NTA Project: Old Folks are Doing OK Worldwide

A new book by the folks behind the National Transfer Account Project has a bunch of findings, but one in particular that stood out was mentioned by Ron Lee and Andy Mason at the book's launching in Manhattan last month.  Contrary to what they thought they'd find, average consumption does not seem to fall appreciably in old age even in developing countries.

The challenges of sustaining those levels of consumption in an era of population aging are what the report and the project are all about.

Bitcoin and monetary policy

It's behind a paywall, but the 10/10/11 issue of the New Yorker, "The Money Issue," includes a fascinating article by Joshua Davis on Bitcoin, the electronic currency without a central bank. Paul Krugman recently weighed in about Bitcoin and its tilt toward inspiring deflation, hoarding, and a credit crunch.  Bloggers responded with some disdain.  A Times article earlier this summer described some "speed bumps" in the plan.

Bitcoin seems to fit in well with the Occupy Wall St. flavored dissatisfaction with government and central banks in particular.  But after reading Davis's piece, it's hard to believe that Bitcoin is a great idea.  The 21st Century Bitcoin prospector profiled in the piece isn't panning for gold, he's investing in computer hardware that fills a room to "mine" Bitcoins.  That doesn't seem like a very productive use of time.

Rogoff on financial transactions tax

He's not in favor of it. A related room-for-debate from January 2010 includes a perspective from Simon Johnson, who suggests trying to tax excessive profits (the reasoning being they should reflect excessive risk) at the bank level and large individual bonuses at the personal level. More recently, Johnson weighs in on capital requirements.

Here is
another article from NPR.

Scaring seniors with ... living too long?

I enjoyed reading this NPR article discussing retirement saving for some insights into how individuals and their advisors view and plan for spending needs in retirement. The president of EBRI, Dallas Salisbury, describes his "Rule of 33," which is to have assets (including Social Security) equal to 33 times your annual spending before retiring.  That sounds adequate for roughly 33 years of additional life.  But if average asset returns are perhaps 3% in real terms and if typical consumption growth is 2%, a quick calculation reveals that 33-fold buffer to be good for more like 40 additional years of life.

Needless to say, there's plenty that can cost a bunch in old age, namely out-of-pocket medical or nursing care. But I think the factor of 33 may be a little on the high side.  For the average American male born in 1950, average years remaining at age 65 (in 2015) are 17.6, according to Social Security cohort forecasts, while they are 20.3 for women.  The median remaining years are about 20 and 21, which is another way of saying that such individuals have a 50% chance of living to 85 and 86.

To be sure, education, income, genetics, smoking, and many other things can either increase or decrease one's survivorship probabilities.  But I was really shocked to see what must have been a flat-out error in Mr. Salisbury's quote about his own parents' survivorship:

"They were in their mid-80s, as old as they ever expected to live. But he pulled out his computer to show they had a 50 percent chance of living until age 99."

This seems exaggerated to me. In the figure below, I've plotted survivorship probabilities for men and women in the 1920 and 1930 birth cohorts, and in the 2000 period life table.  All are from the SSA data, and I grant that there are subgroups that will live longer and shorter than those shown here. There are some differences between these groups, but you can see the rapid reduction in survival starting at age 85.  The median age at death for these groups is around 91, and only about 10% live to age 99. I'm not sure what Mr. Salisbury had on his computer, but I can't imagine that any life table would predict such a huge difference in survivorship probabilities --- something like 40 extra percentage points --- for even the most healthy seniors at these ages.

UPDATE:  Dallas Salisbury clarifies --- he meant that starting from age 65, the probability of at least one spouse surviving to age 92 is 50% in actuarial life tables he had obtained from an insurance company.  Surprising, right?  Perhaps that estimate is a little optimistic (or pessimistic, depending on your point of view); compared to Social Security forecasts it is.  But it's a sobering look at the very real risks of living too long.  There is wide variance in length of life.

A little medicine

Mauren Dowd writes about Jerome Groopman and Pamela Hartzband, two Harvard/Boston clinicians and well-spoken advocates of quality care choices. I heard NPR's Terry Gross talk with them recently on Fresh Air. One of the more striking things they mentioned on Fresh Air was how best practices guidelines tend not to stay best practices for long. They found a half-life approaching as little as five years. But Groopman and Hartzband still advocate the use guidelines, just in concert with patient-specific insights.

In the New Yorker, Atul Gawande writes about "coaches" for doctors, teachers, vocalists, you name it. NPR discussed it on Talk of the Nation. I couldn't help but think about coaches for college professors. In a way, we already have them, although the sports analogy usefully parses the distinction between "referee" and "coach" --- the latter is on your side, the former not more often than half the time (or less in a multi-person game!). But coaches for instruction would be another matter entirely. I was astonished at the level of care taken by the middle school teacher in her approach to instruction according to  Gawande's piece. But the article also reveals that she had been losing gusto for the job, and the coaching reinvigorated her by enhancing the quality of her teaching. 

Journal referees often seem like they're doing anything but enhancing the quality of research, but that's probably because of the natural of double or single-blind reviewing. If they communicated by speaking, I bet it'd be clearer that they're trying to improve the quality of your output.

Cochrane in National Affairs

John Cochrane writes about monetary policy, debt, and inflation in the fall issue of National Affairs. He appears to pinpoint future entitlement spending associated with the retirement of the Baby Boom as the primary fiscal issue that may trigger a debt crisis. I think he and many others are absolutely right to emphasize the importance of this issue, but it's by no means new knowledge, nor is the problem expected to become appreciably worse than it was years ago. Drawing sharp distinctions between Keynesians, monetarists, and so on may be useful in understanding monetary policy and fiscal stimulus proposals, but it doesn't seem relevant to the debate over long-term fiscal policy, where I think there is far less fundamental disagreement about causes and consequences.  The disagreements are over which benefits to choose at what costs.

Krugman, current account, crisis

Paul Krugman posts an interesting take on the Euro crisis, with some data on average current account balances and average fiscal imbalances.

I like the table, but check out the relationship between the fiscal balance and the current account balance.  A scatterplot reveals an upward sloping relationship with a slope of 1.4 (t of 2.7) and an R2 of 0.4.  Surely not ironclad but suggestive that the story we tell college students about the U.S., that public dissaving produces a trade deficit, other things equal, might also be relevant here.  Even if ultimately it's the current account that actually produces a crisis, the budget deficit might be a pretty important cause.