Tuesday, September 23, 2014

Still here!

It has been a while, I know, but Demography Matters is still here. I've got the raw material for new posts in the works. A question to you, our readers. What would you like to see? Are there any particular areas or regions of the world, perhaps, or any kind of themes? Leave your suggestions in the comments.

Thursday, June 26, 2014

On the longevity and extended health of Icarians, among others

Via the Washington Post I came across a 2012 article in The New York Times Magazine by Dan Buettner, "The Island Where People Forget to Die". In this article, Buettner highlights the longevity and good health of the inhabitants of Icaria, a small Greek island in the Aegean Sea several dozen kilometres away from the Anatolian mainland where the average inhabitant can expect to live a decade longer than the average American. While many factors seem to contribute to the Icarians' situation--an abundance of exercise, a healthy diet, and so on--it seems that all these individual elements are reinforced by Icarian society as a whole.

In the United States, when it comes to improving health, people tend to focus on exercise and what we put into our mouths — organic foods, omega-3’s, micronutrients. We spend nearly $30 billion a year on vitamins and supplements alone. Yet in Ikaria and the other places like it, diet only partly explained higher life expectancy. Exercise — at least the way we think of it, as willful, dutiful, physical activity — played a small role at best.

Social structure might turn out to be more important. In Sardinia, a cultural attitude that celebrated the elderly kept them engaged in the community and in extended-family homes until they were in their 100s. Studies have linked early retirement among some workers in industrialized economies to reduced life expectancy. In Okinawa, there’s none of this artificial punctuation of life. Instead, the notion of ikigai — “the reason for which you wake up in the morning” — suffuses people’s entire adult lives. It gets centenarians out of bed and out of the easy chair to teach karate, or to guide the village spiritually, or to pass down traditions to children. The Nicoyans in Costa Rica use the term plan de vida to describe a lifelong sense of purpose. As Dr. Robert Butler, the first director of the National Institute on Aging, once told me, being able to define your life meaning adds to your life expectancy.

[. . .]

If you pay careful attention to the way Ikarians have lived their lives, it appears that a dozen subtly powerful, mutually enhancing and pervasive factors are at work. It’s easy to get enough rest if no one else wakes up early and the village goes dead during afternoon naptime. It helps that the cheapest, most accessible foods are also the most healthful — and that your ancestors have spent centuries developing ways to make them taste good. It’s hard to get through the day in Ikaria without walking up 20 hills. You’re not likely to ever feel the existential pain of not belonging or even the simple stress of arriving late. Your community makes sure you’ll always have something to eat, but peer pressure will get you to contribute something too. You’re going to grow a garden, because that’s what your parents did, and that’s what your neighbors are doing. You’re less likely to be a victim of crime because everyone at once is a busybody and feels as if he’s being watched. At day’s end, you’ll share a cup of the seasonal herbal tea with your neighbor because that’s what he’s serving. Several glasses of wine may follow the tea, but you’ll drink them in the company of good friends. On Sunday, you’ll attend church, and you’ll fast before Orthodox feast days. Even if you’re antisocial, you’ll never be entirely alone. Your neighbors will cajole you out of your house for the village festival to eat your portion of goat meat.

Every one of these factors can be tied to longevity. That’s what the $70 billion diet industry and $20 billion health-club industry do in their efforts to persuade us that if we eat the right food or do the right workout, we’ll be healthier, lose weight and live longer. But these strategies rarely work. Not because they’re wrong-minded: it’s a good idea for people to do any of these healthful activities. The problem is, it’s difficult to change individual behaviors when community behaviors stay the same. In the United States, you can’t go to a movie, walk through the airport or buy cough medicine without being routed through a gantlet of candy bars, salty snacks and sugar-sweetened beverages. The processed-food industry spends more than $4 billion a year tempting us to eat. How do you combat that? Discipline is a good thing, but discipline is a muscle that fatigues. Sooner or later, most people cave in to relentless temptation.

This message was emphasized by an 2013 article in The Guardian by Andrew Anthony, based at least in part on the author's interviews with Buettner.

The phrase "blue zone" was first coined by [author Dan] Buettner's colleague, the Belgian demographer Michel Poulain. "He was drawing blue circles on a map in Sardinia and then referring to the area inside the circle as the blue zone," Buettner says. "When we started working together, I extended it to Okinawa, Costa Rica and Ikaria. If you Google it now, it's entered the lexicon as a demographically confirmed geographical area where people live measurably longer." So what does it take to qualify? "It's a variation," Buettner says. "It's either the highest centenarian rate, so the most centenarians per 1,000. Or it has the highest life expectancy at middle age."

