Rust Belt Ball

By Christopher Briem, on April 29th, 2011

City… region….city…region….

See the USAToday with the most ill-conceived thesis ever in this article today: Indians, Tigers, Pirates and Reds fighting population loss in the Rust Belt.

Does anyone in the world really think Pirates’ attendance problems (worst in the NL according to the article) have anything at all to do with population loss in the City of Pittsburgh proper which is the only factoid they reference for us in that article.

I do have a question though; what is the top attendance at AAA games around the country?

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Speaking of population though..  this factoid may be more important as symbol, but something I put up over here is some recent census data released on the population in group quarters as of 2010. For Allegheny County the population in nursing homes is down significantly, while the population in college dorms is up a large amount over the decade.  Check it out.



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Can New Zealand catch up to Australia?

By Winton Bates, on November 8th, 2010

Is New Zealand disadvantaged by economic geography to such an extent that it cannot hope to catch up to Australia’s average income levels, even with further improvements in institutions and policies? That is probably the most important question considered in the second report of the 2025 Taskforce that was released a few days ago.

The 2025 Taskforce was set up by the New Zealand government after the 2008 election to recommend how the gap between average incomes in Australia and New Zealand could be closed. Incomes of New Zealanders have generally risen less rapidly than those of Australians over the last 40 years, resulting in a gap between average incomes of around 35 percent in recent years. After the 2008 election, the NZ government committed to closing this income gap by 2025.

Since the Taskforce presented its first report last year, Philip McCann – an economist with expertise in economic geography – has advanced the view that New Zealand’s geographical disadvantages prevent it from becoming a high productivity economy. McCann has implied that structural features that are advantageous in the current era of globalization differ so much from those exhibited by New Zealand that this economy could not reasonably be expected to have relatively high productivity. He suggests ‘this is true irrespective of the degree of flexibility in the domestic labour market, the degree of transparency in the local institutional environment, or the levels of cultural aspirations for success’ (‘Economic geography, globalisation, and New Zealand’s productivity paradox’, New Zealand Economic Papers, Dec. 2009: 299).

The particular aspect of geography that McCann considers to be most disadvantageous to New Zealand is its relative lack of agglomeration economies associated with large cities. These agglomeration economies arise from knowledge exchanges, better networking and coordination, a nursery role for new enterprises, improved labour market matching processes and greater competition.

McCann argues that agglomeration economies can explain the decline in New Zealand’s per capita incomes relative to Australia because of the way the world has changed. One strand of the argument has to do with the increasing importance of knowledge-intensive activities that can often be undertaken at lower cost where face to face contact is possible among the various participants. Another strand is that with closer economic integration between Australia and New Zealand the economy with relatively larger agglomeration economies, i.e. Australia, has become a relatively more attractive location for capital investment and employment of highly skilled workers.

McCann sums up: ‘ … although New Zealand underwent fundamental institutional reforms in the 1980s and 1990s, at exactly the same time as this was taking place the landscape of global economic geography was shifting in favour of other places. It may well be that the deregulatory reforms limited some of the most adverse aspects of these shifts, thereby minimising the productivity gap. Yet the point still remains that the world changed, and the world of the late 20th and early 21st centuries is very different from the world that provided New Zealand with almost a century and a half of productivity advantages’ (p. 300).

How does the Taskforce respond? The Taskforce acknowledges that both New Zealand and Australia have been disadvantaged by geography. It notes that according to recent OECD research the impact of greater distance to markets is equal to around 10 percent of GDP per capita for both countries. However, it judges the evidence in support of the view that New Zealand’s small population limits the potential to obtain agglomeration effects to be weak. In particular, Auckland’s position within the regional hierarchy of Australasian cities is not declining – the population of Auckland has been growing faster than the populations of Sydney and Melbourne. The Taskforce also points out that there is no evidence that New Zealand suffered an adverse shock from globalization during the 1980s; that migration from New Zealand to Australia is disproportionately of highly skilled workers as agglomeration theory implies; or that the relative performance of small countries has declined in the past 20 years.

The Taskforce concludes: ‘… modern growth theory provides stronger support for the importance of institutions and policy than it does for geography, especially in the deterministic interpretations of economic geography’ (p. 41).

Sitting in Australia, current concerns in public policy discussions about the emergence of a two-speed economy in this country make the agglomeration theory of relative decline in New Zealand’s economic performance seem rather odd. Rather than a concern that agglomerations centred on Sydney and Melbourne are leaving the rest of Australia behind, the main concern is that New South Wales and Victoria (along with other states) are being left behind as economic growth steams ahead in Western Australia and Queensland, as a result of rapid expansion of the minerals sector and related industries. There is also reason for concern that, over an extended period, the particularly poor performance of the New South Wales government has detracted from the substantial location advantages that Sydney should enjoy.

