Aging Populations and Replacement Birthrate

Posted by PITHOCRATES - April 28th, 2014

Economics 101

(Originally published July 8th, 2013)

Trying to follow a Baby Boom with a Baby Bust creates Problems in Advanced Economies with Large Welfare States

In the late 1960s began a movement for zero population growth.  It called for women to have only enough babies to replace the current population.  Not to have too many babies that would increase the population.  Nor have too few babies that the population declines.  Something that women could easily do because of birth control.  And, later, abortion.  The drive behind this was to save the planet.  By keeping large populations becoming like a plague of locusts that devour the earth’s resources and food until the planet can no longer sustain life.

China did these zero population growth people better.  By promoting a negative population growth rate.  Limiting parents to one child.  They did this because during the days of Mao’s China the country set some world records for famine.  Their communist state simply couldn’t provide for her people.  So to help their communist system avoid future famines they tried to limit the number of mouths they had to feed.  Of course, trying to follow a baby boom with a baby bust creates other problems.  Especially in advanced economies with large welfare states.

China’s one-child policy and the preference for boys have led to a shortage of women to marry.  Some Chinese men are even looking at ‘mail-order’ brides from surrounding countries.  But China is going to have an even greater problem caring for her elderly.  Just like Japan.  Japanese couples are having less than 1.5 babies per couple.  Meaning that each successive generation will be smaller than the preceding generation.  As couples aren’t even having enough children to replace themselves when they die.  Leaving the eldest generation the largest percentage of the overall population.  Being paid and cared for by the smallest percentage of the overall population.  The younger generation.

States with Aging Populations are Suffering Debt Crises because they Spend More than their Tax Revenue can Cover

As nations develop advanced economies people develop careers.  Moving from one well-paid job to another.  As they advance in their career.  Creating a lot of income to tax.  Allowing a large welfare state.  Which is similar to a Ponzi scheme.  Or pyramid scheme.  As long as more people are entering the workforce than leaving it their income taxes can pay for the small group at the top of the pyramid that leaves the workforce and begins consuming pension and health care benefits in their retirement.  And there is but one requirement of a successful pyramid scheme.  The base of the pyramid must expand greater than the tip of the pyramid.  The wider the base is relative to the top the more successive the pyramid scheme.  As we can see here.

Babies per Generation - Constant Replacement Birthrate

Generation 1 is at the top of the pyramid.  It is the oldest generation.  Which we approximate as a period of 20 years.  In our example Generation 1 are people aged 78-98.  They’re retired and collecting pension, health care and other benefits.  Some combination of Social Security, Medicare, Medicaid, food stamps, heating assistance, etc.  All paid for by Generation 2 (58-78), Generation 3 (38-58) and Generation 4 (18-38).  Each generation is assumed to bring 6 children into the world.  So these couples are not only replacing themselves but adding an additional 4 children to further increase the size of the population.  Which really makes running a pyramid scheme easy.  For if we assume each member in Generation 1 on average consumes $35,000 annually in benefits that Generations 2 through 4 pay for that comes to $555.56 per person annually.  Or $46.30 per person monthly.  Or $10.68 per person weekly.  Or $1.53 per person daily.  Amounts so small that Generations 2 through 4 can easily pay for Generation 1′s retirement.  Now let’s look at the impact of a declining birthrate with each successive generation.

Babies per Generation - Declining Replacement Birthrate

When all couples in each generation were having on average 6 children this added 1.9 billion new taxpayers.  Which greatly reduced each taxpayer’s share of Generation 1′s retirement costs.  But thanks to birth control, abortion and the growing cost of living each successive generation has fewer babies.  Generation 2 only has 3 children.  Enough to replace themselves.  And add one new taxpayer.  Generation 3 has only 2 children.  Only enough to replace the parents.  Providing that zero population growth that was all the rage during the late 1960s and the 1970s.  While Generation 4 only has 1 child.  Not even enough to replace the parents when they die.  Causing a negative population growth rate.  Which is a big problem in an advanced economy with a large welfare state.  For instead of adding 1.9 billion new taxpayers they only add 217.5 million new taxpayers.  Greatly increasing each taxpayer’s share of Generation 1′s retirement costs.  Instead of paying $555.56 per taxpayer they each have to pay $5,384.62 annually.  Or $448.72 per taxpayer monthly.  Or $103.55 per taxpayer weekly.  Or $14.79 per taxpayer daily.  Numbers that prove to be unsustainable.  The state simply cannot tax people this much for Generation 1′s retirement.  For if they did this and added it to the rest of government’s spending they’re taxing us to fund it would take away all of our income.  This is why advanced economies with aging populations are suffering debt crises.  Because their spending has grown so far beyond their ability to pay for it with tax revenue that they borrow massive amounts of money to finance it.

If you want a Generous Welfare State you need Parents to have More Children

If you carry this out two more generations so every generation only has one child the per taxpayer amount tops out at $14,736.84 annually.  Or $1,228.07 per taxpayer monthly.  Or $283.40 per taxpayer weekly.  Or $40.49 per taxpayer daily.  Amounts far too great for most taxpayers to pay.  This is what an aging population does in a country with a large welfare state.  It makes the population top-heavy in elderly people who no longer work (i.e., pay taxes) but consume the lion’s share of state benefits.  When couples were having 6 children each across the generations there was a ratio of 84 taxpayers per retiree.  When there was a declining replacement birthrate that ratio fell to 15 taxpayers per retiree.  If we look at this graphically we can see the pyramid shape of this generational population.

