NEWSWIRE: 8/5/19

  • Countries looking to boost their anemic fertility rates can take a tip from Germany, whose fertility rate has climbed to its highest in decades. Experts credit the turnaround to two factors: increased immigration from high-fertility countries and generous policy reforms making it easier to raise children. (The Economist)
    • NH:  While the total fertility rate (TFR) in most middle- or high-income countries has declined over the last 15 year (since the GFC in particular), there are a few interesting exceptions. (See first chart below.) One dramatic outlier is Russia, perhaps the only known case of a country that has climbed out of the super-low fertility cellar (TFR<1.25) and back above the fertility norm of the developed world (TFR>1.65). As I have described elsewhere ("Trendspotting: 3/11/19"), this Russian rebound reflects a bizarre bust-and-boom recovery from the 1990s that may not actually have much to do with Putin's pro-natal policies. And it remains to be seen whether it will reverse Russia's demographic trajectory.
    • Another outlier is Germany. The German fertility recovery also started from a very low TFR (1.24 in 1994 for Germany and 1.16 in 1999 for Russia). And while Germany remains significantly below France or the United States (or Russia), it has risen above the low-fertility countries of southern Europe like Italy, Spain, and Greece.
    • Germany also shares Russia's challenge of pulling away from the gravitational drag of so few women born in the 1990s--those who are now in the highest-fertility age brackets. While Germany's TFR has risen sizably, its absolute number of births in 2018 is still lower than it was in the late 1990s. And its natural rate of increase (births minus deaths) continues to be negative. Yet if Germany can sustain its higher TFR over time, it will--like Russia--ultimately experience faster population growth.
    • Why has Germany's TFR been rising? There are three schools of thought. One is that the pick up has been driven mainly by rising immigration in recent years--especially the huge influx of Syrian refugees in 2016. Some experts believe immigration has accounted for close to half the fertility rise. To the extent they're right, the TFR boom won't last long since Germany has clearly turned its back on Angela Merkel's "open door" policy. Even the SPD wants to speed up deportations. Tellingly, Germany's TFR dipped in 2017, the first post-refugee year.
    • Another theory is that Germany's efforts over the past decade to mandate mandatory child-leave policies and to fund pre-K schooling are beginning to pay off by enabling more women to raise children while they work. Many of these policies were put into place by Merkel's Labor and Social Affairs Minister Ursula von der Leyen, now due to become the EU's next Commissioner. We do know that from the experiences of Japan, South Korea, and southern Europe that fertility rates are indeed lower when social and economic obstacles make it harder for women to work and have children at the same time. But it's unclear whether Germany's recent policy changes have made much of a difference.
    • A third theory is that Germany's rising TFR, after a long dip, is simply an adjustment to an older average age at first birth. Demographers call this a "tempo effect." It means that women aren't so much choosing to have fewer children; they are just choosing to have them later in life. Well, IMO this can't possibly be the whole story. It stretches credulity to think that a "tempo effect" could reduce TFR for 35 years, since most of the women who started have babies at later ages in the late-1970s and early 1980s are long past child-bearing age.
    • That said, the statistics do indicate that many of the German Xers and Millennials who did not have babies at younger ages in the late-1990s are now choosing to have them at older ages. See the last three charts below on fertility by age and by country. In both Germany and Russia, the fertility rate in the late-20s and early-30s has recently been rising steeply. So some tempo effect may be present. Note also that this is not happening in the United States. And when people tell me that the U.S. TFR is down because Millennial women are having kids later, my standard response is: I'll believe that when I see the age 30-34 U.S. birth rate start to rise instead of fall. It's happening in Germany and Russia. But since the Great Recession, it has not happened here. Not yet, anyway.

