That is undoubtedly what readers of Matt Yglesias’ blogpost on immigration and retirement income are saying. Matt correctly notes that an economy cannot collectively save for a generation’s retirement in the sense of putting aside the goods and services that the generation will consume in retirement. His conclusion is that we need large numbers of new workers to support our current or soon to be retired population. This leads him to call for a much larger number of immigrants.
While we may want more immigrants, the need to support a larger retired population should not rank high on the list of reasons. According to the Social Security trustees projections, a more rapid pace of immigration will make little difference to the program’s finances. This is due to the fact that immigrants will also get benefits. Since they tend to work for lower pay during their working lifetime, and the program’s payout structure is highly progressive, the net gain from more immigrants is limited. Increasing the projected immigration level by 30 percent reduces the projected long-term shortfall by less than 10 percent.
On the other hand, suppose that real wages grow roughly in step with productivity. If we saw real wage growth of 1.5 percent annually, then the tax increase needed to meet the projected 75-year shortfall would be equal to 4.6 percent of projected wage growth over the next 30 years. Suppose we got real kinky and imagined we saw some of that 2.0 percent annual wage growth that we had in the golden age (1947-1973). Then the tax increase need to main the program’s solvency would be equal to just 3.2 percent of projected wage growth over the next 30 years.
The story here is straightforward. We expect retirees’ income to be related to their living standards in their working lifetime. If wages grow rapidly then it is easy for a smaller number of workers to support a growing population of retirees while still ejoying a rise in living standards. This is the way the world used to work. It might not be easy for political reasons to get back to that world, but we should at least know that such a world did once exist and is still possible.
That is undoubtedly what readers of Matt Yglesias’ blogpost on immigration and retirement income are saying. Matt correctly notes that an economy cannot collectively save for a generation’s retirement in the sense of putting aside the goods and services that the generation will consume in retirement. His conclusion is that we need large numbers of new workers to support our current or soon to be retired population. This leads him to call for a much larger number of immigrants.
While we may want more immigrants, the need to support a larger retired population should not rank high on the list of reasons. According to the Social Security trustees projections, a more rapid pace of immigration will make little difference to the program’s finances. This is due to the fact that immigrants will also get benefits. Since they tend to work for lower pay during their working lifetime, and the program’s payout structure is highly progressive, the net gain from more immigrants is limited. Increasing the projected immigration level by 30 percent reduces the projected long-term shortfall by less than 10 percent.
On the other hand, suppose that real wages grow roughly in step with productivity. If we saw real wage growth of 1.5 percent annually, then the tax increase needed to meet the projected 75-year shortfall would be equal to 4.6 percent of projected wage growth over the next 30 years. Suppose we got real kinky and imagined we saw some of that 2.0 percent annual wage growth that we had in the golden age (1947-1973). Then the tax increase need to main the program’s solvency would be equal to just 3.2 percent of projected wage growth over the next 30 years.
The story here is straightforward. We expect retirees’ income to be related to their living standards in their working lifetime. If wages grow rapidly then it is easy for a smaller number of workers to support a growing population of retirees while still ejoying a rise in living standards. This is the way the world used to work. It might not be easy for political reasons to get back to that world, but we should at least know that such a world did once exist and is still possible.
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An article on Hewlitt-Packard’s decision to require suppliers in China to not use involuntary labor from students told readers:
“Enforcing workplace rules in China has always been difficult, as even Chinese laws on labor practices are flagrantly ignored by some manufacturers as they struggle to keep up with production demand amid labor shortages. The Chinese government announced last month that the nation’s labor force had begun to shrink slowly because of the increasingly rigorous one-child policy through the 1980s and 1990s.”
In a market economy, firms that can’t operate profitably paying the prevailing wage are supposed to go out of business. This is what happened to millions of small farms in the United States between 1860 and 1960. These farms could not afford to pay wages that were competitive with the wages that workers could get in manufacturing.
If the NYT were covering this process today presumably it would be complaining about the labor shortage resulting from the failure of people in the United States to have enough children. Of course to workers at the time this process implied an enormous improvement in living standards. The same will be the result of the news that the NYT seems to think is so dire, that China’s labor force is now shrinking.
