Dependency Ratios for Companies and Countries

I've been devouring Malcolm Gladwell's slate of New Yorker columns the last couple days.  I especially enjoy the way he looks at common problems in a unique light.  For instance, in regards to national growth spurts and corporate pensions he highlights the importance of the dependency ratio, which is the ratio of dependent members of a group to productive members: 

Demographers estimate that declines in dependency ratios are responsible for about a third of the East Asian economic miracle of the postwar era; this is a part of the world that, in the course of twenty-five years, saw its dependency ratio decline thirty-five per cent. Dependency ratios may also help answer the much-debated question of whether India or China has a brighter economic future. Right now, China is in the midst of what Joseph Chamie, the former director of the United Nations' population division, calls the "sweet spot." In the nineteen-sixties, China brought down its birth rate dramatically; those children are now grown up and in the workforce, and there is no similarly sized class of dependents behind them. India, on the other hand, reduced its birth rate much more slowly and has yet to hit the sweet spot. Its best years are ahead.

Gladwell rightly notes that the concept of company-funded pensions and health care is a dead-end street.  If the company becomes more productive, it lays off workers and creates unproductive obligations.  Since it must continue becoming productive, the only reasonable solution is endless growth - which is not possible in the scheme of decades and generations.  Hence, he says, we have perverse market incentives like GM selling cars at a loss in order to keep from laying off its workforce.

Gladwell's proposed solution is government pensions and health care: 

If you combined the obligations of G.M., with its four hundred and fifty-three thousand retirees, and the American manufacturing operations of Toyota, with a mere two hundred and fifty-eight retirees, Toyota could help G.M. shoulder its burden, and thirty or forty years from now—when those G.M. retirees are dead and Toyota's now youthful workforce has turned gray—G.M. could return the favor. For that matter, if you pooled the obligations of every employer in the country, no company would go bankrupt just because it happened to employ older people, or it happened to have been around for a while, or it happened to have made the transformation from open-hearth furnaces and ingot-making to basic oxygen furnaces and continuous casting.

I find this conclusion strange in a couple of ways, considering the evidence to the contrary in Gladwell's piece.  The first is his several-paragraph explanation of the deleterious effects that high dependency ratios have on not only businesses, but nations as well.  We see every year or so one or two countries go bankrupt or hyperinflate their currency.  Right now it's Zimbabwe and Iceland.  It happens with empires too - in fact, it's pretty difficult to bring an empire down in any way except economic collapse.  The argument that we would all be safer by concentrating risk with one payer rather than each company paying is ridiculous - the bankruptcies might be separated by centuries rather than decades, but the effects are so much worse that it's difficult to even compare the two with a straight face.  One notes that this doesn't happen to nearly the same degree with small corporations; why would making the pool larger make us all better off?

The second piece of evidence comes from Gladwell's open offering of, yet complete ignorance of the other, better answer: 

When Bethlehem Steel filed for bankruptcy, it owed about four billion dollars to its pension plan, and had another three billion dollars in unmet health-care obligations. Two years later, in 2003, the pension fund was terminated and handed over to the federal government's Pension Benefit Guaranty Corporation. The assets of the company—Sparrows Point and a handful of other steel mills in the Midwest—were sold to the New York-based investor Wilbur Ross.

Ross acted quickly. He set up a small trust fund to help defray Bethlehem's unmet retiree health-care costs, cut a deal with the union to streamline work rules, put in place a new 401(k) savings plan—and then started over. The new Bethlehem Steel had a dependency ratio of 0 to 1. Within about six months, it was profitable.

So the answer here was not spreading the risk among companies, per se - although that was the effect, since workers basically diversified the risk of Bethelem Steel going bankrupt by buying stocks and bonds in a wide range of companies and governments.  It was the opposite - mass-individualization.  The key is to put workers in control of their own retirement and health care costs through individual accounts.  The company now gives them cold, hard cash (with strings attached to be sure, but it's still their's) instead of IOUs.  They share profits during good times.  They take it with them when they leave, and when the company goes bankrupt.  Sounds pretty socialist to me.

The New Autopreneurs

A while back, I posted my thoughts on the economic disadvantages of keeping the Big 3 alive against all economic signals to the contrary.  The basic argument is that they are currently locking up a huge store of talent and resources in inefficient, bureaucratic, innovation-killing firms.  Set the smart people free.

Forbes has published a segment on America's new car companies.  They are pushing a range of models, mostly starting with luxury offerings in view of working their way down to the common man.  Take a look to see the kinds of companies your tax dollars are competing against.