Trendspotting: Germany's Baby Boomlet: Will It Last? - Aug 5 chart2

Trendspotting: Germany's Baby Boomlet: Will It Last? - Aug 5 chart3

Trendspotting: Germany's Baby Boomlet: Will It Last? - Aug 5 chart4

Trendspotting: Germany's Baby Boomlet: Will It Last? - Aug 5 chart5

  • With public pensions under increasing strain, Japanese people need to save more for retirement to get by. But with many reluctant to move their money out of bank accounts and post offices and take the risks needed for higher returns, that’s easier said than done. (The Economist)
    • NH: Tarō Asō, head of Japan's Financial Services Agency, no doubt regrets having issued a report two weeks ago suggesting that most Japanese workers should start saving more for their retirement since their pension income may not be adequate. The negative public response, echoed by opposition politicians, forced both Asō and Prime Minister Shinzō Abe to disavow the report. And it may put any further pension reform on hold.
    • Japan's retirement "crisis" is widely misconstrued as a problem of profligate spending. But in most respects, Japan is a model of fiscal prudence. Japan's total public outlays (all levels of government as a share of GDP) is at the low end the developed world range--about on par with the U.K. and the U.S. at just under 39%. The generosity of Japan's pay-as-you-go pension as a share of pre-retirement earnings is also at the low end. At 40%, it's slightly lower than U.S. Social Security, which is considered miserly by European standards. Japanese retirees have one of the highest labor-force participation rates in the world. So the seniors themselves are pulling their weight. And yes, while it is true that Japan has a large public debt, it also continues to have a relatively high national savings rate and runs a current-account surplus with the rest of the world.
    • So what's the crisis? Actually, it has more to do with demography and adequacy than with sheer affordability. Japan (along with South Korea) faces the most challenging demographic future of any large economy in the world: Very low fertility, very low immigration, and very high longevity. The government estimates that a quarter of today's 60-year-olds will live to 95 and that half of all newborns will live to 100. With those kinds of staggering numbers--and with a zero ROR on trust fund assets--even a modest benefit level becomes burdensome.
    • As for affordability, the government is still raising the benefit-eligibility age to 65--and there are discussions about raising it further to 68. Meanwhile, Japanese firms are steadily cutting back on the generosity of their private pensions and severance payments--as they begin to phase out the whole "permanent worker" category. The biggest takeaway in Asō's reviled report was not so much the news that the public system is getting cut back, but rather that private employers are likely to offer much less and you are likely to living much longer. People don't want to hear they have to save more. And when no one likes the message, it's the messenger who gets shot.
    • What may add insult to injury for younger workers is the perception of generational inequity. All of the public and private benefit cuts, plus most of the tax hikes, are coming at the expense of those who are still a decade or two away from retirement. Millennials struggle to find reasons to be optimistic about their collective future. Only 15% of Japanese (at all ages) believe that today's children will be better off financially than their parents.

