. The employment rate of the 25-54 population dropped 5.2 percentage points during the recession and has risen just 3.0 percentage points since then. The employment rate for 55-64 year-olds is close to where it was before the recession, while the employment rate of Americans 65 and older is actually up.

We are not left with an “either-or” proposition. The employment rate has fallen due to cyclical weakness and the aging of the population. So it’s worth asking: how much higher could the employment rate be given the demographic composition of the population?

CEPR and Nicolas Buffie / May 24, 2016

Article Artículo

Economic Growth

United States

FedWatch Bonus Edition: William Dudley on Financial Regulation

This is a bonus blog post in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles focus on their writings, public statements, and voting records as members of the FOMC.

Last Monday, CEPR released a FedWatch piece on William Dudley’s views on monetary policy. Dudley is the head of the New York Federal Reserve (one of the Fed’s 12 regional banks) and the Vice-Chairman of the FOMC. The New York Fed is different from the other regional banks because, along with fulfilling normal regional bank functions, it also serves as a regulator of the Wall Street banks.

As part of CEPR’s ongoing FedWatch series looking at the views of FOMC members, we are releasing an extra “bonus” post examining Dudley’s views on the financial sector.

CEPR and Nicolas Buffie / May 23, 2016