Meet the New Boss (5)

At Esquire, via Instapundit, it seems that this president doesn't really see too much wrong with the way the last president treated POUW's (prisoners of undeclared wars).  I'm really quite convinced they're all the same.

Beyond the rhetoric, then, Obama has told the world that America's definitions of terror remain its own. He says it's not a reversal? It is. The president has reminded the world of a Cheney-ism: We know terrorism when we see it, and when we see it, we'll let you know.

Bill of Federalism is here!

Geek that I am, I sometimes outline ideas for a Constitution that follows my beliefs about government.  Usually, I just end up tossing it away after a day or two because I quickly realize that no piece of paper, however self-consistent and respected by society, can truly arrest the creep of corporation and state power over the functions of force in society.  The people must do that, constantly and vigilantly.

Randy Barnett over at Forbes has drawn up a "Bill of Federalism," 10 proposed Constitutional amendments that he would like the states to convene to ratify.  Some thoughts:

Amendment 1: Limit the taxing powers of Congress to a flat sales tax.  I love it.  Economists are not unanimous about this, but in general it's a better idea to tax things at consumption rather than production - it increases savings (and therefore investment) and can really help to avoid the kind of debt hole we are currently letting our government dig us deeper into.  I would be very very careful about defining "uniform tax" and "sales" to prevent loopholing as much as possible.  The amendment also creates a necessity for a 60% vote of both houses for any tax or duty increase.  Again, this is just a great idea - although I would have started at 2/3rds and let the bastards negotiate it down.  This wouldn't work at all without Amendment 8 below though, and probably A3 as well.

A2: This amendment appears to be attempting to limit the uses and abuses of the Commerce Clause.  I am not really sure the wording here would do the job.  I think the Commerce Clause should be revoked in favor of a Commerce Court under the judiciary - so states can sue each other over, say, sulphur emissions floating downwind or contaminated produce being shipped in, but the Federal government cannot actively regulate.  Unfortunately, Eisenhower did a great disservice to the Commerce Clause by using it as an excuse to de-segregate the South... instead of having the chutzpah to just do it on humanitarian grounds.  Now its meaning is continually stretched to include intra-state commerce that might affect market prices and other ridiculousities; all without consent of the states being "protected."

A3:  This one seems to be aimed at getting rid of "strings attached" federal grants to states, but in reality it is aimed at significantly reducing federal grants to states.  This is a Good Thing - states that are financially dependent on the federal government are not federalist states.

A4:  Tries to stop the government from entering into treaties that enlarge the power of the government.  This amendment has no teeth in my opinion.  I don't see what is to stop the legislature from ratifying a treaty and simultaneously passing a bill that increases its powers or some-such.  If you want include a check on federal power, change the ratification process so that treaties must be ratified by 2/3rds of state legislatures.

A5:  Extends freedom of speech to campaign contributions.  It won't be popular among the Republicrat party heads, because campaign finance laws are how they make sure 3rd parties never get a foothold.  I like it nonetheless, and we might just have enough independent voters out there to make it real.

A6:  Grants state legislatures the ability to rescind federal law by a majority vote of 75%. The idea of states having direct power over national law is a good one.  However, it's almost unheard of for the states to form even a constitutional convention, never mind getting together to unseat a federal law.  If you want state review of federal laws, then it might be a better idea to make this the province of governors of states rather than legislatures.  The strength of the legislature approach is that governors are few and easy to corrupt, whereas even the most spendthrift congress probably can't get a check to every one of the thousands of state legislator and senators.  Or, why not go straight to the people with the California model?  We have the technology to put national iniatives on the ballot, why not make it a popular vote?  With no ability to create law, only to rescind it, I would support this.

A7:  Term limits for Congress (sky opens, choir of angels sings "Hallelujah")!  Our government is run by politicians and lawyers, not citizens.  This is bad for, pretty much, everyone except the politicians and lawyers.  Make the bastards find a real job, or at least change  jobs.

A8:  Balanced budget amendment.  The technical problem with a balanced budget amendment is that there is no way for the congress to know how much revenue will come in for a given year due to business cycles and other factors.   This amendment defines deficit, and gives the president a stick - a line-item veto for the next year.  This is self-defeatism dressed in the clothing of checks and balances.  If the president allows congress to run a deficit, he gets more power.  It essentially puts the power to balance the budget in the hands of the president, but not the incentive to do so.  I'm not sure what do to about this - perhaps the debt from one year should be constitutionally required to be an untouchable budget item for the next year.  Or, the president should be ineligible for re-election if his first term saw 2 or more years of deficits.