Generational Population - Constant Replacement Birthrate

With 84 taxpayers per retiree we can see a nice and wide base to the pyramid.  While the tip of the pyramid is only a small sliver of the base (Generation 4).  Making for a successful Ponzi scheme.  Far more people pay into the scheme.  While only a tiny few take money out of the scheme.  This is why Social Security and Medicare didn’t have any solvency problems until after birth control and abortion.  For these gave us a declining replacement birthrate over time.  Greatly shrinking the base of the pyramid.  Which made the tip no longer a small sliver of the base.  But much closer in size to the base.  That if it was an actual pyramid sitting on the ground it wouldn’t take much to push it over.  Unlike the above pyramid.  That we could never push over.  Which is why the above Ponzi scheme would probably never fail.  While the one below will definitely fail.

Generational Population - Declining Replacement Birthrate

If you want a generous welfare state where the state provides pensions, health care, housing and food allowances, etc., you need parents to have more children.  For the more children they have the more future taxpayers there will be.  Or you at least need a constant replacement birthrate.  But if that rate is below the rate of a prior baby boom the welfare state will be unsustainable UNLESS they slash spending.  The United States has a replacement birthrate below the rate of a prior baby boom.  While the Obama administration has exploded the size of welfare state.  Especially with the addition of Obamacare.  Making our Ponzi scheme more like the second chart.  As we currently have approximately 1.75 taxpayers supporting each social security recipient.  Meaning that it won’t take much pushing to topple our pyramid. We’re at the point where a slight breeze may do the trick.  For it will topple.  It’s just a matter of time.


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The Keynesian Abenomics is Raising Prices in Japan

Posted by PITHOCRATES - April 14th, 2014

Week in Review

Money is a temporary storage of value.  We created money to make trade easier.  We once bartered.  We looked for people to trade with.  But trying to find someone with something you wanted (say, a bottle of wine) that wanted what you had (say olive oil) could take a lot of time.  Time that could be better spent making wine or olive oil.  So the longer it took to search to find someone to trade with the more it cost in lost wine and olive oil production.  Which is why we call this looking for people to trade goods with ‘search costs’.

Money changed that.  Winemakers could sell their wine for money.  And take that money to the supermarket and buy olive oil.  And the olive oil maker could do likewise.  Greatly increasing the efficiency of the market.  There is a very important point here.  Money facilitated trade between people who created value.  Creating something of value is key.  Because if people were just given money without producing anything of value they couldn’t trade that money for anything.  For if people didn’t create things of value to buy what good was that money?

Today, thanks to Keynesian economics, governments everywhere believe they can create economic activity with money.  And use their monetary powers to try and manipulate things in the economy to favor them.  And one of their favorite things to do is to devalue their money.  Make it worth less.  So governments that borrow a lot of money can repay that money later with devalued money.  Money that is worth less.  So they are in effect paying back less than they borrowed.  And governments love doing that.  Of course, people who loan money are none too keen with this.  Because they are getting less back than they loaned out originally.  And there is another reason why governments love to devalue their money.  Especially if they have a large export economy.

Before anyone can buy from another country they have to exchange their money first.  And the more money they get in exchange the more they can buy from the exporting country.  This is the same reason why you can enjoy a five-star vacation in a tropical resort in some foreign country for about $25.  I’m exaggerating here but the point is that if you vacation in a country with a very devalued currency your money will buy a lot there.  But the problem with making your exports cheap by devaluing your currency is that it has a down side.  For a country to buy imports they, too, first have to exchange their currency.  And when they exchange it for a much stronger currency it takes a lot more of it to buy those imports.  Which is why when you devalue your currency you raise prices.  Because it takes more of a devalued currency to buy things that a stronger currency can buy.  Something the good people in Japan are currently experiencing under Abenomics (see Japan Risks Public Souring on Abenomics as Prices Surge by Toru Fujioka and Masahiro Hidaka posted 4/14/2014 on Bloomberg).

Prime Minister Shinzo Abe’s bid to vault Japan out of 15 years of deflation risks losing public support by spurring too much inflation too quickly as companies add extra price increases to this month’s sales-tax bump.

Businesses from Suntory Beverage and Food Ltd. to beef bowl chain Yoshinoya Holdings Co. have raised costs more than the 3 percentage point levy increase. This month’s inflation rate could be 3.5 percent, the fastest since 1982, according to Yoshiki Shinke, the most accurate forecaster of Japan’s economy for two years running in data compiled by Bloomberg…

“Households are already seeing their real incomes eroding and it will get worse with faster inflation,” said Taro Saito, director of economic research at NLI Research Institute, who says he’s seen prices of Chinese food and coffee rising more than the sales levy. “Consumer spending will weaken and a rebound in the economy will lack strength, putting Abe in a difficult position…”

Abe’s attack on deflation — spearheaded by unprecedented easing by the central bank — has helped weaken the yen by 23 percent against the dollar over the past year and a half, boosting the cost of imported goods and energy for Japanese companies.

