Month: July 2019

“Harder-working” countries are not richer

PNRJ public policy, Uncategorized , , , , , , ,

July 28 JDN 2458693

American culture is obsessed with work. We define ourselves by our professions. We are one of only a handful of countries in the world that don’t guarantee vacations for their workers. Over 50 million Americans suffer from chronic sleep deprivation, mostly due to work. Then again, we are also an extremely rich country; perhaps our obsession with work is what made us so rich?

Well… not really. Take a look at this graph, which I compiled from OECD data:

 

Worker_productivity

The X-axis shows the average number of hours per worker per year. I think this is the best measure of a country’s “work obsession”, as it includes both length of work week, proportion of full-time work, and amount of vacation time. The At 1,786 hours per worker per year, the US is not actually the highest: That title goes to Mexico, at an astonishing 2,148 hours per worker per year. The lowest is Germany at only 1,363 hours per worker per year. Converted into standard 40-hour work weeks, this means that on average Americans work 44 weeks per year, Germans work on average 34 weeks per year, and Mexicans work 54 weeks per year—that is, they work more than full-time every week of the year.

The Y-axis shows GDP per worker per year. I calculated this by multiplying GDP per work hour (a standard measure of labor productivity) by average number of work hours per worker per year. At first glance, these figures may seem too large; for instance they are $114,000 in the US and $154,000 in Ireland. But keep in mind that this is per worker, not per person; the usual GDP per capita figure divides by everyone in the population, while this is only dividing by the number of people who are actively working. Unemployed people are not included, and neither are children or retired people.

There is an obvious negative trend line here. While Ireland is an outlier with exceptionally high labor productivity, the general pattern is clear: the countries with the most GDP per worker actually work the fewest hours. Once again #ScandinaviaIsBetter: Norway and Denmark are near the bottom for work hours and near the top for GDP per worker. The countries that work the most hours, like Mexico and Costa Rica, have the lowest GDP per worker.

This is actually quite remarkable. We would expect that productivity per hour decreases as work hours increase; that’s not surprising at all. But productivity per worker decreasing means that these extra hours are actually resulting in less total output. We are so overworked, overstressed, and underslept that we actually produce less than our counterparts in Germany or Denmark who spend less time working.

Where we would expect the graph of output as a function of hours to look like the blue line below, it actually looks more like the orange line:

Labor_output

Rather than merely increasing at a decreasing rate, output per worker actually decreases as we put in more hours—and does so over most of the range in which countries actually work. It wouldn’t be so surprising if this sort of effect occurred above say 2000 hours per year, when you start running out of time to do anything else; but in fact it seems to be happening somewhere around 1400 hours per year, which is less than most countries work.

Only a handful of countries—mostly Scandinavian—actually seem to be working the right amount; everyone else is working too much and producing less as a result.

And note that this is not restricted to white-collar or creative jobs where we would expect sleep deprivation and stress to have a particularly high impact. This includes all jobs. Our obsession with work is actually making us poorer!

Five Spanish castles cheaper than condos in California

PNRJ inequality, public policy , , ,

July 21 JDN 2458686

1. Santa Coloma: A steal at 90,000 EUR ($100,000)

Area: 600 square meters (6500 square feet)

This one is so cheap that it can undercut even affordable condos, like this 1300 square foot one in Santa Ana for $200,000. Yes, it’s technically a castle ruin, but I’m sure it could be fixed up. And I could literally afford to buy it right now.

2. Cal Basaacs: 700,000 EUR ($780,000)

Area: 600 square meters (6500 square feet)

This castle is already more expensive than most houses in the US, but it’s still cheaper than this 1650 square foot $880,000 condo in Los Angeles. And this one isn’t a ruin; it’s a fully-functional castle. It even has central air conditioning!

3. Casa Palacio Cargadores a Indias: 1.4 M EUR ($1.6 M)

This 6-bedroom castle is also a fixer-upper, and without many listed specs or even a listed area, I’d be disinclined to buy it. But it is in a very nice beachside location, and it has a lot of history behind it. And it still makes it in under this 2400 square foot condo in Beverly Hills that’s going for $2.0 million.

4. Cáceres Extremadura: 1.6 M EUR ($1.8 M)

Area: 820 square meters (8800 square feet)

This is a lovely 7-bedroom castle with a guest house, and it’s in the historic region of Cáceres, which is a UNESCO World Heritage Site. It even has its own pool. The only downside is that it’s a fixer-upper. But it’s still somehow cheaper than this $2.4 million 2150-square-foot condo in San Francisco.

5. Torremolinos: 1.8 M EUR ($2.0 M)

Area: 550 square meters (5900 square feet)

Though a bit smaller than the others, this 5-bedroom castle is fully renovated and ready to move in. If you’re looking for an income property, it is already licensed to be converted into a hotel. And it’s still a lot cheaper than this $3.2 million 2850-square-foot condo in Beverly Hills.

I don’t know about you, but I’m thinking maybe housing in California is too expensive?

How much wealth is there in the world?

PNRJ inequality , , ,

July 14 JDN 2458679

How much wealth is there in the world? If we split it all evenly, how much would each of us have?

It’s a surprisingly complicated question: What counts as wealth? Presumably we include financial assets, real estate, commodities—anything that can be sold on a market. But what about natural resources? Shouldn’t we somehow value clean air and water? What about human capital—health, knowledge, skills, and expertise that make us able to work better?

