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Friday, December 02, 2005

Gunnar Myrdal and the 'Population Problem'

I discovered the work on demography and economics of Swedish Nobel Prizewinner Gunnar Myrdal when I read this paper by Bo Malmberg,Thomas Lindh and Joakim Palme. In that paper they draw attention to the way in which Myrdal was an early pioneer stressing the importance of demographic influences for economic theory, and in particular of how declining population might exert a negative influence on economic performance.

In this sense he was truly a visionary, exploring more than 60 years ago many of the ideas of which I and others have only recently begun to think about (in fact reading Myrdal's lectures I am amazed at how he seems to have gotten through to thinking about just the same issues - like ageing and productivity - which are worrying me right now).

In fact Myrdal seems to have:

1/ Had a major role role in the history of the debate about race relations in the US
2/ With his wife Alva (the mother of modern feminism?) pushed for a series of gender and child friendly policies in Sweden which seem to have given a lot of impetus to the so called 'Swedish model'.
3/ Been the first modern economist to raise the issue that the neo-Malthusians had it wrong about population (in this case the neo-Malthusian Knut Wicksell) and that number wasn't the important issue, but that structure and momentum were.

Myrdal made his population 'discoveries'in the 1930s for the purely conjunctural reason that Sweden was then already suffering from low fertility. As he points out, this was partly a 'structural shock' produced by economic recession and out-migration. But Sweden did have a very early move to the second phase of the demographic transition (the one were birth rates fall below replacement). Sweden's population dynamic has in fact held up fairly well over the last 60 odd years, partly due to inward migration and partly due to child friendly policies. But the long run tendency is making itself felt even in Sweden now.

I have posted the economically relevant Godkin lecture on my website. As a taster, here is a short extract:

Curiously enough, in this neoclassical speculation on population the factor of age distribution was for a long time not studied, and it was never studied intensively as to its economic implications. It is remarkable, because this factor could to a large extent be taken care of in a stationary model of theory. When a certain trend of the population development is maintained for such a long period that a stable age distribution has been reached, the difference between a progressive, a stationary, and a regressive population -- apart from a different development of population numbers -- is that in the first more than in the second, and in the second more than in the third, the number of children is relatively large and the number of old people relatively small. A corresponding difference rules even within each major age group taken by itself. If we thus compare a regressive population with a stationary one, we find that in the first young children are relatively fewer than older ones and that the center of gravity is also higher in middle age as well as in old age.

Now people in different ages are productive in different degrees, and -- within a given standard of living -- their consumptive demands, their cost of living, also differ. Here intensive empirical studies ought to set in, and they are now being made in Sweden, to ascertain the average productivity and the cost of living in different age groups. These calculations give somewhat different results in different social classes. The occupational and cultural changes also alter the quantities from time to time very considerably.

I cannot in this short synopsis enter upon the details of how such realistic studies of agedifferential productivity and cost of living are to be planned and carried out. One very broad generalization must suffice. If, by combining productivity and cost of living into a net productivity, we try to get a general index for the contribution or noncontribution of various age groups, we get, of course, the general picture that normally a person during two periods of his life, the beginning and the end, consumes without producing, while during a period between he produces more than he actually consumes. The influence of its age structure on the average level of living of a nation will then be determined by the relation between the "overproducing" and the "overconsuming" age groups.

continue reading #

The ECB, The Yield Curve and Central Bank Independence

I have just posted on all these topics:

The Most Bizarre Monetary Policy DecisionOf Recent Times?

Central bank independence seems to be once more ’a l’ordre du jour’, and the ECB may well live to find to its cost that there is one thing worse than actually playing the game, it’s playing the game and losing. Now why? Continue reading #

More Pressure on the Yield Curve

One of the things about targeting expectations, and factoring-in changes, is that the world moves on at a very rapid clip these days. So the ECB rate rise in now, really, yesterday's news. The big issue today is the fact that the easing cycle in the eurozone may already be over (we need to see the data going forward before we can be sure about anything here). Continue reading #

Locking Swords

I'd simply love to be a fly on the wall in London this weekend. The G7 finance ministers are about to meet the central bankers, and as in by now well known, these two groups haven't exactly been hitting it off too well lately, at least, and better said, in Germany and Japan they haven't. Continue reading #

Wednesday, November 30, 2005

Postponement of Childbearing in Europe

The Vienna Institute of Demography are organising a Conference - Postponement of Childbearing in Europe - between December 1 and December 3 2005. Most of the people with interesting things to say on this topic seem to be attending. I'll get back with more comments on relevant papers as and when they appear online.

Bo Malmberg and The Four Phases of the Demographic Transition

The Swedish demographer Bo Malmberg has offered us a four-phase typology of the demographic transition which is not without interest.

Clearly the impact of the demographic transition on population size and growth rates has been considerable over the last couple of centuries, and it is probably this aspect more than any other that has attracted all the popular attention. Less well appreciated and less well publicised, however, has been the fact that the impact of the transition on the age structure of populations has been an equally strong and significant one.

Further, impacts on age structure tend to be more extended in time. Indeed as I am arguing here, the demographic transition may in fact best be thought of as an extended and continuous process of age-transition. Now, according to Malmberg this age transition consists of four distinct phases, each of them marked by the strong specific weight of one age group. The onset of the transition (which is characterised by a sharp decline in mortality) creates a child phase, then, as fertility begins its decline comes a young-adult one, acceleration of the fertility decline towards replacement fertility produces a phase of population maturity, or adult stage, and finally sustained below-replacement fertility produces in its wake an elderly society.