An article on Hewlitt-Packard’s decision to require suppliers in China to not use involuntary labor from students told readers:
“Enforcing workplace rules in China has always been difficult, as even Chinese laws on labor practices are flagrantly ignored by some manufacturers as they struggle to keep up with production demand amid labor shortages. The Chinese government announced last month that the nation’s labor force had begun to shrink slowly because of the increasingly rigorous one-child policy through the 1980s and 1990s.”
In a market economy, firms that can’t operate profitably paying the prevailing wage are supposed to go out of business. This is what happened to millions of small farms in the United States between 1860 and 1960. These farms could not afford to pay wages that were competitive with the wages that workers could get in manufacturing.
If the NYT were covering this process today presumably it would be complaining about the labor shortage resulting from the failure of people in the United States to have enough children. Of course to workers at the time this process implied an enormous improvement in living standards. The same will be the result of the news that the NYT seems to think is so dire, that China’s labor force is now shrinking.
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He presented a quote from Mario Draghi, the President of the European Central Bank:
“‘The exchange rate is not a policy target, but it is important for growth and price stability. We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.'”
He then added:
“And with that, the euro fell more than half a percent against the dollar—even though Draghi was really more stating a fact from Economics 101 than signaling some major new policy plans by the central bank.”
Actually the exchange certainly can and often is a policy target. There are many central banks, most notably China’s, that quite explicitly target their exchange rate. Other central banks have often taken steps that clearly seem to have the purpose of raising or lowering the exchange rate, as was the case with this statement.
While a central bank can opt to ignore the exchange rate, that would be a specific policy decision. It is not a basic principle from economics textbooks.
He presented a quote from Mario Draghi, the President of the European Central Bank:
“‘The exchange rate is not a policy target, but it is important for growth and price stability. We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.'”
He then added:
“And with that, the euro fell more than half a percent against the dollar—even though Draghi was really more stating a fact from Economics 101 than signaling some major new policy plans by the central bank.”
Actually the exchange certainly can and often is a policy target. There are many central banks, most notably China’s, that quite explicitly target their exchange rate. Other central banks have often taken steps that clearly seem to have the purpose of raising or lowering the exchange rate, as was the case with this statement.
While a central bank can opt to ignore the exchange rate, that would be a specific policy decision. It is not a basic principle from economics textbooks.
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The Post has an article implying that many more people are opting for leisure in the United States than in the past and that this fact could even explain income inequallity. Neither of these assertions is very plausible. The United States has seen a much smaller reduction in work time over the last three decades than any other wealthy countries. Furthermore, countries that have seen steeper reductions in work time have seen much smaller increases in inequality.
The Post has an article implying that many more people are opting for leisure in the United States than in the past and that this fact could even explain income inequallity. Neither of these assertions is very plausible. The United States has seen a much smaller reduction in work time over the last three decades than any other wealthy countries. Furthermore, countries that have seen steeper reductions in work time have seen much smaller increases in inequality.
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The NYT reported on cuts in military spending that Secretary of Defense Leon Panetta said could happen if the sequester goes into effect on March 1. The NYT referred to these cuts as “forced,” implying that they were required by the sequester.
This is not accurate. The sequester requires a cut in military spending of approximately 6 percent. The specific cuts chosen presumably reflects the fact that Mr. Panetta views the items to be the least important to the country’s defense. Alternatively, it is possible that Panetta has decided to highlight possible cuts that would provoke the maximum political reaction. In either case the cuts were selected by him, they were not forced by the sequester.
The NYT reported on cuts in military spending that Secretary of Defense Leon Panetta said could happen if the sequester goes into effect on March 1. The NYT referred to these cuts as “forced,” implying that they were required by the sequester.
This is not accurate. The sequester requires a cut in military spending of approximately 6 percent. The specific cuts chosen presumably reflects the fact that Mr. Panetta views the items to be the least important to the country’s defense. Alternatively, it is possible that Panetta has decided to highlight possible cuts that would provoke the maximum political reaction. In either case the cuts were selected by him, they were not forced by the sequester.
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The NYT told readers that a widely expressed concern about losing jobs to “cheap foreign labor …. does not bode well for political support for an amnesty program now being discussed in Washington.” It’s not clear that this would be the case. One of the factors that reduces the wages of undocumented workers is their legal status. Undocumented workers are likely to get lower pay because they risk deportation if they try to unionize or take other measures to increase their wages and improve their working conditions. If U.S. citizens want to reduce the competition from undocumented workers then they logically should support measures that change their legal status so that they are in a position to increase their wages.
