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Thursday, November 23, 2006

Ferenc Puskás and Life Expectancy

The following post comes from my Hungary Economy Watch Blog. It takes the example of the relative longevity of Ferenc Puskás (the Hungarian Football legend) as an example of how complex an issue life expectancy is likely to prove in the context of Hungary's ongoing economic crisis.

One of the factors is undoubtedly medical expenses, and some indication of just what is involved here can be found in this post, Now for Puskás.

This week we learn of the sad death of Ferenc Puskás at the age of 79. Puskás was undoubtedly a great footballer (you can find an interesting page about him on wikipedia) and he will be missed by family and football fans alike. Puskás reached the comparatively advanced age of 79, and we hope he enjoyed his later life. We may also like to note that Puskás lived considerably longer than the majority of Hungarian men, since the average male life expectancy is currently some 68.45 years. And it is here that the economic part of our story begins.

Life expectancy in Hungary continues to be comparatively young by European standards, so it is to be hoped that in the coming years this situation will improve considerably, but how exactly will this improvement affect the economic outlook for Hungary, that is also the question?

Now one thing is clear, any increase in life expectancy in Hungary will come by people who are now over 60 living longer. As this happens it will be wonderful news for everyone, but in economic terms this will have an important on cost, since it will involve a considerable expenditure in medical care and medicine, and it is just the question of who is going to pay for this which is the subject of considerable dispute between the Hungarian government and the pharmaceutical companies:

“We see if the modification would get approved it could lower the payment obligation of both Egis and Richter arising from tax on drug subsidies to HUF 1.5bn (when compared to the earlier version of 14%-16% tax resulting in HUF 2.0bn) and to HUF 2.4bn (when compared to the earlier version of 14%-16% tax resulting in HUF 3.3bn) for 2007 respectively," KBC's Barbara Jánosi said on Friday.

She added this step would be only a little positive development for these two companies when compared to substantial increase seen in their payment obligation from co-financing the gap of the drug subsidy budget.

According to the Parliament's latest decision, next year's drug subsidy budget target will be HUF 287 billion when compared to HUF 364 bn reported earlier by the Finance Ministry.

“We see the lowered target could lift substantially the budget gap for next year resulting in higher payment obligation for drug makers (if no changes will be in the distribution principles of the gap between industry participants)," Jánosi added.


Now it is clear that with this current comparatively low life expectancy some considerable improvement is to be hoped for and expected. If we take a look at a comparable society, the old east Germany, we can see that such an improvement can occur relatively quickly, if the right care and clinical environment is available.

Last year I had a post about this situation on a Fistful of Euros, based on a paper by the German-based researcher Marc Luy. Essentially the point is that after years of life expectancy divergence, the two societies - East and West - converged again comparatively rapidly in the 1990s based largely on what Luy calls the availability of nursing care:


“The demographic changes and developments in Eastern and Western Germany are generally seen to offer a unique possibility to understand the interaction between societal, social respective economic conditions and population processes. Almost identical demographic composition and behaviour until 1945 were followed by 45 years of life under different political and socio-economic structures resulting in completely different demographic conditions…. With Reunification in 1990 the population in Eastern Germany returned to the Western societal and economic system what caused sudden changes in all its demographic developments. These special preconditions lead some scholars to describe the Eastern German population as a kind of 'natural experiment' generated a large number of researches about changes in Eastern German demography.”

“In the field of mortality research especially the rapid convergence of survival conditions since 1990 following roughly two decades of continuous divergence are subject of central interest. The fact that both, the former increase and the recent decrease of the life expectancy gap between West and East Germany were mainly caused by age groups between 60 and 80 led to the central message that "it's never too late" for increasing length of life.”


So on the face of it a convergence of Hungarian life expectancy towards levels which are regarded as rather normal in the West European parts of the EU is to be expected, but we need to think about how this can be paid for.

Now many attribute Germany's current public finance problems to the incorporation of East Germany, and this view is *both* right and wrong.

It is wrong in the sense that it doesn't take account of the fact that ageing is an *all Germany* phenomenon, but it is right that the rapid increase in life expectancy that took place in East Germany in the 1990s simply piled on, and piled on the costs, and this must be a big part of the current financial crisis that the German health system is experiencing.

So all I am saying at this point is that the sum total of these effects will make the managing of the Hungarian deficit issue a bigger rather than a smaller headache, and the sooner the body politic in Hungary wakes up to this the better.

The Japan Government Reduces Its Economic Forecast

In many ways this is significant. The Japanese government has just reduced its economic forecast for the first time since December 2004. So it seems that now all the signs are there that the longest economic expansion since the great recession began is now begining to come to an end. Foremost among the weak points is, of cousre, domestic consumption. Rather than repeating myself for the umpteemth time here, I would simply direct you to yesterday's post by Claus Vistesen, where the issues involved are made extremely clear.


Japan's government lowered its evaluation of the economy for the first time in almost two years, after sluggish wage growth prompted a slump in consumer spending.

``The economy is recovering, despite some weakness in consumption,'' the Cabinet Office said in its report for November in Tokyo today. ``Private consumption is almost flat,'' it added, cutting the assessment for the first time since December 2004.

The last time the government lowered its assessment was in December 2004, as stalling global demand prompted a glut in corporate inventories and a slump in production. The world's second-largest economy almost slipped into a recession when slower export growth caused it to contract in the fourth quarter.