All the blue zones are slightly austere environments where life has traditionally required hard work. But they also tend to be very social, and none more so than Ikaria. At the heart of the island's social scene is a series of 24-hour festivals, known as paniyiri, which all age groups attend. They last right through the night and the centrepieces are mass dances in which everyone – teenagers, parents, the elderly, young children – takes part. Kostas Sponsas tells me he no longer has the energy to go on until dawn. He will now usually take his leave by 2am.

One evening, the island's star violin player, whom we met at Gregoris Tsahas's favourite cafe, invites Buettner, me and several others back to his house to hear him play. He says he often grows exhausted while performing at festivals, but the energy and enthusiasm of the people keep him going. He plays some traditional folk tunes, full of passion and yearning and heart-rending beauty, and mentions with pride that Mikis Theodorakis, the composer of Zorba The Greek, was among the leftists exiled on the island in the late 1940s. Theodorakis later recalled the experience with pleasure. "How could this be?" he asked. "The answer is simple: it's the beauty of the island in combination with the warmth of the locals. They risked their lives to be generous to us, something that helped us more than anything bear the burden of the hardship."

One of the things Buettner has found that unites the elderly inhabitants of all the blue zones is that they are unintentionally old: they didn't set out to extend their lives. "Longevity happened to these people," he says. "The centenarians didn't all of a sudden at 40 say, 'I'm going to become 100; I'm going to start getting exercise and eating these ingredients.' It ensues from their surroundings. So my argument is that the environmental components of places such as Ikaria are portable if you pay attention. And the value proposition in the real world is maybe a decade more life expectancy. It's not living to 100. But I think the real benefit is that the same things that yield this healthy longevity also yield happiness."

I ask a number of men in their 90s and 100s if they do any keep-fit exercise. The answer is always the same: "Yes, digging the earth." Nikos Fountoulis, for example, is a 93-year-old who looks 20 years younger. He still has a smallholding in the hills of the island's interior. Each morning he goes out at 8am to feed his animals and tend his garden. He used to dig charcoal as a younger man. "I never thought about getting old," he says. "I feel good. I feel 93, but on Ikaria that's OK."

Long-time readers of Demography Matters may remember that I visited the phenomenon of extended life expectancy and relatively gentle aging before, in a February 2010 post taking a look at the position and numbers of the aged in Abkhazia. Fantastic claims that Abkhazians regularly lived past the century mark have been debunked. Conversely, traditional Abkhazian culture does seem to have not only promoted good health, but helped integrate aging Abkhaz into their society in a way that allowed them to continue to be productive. (I know nothing about the current situation in Abkhazia. Anyone informed on this subject, please advise in the comments.)

Is it possible to learn from the lessons of Icarians and similar populations? Maybe. As commented in the articles I linked to above, Icarians' longevity appears to be the product of a complex mesh of social factors that can't be easily replicated. Whether the relaxed lifestyle of Icarians and others can be replicated in our contemporary world is very open to question, for instance. If nothing else, the Icarian experience does provide fascinating hints towards a possible futuree.

Wednesday, June 18, 2014

Secular Stagnation Part II - On Bubble Business Bound

"I now suspect that the kind of moderate economic policy regime...... that by and large lets markets work, but in which the government is ready both to rein in excesses and fight slumps – is inherently unstable."
Paul Krugman - The Instability of Moderation

"Conventional macreconomic theory leaves us in a very serious problem, because we all seem to agree that whereas you can keep the federal funds rate at a low level forever it's much harder to do extraordinary measures that go beyond that forever. But the underlying problem may be there forever. It's much more difficult to say, well we only needed deficits during the short period of the crisis if equilibrium interest rates can't be achieved given the prevailing rate of inflation."
Larry Summers - IMF 14th Annual Research Conference In Honor Of Stanley Fisher,

Discussion surrounding the Larry Summers speech to the autumn 2013 IMF research conference (text here) - where he suggested that what we might be observing in developed economies is a phenomenon similar to that which Alvin Hansen (writing in the 1930s) termed secular stagnation (see eg here) - has been intense, raising a plethora of issues, among them whether or not modern developed economies NEED to continually generate bubbles to sustain growth.

Naturally one part of the debate currently taking place revolves around whether or not secular stagnation exists at all. Here I think we can safely leave the heavy lifting part of the argument to Messrs Krugman, Summers et al who will through their ongoing work continue to defend the "aye" corner. The issue, at the end of the day is going to be an empirically testable one, even if - in a discursive space where rival world views are constantly in play - things are never, ever, quite that simple.

