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Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
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Confessions of a congressman (A Member of Congress, Vox) Hat tip to Rob Carter. You won't learn anything new, the "secrets" are not really secret at all and it may not have been written by an actual member of Congress - but you should still read this. One worthwhile thought:
Articles about events, conflicts and disease around the world
Why you won't retire early (Bill McColl, Yahoo! Finance) The average 401(k) account balance is now at a record high $91,300. This is only a small fraction of what people will need if they retire at "normal" retirement age (65). With life expectancy now more than 19 years (for women it's more than 20 years, CDC data for 2010) for those at age 65, that means nearly half of all reaching that "magic" 65-year mark today will live past 85; some will live past 90. Living 25 years or longer on retirement savings and Social Security is just not going to produce a quality of life that most have been expecting. The solution? Keep working and saving - certainly to age 70 for many and even to age 75 for some. Even at age 75, half will have more than 12 years in retirement (women almost 13). That means close to half of those at 75 today can expect to live to 90 and beyond.
For reference, when the Social Security program was set up (1935) with retirement at age 65, life expectancy was 58. By 1950 it had increased to 68 with expectancy for those reaching age 65 in 1950 being another (nearly) 14 years (women 15 years).
Another point of reference, in 1940 6.0% of Americans (9.0 million) were age 65 and older; in 2000 the number was 34.9 million (12.4%). (Life Expectancy for Social Security, Social Security Administration) The population 65 and older is estimated to be about 15% of the total today and to grow to more than 20% before 2030, remaining nearly level from then until 2050. In 2050 it is projected that there will be approximately 85 million age 65 and older (An Aging Nation: The Older Population in the United States, Jennifer M. Ortman, Victoria A. Velkoff, and Howard Hogan, U.S. Census Bureau). See also the following discussion of articles from Pew Research Center.
10 projections for the global population in 2050 (Rakesh Kochinar, Pew Research Center) Many other countries have much more serious aging problems than does the U.S. according to many projection for the first half of the 21st century. In the preceding discussion we saw that the percentage of the U.S. population 65 and older is expected to more than double from 2010 to 2050. But the U.S. has a better demographic distribution than all of the rest of the world which is expected to have lower birth rates and more rapidly growing older populations.
The U.S. will have an increased dependent population (14-and-under plus 65-and-older) from less than half in 2010 to almost 2/3 in 2050. But that is a much smaller adjustment than many other developed countries (some shown below). Other countries are projected to have a diminishing dependency ratio from now to 2050, also shown (on the left) below.
What is happening is that the percentage of the U.S. population age15-64 is projected to change from 67% in 2010 to 61% in 2050. Buried within that modest change is a significant shift from young economic dependency to elder dependency. Even large shifts between these two groups as a percentage of total population ave already occurred in the second half of the 20th century. Note: Around 1960 the population 15-64 was approximately 60%. That is less than what is projected for 2050. The future is not dramatically different than what we have seen at times in the past.
Read also the opinion survey report: Attitudes about Aging: A Global Perspective (Pew Research Center).
The 5 Big Asks in President Obama’s Aspirational, Unpassable, $4 Trillion Budget (Bloomberg Business) Redistribution by the numbers:
1. Take from the rich
Estimated in the budget to raise $208 billion over 10 years.
2. Make Big Business Pay
Tax "stockpiled offshore" foreign earnings at 14% and tax future foreign earnings at 19%. Estimated in the budget to raise about $248 billion over five years.
3. Boost the Middle Class
Spend about $235 billion over 10 years for expanded higher education tax credits, free community college, expanded working family tax credits and expanded child-care tax credits.
4. Stop Worrying about Deficits
End sequestration imposed limits and run deficits at $500 billion (+/- ).
5. Bankroll the Pentagon
Republicans may have a hard time opposing this.
Profits and investment – GMO (Izabella Kaminska, Financial Times) This was posted almost two years ago. Econintersect thinks this is a profound but complex picture of capitalism gone astray. From 1929-1987 there is an obvious correlation between investment and profits. This is a period of classical market behavior. From 1987-2000 there is a distortion of the previous correlation (investment seems to follow profits with a time delay). From 2001-2012 investment and profits are inversely correlated. This does not fit any rational traditional economic theory. Izzy does not post a single word of comment! We will be doing some deep thinking about this data. It is almost as if capital is no longer needed to increase profits in the 21st century. Is increase in profits entirely derived from increased labor productivity and reduced return to labor? We have struggled with questions like these and have not gained an understanding close anywhere near what is needed to satisfy us. See GEI Analysis: Private Investment: Between a Rock and a Hard Place.
China Just Crossed a Landmark Threshold (Frank Holmes, U.S. Global Investors) Frank Holmes has contributed to GEI. If a picture is worth a thousand words, her are 2,000 words from Frank Holmes.
Even though the rig count has declined significantly oil production is still going up - marginal rigs are being shut down but new drilling already started is continuing. According to How falling oil prices will bring U.S. shale output back to earth this year (Geoffrey Morgan, Financial Post):
Purchasing Power Parity: An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power. It is an adjustment based on the average differences in price of items between the two countries. Example: If a dozen eggs costs $2.00 in the U.S. and 7.5 yuan renmenbi in China, then at the official exchange rate of 6.1 yuan to the U.S. dollar a dozen eggs in China costs $1.24 (7.58/6.1). The PPP adjustment based on eggs is then 1.62 ($2.00/$1.24) and China's PPP adjusted GDP would be 10.355 x 1.62 = 16.7. Note: PPP adjustment would never be based on one price comparison but on a basket of goods.
Other Economics and Business Items of Note and Miscellanea
Economics vs. Fiction on Human Nature (big think) Measured against what makes fiction feel realistic, the tales of mainstream economists don’t ring true. Yet they govern us.
The economics of ‘envy’ and ‘greed’ (The Sat Lake Tribune)
Stephanie Kelton comes to Washington after ruffling feathers in adviser community (Investment News) Hat tip to Roger Erickson.
The $43 billion-dollar bill (The Economist) British banks devious schemes are not good for themselves or for anybody else either.
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