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el freako
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Bristol, European Union
Oct 1999
time: 05:36
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quote:
Originally posted by DanS
Regarding the Economist article, they are being too cute by half (how many times are you going to exclude Germany from the analysis?  ), but I agree with the overall thrust of the article that differences in growth between the US and the Euro area are overplayed. This won't change the fact that we'll be hearing a lot more about these differences over the next couple of years. |
Yes, they do exclude Germany - but they also make no adjustments for the differing ways that the US and EU calculate growth.
I have (as usual  ) tried to make adjustments to correct for the differences in measurement across economies - unfortunately I had to try to convert the newer methods that the US (and France) use to the older methods, this was simply because the data exists to do this whilst it does not to reliably convert data compiled using the older methods to the newer ones employed in the US.
I take 0.33% a year off the growth rate for the US and France (which is the amount that US growth rates were boosted by when they changed to hedonic deflators) and I also subtract business purchases of software from the US figure as no other nation includes this fast-growing sector in their GDP figures.
During 1983-93 the US grew at 3.35% a year compared to 1.96% for the EU25 (this includes IMF and GDDC estimates for the 10 new member states and the eastern Lander of Germany)
During 1993-03 US growth dropped to 3.29% whilst EU growth picked up to 2.39%.
Population growth was 1.06% in US and 0.32% in the EU during 1983-93 and the figures were not changed much during 1993-03 (1.14% for the US and 0.30% for the EU)
The effects of the US and France using Hedonic Deflators and of the US including business software in GDP for the US were +0.45% during 1983-93 and +0.48% during 1993-03, the effect on the EU's growth rate was +0.05% in both decades.
This would make the growth rates of GDP per head 1.84% for the US and 1.59% for the EU during 1983-93.
During 1993-03 US GDP per head growth slowed to 1.67% whilst the EU's accelerated to 2.04%
This, however, overstates the improvement of the EU as the US was recovering from a very steep recession in 1983.
Using IMF estimates of the output gap then the underlying growth in GDP per head was 1.41% for the US and 1.56% for the EU during 1983-93.
During 1993-03 both the US and EU saw an acceleration in this figure to 1.65% for the US and 2.03% for the EU.
So, when you compare like with like, the gap in the growth of total trend-adjusted GDP between the US and EU has narrowed a bit during the last decade (to 0.46% a year from 0.59% in the previous decade) whilst the gap between the EU's and US's growth in trend-adjusted GDP per head has widened (with the EU's being 0.38% faster during 1993-03 compared to only 0.15% faster in 1983-93)
quote:
Originally posted by DanS
As for the UN workforce numbers, as I recall they assume that immigration as a percentage of the total population will decline in the U.S. I don't think that's a very good assumption. |
I agree, I wonder why they decided to assume that? Any ideas?
quote:
Originally posted by DanS
Also, I believe that they don't adjust the retirement age, because those adjustments haven't been announced yet by the authorities. While they need to make this assumption, I believe the retirement age will be marched northward about 3 months each year (i.e., keeping pace with longevity). |
This has less to do with it as:
a) Retirement ages are likely to rise across the west anyways, and
b) What matters is not the official retirement age but the actual age that people retire at (which is usually a few years below the official level)
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:36
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quote:
I take 0.33% a year off the growth rate for the US and France (which is the amount that US growth rates were boosted by when they changed to hedonic deflators) and I also subtract business purchases of software from the US figure as no other nation includes this fast-growing sector in their GDP figures. |
Yes, you've done this consistently, and I've never liked it. These changes don't have as much impact in most other countries as they do in the US. For instance, at least one study has shown that using a hedonic deflator would have about half the impact in the UK versus the US. Presumably, the US changed its methods in an attempt to measure economic activity better. To "correct" the better measurements to be more in line with inferior measurements (at least for the US) doesn't make sense to me. Same goes for software purchases. We have a vibrant software industry. What's the rationale for excluding these purchases in the tally for economic activity?