Japan is an island nation with few raw materials.  They have to import a lot.  Including much of their energy.  Especially since shutting down their nuclear reactors.  Japan has a lot of manufacturing.  But that manufacturing needs raw materials.  And energy.  Which are more costly with a devalued yen.  Increasing their costs.  Which they, of course, have to pay for when they sell their products.  So their higher costs increase the prices their customers pay.  Leaving the people of Japan with less money to buy their other household goods that are also rising in price.  Which is why economies with high rates of inflation go into recession.  As the recession will correct those high prices.  With, of course, deflation.

Keynesians all think they can manipulate the market place to their favor by playing with monetary policy.  But they are losing sight of a fundamental concept in a free market economy.  Money doesn’t have value.  It only holds value temporarily.  It’s the things the factories produce that have value.  And whenever you make it more difficult (i.e., raise their costs by devaluing the currency) for them to create value they will create less value.  And the economy as a whole will suffer.


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Abenomics didn’t work because Keynesian Economics doesn’t Work

Posted by PITHOCRATES - March 16th, 2014

Week in Review

If President Obama and the Democrats had their way do you know what they would do?  All out Keynesian economics.  To the max.  Huge government stimulus upon huge government stimulus.  Keeping interest rates at or below zero so they can borrow as much as they’d like to pay for their deficit spending.  Or just printing the money to spend.  That’s what they’d love to do.  Because they don’t understand economics.  All they know is the politics of Keynesian economics.  Power.  It allows the government to spend far more than any other economic system.  And that lets them buy a lot of votes.

President Obama and the Democrats look at the Chinese with awe and reverence.  They would love to have the power the Chinese communists have.  So they could do whatever they wanted to do.  Just like the Chinese communists do.  And when Prime Minister Shinzo Abe revealed his three arrows of Abenomics the left was impressed.  Large-scale government spending.  Aggressive monetary easing (like all that quantitative easing Ben Bernanke was doing with the Federal Reserve).  And structural reforms.  Government just taking over the economy to fix it and correct all the failings of the free market.  This is what the Democrats want to do in the United States.  Because they are so conceited that only they are smart enough to fix the problems in the economy.  So how has this Keynesian assault worked in Japan?  Not so good (see Blow for Abenomics as Japan’s economy grows less than expected by Rebecca Clancy posted 3/10/2014 on The Telegraph).

Revised data from the government showed that gross domestic product growth was 0.2pc in the three months to December 31 and 1.5pc for 2013…

While the data still marked Japan’s best annual performance in three years, attention will now turn to the Bank of Japan’s monetary policy statement on Tuesday, as weakening growth before next month’s tax hike may push the central bank into a fresh batch of monetary easing measures.

“With Japanese data weaker than expected and their April consumption tax hike imminent, the state of the Japanese economy is cause for significant concern,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor…

Mr Abe swept into power in 2012 on a promise to catapult the Japanese economy out of a decades-long slump, but his policies have met with mixed success.

The weak data hit markets in Asia, with Japan’s Nikkei closing down 1pc at 15,120.14, while China’s Shanghai Composite plunged 2.9pc and the Hang Seng dropped 1.8pc…

While authorities blame the country’s holiday season for the weak results, they add to growing worries about the Chinese economy, with the latest surveys on its key manufacturing sector showing weakness.

Abenomics didn’t work.  Because Keynesian economics doesn’t work.  Government spending and artificially low interest rates just don’t create robust economic activity.  All they create are cronyism.  Malinvestments.  Asset bubbles.  And more painful and longer lasting recessions.  As history has shown.  Especially the deflationary spiral of Japan’s Lost Decade that they’re still trying to recover from.  And the Chinese may follow suit.  For they have nothing but exports.  And you cannot build robust economic activity on exports alone.  You need a thriving middle class.  Which China doesn’t have.

History has shown over and over never to vote for Keynesians.  For their policies never help the people.  They only help those in power.  And their crony friends.  Who get richer while the people get poorer.  The ruling Chinese communists are doing well but the majority of Chinese are still impoverished rural peasants living on subsistence farming.  And President Obama and his crony friends (especially those on Wall Street) have all been doing very well thanks to a booming stock market.  While median family income has fallen during his presidency.  Proving yet again the mistake it is to vote for a Keynesian.


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Real Scientists don’t take a Vote to Settle Science

Posted by PITHOCRATES - March 15th, 2014

Week in Review

What is science?  Do scientists gather and vote on theories?  And do those theories become settled science?  Or is it something more like this (see Japanese Institute Weighs Retracting Stem-Cell Studies by Alexander Martin and Gautam Naik posted 3/10/2014 on The Wall Street Journal)?

The co-author, Teruhiko Wakayama of Yamanashi University in Japan, called Monday for the retraction of the findings, published in late January in a pair of papers in the journal Nature.

The papers drew international attention because they held out a safer, easier and more ethical technique for creating master stem cells. These cells, which can be turned into all other body tissues, promise one day to transform the treatment of various ailments, from heart disease to Alzheimer’s.

But shortly after the papers appeared, Japan’s Riken Center for Developmental Biology, where the work took place, began to investigate alleged irregularities in images used in the papers. Separately, many labs said they couldn’t replicate the results…

Like several other researchers, Dr. Wakayama said he hasn’t yet been able to reproduce the results. “There is no value in it if the technique cannot be replicated,” he said.

