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Friday, December 16, 2005

Wolfgang Lutz and the Fertility Trap

Just to point out I have an extensive post on the fertility trap topic (with some good dicussion) over at A Fistful of Euros.

Also to put up a link to an intersting paper I just found by Ronald Lee: Rethinking the evolutionary theory of aging: Transfers, not births, shape senescence in social species. Here's the abstract:

"The classic evolutionary theory of aging explains why mortality rises with age: as individuals grow older, less lifetime fertility remains, so continued survival contributes less to reproductive fitness. However, successful reproduction often involves intergenerational transfers as well as fertility. In the formal theory offered here, age-specific selective pressure on mortality depends on a weighted average of remaining fertility (the classic effect) and remaining intergenerational transfers to be made to others. For species at the optimal quantity–investment tradeoff for offspring, only the transfer effect shapes mortality, explaining postreproductive survival and why juvenile mortality declines with age. It also explains the evolution of lower fertility, longer life, and increased investments in offspring."

Thursday, December 15, 2005

Right Royal Row Over the BOJ

Things down at the Bank of Japan are hardly calm these days. On one version of events (see yesterdays Tankan) Japan is about - finally - to emerge from deflation, and the BoJ naturally enough wants to 'normalise' monetary policy. The politicians however are non-too clear about this:

"Japan’s ruling Liberal Democratic party will on Thursday urge the Bank of Japan to tie its monetary policy to nominal gross domestic product in an effort to lock in the central bank’s ultra-loose monetary stance for as long as possible."

"The proposal, which marks an escalation in tension between Japan’s politicians and the independent central bank, aims to stimulate above-trend economic growth for up to five years."

"Some senior members of prime minister Junichiro Koizumi’s administration argue that a period of strong nominal growth is needed to repair Japan’s tattered finances."

This balance sheet repair objective wouldn't include monetising Japan's huge government debt, now would it? It is important here to distinguish two issues, escaping from inflation and monetising the debt. I am still skeptical that Japan is actually escaping from deflation, global inflation, among other things, is now turning down, so caution is called for, and I would be opposed to any precipitate raising of rates in Japan. This mistake has been made before. Monetising the debt through inflation is another question. Since Japan's ageing population stand to be the big losers from any sustained bout of inflation, this needs to be avoided. Getting the balance right here won't be easy.

Meantime the IMF has waded in:

The International Monetary Fund on Thursday added its voice to the tense debate over Japanese monetary policy, saying it was too early for the Bank of Japan to consider abandoning its ultra-loose monetary policy.

On Thursday, the IMF’s director Rodrigo de Rato appeared to endorse the politicians’ view that the risks of moving too early were higher than those of moving too late. “We see a need for monetary policy to continue until deflation is completely rooted out,” he said.

“We are not there yet,” he added, referring to the fact that the rate of change in the core consumer prices index, stripped of fresh food, stabilised at zero per cent in October. Some economists say the CPI overestimates inflation, particularly now because of the effects of rising energy prices, which are included in the index.

Don't Kill-off The Beast Just Yet

Well, while Alan plays his last shot, and Ben Bernanke waits quietly in the wings, the Economist has dedicated a global agenda article to the state of the US economy. A number of things occur to me to say.

Firstly, I got it wrong.

I thought the Fed might have paused this month for a numbers of reasons, the most important of which being the need to give some support to Bernanke during the transition. I don't think it is going to be easy for anyone to follow Greenspan's act, and if the only thing which Bernanke is left with is the possibility of keeping things on hold, then he could well get off to a rather unfortunate start. I would have left 'our Ben' with a couple of blank rounds to fire-off while he settles in.

I say this becuase of this kind of article, which I think could go the rounds:

In 1983, Mark Gertler asked his friend and fellow economist Ben Bernanke why he was starting his career by studying the Great Depression. "If you want to understand geology, study earthquakes," Bernanke replied, according to Gertler. "If you want to understand economics, study the biggest calamity to hit the U.S. and world economies."

Bernanke's fascination with the economic earthquake never abated. "I am a Great Depression buff, the way some people are Civil War buffs," he wrote in 2000. "The issues raised by the Depression, and its lessons, are still relevant today."

Bernanke's interest in the Depression, which dates back to his childhood, is a guide to the evolution of his thinking. In particular, his groundbreaking research on how mistakes by the Federal Reserve compounded the catastrophe is likely to influence how he steers the economy once he succeeds Alan Greenspan as its chairman early next year.

So here is the issue, the DeutschBank is seen as an inflation fighter becuase of the hyperinflation of 1923, and Bernanke is seen as a defaltion fighter, because of, well...

The point is, these reputations once they are acquired are hard to shake off.

On the Economist:

FOR several years now, economists have been watching American consumers with the same mixture of astonishment and anticipation that wide-eyed fans bring to endurance sports: amazing that they’ve made it so far, but how much longer can they go on like this? Strong consumer spending has underpinned America’s robust economic expansion, even as most other industrialised countries have struggled to get their economies back on track.

But consumers have been running down savings to sustain this level of spending; the personal savings rate has actually been negative since June....

Yet the consumers soldier on......It seems unlikely that consumers will have the stamina to keep this up much longer......Economists have long been warning of these risks.

Well, this is one narrative version, and a lot of people buy it. I don't.

In the longer run the US economy may well run into problems with the rise of China and India, but for now it is certainly the strongest economy in the developed world (most of the rest are dependednt upon it one way or another), and this beast has life in it yet awhile.

Turning Iraq Into A Normal Country?

The Economist today has this:

"Iraqis vote this week for their first full-term government since the fall of Saddam Hussein. Even if the election is peaceful, it will be hard to construct a government that Shias, Sunnis and Kurds can all accept, and harder still to defeat the insurgency and turn Iraq into something approaching a normal country"

It all depends what you mean by 'a normal country' I suppose. If you look at Iraq, with a total fertility rate of 5.1, a median age of 19.43 it would be hard to call Iraq a demographically 'normalised' country. Nor is it a country where the underlying demography suggests you could see a stable democracy arising anytime in the near furture. If only the people who dreamed up the democratise Iraq by invasion plan had read Bo Malmberg's Four Phases of the Demograohic Transition!

As the song says: it's a long winding road.