Monthly Archives: November 2018

30/11/18: Ireland’s Dependency Ratio Problem?

Ireland seems to have a twin dependency. or rather a triple dependency problem:

  • Younger population means larger share of population is either below the working age or in education;
  • Older population largely working less in their post-retirement age due to a number of factors, such as family/household work (‘grandparents duties’ in absence of functional childcare and early education systems), and tax effects (low thresholds for the upper marginal tax rate application act as disincentive to supply surplus labor over and above retirement income), plus the workplace practices and regulations that restrict post-retirement age work; and
  • Working-age adults in large numbers drawing various forms of allowances (labor force participation rate being low for Ireland despite a relatively benign unemployment statistics).

All of which means that the aggregate (and very broad) dependency ratio for Ireland is yet to recover from the decade-old crisis, and is below that for other small, open economies, for example, Iceland:

The latter observation was true before the crisis, but the onset of the GFC and the Great Recession have pushed Ireland’s employment to population ratio to such dire lows that the country is yet to recover from its woes. Iceland recovered its pre-crisis levels of employment to population ratio back in 2016. It also endured much less pronounced impact of the crisis in terms of ratio decline (peak to trough) and duration of the peak-to-peak cycle. Ireland is still climbing out of the mess, and the rate of recovery is expected to slow down dramatically in 2018 (based on the IMF data).

While many observers and analysts are quick to discount this ratio, the reality is that economy’s resilience to shocks, its productive capacity today (and, via on-the-job training, learning by doing and other forms of career-linked investments in productivity growth, its future capacity) are determined by how many people work in the economy per capita of population. The lower the ratio, the less income producing capacity the economy has, the lower the absorption capacity of the economy in the face of adverse shocks.

30/11/18: The Myth of Social Mobility and Wealth Inequality

Three charts, related topics.

Global wealth inequality has been a much-discussed problem these days, with both longer-term economic and social, not to mention political, impacts being assigned to it across both the Advanced Economies and the Emerging Markets. Setting aside the causes and drivers for this development, here is the latest evidence on the wealth distribution around the world from Credit Suisse:

The 3.211 billion people, accounting for 63.9% of the total estimated world population are holding USD6.2 trillion worth of wealth (1.9% of the world total value of assets). Another 26.6% of population or 1.335 billion people, hold 13.9% of total global wealth. Thus, 90.5% of population hold combined 15.8% of the total global wealth. In the top 10 percent category, those with wealth of USD100K to 1 million account for 8.7% of global population and hold 39.3 percent of total global wealth. The 0.8% of population (42 million people) have combined holdings of wealth around USD142 trillion or 44.8% of total global wealth.

This is striking and it is problematic. Even if most of our own wealth inequality referencing is done across the adjoining class of comparatives, the gap between the top of the pyramid and the bottom is so insurmountably vast, that any idea that there is some sort of meritocratic division of wealth in our global society flies out of the window. The problem is not so much income inequality, but the inequality arising from inherited wealth, which generates income returns from invested assets that cannot be offset or diluted by merit of effort, talent and work, no matter how hard one works. Even stripping out luck effects of self-made millionaires and billionaires, the pyramid above is the evidence to the endurance of inter-generational wealth transfers.

The dynamics of evolution in wealth inequality that got us here are presented in the following charts via Goldman Sachs Research:

These figures are for the U.S. economy and they are frightening, just as much as the wealth pyramid above is frightening. Share of wealth held by the top 1% wealth-holders grew from just above 21% in the late 1970s-early 1980s to closer to 37% in 2014. Since then, it has increased more. Share of wealth held by the remaining top 10 percenters declined from ca 44% in the early 1970s to around 35% from the late 1990s on. But the share of wealth held by middle America collapsed to below 27% since the high of around 36% in mid-1980s. Things were never brilliant for the bottom 50 percent of Americans to begin with, but since the Global Financial Crisis, lower middle of America has had negative net wealth through 2014. even though it might have risen since then somewhat, at no time in modern history have the middle and lower-middle class Americans enjoyed holding more than 2 percent of the total wealth.

This is a double-ugly conclusion, because it simultaneously runs against two key propositions on which the American society rests: the proposition of social cross-class mobility upwards from lower wealth classes to middle class, and the proposition that social progress in the American society is distinct from the ‘basket cases’ dynamics in the larger emerging economies (the likes of India and China). In a way, America replicates the world in terms of both, wealth inequality and its dynamics. And that is not a good thing for a society based on exceptionalism values.