Science is more like this.  It’s aggressive and relentless.  Scientists work hard to replicate previous results.  And they work hard to disprove past theories.  The key to science, then, is never accepting anything as settled.  No.  Everything is questioned.  Forever.  That’s real science.  Unlike climate science.  Where people apparently use voting in lieu of vigorous experimentation to replicate results or disprove past theories.  So anyone stating that manmade global warming is settled science is not a scientist.  Or a truthful person.

All the people who claim manmade global warming is settled science are either people who want to greatly expand the power of government over the economy.  Or they are just grossly ignorant.  These ignorant people, of course, help those who want to greatly expand the power of government over the economy.  Which is why we should not listen to politicians when it comes to science.  Or ignoramuses.  For once upon a time the polar icecaps weren’t frozen.  And at another time glaciers reached down from the poles towards the equator.  Long before man ever put any carbon into the atmosphere.  Climate changes.  And it has changed a lot more drastically before man appeared on the scene.  So anyone claiming man is causing this is either a liar.  Or an ignoramus.


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Abenomics appears to have Failed in Japan just as Keynesian Economics has Failed everywhere it has been Tried

Posted by PITHOCRATES - March 9th, 2014

Week in Review

The Keynesians were applauding Shinzō Abe’s economic plans for Japan.  To end the never-ending deflationary spiral they’ve been in since the late Nineties.  His Abenomics included all the things Keynesians love to do.  And want to do in the United States.  Expand the money supply through inflationary monetary policy.  Devalue the yen to make their exports cheaper.  Lower interest rates into negative territory.  Quantitative easing.  And lots of government spending.  The kinds of things that just makes a Keynesian’s heart go pitter pat.

They kicked off Abenomics in 2013.  And how are things about a year later?  Not good (see Japan’s deficit hits record as economic growth slows posted 3/9/2014 on BBC News Business).

Japan’s current account deficit widened to a record 1.5tn yen ($15bn; £8.7bn) in January, the largest since records began in 1985.

In further bad news, the country’s economic growth figures were also revised downwards…

The sluggish growth and growing deficit come just before a planned sales tax increase, scheduled to take effect in April.

They did weaken the yen.  Making it worth less than other currencies so those currencies could get more yen when they exchanged their currencies to buy those Japanese exports.  Of course, when Japanese exchanged their yen for those other currencies they got less of those other currencies in return.  Requiring more yen to buy those now more expensive imports.  Thus increasing their trade deficit.

Japan is an island with a lot of people.  They have to import a lot of their food, energy and natural resources as they have little on their island.  So the weaker yen just made everything more expensive in Japan.  Which, of course, lowered GDP.  As those higher prices reduced the amount of buying their consumers could do.

Japan’s greatest problem is her aging population.  And they have just about the oldest population in the world.  As the youth have slammed the brakes on having children.  So you have massive waves of people leaving the workforce the government is supporting in retirement.  And fewer people entering the workforce to pay the taxes that support those retirees.  Which, of course, forces higher tax rates on those remaining in the workforce.  Further reducing the amount of buying their consumers can do.  And no amount of Abenomics can change that.

Abenomics did not deliver what the Keynesians thought it would.  Because Keynesian economics (aka demand-side economics) just doesn’t work.  If it did Japan never would have had a Lost Decade to begin with.  For it was Keynesian economics that gave Japan that asset price bubble in the first place.  Which burst and deflated into the Lost Decade.

What Japan needs is a return to classical economic principles.  Focusing more on the supply side.  Lower tax rates and reduce regulation.  Let the market set interest rates.  Restore the policies that introduced ‘Made in Japan’ to the world.  They need to make their capitalism more laissez-faire.  If they do they can create the kind of economic activity that just might be able to support the generation who created the ‘Made in Japan’ label in their retirement.  But you must have robust economic activity.  So robust that lower tax rates can produce greater tax revenue.  The supply-side economics way.


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Henry Ford, Bill Hewlett & Dave Packard, Steve Jobs & Steve Wozniak, Howard Schultz, Ray Kroc and Richard Branson

Posted by PITHOCRATES - February 25th, 2014

 History 101

(Originally published May 8th, 2012)

Capitalism allows Entrepreneurs to bring their Great Ideas to Life

Entrepreneurs start with an idea.  Of how to do something better.  Or to create something we must have that we don’t yet know about.  They think.  They create.  They have boundless creative energies.  And the economic system that best taps that energy is capitalism.  The efficient use of capital.  Using capital to make profits.  And then using those profits to make capital.  So these ideas of genius that flicker in someone’s head can take root.  And grow.  Creating jobs.  And taxable economic activity.  Creating wealth for investors and workers.  Improving the general economy.  Pulling us out of recessions.  Improving our standard of living.  And making the world a better place.  Because of an idea.  That capitalism brought to life.

Entrepreneurs Risked Capital to bring Great Things to Market and to Create Jobs

Henry Ford established the Detroit Automobile Company in 1899.  Which failed.  He reorganized it into the Henry Ford Company in 1901.  Ford had a fight with his financial backers.  And quit.  Taking the Ford name with him.  And $900.  The Henry Ford Company was renamed Cadillac and went on to great success.  Ford tried again and partnered with Alexander Malcomson.  After running short of funds they reorganized and incorporated Ford Motor Company in 1903 with 12 investors.  The company was successful.  Some internal friction and an unexpected death of the president put Ford in charge.  Ford Motor built the Model A, the Model K and the Model S.  Then came the Model T.  And the moving assembly line.  Mass production greatly increased the number of cars he could build.  But it was monotonous work for the assembly line worker.  Turnover was high.  So to keep good workers he doubled pay in 1914 and reduced the 9-hour shift to 8 hours.  This increased productivity and lowered the cost per Model T.  Allowing those who built the cars to buy what they built.  In 2011 the Ford Motor Company employed approximately 164,000 people worldwide.