Trendspotting: Germany's Baby Boomlet: Will It Last? - Aug 5 chart6

Trendspotting: Germany's Baby Boomlet: Will It Last? - Aug 5 chart7

Trendspotting: Germany's Baby Boomlet: Will It Last? - Aug 5 chart8 

  • With unemployment at a 4-decade high, India is struggling to create jobs for educated Millennials. Young people who once might have worked in farming are aspiring to positions the next rung up the ladder, like those in manufacturing—but in India’s economy, these kinds of jobs hardly exist. (NPR)
    • NH: It is fashionable to think of India as an emerging economic powerhouse. After all, isn't India the "I" in BRIC? Isn't Bengaluru the Silicon Valley of Asia. OK, it's time to do some level-setting here.
    • Yes, India is very large. In 7 or 8 years, it will be the world's most populous country. But it is also very poor. At a mere $2,036 in 2018 (in FX USD), India's GDP per capita is only 1/4 of Brazil's, 1/5 of China's, and 1/6 of Russia's. Its average standard of living ranks way below that of Honduras, Papua New Guinea, Laos, and Ghana. According to the Human Development Index, which gives every country a composite rank by income, education, infant mortality, life expectancy, etc., India ranks 130th among nations, just above Bhutan and Bangladesh.
    • Bottom line: Most of India's population grows up with little formal schooling and toils in small informal enterprises or in a very unproductive agricultural sector. Due to its vast size, India does sustain a significant industrial and high-tech presence. But relative to its size, this presence is tiny. As The Economist recently observed, "India has a hole where its middle class should be." In a population of 1.3 billion, India has only 8 million making more than $20,000 per year... an island of prosperity about the size of Hong Kong.
    • According to the most recent wage/earnings survey (the data are from 2011-12), 81% of India's workers are self-employed or casually employed. These workers have average yearly earnings (in FX USD) of less than $750. Even if we translate INR into USD at purchasing-parity exchange rates--to give Indian rupees extra value in terms of nontradable goods and services--that still works out to less than $2,500.
    • Prime Minister Narendra Modi, struggling to modernize his nation, faces an endless list of challenges: lack of basic education, poor public health, an emaciated manufacturing sector (especially lacking in medium-size firms), stifling government bureaucracy and corruption, inadequate infrastructure, weak capital formation, and little foreign trade. GDP growth, while reportedly robust, depends in part on a growing workforce and in part of doctored numbers.
    • So what can we say about employment? Like GDP, employment is difficult to measure in an economy where most work is informal and less than full-time or year-round. Young adults form long waiting lines for the small number of formal-sector jobs with reasonable pay and benefits. Yes, that does create a collision between rising Millennial expectations and an economy that is going nowhere fast. Modi had better crank up growth soon... or keep voters distracted with passionate appeals to Hindutva
  • The latest Time cover story spotlights the fight for the soul of the Democratic party, which has been on full display in recent weeks. Both the second round of the 2020 debates and the clash among Congressional Democrats have exposed deep rifts over identity, race, and generational priorities. (Time)
    • NH: Since I discuss the 2020 Democratic race frequently in my podcasts, I won't say much about it here.
    • In general, I do agree that Trump's success in the 2016 primaries and election raises the odds that the Democrats will similarly move in a more populist and radical direction in 2020. But there is a difference. In 2016, the ascendancy of Trump's brand of populism--that is, its ratification by GOP voters--took everyone by surprise as the primaries were being played out. And it did not feature a big generational divide within the Republican Party, though it certainly did result in a growing tide of Millennial support for the Democratic Party.
    • On the Democratic side, by contrast, the populist-versus-moderate divide was already a full-blown war before the 2020 primaries even started. You've got Nancy Pelosi (oddly) leading moderates against the radical "Gang" in Congress. And you've got one dominant moderate candidate, Joe Biden, trying to fight off a whole host of candidates to his left who are trying to dethrone him. And once again the Democrats face a battle between young and old. By the time the primaries are decided next year, the generational conflict between Democrats under 40 and Democrats over 60 is likely to be every bit as heated as it was in 2016. That was when one side backed Bernie and the other side backed Hillary. 
  • Out of the three generations in the workforce, Gen Xers are the least likely to have received a promotion in the past five years. With Boomers working longer and Millennials the center of employers’ attention, Xers in their prime working years are in the unenviable position of getting more responsibility but less recognition. (Harvard Business Review)