Permanent Fiscal Stimulus?

But there is another, equally important, part to this problem.  Suppose for a moment that the secular stagnation thesis is a valid one, and suppose - as I argue in the introduction to this series - that the phenomenon is the result of a slowdown in the rate of growth (turning eventually into contraction) in working age populations in one country after another. Then add to this the further supposition that the process is ongoing (ie not the product of a "baby boom" generation or any such similar "one off") and effectively irreversible.

If these three suppositions jointly and severely satisfy the minimum conditions necessary to warrant their being explored, then we have to face the possibility - as Larry Summers does (and as Eggertsson and Mehrotra attempt to do via the elavoration of  a  model) -  that the conditions might be given whereby what is called the "natural" (or equilibrium) rate of interest gets stuck in permanently negative territory and and thus become - to all intent and purpose - permanently out of reach. So, asks Larry, how can we justify the fiscal deficits we run as being purely counter-cyclical? Or, as Paul Krugman puts it after reading the Eggertsson and Mehrotra  paper, "I’m wondering in particular whether there is a possibility of sustaining the economy with permanent fiscal expansion".

Larry Summers doesn't go quite so far. In an article in the Financial Times - Why stagnation might prove to be the new normal - he recognizes there is a risk of producing bubbles when there is a continuous and unending  application of non-conventional measures, but then, somehow, he seems to duck the bigger question: namely what can realistically be achieved and at what cost. Rather than the issue being -  as presented by Keynes (see my intro to this series)  - how we manage the consequences of inevitable population decline, Summers asks us to think about  "how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity holding our economies back below their potential".

Naturally, there are assumptions here - large ones - that need to be thought about. Do developed economies really have a growth potential, above and  beyond that which is already being manifested. How do we know that? How can we confirm or deny the hypothesis? How can we be sure that long term growth potential is not simply being systematically negatively reduced by the decline in working age populations?

At the very minimum we are in need of one positive counter example, one which shows that there is an underlying potential waiting to be unleashed.

Today's Situation Very Different From 1930s

The current situation is very different from the one John Maynard Keynes contemplated in the 1930s in his General Theory. At that point in the evolution of our economies and our societies the more advanced economies were stuck in a long lasting depression, a depression whose general dynamics are still far from being adequately understood, but one which was at least partly being perpetuated by the ineffectiveness of monetary policy due to the presence of a liquidity trap. The problem at that time was not simply cyclical, and certainly attempts to address it offer pointers to how we can handle our present day one. But the 1930s problem was not not in-principle self perpetuating. Economies really were being held back, as subsequent history has shown.  

Today many economies are suffering the effects of a liquidity trap, but this time what we have is not simply a transient phenomenon since that trap is being generated by the impact of long term demographic changes in a way which was not the case in the 1930s - indeed you could speculate that in some countries the liquidity trap is a by-product of being stuck in a low fertility one. So the temporary application of exceptional fiscal and liquidity measures isn't going to resolve the "problem" (if problem - as opposed to inevitable and natural evolution in our economic and demographic regimes -  there be) since once the effects of these wear off the economy may simply return to its old lethargy. This outcome I fear is one we will see in Japan if the Abenomics stimulus is ever removed.

Thus we are not simply talking about what Keynes referred to in his Essays in Persuasion as "magneto trouble" (despite this being one of PK's favourite analogies), wherein "the economic engine was as powerful as ever — but one crucial part [the magneto]was malfunctioning, and needed to be fixed". Which, we may ask, is the component which needs to be "fixed" here - I reiterate - could it possibly be fertility?

That's why people are talking about permanent fiscal stimulus, assuming "stimulus" is the appropriate word here. If it is then the definition of  "austerity" transits into "failure to apply permanent fiscal  stimulus".  It's a new and different world, one where there is no "back" to head for, or as the American writer Thomas Wolf put it, "you can look homeward, angel", but "you can't go home again".

And Permanently Rising Sovereign Debt?

So to take the standard case, Japan, we might like to ask ourselves what the risks involved in carrying out such permanent stimulus actually are. Curiously the worry here isn't the standard one, hyperinflation. The Bank of Japan and the Ministry of Finance are pumping large amounts of "juice" into the economy, but trend growth is only being sustained at something just over 1% per annum, and outside periods of rapid yen devaluation or consumption tax hikes there is little to be seen in the way of demand led inflation.

The BoJ is currently buying virtually all new issue Japan Government Bonds (holding in doing so the interest rate on 10yr debt at around 0.6%) and the MoF is funding something like 10% of GDP in annual deficit spending by selling bonds to the central bank.