If we reject the idea that Australia’s alleged agglomeration advantages make it impossible for New Zealand to close the income gap, where does that leave us in terms of explaining New Zealand’s relatively poor economic performance? The Taskforce pours cold water – correctly in my view – on another geographical explanation, namely Australia’s good luck in having plentiful supplies of mineral resources to export to rapidly growing markets in China and India. It is only in the last few years movements in Australia’s terms of trade have been much more favourable than in New Zealand. Moreover, New Zealand also has substantial mineral and hydrocarbon resources.

I think that leaves us with having to explain New Zealand’s relatively poor economic performance in terms of policies that are less favourable to economic growth. That also poses a problem because the impression given by various international comparisons of institutions and policies is that since the mid-1990s there has not been much to choose in overall terms between the economic policy environments in New Zealand and Australia. It seems likely, however, that New Zealand has not performed so well in the areas that have mattered most from a growth perspective. For example, one major problem discussed by the Taskforce is the effect of relatively high levels of government spending in discouraging investment in export industries – via impacts on the real exchange rate as well as tax rates.

The Taskforce has expressed the view that closing the gap in average income levels by 2025 will require policies that are superior to those in Australia in their focus on growth. It seems to me that those who believe that New Zealand has geographical disadvantages should logically be strong supporters of that view (unless they reject the objective of closing the income gap). The greater the geographical disadvantage, the greater the policy superiority New Zealand will need in order to meet the objective of closing the income gap by 2025.



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The System of the World (Part II)

By Daniel Wilkinson, on January 12th, 2009

In part two of this series, I examine global demographic trends and take an initial look at the implications for global GDP growth, and by extension, the outlook for the current world-system of debt-money, as defined in part 1.

The general demographic trend over the last 500 years, and particularly so since the mid 1700s has been one of inexorable, exponential population growth. During this time the world-system of debt-money has evolved to it’s current level from very weak and inauspicious beginnings in the early 1500s. My contention is that population growth has been the trend which has sustained this world system, and that this driving trend is now abating with significant consequences for the world-system.

Many people make the mistake of reviewing total world population growth graphs, and see an ever upward trend, when in fact what really matters to the current world-system is not absolute population numbers, but the growth in population. It is growth in population year on year that provides more grist for the debt mill, and ensures that productivity increases year on year sufficient to replay the interest outstanding on the current money supply.

Another important fact most people miss when looking at demographic trends, is that the only population growth that directly sustains the world-system is growth of population within the monetary economy, or more specifically, those individuals earning a wage and eligible for bank loans. New money is created by the banks when they make new loans. It is imperative that the system always has more outstanding in new loans than loans currently due, since otherwise there will not be enough new money to pay off the original money supply plus the interest owing on it. So economic growth is required to sustain the system – and population growth is the most crucial element of economic growth, followed by productivity improvements via technology and better social organisation.

Therefore, the vast majority of recent world population growth which has been in the least developed nations on earth – mostly in sub-Saharan Africa and in the less developed Asian regions cannot immediately contribute to sustaining the debt-money pyramid since it takes considerable time to integrate the teeming masses in the third world into the monetary economy. Indeed recent progress in this regard has been very slow – certainly far slower than the third world population growth rate, due to a whole host of developmental problems, many of which have been caused indirectly or directly by the actions of developed nations. For this reason the west has found it necessary to appropriate the resources of third world nations to sustain western consumers of debt, rather than focussing on lettnig the third world nations develop in their own time – it would simply take too long to be of any utility in keeping the debt flowing.

So to summarise, the population demographic we are most interested in is the demographics of the world monetary economy, which are shown in the figure below (I had trouble adding the image so please follow the link).

http://www.flickr.com/photos/25490645@N06/3183768236/

The blue and light red lines represent the Total Fertility Rate (TFR) of the ‘developed’ and ‘less developed’ world respectively. Developed in this context can be taken to mean the western nations including the US, Japan and some parts of east Asia. Less Developed includes India, China, Brazil and so forth. The yellow and green lines are the TFR of the two regions respectively, but moved forward in time by 30 years. The dark red line is a weighted average of the developed and less developed TFR advanced by 30 years, with the developed TFR contributing at 400% the rate of the less developed TFR to the monetary economy.

Note the sharp and relatively simultaneous fall in fertility for both the developed and less developed worlds in the 1960-1975 time frame[1]. This is the origin of the ‘baby bust’ generation that followed the boom generation. A TFR below 2.1 (births per woman) will result in a falling population, and a TFR above 2.1 in a rising population. 2.1 births per woman is termed the ‘replacement rate’. The period around 1950-1960 represents the origin of the baby boomers. It should be obvious from the graph firstly that the growth of the population of the monetary economy has crashed since the 1970s, during which time the birth rate in the less developed world (mostly Asia) has also fallen sharply partly but by no means entirely as a result of China’s one-child policy.