Bill Hewlett and Dave Packard established Hewlett-Packard (HP) in 1939.  In a garage.  They raised $538 in start-up capital.  In that garage they created their first successful commercial product.  A precision audio oscillator.  Used in electronic testing.  It was better and cheaper than the competition.  Walt Disney Productions bought this oscillator to certify Fantasound surround sound systems in theaters playing the Disney movie Fantasia.  From this garage HP grew and gave us calculators, desktop and laptop computers, inkjet and laser printers, all-in-one multifunction printer/scanner/faxes, digital cameras, etc.  In 2010 HP employed approximately 324,600 employees worldwide.  (Steve Wozniak was working for HP when he designed the Apple I.  Which he helped fund by selling his HP calculator.  Wozniak offered his design to HP.  They passed.)

Steve Jobs had an idea to sell a computer.  He convinced his friend since high school, Steve Wozniak, to join him.  They sold some of their things to raise some capital.  Jobs sold his Volkswagen van.  Wozniak sold his HP scientific calculator.  They raised about $1,300.  And formed Apple.  They created the Apple I home computer in 1976 in Steve Jobs’ garage.  From these humble beginnings Apple gave us the iPad, iPhone, iPod, iMac, MacBook, Mac Pro and iTunes.  In 2011 Apple had approximately 60,400 full time employees.

Jerry Baldwin, Zev Siegl, and Gordon Bowker opened the first Starbucks in 1971 in Seattle, Washington.  About 10 years later Howard Schultz drank his first cup of Starbucks coffee.  And he liked it.  Within a year he joined Starbucks.  Within another year while traveling in Italy he experienced the Italian coffeehouse.  He loved it.  And had an idea.  Bring the Italian coffeehouse to America.  A place to meet people in the community and converse.  Sort of like a bar.  Only where the people stayed sober.  Soon millions of people were enjoying these tasty and expensive coffee beverages at Starbucks throughout the world.  In 2011 Starbucks employed approximately 149,000 people.

Ray Kroc sold Prince Castle Multi-Mixer milk shakes mixers to a couple of brothers who owned a restaurant.  Who made hamburgers fast.  Richard and Maurice McDonald had implemented the Speedee Service System.  It was the dawn of fast food.  Kroc was impressed.  Facing tough competition in the mixer business he opened a McDonald’s franchise in 1955.  Bringing the grand total of McDonald’s restaurants to 9.  He would go on to buy out the McDonald brothers (some would say unscrupulously).  Today there are over 30,000 stores worldwide.  In 2010 McDonald’s employed approximately 400,000 people.

Richard Branson started a magazine at 16.  He then sold records out of a church crypt at discount prices.  The beginning of Virgin Records.  In 1971 he opened a record store.  He launched a record label in 1972.  And a recording studio.  Signing the Sex Pistols.  And Culture Club.  In 1984 he formed an airline.  Virgin Atlantic Airways.  In 1999 he went into the cellular phone business.  Virgin Mobile.  In 2004 he founded Virgin Galactic.  To enter the space tourism business.  His Virgin Group now totals some 400 companies.  And employs about 50,000 people.

The Decline of Capitalism and the Rise of the Welfare State caused the European Sovereign Debt Crisis

And we could go on.  For every big corporation out there will have a similar beginning.  Corporations that use capital efficiently.  Bringing great things to market.  Introducing us to new things.  Always making our lives better.  And more comfortable.  One thing you will not find is a great success story like this starting in the Soviet Union.  The People’s Republic of China (back in the days of Mao Zedong).  East Germany (before the Berlin Wall fell).  North Korea.  Or Cuba.  No.  The command economies of communist countries basically froze in time.  Where there was no innovation.  No ideas brought to life.  Because the government kind of frowned on that sort of thing.

There is a reason why the West won the Cold War.  And why we won that war without the Warsaw Pack and NATO forces fighting World War III.  And why was this?  Because we didn’t need to.  For the communist world simply could not withstand the forces of living well in the West.  Whenever they could their people escaped to the West.  To escape their nasty, short and brutish lives.  In the command economies of their communist states.  Where the state planners failed to provide for their people.  Even failing to feed their people.  The Soviet Union, the People’s Republic of China and North Korea all suffered population reducing famines.  But not in the West.  Where we are not only well fed.  But our poor suffer from obesity.  Which is not a good thing.  But it sure beats dying in a famine.

Sadly, though, the West is moving towards the state planning of their one time communist foes.  Social democracies are pushing nations in the European Union to bankruptcy.  Japan’s generous welfare state is about to implode as an aging population begins to retire.  Even in the United States there has been a growth of government into the private sector economy like never before.  Which is causing the Great Recession to linger on.  As it caused Japan’s lost decade to become two decades.  And counting.  As it is prolonging the European sovereign debt crisis.  With no end in sight.  The cause of all their problems?  The decline of capitalism.  And the rise of the welfare state.  Which just kills the entrepreneurial spirit.  And the creation of jobs.  Which is one cure for all that ails these countries.  And the only one.  For only robust economic activity can pull a country out of recession.  And for that you need new jobs.  And the entrepreneurial spirit.  In short, you need capitalism.


