Comments on: Economodemographics

By: Sniffy McNickles

Sniffy McNickles — Thu, 02 Oct 2003 15:46:42 +0000

I think your assumptions are falling for the lump of labour fallacy. If my labour has a net future value of $1M, what are the underlying assumptions for that number? Are you assuming I’m doing a rational minimax of my hourly input against value of my efforts for a given task? (As an example, I currently work about 25 billable hours a week on software development and about 25 nonbillable hours a week on paperwork and lead development for the company I own. This is my own estimate of the best choice for me. It could be that I could double my price, work 12.5 billable hours a week, and cut some of that paperwork. Then, of course, I could use the 15 or so hours to flip burgers, thereby marginally increasing my income. Decide for yourself whether or not the fact that I don’t is a market failure.) I realize you’re talking macroeconomics, but even there overall changes to the nature of an economy fall to the lump of labour. India is making a concerted effort to increase the value of a unit of labour, as is China. I fully expect to see massive changes in the work habits of both of those countries over the next 15 years as a result, if they can continue course. I don’t believe any estimate of the future value of a citizen unit can be used for any meaningful purpose.

By: dsquared

dsquared — Thu, 02 Oct 2003 11:51:09 +0000

Potentially a good point, although you’d then have to capitalise the average wage rather than GDP per capita, I think.

By: Mike D.

Mike D. — Thu, 02 Oct 2003 07:12:56 +0000

Doesn’t the crux of the problem for Germany and other countries facing long term population decline lie in the shrinking labor force, rather than the population as a whole? It seems that rather than “net new citizens” you want “net new workers”, balancing workers entering the labor force with retirees. I think the picture would look very different, and much worse for every country on the list. Check the World Population Data Sheet from the Population Reference Bureau at http://www.prb.org/pdf/WorldPopulationDS03_Eng.pdf for the simplest global summary of population data by country. We’ve never seen age structures so weighted to the elderly population in any modern human society. I’m not sure how it will work.

By: dsquared

dsquared — Thu, 02 Oct 2003 06:40:27 +0000

Tom: I see what you mean, but I’m implicitly assuming that the current a/c deficit has been spent on consumption and so the principal amount isn’t available for a quick repayment like that. In the case of the US, I think that’s a reasonable first approximation. Note also that your example is partial. The £1m loan would show up on the capital account, not the current a/c and would presumably have to have a counterpart in the current a/c. The question of what that current a/c item was an whether it could also be reversed as easily as the financial flow is key to making the example work. Damien: Fool that I am, I actually spent five minutes wondering whether it was worth the trouble to do the compounding continuously. msw: Yeh, but they’re dollar PPP estimates. The point of PPP is to get a more realistic estimate of the size of the local economy in $, so I think I’d defend this.

By: Andrew Boucher

Andrew Boucher — Thu, 02 Oct 2003 05:13:31 +0000

Does the analysis include counterparty risk? Suppose foreigners buy a lot of American MBSs and then Fannie and Freddie go belly up and they don’t get their money back. Then Americans have kept the suitcases and the toys, and the foreigners have nothing but worthless paper.

By: Tom T.

Tom T. — Thu, 02 Oct 2003 02:03:35 +0000

Maybe I’m mistaken, but it seems to me that your analysis confuses principal and interest. Grossly simplifying, the current account measures the principal amount of debt that Elbonia owes to foreign lenders, right? The work done by Elbonians for the benefit of foreigners, however, should be measured as the amount needed to pay interest on that debt. The principal amount cancels out because it’s on both sides of the equation; i.e., the reason some other country has a claim on Elbonia is because the other country first gave Elbonia that amount of money to use. An example: Suppose the Bank of Elbonia has a cash-flow problem on Sep. 30, so it borrows $1 million abroad on an overnight loan from the Bank of Frobozzia. That’s the last day of the fiscal quarter, so that $1 million shows up on Elbonia’s current account. On October 1, the Bank of Elbonia repays the $1 million to the Bank of Frobozzia, plus $100 interest. Is the amount of work that Elbonian workers did “under harness” to Frobozz the $1 million or the $100? I think it’s the latter, but I think your analysis assumes it’s the former. Apologies if I’m missing something. In any event, even if I’m right, this doesn’t change your ultimate conclusion, just its magnitude.

By: Atrios

Atrios — Thu, 02 Oct 2003 01:59:43 +0000

This smacks of the reasons for Hitler’s territorial ambitions. Though, for him it was land to feed the aryan people. Obviously, the resident populations were, uh, expendable.

By: Damien Smith

Damien Smith — Thu, 02 Oct 2003 00:23:26 +0000

Is this in discrete or continuous time? Ramsey or OLG? Nah. You already said it’s spurious. I could nitpick, but I’m not gonna.

By: anon

anon — Wed, 01 Oct 2003 22:23:17 +0000

Uh Britain comes out worst, US second. The other guys are all in negative figures, which means that they arent wasting any pop growth on their foreign debt.

By: msw

msw — Wed, 01 Oct 2003 21:23:51 +0000

The CIA world factbooks gives its GDP numbers in PPP, but its debt numbers are in actual dollars. I think you need the same units for the above chart to work. msw

By: dsquared

dsquared — Wed, 01 Oct 2003 21:01:29 +0000

I sincerely hope that this looks as good on your screen as it does on mine. I realise the table is a bit wide, but the alternative was to leave out Japan.