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I agree, I wonder why they decided to assume that? Any ideas? |
The only idea I have is that during the recession there was a temporary sharp decrease in the number of work visas authorized by the congress. Since the UN did their numbers under this regime (roughly), they may have had to assume that this regime would continue and be effective. Of course, I'm skeptical that the regime will continue or be effective in the first instance, let alone continue to be effective.
quote:
This has less to do with it as:
a) Retirement ages are likely to rise across the west anyways, and
b) What matters is not the official retirement age but the actual age that people retire at (which is usually a few years below the official level) |
Both true. The actual retirement age in the US may actually decrease due to political factors, since the 401(k) and IRA retirement ages may not increase in unison with the Social Security retirement age. If I'm sitting on a huge nest egg in my 401(k) by 60, I will be tempted to retire.
I'm much more skeptical that Europe will increase its Social Security/public pensions retirement ages as the US has, since the entrenched interests have more pull in Europe. I'm set to get Social Security at age ~ 68 and they could raise the age for me without too much backlash. Aren't the French set to get pensions at age ~ 55, for instance?
Last edited by DanS on 19-06-2004 at 04:19
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el freako
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Bristol, European Union
Oct 1999
time: 05:36
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quote:
Originally posted by DanS
Yes, you've done this consistently, and I've never liked it. These changes don't have as much impact in most other countries as they do in the US. For instance, at least one study has shown that using a hedonic deflator would have about half the impact in the UK versus the US. |
I don't suppose you could point me in the direction of that study could you?
I do find it surprising, however, as the share of high-tech spending (which would be most affected by hedonic deflators) is pretty similar in most developed countries.
quote:
Originally posted by DanS
Presumably, the US changed its methods in an attempt to measure economic activity better. To "correct" the better measurements to be more in line with inferior measurements (at least for the US) doesn't make sense to me. |
Well, as the data for correcting the other nation's up to the US's standard just doesn't exist then I was forced to adjust the US figures backwards - I don't like it any more than you do but the plain fact is that this is the only way that the figures can be made equivalent. 
quote:
Originally posted by DanS
Same goes for software purchases. We have a vibrant software industry. What's the rationale for excluding these purchases in the tally for economic activity? |
Again, the rationale is to compare like with like - no other nation includes software purchases in it's GDP figures (and they amount to nearly 2% of US GDP and have added up to 0.3% a year to GDP growth over the last 20 years).
quote:
Originally posted by Kropotkin
Or, as el freako would like to say but does'nt dare becaue he may loose his job |
I'm a programmer, Economics is just my hobby
quote:
Originally posted by Kropotkin
"we got some neat fiures but we don't have a clue hat they mean, if they mean anything at all." |
As I have stated before the discrepancy shows up in long-term estimates of PPPs as well.
The IMF have just changed their baseline estimates of PPP's to 2000 compared to 1995 - using their old figures (which took the GDP at PPP's in 1995 and applied the respective reported growth rates to them) the EU's GDP was 93% of the US level in 2000, however using PPPs for the actual year 2000 it came in at 96%.
Again there is that 0.5% a year difference cropping up.
The same discrepancy shows up in the OECD's estimates of PPPs (or used to until the OECD changed to new estimates of PPPs that are based on one year and use the GDP deflator to impute data forwards and backwards).
If you have the same discrepancy of around 0.5% a year showing up in several differently compiled datasets (which previously agreed with one another) then surely you should suspect that the data that has recently been changed is less relevant for comparison.
Just to be clear though, I do think that the US's current method of calculating GDP is superior - it's just that when you compare it with other countries using older methods you need to be aware that the changes that improved the US's data have also raised it's reported growth rate
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Colon
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Antwerp, Colon's Chocolate Canard Country
Jan 1970
time: 06:36
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quote:
Originally posted by DanS
I never said that they are a swing producer now, but what makes you think that they couldn't become one if they chose to make the necessary investments?
Don't count out Russia. There is only a 2.5 million bpd difference between the amount exported by Russia and the amount exported by Saudi Arabia (about 4.5 million bpd difference in export capacity). Russia is the only exporter for which Saudi Arabia could not compensate, if it withheld its product from the market. In this sense, Saudi Arabia's power as a swing producer is already diminished. Russia already has significant power to seek a price according to its interests.
Also, don't put much stock in Russia's reserve numbers. Russia's a big country, only a small portion of which has been explored heavily. |
quote:
I can agree that the Saudis have nothing to fear from Russia as a swing producer for another 5 years. However, the investment decisions on projects that Russia is starting is influenced by the current price of oil. This high price gives Russia an incentive to add large amounts of capacity.