Despite such strong policy measures, the  only incontestable negative that stands out is the accumulation of  a lot of government debt. In the Japanese case, and to date, it amounts to something like 245% of GDP. Obviously such a high level of sovereign indebtedness commands respect, but is it really, really problematic? Paul Krugman isn't convinced. As he tells us in his article "The Japan Story" (2013), "while there is much shaking of heads about Japanese debt, the ill-effects if any of that debt are by no means obvious."

Time Out With MMT

In fact there is a whole school of thought - known by the name of Modern Monetary Theory - which would argue that the ill effects are not obvious since they don't really exist. It's just a question of keystrokes.  I don't consider myself any kind of expert on the doctrines of MMT, but this critique of Paul Krugman and Larry Summers by blogger Ralph Musgrave seems to be reasonably representative of the general line of thought.

On occasion Paul has been rather dismissive of MMT writings, but the thing is his principal objection has normally been that the implementation of their approach would lead to - wait for it - inflation. Now this tack is not so surprising since it used to be the accepted basis for any mainstream critique of systematic money printing. But here's the rub, right now we seem incapable of generating systematic inflation. Not only that PK himself has been fiercely critical - and with reason - of those who had been predicting we were. In fact most of Paul's critique of MMT seems to date to an epoch before we started to ask ourselves whether the natural rate of interest might not have turned permanently negative. As he said, in a critique of MMT made back in March 2011:
"The key thing to remember is that current conditions — lots of excess capacity in the economy, and a liquidity trap in which short-term government debt carries a roughly zero interest rate — won’t always prevail. As long as those conditions DO prevail, it doesn’t matter how much the Fed increases the monetary base, and it therefore doesn’t matter how much of the deficit is monetized. But this too shall pass, and when it does, things will be very different."
It's the "won't always prevail" bit which grabbed my attention. Now it is clear we are contemplating the possibility that it might, in which case the August 2011 observation that:
"the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money."
would seem to be no longer valid, either that or it is highly relevant to the discussion about whether or not Japan government debt really is so benign. I think you can't have it both ways. For my part I'm not at all sure PK is right in being so complacent about Japan debt, and indeed I have explored some of the possible Japan end-games with Claus Vistesen in our piece Japan's Looming Singularity. But even beyond potential financeability problems  (eg just how deep into negative territory can you take a central bank balance sheet and live to tell the tale), there are other more traditional problems which arise, especially if the supplier for the newly induced aggregate demand lies outside the borders of your economy leading the current account balance to go west (see my "The Growing Mess Which Will Be Left Behind By The Abenomics Experiment").

Why Then Is There A Risk Of Bubbles?

 The characteristics of liquidity traps are well known. Central banks increase their balance sheets (M1, base money) but this increase fails to feed through either to expansions in  broader money indicators (M3, credit to the private sector), or to real economic activity (employment, consumption) or even to inflation.

 When their balance sheets are leveraged in a more targeted sense, such as in programmes to promote specific sectors of bank lending, the risk of sectoral mini bubbles increases, as we are currently seeing in the UK.
I won't go into all this more here, since I have recently written extensively on the topic (see the Hot Labour Phenomenon), but it seems clear that a lot of the liquidity which is being pumped into the system by the ECB in an attempt to reflate economies on the Euro periphery is in fact arriving in cities like London, Berlin and Geneva (and specifically their housing sectors) producing all sorts of "bubbly" type activity and distortions in the domestic economies of the countries concerned, distortions which will prove hard to correct later, and may become highly negative in their effect should they eventually unwind.

All this liquidity may not have helped restore the real economies in the intended recipient countries, but it certainly - via "carry trades" and suchlike - made its presence felt elsewhere. Emerging market economies like India, Turkey, Brazil, Indonesia and South Africa saw their economies on the receiving end of large quantities of short term inward fund flows,  flows which pushed the values of their currency strongly upwards, overheated the domestic economies with credit and generated long lasting distortions.

Naturally, when the US Federal Reserve started to talk about tapering its bond purchases (in May 2013) the impact was felt in one emerging economy after another across the globe, as funds suddenly began to flow out, and the values of the respective currencies suddenly started to fall sharply.

So you can understand Reserve Bank of India governor Raghuram Rajan's frustration when he went to Frankfurt last year and complained to his audience: "We seem to be in a situation where we are doomed to inflate bubbles elsewhere." As Larry Summers notes in his Financial Times article: "In the past decade, before the crisis, bubbles and loose credit were only sufficient to drive moderate growth". What one might ask will be needed to achieve that "moderate growth" outcome this time round?