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After Fukushima Meltdown shuts down Nuclear Power Industry Japan turns to Solar Power

Posted by PITHOCRATES - November 10th, 2013

Week in Review

Japan shows how easy it is to go green after the Fukushima Nuclear Power Plant meltdown.  Nuclear power is unsafe.  Coal-fired power plants are too dirty.  So what to do?  Why, go solar, of course (see Kyocera launches 70-megawatt solar plant, largest in Japan by Tim Hornyak posted 11/8/2013 on CNET).

Smartphone maker Kyocera recently launched the Kagoshima Nanatsujima Mega Solar Power Plant, a 70-megawatt facility that can generate enough electricity to power about 22,000 homes.

The move comes as Japan struggles with energy sources as nuclear power plants were shut down after meltdowns hit Tokyo Electric Power Co.’s Fukushima plant in 2011.

Set on Kagoshima Bay, the sprawling Nanatsujima plant commands sweeping views of Sakurajima, an active stratovolcano that soars to 3,665 feet.

It has 290,000 solar panels and takes up about 314 acres, roughly three times the total area of Vatican City.

Wow, 70 megawatts.  Sounds big, doesn’t it?  With 290,000 solar panels on 314 acres.  An installed capacity of 0.22 megawatts per acre.  It must have cost a fortune to build.  And they built it on a bay.  At sea level.  In the shadow of an active volcano.  It would be a shame if that volcano erupts and covers those solar panels in a layer of ash.  Or if another typhoon hits Japan.  An earthquake.  Or a storm surge.  For if any of these things happen those 22,000 homes will lose their electric power.

So how does this compare to the Fukushima Daiichi Nuclear Power Plant?  Well, that plant sits on 860 acres.  And has an installed capacity of 4700 megawatts.  Or the installed capacity of 67 Kagoshima Nanatsujima Mega Solar Power Plants.  And an installed capacity of 5.47 megawatts per acre.  Which is perhaps why they built this on the bay.  Because it is such an inefficient use of real estate in a nation that has one of the highest population densities that they put it on the water.  To save the land for something that has value. 

We used the term ‘installed capacity’ for a reason.  That reason being the capacity factor.  Which is the actual amount of power produced over a given amount of time divided by the maximum amount of power that could have been produced (i.e., the installed capacity).  Nuclear plants can produce power day or night.  Covered in volcanic ash or not.  On a sunny day or when it’s pouring rain.  Which is why a nuclear power plant has a much higher capacity factor (about 90%) than a solar plant (about 15%).  So the actual power people consume from the Kagoshima Nanatsujima Mega Solar Power Plant will be far less than its 70 megawatts of installed capacity.

So in other words, solar power is not a replacement for nuclear power.  Or any other baseload power such as coal-fired power plants.  Power demand will far exceed power supply.  Leading to higher costs as they try to ration electric power.  And a lot of power outages.  Some longer than others.  Especially when powerful typhoons and/or storm surges blow in.  As they often do in the Pacific Ocean.


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Birthrates and Welfare States

Posted by PITHOCRATES - October 22nd, 2013

History 101

Birth Control and Abortion hurt the Welfare State because Babies become Taxpayers

People typically have fewer children during bad economic times.  Because you have to feed and clothe kids.  Which is very hard to do during bad economic times.  Especially if you lost your job during a period of high unemployment.  Such as the Great Depression.  Or if you’re going through a period of high inflation.  Like during the Seventies.  We can see this if we look at the birthrate over the years.

Number of Children per Woman R1

(source: Population Reference Bureau)

Bad economic times (Great Depression) fewer births.  High inflation (the Seventies) fewer births.  Of course, there was something else happening during the Seventies.  Which followed the Sexual Revolution.  Women were having more sex outside of marriage.  But they were using birth control and recently legalized abortion to avoid having children.  Women were liberated.  The feminists were moving into careers once reserved for men.  And because they were having careers they were not being stay-at-home mothers raising a family.

Also during the Seventies there was the zero population growth movement.  Among many other movements.  As the hippies turned antiestablishment.  And anti-capitalist.  Preferring a communal life.  Where there was no greed or profits.  Where everyone was equal and had an equal share.  Like the communists enjoyed.  Or, rather, suffered.  The zero population growth movement protested against having babies.  And the threat they posed to the limited resources of the earth.  So they were quite happy to see the birthrate fall below the replacement birthrate (about 2.1 children per woman in the United States).  Because below this rate future generations will be smaller than previous generations.  Which will burden the limited resources of the earth less.  But it created a big problem for those who wanted a large socialist state to provide cradle to the grave welfare.  For babies become taxpayers.

Because of the War on Poverty it takes Two Incomes to raise a Family Today

We just emerged from a government shutdown that ended with an agreement to raise the debt ceiling.  Why?  Because they can’t raise tax rates high enough to pay for all of the government’s spending.  At least not without putting most everyone below the poverty line after taxes.  Which makes that declining birthrate a big problem.  For the fall in the birthrate coincided with the expansion of the welfare state in the Sixties.  As can be seen in the explosion in welfare spending following LBJ’s launching of his War on Poverty.