A9:  Section 1 is feel-goody libertarianese with little teeth.  Section 2 is a beautiful thing: it explicitly legalizes jury nullification.  This needs to happen.  I would be somewhat concerned that it would just lead to dumber juries; but adding a clause that juries must be informed of their powers granted by this amendment before trial would help.

A10:    It basically says that the constitution must be interpreted according to its meaning at enactment.  This is another toothless amendment, but it may be useful in decisions.  By which I mean, I could see this being totally ignored by most judges, but I can also see it being wielded as a catch-all argument for the strict constructionist side, kind of like an anti-commerce clause.  The Supreme Court pretty much acted according to this until about 1937, and since then it has been activist.  Codifying the conduct of federal judges probably won't help a whole lot, but it can't hurt.

Anti-counterfeit (for now) tech in color printers...

There's a downright scary report on a CBS affiliate about laser printers putting time, date, and owner stamps on all printed documents.  

The report lobs the softball at one woman-on-the-street so she'll say, "I'm not doing any of those types of things, so I guess I don't have to worry" - I assume that particular shot was set up since no one in their right mind would be that stupid after, say, 1945.  It's such a tiny step to using this to track political foes.

I knew someone would get around to saying this...

... I just didn't expect it to be Tim Geithner.  To quote:

To sum it up, Geithner confessed that worldwide monetary policy was too loose too long creating a huge bubble in asset prices. Basically, there was too much money chasing investments. Like flood waters, money seeks ever higher returns, pushing prices of real estate and commodities at rates exceeding 15% annually in 2004 and 2005.

But, I thought it was greedy bankers and lack of regulation that caused this (just kidding, I didn't really think that).

Economics 000

Planet Money brought to light the kind of drek that your tax dollars are putting in schools these days. I suppose this passes as economics education these days, which makes it all the more likely that my children will be home-schooled or private schooled or at least employed in a sweatshop sewing sneakers somewhere... at least they'll learn about supply and demand. There were a lot of funny moments in the film (watch it!), some !what! moments too. The narrator seems to forget that we are all producers as well as consumers... which is ironic, because this video is going to give a lot of little people a "consumer complex." You mean I'm not useful for anything but buying and disposing of consumer goods? Let's put it this way: when Planet Money is openly questioning whether you're full of shit, you're full of shit.

I'd love to show this to some 12 year old Indian kid whose choices in life are between farming a barely-farmable half-acre in hopes of feeding his family at the whims of the rain, and dying at the ripe old age of 44, versus working in a factory in Madras for the evil corporate machine. I'm sure he would go for the "sustainable" option.

Shit hitting fan somewhat earlier than expected

From The Foundry:

The U.S. Treasury auction of long-term bonds on Thursday was “terrible”, in the words of one Wall Street economist, with the rate on the 30 year bond jumping from 4.1 to 4.3 percent. This is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

Not surprising in its effect, but surprising in its quickness.  Investors at this point are very worried about inflation, and holding treasuries will be like burning money if it goes above that.  I posted a link to a graph on Planet Money a while back that showed how the federal government is absolutely draining all credit from the market.  It has pretty much priced itself - and everyone else - out of the cheap stuff now.  

Hydrogen schmydrogen

A report on the de-funding of Hydrogen vehicles by the DOE brings a fresh breath of relief... if only it was accompanied by the defunding of the DOE, but I digress. Hydrogen power storage in general, and especially mobile hydrogen vehicles, is a ridiculous fantasy. Not technically - it is fairly straightforward. But it is extremely inefficient as an energy carrier, as Robert Zubrin put much more eloquently than I can in a New Atlantis article.

In terms of energy density, storage, and safety, hydrocarbons are the best thing around, at least chemically speaking. If and when it becomes reasonable to have renewable transportation fuel manufactured from primary energy, it will come in one of two forms: hydrocarbons derived from cash crops (ethanol, biodiesel), or hydrocarbon synfuels manufactured from water and atmospheric CO2. Hydrogen is a non-starter. I did my 6th grade science fair project on the hydrogen economy and predicted we'd all be taking 2 hour trips to Tokyo by now. I drank the Koolaid. But if you do the numbers, it just doesn't work out. Read Zubrin's article, it really lays the whole idea to waste beautifully.