Household spending, which has declined every month this year, plunged 6 percent in September, the biggest drop since 2001. Wages were unchanged in the same month, after rising only about 8,000 yen ($68) since January.


Although it lowered the assessment, the government maintained its view that the economy is ``recovering,'' unofficially putting the current expansion in its 58th month, the longest since 1945.

``As far as the monthly economic report is concerned, the economy of Izanagi has been surpassed,'' Ota said, referring to the so-called Izanagi boom that ended in 1970.

During the Izanagi boom, a 57-month period named after a Japanese god, gross domestic product almost doubled, helping Japan emerge as a major economic power. The expansion, sandwiched between the 1964 Tokyo Olympics and the 1970 Osaka world expo, was so named because the economic miracle was compared in significance with Izanagi's creation of the Japanese islands.

Japan's economy has grown at an average 2.5 percent in the current recovery, about a fifth of the average 11.5 percent seen during the Izanagi period, according to Dai-Ichi Life Research Institute, a Japanese think tank.


The biggest difference between Izanagi and the current recovery is that deflation plagued most of the latter, meaning growth relied on exporters as consumers, discouraged by job and wage cuts, spent less. Unemployment surged to a record 5.5 percent during the current recovery, more than four times the average rate between 1965 and 1970, government data show.

``Deflation crippled non-manufacturers, who employ about 80 percent of the workforce, which has made it hard for most citizens to feel the recovery,'' said Hideo Kumano, a senior economist at Dai-Ichi Life Research Institute and a former central bank official. ``The recovery may be the longest since the war, but it certainly isn't the largest.''

Wednesday, November 22, 2006

Japan Trade Surplus Narrows

This is hard to interpret, but it does seem that we have here more evidence of an investment slowdown in China (as well of course of a decrease of the rate of growth in US consumption), and Japan is one of the first to feel all of this. Now we have to watch for Germany. Note that many commentators are asking for domestic consumption to take the strain, and that doesn't sound at all realistic to me.

Japan's trade surplus narrowed more than expected as U.S. demand cooled, signaling the impetus that exports gave to economic growth last quarter is fading.

The trade surplus fell 24.8 percent to 614.7 billion yen ($5.2 billion) in October from a year earlier, the Ministry of Finance said today in Tokyo. The median forecast of 33 economists surveyed by Bloomberg News was for a surplus of 770 billion yen.

Demand for Japanese exports is cooling after the country's largest export market grew at the slowest pace in more than three years. Waning overseas demand leaves the world's second-largest economy more reliant on its consumers, who reined in spending last quarter, to sustain the longest expansion since 1945. Exports rose 11.6 percent, the slowest growth in six months.

Growth in exports to the U.S. slowed to 13.5 percent in October, after climbing 20.5 percent a month earlier, as demand for automobiles cooled. Shipments to the European Union grew 8.7 percent, slower than the 14.2 percent growth in September. Exports to China expanded 18.4 percent after climbing 19.7 percent the previous month.

Exports measured by volume, which don't take into account price fluctuations, grew 2.2 percent, the slowest since August 2005.

Demand for transportation equipment and electronics, which together make up almost half of Japan's exports, waned last month. Exports of transportation equipment, which include cars, trucks and automobile parts, rose 17 percent from 21 percent in September, the report said. Electronics shipments grew 7.3 percent, down from 11.8 percent.

Tight US Labour Market in the US in 2007?

This caught my eye this morning:

US labour market to remain tight in 2007

The US labour market will remain tight next year, the White House predicted Tuesday, raising hopes that ordinary Americans will start to feel more of the benefits of the country's economic expansion.

Issuing its twice-yearly economic forecasts, White House economic advisors said unemployment would average about 4.6 per cent in 2007, only a slight bit higher than the present 4.4 per cent.

Jobs growth would average about 129,000 a month – fewer than anticipated in June, but enough to keep unemployment low due to the falling number of people joining the labour market.


Now obviously a lot of things can be going on here (not least of them politics), but why the sudden drop in new labour market entrants (only an estimated 129,000 a month)? Obviously an increase in labour market exits was to be expected as the boomers start retiring, but entrants? My intuition is that at some point the Latinos will start getting into birth postponement in a big way as they - and especially those who will have been born in the US, who will soon be coming onstream - start to go for more education, following the European American and Asian American pattern. Significantly Puerto Ricans already have 1.7tfr, and they are of course born in the US (officially speaking). So the others - with tfr of 2.8 - may well go down this road soon. Which would mean, of course, a temporary birth-dearth (this phenomenon is just not understood by hardly anyone in the US) and the Latinos moving towards lowest-low fertility, at least for a time. Remember European and Asian Americans are - on average - at EU levels of fertility (like say France or the UK) at around 1.7/1.8. So the US could very rapidly find itself with European fertility, in say 10 to 15 years. Oh deary me, whatever will the Economist blogger, and Tyler Cowan say. Clearly the responsibility will not lie with a large welfare state. It never did. Take a look at those countries with the lowest low fertility, Singapore, Croatia, Latvia, Lithuania, Spain etc etc, they are not exactly countries renowned for they high welfare levels.

Anyway, definitely something to watch. What we seem to have here are the blind leading the blind.