The NYT told readers that a widely expressed concern about losing jobs to “cheap foreign labor …. does not bode well for political support for an amnesty program now being discussed in Washington.” It’s not clear that this would be the case. One of the factors that reduces the wages of undocumented workers is their legal status. Undocumented workers are likely to get lower pay because they risk deportation if they try to unionize or take other measures to increase their wages and improve their working conditions. If U.S. citizens want to reduce the competition from undocumented workers then they logically should support measures that change their legal status so that they are in a position to increase their wages.
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The Washington Post, along with most other news outlets, reported without comment that the United States Postal Service (USPS) lost $15.9 billion last year. Some comment would have been appropriate since almost 70 percent of this shortfall is due to a payment of $11.9 billion to the postal workers’ retiree health fund.
This is noteworthy because Congress has required that the Postal Service prefund its retirement fund at a level that has no match in the private sector. It also mandated that it build up to its targeted prefunding level in just 10 years making the burden much greater. In addition, the USPS is required to invest these funds, as well as its pension, exclusively in government bonds. In contrast, private sector competitors like UPS invest largely in equities which provide a much higher return on average. The result is to place an enormous burden on the Postal Service putting it at a serious competitive disadvantage. (Here’s more on this one.)
Congress has put the Postal Service in an impossible situation. It has imposed restrictions, like the requirement that all assets in its pension and retiree health fund be invested in government bonds,that substantially raise its costs relative to competitors. It has also prohibited USPS from getting into new lines of business that take advantage of its resources in order to protect private sector companies from competition. However it still expects the USPS to be run at a profit.
Clearly the Post Service would face difficulties in any case as technology has led to a shift away from first class mail, the system’s main source of revenue. However the restrictions that Congress imposes makes it impossible for USPS to adjust to changing economic conditions.
The Washington Post, along with most other news outlets, reported without comment that the United States Postal Service (USPS) lost $15.9 billion last year. Some comment would have been appropriate since almost 70 percent of this shortfall is due to a payment of $11.9 billion to the postal workers’ retiree health fund.
This is noteworthy because Congress has required that the Postal Service prefund its retirement fund at a level that has no match in the private sector. It also mandated that it build up to its targeted prefunding level in just 10 years making the burden much greater. In addition, the USPS is required to invest these funds, as well as its pension, exclusively in government bonds. In contrast, private sector competitors like UPS invest largely in equities which provide a much higher return on average. The result is to place an enormous burden on the Postal Service putting it at a serious competitive disadvantage. (Here’s more on this one.)
Congress has put the Postal Service in an impossible situation. It has imposed restrictions, like the requirement that all assets in its pension and retiree health fund be invested in government bonds,that substantially raise its costs relative to competitors. It has also prohibited USPS from getting into new lines of business that take advantage of its resources in order to protect private sector companies from competition. However it still expects the USPS to be run at a profit.
Clearly the Post Service would face difficulties in any case as technology has led to a shift away from first class mail, the system’s main source of revenue. However the restrictions that Congress imposes makes it impossible for USPS to adjust to changing economic conditions.
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Okay all of you liberals who thought that the deficits were due to too little tax revenue and all you economists who pointed out that the large deficits were due to a collapsed economy, you’re wrong. The United States has a spending problem the NYT said so.
A NYT article on President Obama’s speech on the budget told readers:
“New deficit projections will define the scope of the nation’s spending problem.”
See, it’s a spending problem!
Addendum:
I see from readers’ comments that the NYT has apparently fixed the spending problem in subsequent edits. It still tells readers:
“the budget office once again emphasized that the deficit will rise later in the decade, beginning in 2016, and continue do to so as the population ages and health care prices rise.”
While Social Security is projected to rise modestly as a share of GDP and health care costs a bit more so, the largest reason for the projected rise in deficits from 2013 to 2023 is higher interest payments from the government. Net interest is projected to rise from 1.4 percent of GDP this year to 3.3 percent of GDP in 2023. This projected 1.9 percentage point increase in interest payments is by far the largest component driving the projected increase in the deficit over the decade.