I'm not proposing anything revolutionary here, guys! |
Necessary investments: as you were already implying in the second quote, investments are influenced by the price of oil, and you will probably realise that the oil prices are at their current levels because SA hasn't pumping out as much as it could. IMO Russia has been able to challenge SA because OPEC allowed it to do so by propping up prices, not because of any inherent geological advantage of Russia.
Future oil reserves: I believe that those territories which haven't been explored well are those that are 1.remote 2.otherwise difficult to reach 3.have extreme climates, each of which driving up the costs of extraction.
Moreover, it takes a lot of wishful thinking to assume future discoveries in Russia could challenge SA's share. We're talking about at least a doubling, if not a tripling, of current reserves.
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:36
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quote:
Necessary investments: as you were already implying in the second quote, investments are influenced by the price of oil, and you will probably realise that the oil prices are at their current levels because SA hasn't pumping out as much as it could. IMO Russia has been able to challenge SA because OPEC allowed it to do so by propping up prices, not because of any inherent geological advantage of Russia. |
I would agree with this, although it seems apparent that Russia has an advantage over some OPEC members. It has enough so that it can profitably pump oil when OPEC sticks to its normal price band of $22-$28 (modified, as appropriate, by the value of the US Dollar). If Russia didn't have an advantage over some OPEC producers, then OPEC probably would have set the price band lower to discourage Russian investment versus OPEC investment.
quote:
Moreover, it takes a lot of wishful thinking to assume future discoveries in Russia could challenge SA's share. We're talking about at least a doubling, if not a tripling, of current reserves. |
I don't have any way of judging this, other than to note that Russia is a huge country which hasn't been well explored, and hardly explored at all using the latest technology. It seems unlikely, but that's just a hunch.
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Colon
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Antwerp, Colon's Chocolate Canard Country
Jan 1970
time: 06:36
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quote:
Originally posted by DanS
I would agree with this, although it seems apparent that Russia has an advantage over some OPEC members. It has enough so that it can profitably pump oil when OPEC sticks to its normal price band of $22-$28 (modified, as appropriate, by the value of the US Dollar). If Russia didn't have an advantage over some OPEC producers, then OPEC probably would have set the price band lower to discourage Russian investment versus OPEC investment. |
Yep, and OPEC has the option of doing so while still making a profit, Russia doesn't.
quote:
I don't have any way of judging this, other than to note that Russia is a huge country which hasn't been well explored, and hardly explored at all using the latest technology. It seems unlikely, but that's just a hunch. |
Well, China and Brazil are also huge countries...
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:36
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quote:
Sorry, I meant to say SA. (though you could include its neighbours) |
Sure, but then the other OPEC members (including some of its neighbors) would starve worse than would Russia. They would pump as much as possible to compensate, killing the quotas and leaving SA to get crappier prices for its oil.
quote:
That's only because your reference point is Belgium |
Hey, Belgium is big stuff! Its economy is almost as large as Russia's!
(In non-PPP-adjusted terms)
Last edited by DanS on 23-06-2004 at 05:18
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:36
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Here's an interesting commentary in the WaPo about social security (i.e., public pensions) in the US and how the demographics are stacking up. Like the UN Population Division, apparently the Social Security managers go with a lower immigration and fertility figure than has been demonstrated recently. On the other hand, I've read that they understate longevity, although I haven't confirmed this myself.
quote:
By Thomas J. Healey
Friday, June 25, 2004; Page A29
Social Security is in dire straits and must be fixed now. How many times have we heard that refrain from government leaders and bipartisan commissions? To be sure, strengthening the Social Security system has become a national priority, driven by the common perception that the system cannot survive in its current form and that dramatic measures such as an increase in payroll taxes, a rollback in future benefit payments or the introduction of personal investment accounts are the only workable remedies.
It may come as something of a surprise, then, to learn that the Social Security program, which pays benefits to 47 million Americans, has actually shown significant financial improvement in recent years. How can that be in the face of so many doomsday forecasts? Consider:
• In their latest report, released in March, the Social Security trustees estimate that the system's trust funds (its pool of assets from which benefits are paid) will not be exhausted until 2042. This is 13 years later than the 2029 depletion date envisioned in the trustees' 1997 report. The Congressional Budget Office report on Social Security earlier this month showed a similar direction.
