Monday, June 30, 2008

Lowest-low fertility in the Times magazine

In yesterday's NYT Magazine there was an article about low fertility in Italy and about fertility in developed countries in general. Female aspirations and equality of responsibility for work and family seem like they may be a big part of the equation.

May's issue of the academic journal Demography includes an interesting article about female preferences and childbearing. It suggests moms with greater tolerance for risk also seem to wait later to start having kids.

Friday, June 27, 2008

Tax rebates raise income a lot, consumption a little!

Although the NY Times is putting a more positive spin on it, the news out of the BEA on income and spending in May suggests to me that folks aren't spending their tax rebate checks, at least not yet.

While incomes were up 5.3 percent in May, consumption was up 0.4 percent. Nothing to sneeze at, perhaps, but a fair cry from a large consumption effect for now. We'll see what happens in June and July!

Rising demand among developing countries or among speculators?

Paul Krugman writes about the rising prices of raw materials again today. His perspective is that speculators may be bidding up prices somewhat, but that the rising demand for iron ore, a commodity for which it is hard to buy or sell short, suggests a real increase in demand is at work. In particular, he sees rising demand from developing countries like China.

Ironically, on the same day we see a report on the rising price of scrap metal and the lucrativeness of recycling. Why? Because of demand for raw materials from China and India.

Tuesday, June 24, 2008

Female work aspirations in a world of rotten jobs

Sandra Tsing Loh has written a very nice book review in The Atlantic that neatly lays out some of the issues surrounding female labor force participation.

One of the key points, although not new to experts in this field, is that so many jobs in the modern economy are just rotten. Faced with the choice of working in a soul-sucking cubicle making money that just pays for nannies and conspicuous consumption versus staying at home with the kids, smart moms may well choose the latter, and that is not necessarily a bad thing for women's empowerment.

Tuesday, June 10, 2008

Immigration politics depending on age structure?

That's one of the themes in an article in the Times today on immigration in Southern Europe, where populations are generally older than they are elsewhere due to low fertility.

You might call that a "pull" factor, a characteristic of countries like Spain and Italy that pulls in immigrants. Another pull factor might be domestic political progressivity.

There also are "push" factors, characteristics of sending countries and their emigrants. For example, Southern Europe is closer to developing countries where incomes are lower, like the U.S. is close to Mexico. Southern Europe shares languages and cultures with many developing countries. (The reason? Past outmigration of Southern Europeans to those places! And not always in the most peaceable of manners.)

The upbeat tone of this article contrasts distinctly with coverage of the recent tragedies in South Africa, where dozens of immigrants have been killed by bands of angry South Africans.

Saving, Spending, and Age

Today David Brooks writes about profligate consumption (financed by credit card debt as opposed to savings) by the young and financially unsophisticated.

Meanwhile, Boston University's Larry Kotlikoff writes about profligate consumption (financed by government borrowing) by the old and medically needy.

It is interesting that both perspectives should be so different but also so compelling. Credit card debt has grown rapidly in the past decades, and large increases in housing debt among younger households have driven increases in household indebtedness (Dynan and Kohn, 2007). But Kotlikoff is writing about the potentially far more troublesome pattern of rapidly increasing indebtedness of the U.S. government triggered by current and future entitlement spending --- Medicare, mostly, and also Social Security --- on the elderly.

So it's hard to pin down a bad guy here, though we may want to pinpoint somebody or some group whose actions are mucking things up. I think what we can say is that expanded education about the uses and consequences of public and private debt is probably a very good thing in which to invest. Even if it may require that we borrow some money to do it!

Wednesday, June 4, 2008

Resveratrol, caloric restriction, and aging

I guess I'd rather drink 30 bottles of red wine a day and extend my life with resveratrol rather than restrict my calories by 30%. Go figure!

Tuesday, June 3, 2008

Actuarial Shenanigans in NY

Actuaries are supposed to provide honest guesses about future cash flows, but according to an article in today's NYTimes, that hasn't always been the case when it comes to NYC pension programs. Apparently an actuary hired by city public employee unions has admitted his work was heavily skewed in favor of finding low future costs for program expansions, and thus akin to "voodoo."

To make matters worse, the article states that once public employees receive a benefit, the New York State Constitution prohibits tampering with it. This creates a far more grave problem that that facing U.S. Social Security, whose benefits are not guaranteed by the U.S. Constitution.

Monday, June 2, 2008

Present Discounted Value and Real Estate

Last week, a writer at the Times described his changing view of buying versus renting by making reference to the "real estate market's version of the price-earnings ratio," or the price of a unit of housing divided by the annual total rent for an equivalent unit.

This is a useful summary measure because in equilibrium, it should be equal to 1 / [1 - 1/(1+i)], where i is the annual (nominal) interest rate on a mortgage. This is because the price of a housing unit should equal the present discounted value of its income stream, a.k.a. its rent. If you own housing, you're "paying yourself" the rent by enjoying it. (Or you could rent it out yourself.)

The math of present discounted value suggests that in equilibrium, the price of housing, P, should be equal to

P = R / [1 - 1/(1+i)]

where R is the annual rent. Or equivalently,

P/R = 1 / [1 - 1/(1+i)]

Suppose i = 7.5%. Then P/R should be about 14.3. Suppose you live in New York and rent at $2000 per month. Then the purchase price of that unit should be about $344,000. If P exceeds that, renting is a better deal.

Sound low? We've assumed that the rent, R, stays the same over time. If R were rising, as it probably is in most markets, say at some rate r, then the equation becomes:

P/R = 1 / [1 - (1+r)/(1+i)]

And you might expect to see a P/R ratio around 19.5 or so. The deductibility of interest payments also lowers the after-tax interest rate you actually pay, to something below i.

Student Loan Ailments

The Times reported today on the credit squeeze faced by borrowing students at colleges further down the food chain, presumably another result of the general credit crunch brought on by the subprime crisis.

Last summer, a similar article discussed huge debt burdens among students who had taken out private loans.

The big question is whether increasing reliance on private bank loans mixed with fluctuations in interest rates, or maybe unfortunate choices brought on by risky or myopic behavior, changes behavior or outcomes. Much research like this working paper by Jesse Rothstein and Cecilia Rouse finds impacts of debt on post-graduation choices. Is there also a matriculation or dropout effect?