The added dimension to this is that, given the above dynamics and the degree of elites entrenchment / capture within the political establishment, we are facing an impossible task of rebalancing the above wealth inequalities without triggering some serious political discontent. Worse, we have no tools for doing so, other than traditional socialist tools (expropriation via taxation of income), which are not effective in dealing with this problem. One of the reasons why these tools are ineffective is that broad-based income tax measures impact more adversely those who work for living (higher income earners) and do not touch those who experience wealth appreciation through capital gains on inherited wealth (as long as they re-invest their wealth-generated income). Another reason, is that higher income earners, on average, can claim merit as a source of their income more than those who hold inherited wealth. A third reason is that redistribution through taxation is highly inefficient: the funds flow to the politically-empowered, not to merit-deserving, and the losses on tax funds are high due to the cost of Government bureaucracy.

Which leaves us with the unpleasant dilemma: tax inherited wealth (during inheritance transfer in the future, and retro-actively, via tax on existent wealth, in the past). Which in itself is highly problematic for the following reasons: (1) wealth is mobile across borders, and financialized wealth is especially so; (2) a significant tax on wealth is likely to trigger repricing of all assets to the downside (liquidation of wealth to cover tax liabilities), adversely impacting wealth acquired by the first generation of entrepreneurs and investors; and (3) inducing a sizeable decline in the life-cycle expected wealth of the current younger generations, resulting is a large scale re-leveraging of these generations.

Neither of these effects is easy to address.

Convictions in the murder of Berta Cáceres

Two and one-half years after her murder, a Honduran court convicted seven men of the murder of indigenous environmentalist Berta Isabel Cáceres. The court ruled that the murder was orchestrated by executives of Desa, an Agua Zarca dam company. The Cáceres family welcomed the ruling. From the Guardian.
“Today there’s no satisfaction, or happiness, but we are glad to see jailed the killers who murdered my mother simply for defending natural resources at a moment when she was defenceless. We don’t want revenge because we are not killers like them, but we demand that the masterminds behind the murder be brought to justice,” said Olivia Zuniga, Cáceres’ eldest daughter.
As Boz notes, in a country where justice is rarely served, the convictions are important step forward - "The limited justice that has occurred in the Caceres case remains the exception, not the rule."

Those individuals who ordered Berta's murder remain at large and the entire legal process was marred by irregularities. It was only through enormous international pressure that the trial reached a verdict. That pressure is not always there, especially as the United States remains a unrelenting supporter of the Hernandez government.

In spite of the convictions, "Institutional weakness, corruption, violence, and impunity undermine the overall stability of Honduras. Journalists, political activists, and women are often the victims of violence, and perpetrators are rarely brought to justice." (Freedom House)

Shopping For The Biggest Ideas in Math

For Black Friday 2018, we updated our tool that uses math to help thrifty shoppers set individual spending limits for each the gifts that they might give to the people they know this holiday season.

If you used the tool, you're very likely the kind of person who likes maths enough to use them to solve everyday problems. What's more, the odds are that you know somebody else who shares that mathematical affinity.

So why not give them the biggest ideas in math, the stories of breakthrough insights and the inspirations behind them, as assembled by the editors and staff of Quanta Magazine, in The Prime Number Conspiracy. Here's Quanta's understated promotional video for the book:

If that's not your friend's cup of tea, you might consider going in a different direction. If you ever wondered, as we did, if self-driving cars can solve traffic jams or if we know all the things they can or should be distracted by, or whether such a vehicle could be taken over by a hacker, we have another suggestion that seems very well suited for our ever-more artificially intelligent system modeled world: Hannah Fry's Hello World: Being Human in the Age of Algorithms, which explores the ethical dilemmas that come part and parcel with society's growing use of computer technologies.

Hello World: Being Human in the Age of Algorithms (Cover) Things to Make and Do in the Fourth Dimension: A Mathematician's Journey Through Narcissistic Numbers, Optimal Dating Algorithms, at Least Two Kinds of Infinity, and More

Finally, if you're looking for something lighter, why not a book by a mathematician who has also established themselves as a stand up comedian?

Matt Parker covers some of the territory contained within our other two suggestions, but takes things to the n+1 level in Things to Make and Do in the Fourth Dimension.

In it, he shares the lessons of advanced maths that makes it possible keep all the cords from your earbuds from getting tangled, or how to make a paper flexagons, and also the most mathematically optimal way to find a suitable mate, which would be an added selling point if they're still single.

At the very least, that math is a lot easier to solve than the formula for explaining why they're still single....