• In like fashion, the estimated year in which Social Security's annual benefit obligations begin to exceed its tax revenue has also receded, from 2012 in the 1997 trustees' report to 2018 in the most recent accounting.
• A crucial indicator known as the "actuarial balance" (the difference between the program's income and cost expressed as percentage of payroll) has fallen from a deficit of 2.23 percent in 1997 to 1.92 percent today.
• In 1997 it appeared that Social Security would go bust before the last of the baby boomers had retired. Now the youngest boomer will be 78 by the projected depletion date, which means the system as it stands will be able to cover the bulk of the baby boomers' benefits. In 1997 this was not expected to be the case.
What does this mean in terms of the long-range health of Social Security, once described by President Bush as "the single most successful program in American history"? Is the prognosis not nearly as bleak as the public has been led to believe?
The honest answer is that no one knows. After an increasingly pessimistic outlook for Social Security in the early 1990s -- which intensified calls for reform -- there has been a noticeable improvement in the past seven years. This trend can be traced in large part to favorable economic factors in which real wages grew significantly (reflecting the dramatic increase in productivity) and the unemployment rate declined significantly (to less than 5 percent). The cumulative effect was more and better paid workers remitting payroll taxes, hence greater surpluses for Social Security.
If the tide seems to have turned in Social Security's favor, no one can say with certainty whether the improvements are permanent. Indeed, looking at a relatively short seven-year period may lead to incorrect conclusions about the pattern of long-term changes in the actuarial projections. If we are truly interested in ensuring the future viability of a program on which so many millions of Americans depend, we must search for more fundamental answers based on a thorough analysis of the long-term assumptions around key demographic and economic indicators, and the uncertainty inherent in these assumptions.
One of those indicators is the anticipated reduction in the worker-to-beneficiary ratio -- the steamroller behind Social Security's projected deficits. (The lower the ratio, the fewer workers available to support the system and the heavier the burden each worker must bear.) The Social Security actuaries project a permanent drop in the number of workers per beneficiary from its current level of 3.3 to 2.0 by 2040, and ultimately to 1.9. Most of the decline takes place from 2013 to 2030 as baby boomers retire.
How reliable, though, can such long-term projections be given the historical variability in fertility rates and immigration levels, both of which have an enormous impact on the worker-to-beneficiary ratio? While birthrates showed significant variation in the 20th century, Social Security projections are based on a conservative, "below-replacement" rate over the next 75 years. Likewise, the level of immigration assumed by the government over that period is well below current levels. Given that immigration is in large part under government control, any program that increases immigration levels should increase the worker-to-beneficiary ratio, helping to offset projected Social Security deficits.
Complex though these issues are, they must be at the heart of any national debate over the future viability of Social Security. The recent strengthening of the system's financial vital signs is encouraging, but it should also serve to reinforce the inherent uncertainty of long-term actuarial projections and encourage vigilance to keep Social Security sound. It's in this context that the modest changes Federal Reserve Board Chairman Alan Greenspan recently suggested to Congress -- to index the age at which retirement benefits are paid and rethink the inflation measure used to adjust those payments -- should be seriously considered. Before we make any dramatic changes to forestall an impending Social Security crisis, let's make sure we know just how broke the existing program really is.
The writer is a retired partner of Goldman Sachs and a senior fellow at Harvard University's Kennedy School of Government. He was assistant Treasury secretary under President Ronald Reagan. |
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:36
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Here's the assumptions. I find the intermediate assumptions rather conservative.
quote:
Table II.C1.—Ultimate(1) Values of Key Demographic and Economic Assumptions
(1) Ultimate values are assumed to be reached within 5 to 25 years. See chapter V for details.
