A look back at recent fiscal history

The Washington Post offersa retrospective on federal debt, surpluses, and deficits over the past ten years.

Fogel on human development

In the Times, Patricia Cohen reviews a new volume by Robert Fogel and coauthors about historical patterns in nutrition, body size, and longevity. Based on material in the related working paper, it appears that they analyze new data on real wages and food available and composition in Britain during the takeoff. They call attention to improvements in nutrition starting with birth cohorts born in the middle 19th century. The book review states that the focus broadens to other countries as well.

Development, family size, and female empowerment

Recently Jill Lepore wrote an op-ed about Jane Mecom, Benjamin Franklin's sister. Lepore provides insight into the conditions of women and families in 18th century America, remarking that high fertility (and very high infant mortality) and lack of education were critical impediments to improving well-being. Toward the end of the piece, she mentions the decline in U.S. fertility rates starting in the late 17th or early 18th century, an abnormally early transition toward smaller families described in this economic history piece by Michael Haines.

Present Discounted Genius

A little-known fact is that ex-major league ballplayer Bobby Bonilla is being paid $1.19 million each year from 2011 to 2025 by the Mets. Bonilla was bought out of the remaining $5.9 million in his contract in 2000 for this agreement, an annuity, as it's called in the retirement business or financial community.

How could this be?! It's a great example of the concept of present discounted value. It turns out that the $25 million plus in cash that Bonilla will be paid over the next 25 years is actually less in present value than the $5.9 million he gave up in 2000 as part of the deal. (In my spreadsheet, I find the present value of the contract equalling about $4.9 million in 2000 dollars.)

Or at least the PDV is less if the interest rate they used to strike the deal --- 8% per year --- was realistic. Maybe that was a little high. The interest rate in the contract ought to be the rate of return that Bonilla would have earned on that $5.9 million were he paid it in 2000 and promptly invested it. Of course between 2000 and 2011, stock prices either declined or moved sideways as a result of all the turbulence in the interim. The average Corporate Aaa yield was probably around 6% during this period. Based on what's happened since 2000, Bonilla's deal looks pretty good!

It would be interesting to compare the "price" he paid for the annuity to what else prevails in private markets.

Student loan debt

Here's an update about trends in student loan debt, which according to one data source have apparently reached the level of credit card debt. (The former has been rising while the latter has been falling!)