Total Welfare Spending 1950 - 2010 R2

(source: The Heritage Foundation)

So just as women were having fewer babies so following generations would be smaller LBJ’s Great Society gave us a new expanding welfare state.  That is, once our tax base began to grow smaller with each subsequent generation federal expenditures were growing larger with each subsequent generation.  Resulting in higher tax rates on the smaller tax base to pay for it.  And massive new borrowings to pay what our taxes won’t.  As the government took more of our earnings away median household income stagnated.

Federal Spending and Median Income

(source: The Heritage Foundation)

If you’ve ever wondered why we can’t raise a family on one income these days this is why.  It’s the growth of federal spending.  Paid for with a growth in tax revenue.  Leaving us less money to raise our families.  Requiring that second income.  This is what the Great Society gave us.  And it’s what birth control and abortion gave us.  But it gets worse.

This Year Adult Incontinence Pants outsold Baby Diapers in Japan for the First Time

The Sexual Revolution gave us a baby bust generation.  Following a baby boom generation.  Giving us an aging population.  Where more people are leaving the workforce than are entering it.  So more people are consuming taxes (Social Security, Medicare, Medicaid, etc.) than are paying taxes.  Causing a massive wealth transfer from the young to the old.  So an aging population makes it even harder to raise a family.  Especially for the young just starting their families.  Because of the higher tax rates on a shrinking workforce required to pay for that aging population.  Which can lead to worse things than a collapse of the welfare state (see Why have young people in Japan stopped having sex? by Abigail Haworth posted 10/19/2013 on The Guardian)

Japan’s under-40s appear to be losing interest in conventional relationships. Millions aren’t even dating, and increasing numbers can’t be bothered with sex. For their government, “celibacy syndrome” is part of a looming national catastrophe. Japan already has one of the world’s lowest birth rates. Its population of 126 million, which has been shrinking for the past decade, is projected to plunge a further one-third by 2060…

Fewer babies were born here in 2012 than any year on record. (This was also the year, as the number of elderly people shoots up, that adult incontinence pants outsold baby nappies in Japan for the first time.) Kunio Kitamura, head of the JFPA, claims the demographic crisis is so serious that Japan “might eventually perish into extinction”.

This is the zero population growth movement on steroids.  The Republicans in the United States shut down the government in an attempt to curtail federal spending.  As the public debt is approaching 100% of GDP.  Very dangerous territory to be in.  But if you think that’s bad it’s far worse in Japan.  As their public debt is approximately 214% of GDP.  To support a massive welfare state.  In a country where the taxpayer is fast becoming an endangered species.

This is the ultimate end of any democracy that learned it could vote itself the treasury.  As taxes rise people cut back on their spending.  And a big cost item is children.  So we have declining birthrates in developed countries with expansive welfare states.  And immigration problems.  Immigrants who come for those generous state benefits.  And governments that want to grant them citizenship.  To make them taxpayers.  To make up for that declining birthrate.  And prevent their own extinction.


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Like Greece Japan looks forward to the Economic Stimulus from Hosting the Olympics

Posted by PITHOCRATES - September 15th, 2013

Week in Review

During the Eighties Japan was an economic powerhouse.  The government partnered with business.  Creating what became known as Japan Inc.  It was the way of the future.  Way better than free market capitalism.  Because smart government people were tweaking the free market.  Making it better.  Or so they thought.  All that tweaking came in the form of a credit expansion.  Which created a huge asset bubble.  And when it burst Japan fell into a deflationary spiral.  Through their Lost Decade.  The Nineties.  And beyond.

Tired of sluggish economic growth since their Lost Decade their prime minister, Shinzō Abe, returned to the ways of their past.  And starting pumping yen into the economy like there is no tomorrow.  And the economy has turned.  Of course, the economy was going gangbusters before it collapsed into its deflationary spiral. So this spurt of economic activity may be nothing but that.  A spurt.  And sluggish economic growth will return.  With more inflation to wring out of the economy.  And this will probably not make things better (see Hopes Japan’s win to host Olympics could kickstart the economy by Bill Birtles posted 9/10/2013 on Radio Australia).

Japan could get an economic boost from hosting the 2020 Olympics in Tokyo…

As Japan begins its largest project in 42 years in preparation for the Olympics, there is still plenty left to do.

Just last week, Abe’s government pledged $US500 million to fix Fukushima.

In addition, Japan faces the problem of massive debt and an ageing population.

Prime Minister Shinzo Abe will also need to take a call on raising the country’s sales tax.

The Chief Economist at RBS Securities, Junko Nishioka, says for now though, keeping spending under control will be a priority for the country of about 130 million.

Greece was talking the same way in the run-up to the 2004 Summer Games.  Where Greece went on an expansionary binge.  Then came the Great Recession.  Greek economic activity fell.  As did their tax revenue.  All the while they had a new boatload of debt on the books from the Olympics.  They had to borrow money to pay for what their tax revenue did not.  Borrowing more and more increased their debt.  And their borrowing costs.  Until they could borrow no more. Kicking off the Eurozone sovereign debt crisis.  And an economic malaise that continues to this day.

So with Japan’s past history and Greece’s past history a surge in more spending to get ready for the Olympics is not likely to solve any problems.  Or bring back Japan Inc.  As this kind of spending has a history of causing problems more than solving problems.