Ultimate assumptions (I) Intermediate (L) Low Cost (H) High Cost
Total fertility rate (children per woman) : (I) 1.95; (L) 2.2; (H) 1.7
Average annual percentage reduction in total age-sexadjusted death rates from 2028 to 2078: (I) .71; (L) .33; (H) 1.24
Annual net immigration (in thousands) : (I) 900k; (L) 1,300k; and (H) 672.5
Annual percentage change in:
Productivity (total U.S. economy) : (I) 1.6; (L) 1.9; (H) 1.3
Average wage in covered employment: (I) 3.9; (L) 3.4; (H) 4.4
Consumer Price Index (CPI): (I) 2.8; (L) 1.8; (H) 3.8
Real-wage differential (percent): (I) 1.1; (L) 1.6; (H) .6
Unemployment rate (percent): (I) 5.5; (L) 4.5; (H) 6.5
Annual trust fund interest rate (percent): (I) 5.8; (L) 5.5; (H) 6.0 |
Last edited by DanS on 25-06-2004 at 22:51
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:36
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Here's an FT article regarding German unemployment benefits. It's a real shame that Germany didn't take the opportunity to do this when the unemployment rate was relatively low (as the US did in the 90s). Also, the terms of this revised unemployment insurance don't seem to make sense to me -- i.e., unlimited duration but a pitifully small amount. Lastly, it seems like opening up labor to greater competition is the proper thing to do -- the unemployment problem is incidental to the employment problems, not the other way around.
But overall, and over the long run, it is important that people work where they can get work. This will help some.
Regarding the job creation, that seems silly to me.
quote:
Germany to slash unemployment benefit
By Hugh Williamson in Berlin
Published: July 9 2004 13:42 | Last Updated: July 9 2004 13:42
Germany's upper house of parliament adopted the most radical overhaul of the country's jobless benefits system in 50 years on Friday.
The measures, to come into effect next January, will mean benefit cuts for many of Germany's long-term unemployed, and increased pressure on them to accept work.
They are a central pillar of the chancellor Gerhard Schröder's controversial Agenda 2010 economic reform package. Wolfgang Clement, economics and labour minister, said the changes were necessary because the "present employment policies had been alarmingly unsuccessful, despite the enormous expenditure" on jobless benefits and employment-creation schemes.
The changes mark a break with Germany's traditional insurance-based benefit system, whereby jobless benefits are linked to previous earnings. People who are unemployed for over a year receive 40-50 per cent of their previous net wages for unlimited periods.
From next year such long-term unemployed people will only be eligible for a flat-rate benefit called unemployment benefit II, worth €345 a month in west Germany and €331 in the east.
They will receive extra allowances for housing and children, and there are transitional top-up payments, but overall benefit levels will be set the level of social assistance, the lowest of Germany's welfare payments.
Access to unemployment benefit II will be means-tested, so those with significant savings or partners who are working may receive little or no money. Employment offices will also be able to withhold benefits if jobless people refuse employment offers.
Welfare groups attacked the changes on Friday. Adolf Bauer, president of the SoVD social welfare alliance said the measures were a "deep cut into the welfare state" that would leave 565,000 unemployed people with no benefits from January onwards, and an additional 979,000 with reduced benefits.
The six eastern German regional states either voted against or abstained during the upper house vote, due to concerns that local authorities in their regions would not be compensated fairly for administering the new benefits.
Unemployment rates are also higher in eastern than western Germany.
The changes were adopted by the parliamentary lower house last week.
The government fears a new wave of protests later this year as the significance of the changes sink in. Unemployment remains Germany's most pressing economic and social problem, with 4.37m without work, according to seasonally adjusted figures for June published this week.
In a move to reduce the impact of the changes, the cabinet is expected to use a two-day retreat starting on Friday evening in a castle near Berlin to launch job-creation programmes involving around 400,000 posts for the youngest and oldest unemployed people.
Trade unions and left-wing members of the chancellor's Social Democrats complained that most employees who have built up years of unemployment insurance contributions will, from 2006 onwards, only be eligible for one year of earnings-related benefits if they become jobless.
Mr Clement said the changes were necessary to ease the financial burden on the welfare state, and to provide incentives for the jobless to find work. He said parallel measures to improve supervision and support for job seekers would cut the jobless total by 15-20 per cent.
He said the ratio of job centre staff to unemployed people would be increased, in order to facilitate quicker job placements. The ratio for jobless people under 25 years old would be 1:75 from next January onwards, he said, compared with around 1:300 today. |
Last edited by DanS on 09-07-2004 at 21:38
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18-06-2004 22:32
Smiley.
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