In fact, the actual increase is somewhat larger since the amount of money that the Federal Reserve Board refunds from its holdings of government bonds is projected to drop from 0.5 percent of GDP at present to 0.2 percent of GDP in 2023. This drop of 0.3 percentage points of GDP, added to the 1.9 percentage point rise in net interest implies that higher interest costs will add 2.2 percentage points to the deficit in 2023.
This would have been worth mentioning both because it tells readers why deficits are rising and also because the rise in interest rates is a matter of policy. The CBO projections assume that the Fed will decide to raise interest rates. It is not something that just happens by itself.
(Morning Edition committed the same sin.)
Okay all of you liberals who thought that the deficits were due to too little tax revenue and all you economists who pointed out that the large deficits were due to a collapsed economy, you’re wrong. The United States has a spending problem the NYT said so.
A NYT article on President Obama’s speech on the budget told readers:
“New deficit projections will define the scope of the nation’s spending problem.”
See, it’s a spending problem!
Addendum:
I see from readers’ comments that the NYT has apparently fixed the spending problem in subsequent edits. It still tells readers:
“the budget office once again emphasized that the deficit will rise later in the decade, beginning in 2016, and continue do to so as the population ages and health care prices rise.”
While Social Security is projected to rise modestly as a share of GDP and health care costs a bit more so, the largest reason for the projected rise in deficits from 2013 to 2023 is higher interest payments from the government. Net interest is projected to rise from 1.4 percent of GDP this year to 3.3 percent of GDP in 2023. This projected 1.9 percentage point increase in interest payments is by far the largest component driving the projected increase in the deficit over the decade.
In fact, the actual increase is somewhat larger since the amount of money that the Federal Reserve Board refunds from its holdings of government bonds is projected to drop from 0.5 percent of GDP at present to 0.2 percent of GDP in 2023. This drop of 0.3 percentage points of GDP, added to the 1.9 percentage point rise in net interest implies that higher interest costs will add 2.2 percentage points to the deficit in 2023.
This would have been worth mentioning both because it tells readers why deficits are rising and also because the rise in interest rates is a matter of policy. The CBO projections assume that the Fed will decide to raise interest rates. It is not something that just happens by itself.
(Morning Edition committed the same sin.)
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On Sunday Thomas Friedman told us that one in three people in China is a blogger, today he tells us that the country has a:
“gigantic youth bulges under the age of 30, increasingly connected by technology but very unevenly educated.”
This would be news to China. The country adopted its one child policy back in the 1970s leading to sharp drop in birth rates. Since that was more than 30 years ago, it means that China actually has a relatively small share of its population under the age of 30. Friedman seems to show some recognition of this fact later in this column when he notes:
“‘India today has 560 million young people under the age of 25 and 225 million between the ages of 10 and 19,’ explained Shashi Tharoor, India’s minister of state for human resource development. ‘So for the next 40 years we should have a youthful working-age population’ at a time when China and the broad industrialized world is aging. According to Tharoor, the average age in China today is around 38, whereas in India it’s around 28. In 20 years, that gap will be much larger.”
Of course if Friedman had thought about the implication of Tharoor’s comment he would realize that it means that China doesn’t have a youth bulge. But that would mean reading through his column and thinking about it for a few minutes. (Friedman’s claim that India somehow benefits from its huge population growth is whacky — at least if you care about the living standards of people in India.)
On Sunday Thomas Friedman told us that one in three people in China is a blogger, today he tells us that the country has a:
“gigantic youth bulges under the age of 30, increasingly connected by technology but very unevenly educated.”
This would be news to China. The country adopted its one child policy back in the 1970s leading to sharp drop in birth rates. Since that was more than 30 years ago, it means that China actually has a relatively small share of its population under the age of 30. Friedman seems to show some recognition of this fact later in this column when he notes:
“‘India today has 560 million young people under the age of 25 and 225 million between the ages of 10 and 19,’ explained Shashi Tharoor, India’s minister of state for human resource development. ‘So for the next 40 years we should have a youthful working-age population’ at a time when China and the broad industrialized world is aging. According to Tharoor, the average age in China today is around 38, whereas in India it’s around 28. In 20 years, that gap will be much larger.”
Of course if Friedman had thought about the implication of Tharoor’s comment he would realize that it means that China doesn’t have a youth bulge. But that would mean reading through his column and thinking about it for a few minutes. (Friedman’s claim that India somehow benefits from its huge population growth is whacky — at least if you care about the living standards of people in India.)
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