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Post Office, Telegraph, Telephone, Cell Phones, Texting, Technology, Productivity, Savings, Investment, Japan Inc. and Eurozone Crisis

Posted by PITHOCRATES - August 13th, 2013

History 101

(Originally published August 28th, 2012)

Ben Franklin’s Post Office struggles to Stay Relevant in a World where Technology offers a Better Alternative

Once upon a time people stayed in touch with each other by mailing letters to each other.  Benjamin Franklin helped make this possible when he was America’s first Postmaster General of the United States.  And it’s in large part due to his Post Office that the American Revolutionary War became a united stand against Great Britain.  As news of what happened in Massachusetts spread throughout the colonies via Franklin’s Post Office.

In America Samuel Morse created a faster way to communicate.  (While others created this technology independently elsewhere.)  Through ‘dots’ and ‘dashes’ sent over a telegraph wire.  Speeding up communications from days to seconds.  It was fast.  But you needed people who understood Morse code.  Those dots and dashes that represented letters.  At both ends of that telegraph wire.  So the telegraph was a bit too complicated for the family home.  Who still relied on the Post Office to stay in touch

Then along came a guy by the name of Alexander Graham Bell.  Who gave us a telephone in the house.  Which gave people the speed of the telegraph.  But with the simplicity of having a conversation.  Bringing many a teenage girl into the kitchen in the evenings to talk to her friends.  Until she got her own telephone in her bedroom.  Then came cell phones.  Email.  Smartphones.  And Texting.   Communication had become so instantaneous today that no one writes letters anymore.  And Ben Franklin’s Post Office struggles to stay relevant in a world where technology offers a better alternative.

As Keynesian Monetary Policy played a Larger Role in Japan Personal Savings Fell

These technological advances happened because people saved money that allowed entrepreneurs, investors and businesses to borrow it.  They borrowed money and invested it into their businesses.  To bring their ideas to the market place.  And the more they invested the more they advanced technology.  Allowing them to create more incredible things.  And to make them more efficiently.  Thus giving us a variety of new things at low prices.  Thanks to innovation.  Risk-taking entrepreneurs.  And people’s savings.  Which give us an advanced economy.  High productivity.  And growing GDP.

Following World War II Japan rebuilt her industry and became an advanced economy.  As the U.S. auto industry faltered during the Seventies they left the door open for Japan.  Who entered.  In a big way.  They built cars so well that one day they would sell more of them than General Motors.  Which is incredible considering the B-29 bomber.  That laid waste to Japanese industry during World War II.  So how did they recover so fast?  A high savings rate.  During the Seventies the Japanese people saved over 15% of their income with it peaking in the mid-Seventies close to 25%.

This high savings rate provided enormous amounts of investment capital.  Which the Japanese used not only to rebuild their industry but to increase their productivity.  Producing one of the world’s greatest export economies.  The ‘Made in Japan’ label became increasingly common in the United States.  And the world.  Their economic clot grew in the Eighties.  They began buying U.S. properties.  Americans feared they would one day become a wholly owned subsidiary of some Japanese corporation.  Then government intervened.  With their Keynesian economics.  This booming economic juggernaut became Japan Inc.  But as Keynesian monetary policy played a larger role personal savings fell.  During the Eighties they fell below 15%.  And they would continue to fall.  As did her economic activity.  When monetary credit replaced personal savings for investment capital it only created large asset bubbles.  Which popped in the Nineties.  Giving the Japanese their Lost Decade.  A painful deflationary decade as asset prices returned to market prices.

Because the Germans have been so Responsible in their Economic Policies only they can Save the Eurozone

As the world reels from the fallout of the Great Recession the US, UK and Japan share a lot in common.  Depressed economies.  Deficit spending.  High debt.  And a low savings rate.  Two countries in the European Union suffer similar economic problems.  With one notable exception.  They have a higher savings rate.  Those two countries are France and Germany.  Two of the strongest countries in the Eurozone.  And the two that are expected to bail out the Eurozone.

Savings Rate

While the French and the Germans are saving their money the Japanese have lost their way when it comes to saving.  Their savings rate plummeted following their Lost Decade.  As Keynesian economics sat in the driver seat.  Replacing personal savings with cheap state credit.  Much like it has in the US and the UK.  Nations with weak economies and low savings rates.  While the French and the Germans are keeping the Euro alive.  Especially the Germans.  Who are much less Keynesian in their economics.  And prefer a more Benjamin Franklin frugality when it comes to cheap state credit.  As well as state spending.  Who are trying to impose some austerity on the spendthrifts in the Eurozone.  Which the spendthrifts resent.  But they need money.  And the most responsible country in the Eurozone has it.  And there is a reason they have it.  Because their economic policies have been proven to be the best policies.

And others agree.  In fact there are some who want the German taxpayer to save the Euro by taking on the debt of the more irresponsible members in the Eurozone.  Because they have been so responsible in their economic policies they’re the only ones who can.  But if the Germans are the strongest economy shouldn’t others adopt their policies?  Instead of Germany enabling further irresponsible government spending by transferring the debt of the spendthrifts to the German taxpayer?  I think the German taxpayer would agree.  As would Benjamin Franklin.  Who said, “Industry, Perseverance, & Frugality, make Fortune yield.”  Which worked in early America.  In Japan before Japan Inc.  And is currently working in Germany.  It’s only when state spending becomes less frugal that states have sovereign debt crises.  Or subprime mortgage crisis.  Or Lost Decades.


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