Now, from birth it takes on average 30 years for an individual to enter the most productive phase of their working life, during which time they either contribute to labour input, borrowing, savings or both. If we recall that the world system requires an expansion of debt to continue functioning and that the market for new debt is significantly determined by new workers entering the market for housing, personal loans, business loans and so forth (and specifically, a larger number of new workers and debt-victims than existed previously is required, in order to take up the burden of interest on the money supply) , then we can see that a low in the groweth the productive population of the monetary economy represented by a low point the the monetary economy TFR curve shown in dark red, represents a point of maximum danger for the economy. The figure shows two periods of significant decline within the overall downward trend – one from 1995 to 2010, and another from 2015 to 2025. Note also that it takes a period of time equal to the average loan life-span for changes in the input of labour and new loan creation to manifest themselves in their effects on the economy. The recent low point in the monetary economy TFR corresponds roughly with the 2001 downturn and also with the recent credit bust of 2008.The developed economy productive worker TFR actually falls below the replacement rate just about the year 2000.

Looking slightly further back, it is also possible to observe a major down trend bottoming in the late 1970s, the might be partly correlated with the severe recessions of this period.

If we now mentally zoom out such that our time-scale incorporates the full period from 1500 onwards, we see a picture of exponential growth of the population of the world population up until the period some 3 years after the end of WWII. This trend has seen world TFR being strongly positive and quite stable in the 3-5 births per woman range and hence population growth has been exponential due to the compounding effect of growth, until the last 50 odd years during which growth has levelled out drastically. The UN population division predicts that the world population as a whole (this figure now includes the whole world including the least developed regions) will peak in 2050 and afterwards decline, only to level out around 2300. Note that this means that the peak population of the world monetary economy is peaking about now (or may have already peaked), since only a fraction of the population of less developed nations participate in the monetary economy. According to the UN, after the peak we might expect a period of population decline that lasts two centuries.

It is my thesis that it is mainly (but not entirely) the increase in population rather than productivity growth that has sustained the debt-money, never-ending growth world system to date since the green revolution and population explosion of the 18th century, and that the recent significant moderation of the population of the monetary economy is partly responsible for the current problems in the global economy, and that the continuing moderation and eventual decline of this monetary population is going to result in a series of rolling recessions, and possibly destroy this world system altogether over a period of some 50 years from now. Further exacerbating factors can be seen in the form of:

  1. global wage arbitrage, which is accelerating the rate of convergence between the most developed and developing economies[2]. Most people think of convergence as a process of the third world cathing up. The reality is that we shall meet them in the middle – which is what markets are all about!

  2. Ageing societies such as Germany and Japan exhibit huge decreases in domestic consumption due to the increasing need to save for old age. An ageing nation is a global market that is retrenching for good, hurting the exports of other younger nations. Many Asian nations such as Korea, Singapore, China will join the Germans and Japanese in being ageing societies within 25 years.

  3. Relentlessly increasing lifespans, resulting in higher social costs for the elderly.

  4. The contraction in growth rates is superimposed on an increase in actual population of about 3 billion between now and 2050, putting extra pressure on already strained natural resources.

  5. After 2050, a declining world population and therefore a sustained period of economic contraction, or at least stagnant growth – not seen for over half a century – is going to turn many of the accepted economic rules on their head. Remember that the whole of the dismal science has been constructed in the last 300 years of the ‘population bull market’. Few see the coming crash during a bull run.

The next article will look in more detail at the economics of ageing societies and depopulation, along with some further ruminations on other interacting factors such as the information economy. Contrary to what the reader may take from this article my overall conclusion will be one of opportunity for humanity rather than damnation, however I shall attempt to show that a rather different world-system and cultural attitudes will be required to gain a positive outcome from population growth moderation.

Before that I shall leave one more idea for you to ponder. Recall how our developed world TFR curves started downward in the late 1960’s? Looking at the 30-year adjusted developed TFR, we see that boomers born in the 50s are entering their productive phase in the 80’s. Prior to this there is a new-worker bust as the generation born durnig WWII moves into their thirties. Afterwards the generation following the boomers – the baby bust generation born in the 70’s results in another worker-bust around 2000.

Perhaps the incontrovertible fact of the shrinking populatio of the monetary economy is correlated with the birth of fiat money after 1971. Perhaps the chronic inflation that has caused middle class incomes to stagnate for the last 30 years partly a deliberate or accidental response to the suddenly impaired population growth fundamentals of the debt-money system? In fact the debt-money world system can be sustained simply by constantly inflating the money supply sufficiently to account for falling GDP growth.

No-one can deny the huge leaps in technological productivity that have been developed over the last 30 years. So what else is it that is sucking the real growth away?

Footnotes:

[1] The reasons for fertility decline are well covered in the literature so I don’t intend to address the reasons why in this article, instead I shall focus on consequences.

[2] I shall take a further look at the effect of labour arbitrage in the next article.



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