The first phase of the age transition, the child phase, occurs when falling death rates produce an increase in the number of children. The reason for this increase is fairly self explanatory in that in earlier high-mortality populations, most of those who die are infants and children. Added to this, the process of cohort maturation means that the increasing numbers surviving into adulthood produce yet more children and so on, since the available fertile population grows continuosly, and, with unchanged fertility behaviour, this will inevitably further increase the number of children born.

Continue reading

Tuesday, November 29, 2005

Now It's Official

China did not manipulate its currency. Who says? The US Treasury, and they can't be wrong, can they?

"The Treasury, in a semi-annual report required by Congress, said that while China’s rigid exchange rate continued to create distortions and risks in the global economy, Beijing had taken important steps towards introducing flexibility."

“The initial steps by China to increase exchange rate flexibility played an important part in this decision,” said John Snow, Treasury secretary, noting in particular China’s formal abandonment on July 21 of its peg to the US dollar. But he added: “It is imperative that China move towards greater flexibility as quickly as possible.

Monday, November 28, 2005

Slowing US Housing Market

Is the boom in the US housing market finally slowing? With the measured pace from the Fed going on and on it is logical that it will bite at some stage:

Sales of existing U.S. homes slowed in October and the inventory of unsold houses rose to the highest level in nearly 20 years, a trade group said on Monday in a report confirming the end of the nation's housing boom. Sales of previously owned homes fell 2.7 percent from September's upwardly revised 7.29 million unit annual pace, and the drop would have been even larger if not for a surge in home-buying linked to Hurricane Katrina, the National Association of Realtors said. "The housing sector has likely passed its peak ... and the boom is winding down to an expansion," NAR chief economist David Lereah said. "Many of our hot housing markets are transitioning from a sellers' market to a buyers' market."

My gues is that the chief economist with the National Association of Realtors would know something about that of which he speaks, which only makes even more fascinating this, already in its own right fascinating debate among Morgan Stanley economists on the meaning of the looming inversion of the interest rate yield curve. Either a recession is coming in 2007, or the Bernanke lead fed is going to start easing again in mid 2006, or both, or something like that.

Foreign Investors Buy Into the Japanese Recovery....

Foreign investors buy into the Japanese recovery, but the Japanese themselves apparently don't, or at least if they do its's on nothing like the same scale. More to add to the puzzle I was getting at in my last post about how people seem to find all this so hard to understand or accept. Denial, what denial!

Foreign buying of Japanese stocks has reached a record level as global investors buy into the country’s economic recovery. Overseas investors bought Y9,441bn ($78.9bn) more in Japanese shares than they sold in the year to November 18, according to the Tokyo Stock Exchange. The figure includes trading on the Osaka and Nagoya exchanges and beats the previous record of Y9,127bn in 1999.

Feverish overseas interest has been the biggest reason behind Japanese stocks’ sharp rise. The Tokyo Stock Price index climbed 33 per cent to 1,529.67 by last Friday – though the rise is still dwarfed by the near 60 per cent increase in 1999.....

But the strong interest shown by foreigners contrasts with the scepticism of Japanese institutional investors, who are still net sellers. For this reason, Japan bears regard this year’s share price rally as very fragile.

Here We Go Again!

Well yet another consumption driven recovery seems to be grinding to a halt in Japan. The only thing which puzzles me is why people continue to be surprised, and why people fail to see the similarieties between Japan and Germany in this regard. It's an up-hill (rather than a flat) world obviously:

Japan’s “Warm Biz” campaign, which should have boosted the sale of warm winter clothes, has failed to catch the imagination of consumers. Retail sales in October were down 0.3 per cent on the year – the first annual fall in eight months. The news prompted the Ministry of Economy, Trade and Industry, which published the figures on Monday, to downgrade its view on retail spending. An official was quoted by Reuters as saying on Monday that retail sales were flattening, toning down the Ministry’s view in the second quarter that sales were recovering moderately.

There is some discussion of the German comparison in this post and comments.

Meantime, with the fiscal deficit issues looming in both countries, central bank independence (or reducing it I should say)is one more creeping onto the agenda. I noted this last week vis-a-vis Japan:

Heizo Takenaka, the powerful internal affairs minister, told the central bank it should set monetary policy in conjunction with the government. In a repeat of stern remarks made by another senior politician this month, he warned the BoJ that its independence could be stripped away if it tightened policy prematurely.

Meantime, vis-a-vis Germany, Wolfgang Munchau reminds us that:

"It is still not too late to propose ECB reform as part of the next treaty revision. For as long as EU leaders maintain the status quo, they have the central bank they deserve."

"The pre-announced interest rate rise that the European Central Bank is due to agree this Thursday must rank as one of the most bizarre monetary policy decisions of recent times. The economic recovery in the eurozone remains fragile, as last week’s German confidence indicators have shown. Even the ECB’s own forecast for headline inflation is relatively optimistic, while core inflation remained unchanged at 1.5 per cent in October."

I couldn't agree more with Munchau about one thing though: the recent decision announced by Trichet to raise eurozone rates "must rank as one of the most bizarre monetary policy decisions of recent times"!