    • NH: The fundamental problem with this sort of study is that it cannot effectively control for cohort and period effects. In other words, before you can learn whether Xers are getting promoted more or less than Boomers or Millennials, you need to look at how all these generations would have been promoted had they all been the same age and had experienced the same kinds of changes in the economy. Clearly, such counterfactual experimentation is impossible.
    • Nonetheless, the underlying study makes a few interesting observations. If the evidence does show that Xers are slow to be promoted, that would accord well with our finding that Xers have been slower than other generations to ascend to top leadership positions in business, politics, or the military. (See "Trendspotting: 6/10/19.") Maybe it's no surprise that Xers are "as eager" to lead as Millennials and "more impatient." Overall, aspiring Xers rank themselves higher than Millennials in their ability to use "empathy" in their leadership style. But here it may be Millennials, not Xers, who are the outliers. 
  • Brands are starting to cool on experiential marketing as the competition for traffic heats up and the price tag to impress climbs higher. Launching a temporary experience "activation" typically costs brands six or seven figures, putting pressure on marketers to justify those pop-up shops, art exhibits, and selfie spots. (Advertising Age)
    • NH: Have we reached peak "experiential"? My god, I hope so. I get exhausted just reading through all the examples of how firms poke, prod, and accost us at every turn trying to get us to "engage" with their wares.
    • Maybe my reaction points to the conclusion of this article, which is that firms too are getting exhausted and are wondering how much of it is worth the effort.
    • IMO, you can blame this all on the runaway use of big data and point-of-sale analytics. Back in the old days, Boomer marketing execs would occasionally come up with a totally out-of-the-box experience to kindle genuine interest in a product. Sometimes it would work, and sometimes it wouldn't. But it was, at least, a creative brand-building initiative unburdened by any measurable expectation of return.
    • That no longer happens. Today, Xer and Millennial execs won't do anything that can't be proven to pay and can't be incrementally optimized. Which means their campaigns lack creativity, depth, patience, and passion. They are called "activations" because they need to get you the consumer to "act." As in pay or sign up now. As in Pavlov. As in annoying. 
  • A new study finds that 18- to 29-year-olds are far more pessimistic than older adults about their fellow Americans’ sense of empathy. While the young and old mostly trust others on issues of personal integrity, like following laws, most young adults lack confidence that Americans would respect the rights of those who aren’t like them or would do what they can to help others in need. (Pew Research Center)
    • NH: Here's another gloomy survey from Pew. It's almost as bad as the Pew survey earlier this spring that explored at some depth Americans' long-term hopes and fears. (See "Trendspotting: 4/8/19.")
    • Here, the focus is on trust. One major finding of the study is that Americans are much more troubled by their distrust in national institutions (like government) than they are in their distrust in other people. They worry about both. But it's institutional distrust--shared about equally by both Democrats and Republicans--that both sides think could put the nation's future at risk.
    • Another finding is that Americans who are white, older, and more educated tend to be significantly more trusting in both people and institutions. This is interesting because, according to the earlier Pew survey, these seem to be the same Americans who are most pessimistic about the nation's future.
    • Can I explain the apparent contradiction? Not sure, but I'll try. Perhaps seniors who are more trusting are more satisfied with how well America currently works--and are thus more troubled by the impact of declining trust on America's future. Millennials start out with less trust. They are more likely to think the system they've inherited is broken. This explains why they are risk-averse (lack of trust is highly correlated with risk aversion in the Pew data) and why they are attracted to employers and political leaders who promise structure and order. It also explains why their longer-term outlook is more positive. The way they see it, there's vast room for improvement. 
  • The “gray divorce” trend among Boomers has helped give rise to a related phenomenon: older couples who are committed to each other but don’t live together. They like where they’ve settled and prize their independence, but step up when their partner needs help. (The Wall Street Journal)
    • NH: This is a fitting complement to our story on the "gray divorce" trend. Ever since their childhood, Boomers have been motivated by a quest for individualism and self-sufficiency. In their politics, they've wanted a government that is less paternalistic and less regulatory. In their business ethics, they tend to be libertarian. In their religious preferences, they've wanted to discover their own creeds. In their living arrangements, they've pioneered the art of living solo. Now that they're retiring, they aren't attracted to "senior communities."
    • And in their marriages? They've never wanted the inseparable unions their parents had. More their style is a sort of Pepperland parallel play that gives each partner the freedom to do what he or she wants. Within marriages--those that don't end in divorce--Boomers are claiming "his" and "hers" bedrooms. And for that matter, why even live together at all? Why not have committed long-relationship in which you don't even have to see each other most of the time? That's the question posed and answered in this feature story. Ah, Boomer paradise. 
  • In a recent op-ed, MIT economist Daron Acemoglu makes the case against an idea that has gained ground among progressives: universal basic income. Handing out money, he says, wouldn’t address inequality or promote civic engagement; instead, officials should focus on creating middle-class jobs and strengthening the social safety net. (Project Syndicate)
    • NH: Anyone who studies public policy sooner or later encounters the basic trilemma of all benefit programs. You can easily design a benefit that is adequate or affordable or fair. But it is very hard to design a benefit that is all three of these things.
    • Take a look at the UBI, now being pushed by so many Silicon-Valley progressives--including the 2020 candidate Andrew Yang. What's the UBI's selling point? Well, if you give every U.S. adult a guaranteed income, it would have the advantage of fairness, in the sense that it would not penalize anyone (as traditional welfare often does) for the decision to work or not to work. Some conservatives like the UBI because this sort of fairness eliminates any disincentive to engage in economic activity. And, if you make it generous enough--say, around $1,000 monthly--you could also call it adequate.
    • But affordable? Hmmm... let's see, 250 million Americans over age 16 times $12,000 equals $3 trillion annually. That's three-quarters of the current size of all federal spending. Alternatively, this UBI would gobble up just about every dollar in federal revenue. No, affordable it is not.
    • Back in the 1960s and '70s, conservatives like Milton Friedman (with his "Negative Income Tax") and ultimately Richard Nixon (with his "Family Assistance Plan") proposed a somewhat cheaper version of the UBI. It saved money by using income-tax returns to give full benefits only to poor families. Arguably, this design violated fairness and thwarted the work incentive dear to conservatives. But it saved a lot of money, and conservatives loved the idea of eliminating the entire bureaucracy of social program administrators.
    • Alas, Nixon never got his Family Assistance Plan. (The story of its failure is eloquently retold by Pat Moynihan in Maximum Feasible Misunderstanding.) Yet the basic idea does live on, in a very scaled-down manner, in the Earned Income Tax Credit.
    • Some conservatives--or, more accurately, libertarians--continue to support the UBI today. Yes, they know it will be vastly expensive. But they're still drawn to the hope of eliminating the discretion of social-service agencies. IMO, this is a foolish pipe dream. After force-feeding every needy person $1,000 a month , you'll still have millions who are destitute, homeless, disabled, abused, mentally ill, and otherwise incapable of leading their own lives unassisted. And these will need supervisory care. After all, how do you think their lives got so wrecked in the first place? It wasn't just insufficient income.
  • Faced with fewer babies and sagging sales, diaper makers are betting that parents will pay extra for new “super premium” lines. Special Delivery by Huggies is made of plant-based materials, while Lumi by Pampers is backed by a sensor-loaded monitoring system. (The Wall Street Journal)
    • NH: Let me quote from an item I wrote a few months ago (see "Trendspotting: 4/22/19”): "Spending on babies is being pulled in two directions--downwards by demography (fewer babies being born per year) and upwards by quality and margins (more and fancier must-have gizmos)."
    • The biggest premium can be exacted by any product which can plausibly avert some threat of harm to a child. This sort of pitch can be made for almost anything--from baby food and all-natural fabrics to child-seats, cribs, and wireless oximeters and breath and motion detectors. It's harder to make this sort of pitch for a diaper. So what about a sensor that eliminates any uncertainty about when the baby needs to be changed? Brilliant! Now if only P&G or Kimberly-Clark would only make an iPhone app that could also change the baby.

DID YOU KNOW?

Lifestyles of the Internet Famous. For biographical information about your favorite actor, you might visit Wikipedia or IMDB. But what about your favorite YouTuber or TikTok star? There’s another site for that: Famous Birthdays. Dubbed “Wikipedia for Gen Z,” the site’s traffic has surged from 3 million monthly visitors in 2014 to 20 million today—more than Entertainment Weekly and Teen Vogue. The site’s founder, a Gen Xer, originally intended for the site to serve as a directory for Hollywood celebrities before realizing that most users were searching for digital influencers, telling The Atlantic “there was a big gap between who the industry thought was famous and who really had the fame.” Among Homelanders, Famous Birthdays pages have become status symbols—and among agents and entertainment execs, a reliable resource for discovering new talent. Unlike Wikipedia, the site doesn’t rely on secondary sources. Before creating or updating each page, staff members just ask the subjects themselves.