I’m going to stick with tradeable assets for now, because I’m interested in questions of redistribution. If we were to add up all the wealth in the United States, or all the wealth in the world, and split it all evenly, how much would each person get? Even then, there are questions about how to price assets: Do we current market prices, or what was actually paid for them in the past? How much do we depreciate? How do we count debt that was used to buy non-financial assets (such as student loans)?

The Federal Reserve reports an official estimate of the US capital stock at $56.2 trillion (in 2011 dollars). Assuming that a third of income is capital income, that means that of our GDP of $18.9 trillion (in 2012 dollars), this would make the rate of return on capital 11%. That rate of return strikes me as pretty clearly too high. This must be an underestimate of our capital stock.

The 2015 Global Wealth Report estimates total US wealth as $63.5 trillion, and total world wealth as $153.2 trillion. This was for 2014, so using the US GDP growth rate of about 2% and the world GDP growth rate of 3.6%, the current wealth stocks should be about $70 trillion and $183 trillion respectively.

This gives a much more plausible rate of return: One third of the US GDP of $19.6 trillion (in 2014 dollars) is $6.53 trillion, yielding a rate of return of about 9%.

One third of the world GDP of $78 trillion is $26 trillion, yielding a rate of return of about 14%. This seems a bit high, but we’re including a lot of countries with very little capital that we would expect to have very high rates of return, so it might be right.

Credit Suisse releases estimates of total wealth that are supposed to include non-financial assets as well, though these are even more uncertain than financial assets. They estimate total US wealth as $98 trillion and total world wealth as $318 trillion.

There’s a lot of uncertainty around all of these figures, but I think these are close enough to get a sense of what sort of redistribution might be possible.

If the US wealth stock is about $70 trillion and our population is about 330 million, that means that the average wealth of an American is $200,000. If our wealth stock is instead about $98 trillion, the average wealth of an American is about $300,000.

Since the average number of people in a US household is 2.5, this means that average household wealth is somewhere between $500,000 and $750,000. This is actually a bit less than I thought; I would have guessed that the mythical “average American household” is a millionaire. (Of course, even Credit Suisse might be underestimating our wealth stock.)

If the world wealth stock is about $180 trillion and the population is about 7.7 billion, global average wealth per person is about $23,000. If instead the global wealth stock is about $320 trillion, the average wealth of a human being is about $42,000.

Both of these are far above the median wealth, which is much more representative of what a typical person has. Median wealth per adult in the US is about $65,000; worldwide it’s only about $4,200.

This means that if we were to somehow redistribute all wealth in the United States, half the population would gain an average of somewhere between $140,000 and $260,000, or on a percentage basis, the median American would see their wealth increase by 215% to 400%. If we were to instead somehow redistribute all wealth in the world, half the population would gain an average of $19,000 to $38,000; the median individual would see their wealth increase by 450% to 900%.

Of course, we can’t literally redistribute all the wealth in the world. Even if we could somehow organize it logistically—a tall order to be sure—such a program would introduce all sorts of inefficiencies and perverse incentives. That would really be socialism: We would be allocating wealth entirely based on a government policy and not at all by the market.

But suppose instead we decided to redistribute some portion of all this wealth. How about 10%? That seems like a small enough amount to avoid really catastrophic damage to the economy. Yes, there would be some inefficiencies introduced, but this could be done with some form of wealth taxes that wouldn’t require completely upending capitalism.

Suppose we did this just within the US. 10% of US wealth, redistributed among the whole population, would increase median wealth by between $20,000 and $30,000, or between 30% and 45%. That’s already a pretty big deal. And this is definitely feasible; the taxation infrastructure is all already in place. We could essentially buy the poorest half of the population a new car on the dime of the top half.

If instead we tried to do this worldwide, we would need to build the fiscal capacity first; the infrastructure to tax wealth effectively is not in place in most countries. But supposing we could do that, we could increase median wealth worldwide by between $2,000 and $4,000, or between 50% and 100%. Of course, this would mean that many of us in the US would lose a similar amount; but I think it’s still quite remarkable that we could as much as double the wealth of most of the world’s population by redistributing only 10% of the total wealth. That’s how much wealth inequality there is in the world.

“Robots can’t take your job if you’re already retired.”

PNRJ futurism, inequality , , , , , ,

July 7 JDN 2458672

There is a billboard on I-405 near where I live, put up by some financial advisor company, with that slogan on it: “Robots can’t take your job if you’re already retired.”

First, let me say this: Don’t hire a financial advisor firm; you really don’t need one. 90% of actively-managed funds perform worse than simple index funds. Buy all the stocks and let them sit. You won’t be able to retire sooner because you paid someone else to do the same thing you could have done yourself.

Yet, there is some wisdom in this statement: The best answer to technological unemployment is to make it so people don’t need to be employed. As an individual, all you could really do there is try to save up and retire early. But as a society, there is a lot more we could do.

The goal should essentially to make everyone retired, or if not everyone, then whatever portion of the population has been displaced by automation. A pension for everyone sounds a lot like a basic income.

People are strangely averse to redistribution of wealth as such (perhaps because they don’t know, or don’t want to think about, how much of our existing wealth was gained by force?), so we may not want to call our basic income a basic income.

Instead, we will call it capital income. People seem astonishingly comfortable with Jeff Bezos making more income in a minute than his median employee makes in a year, as long as it’s capital income instead of “welfare” or “redistribution of wealth”.

The basic income will instead be called something like the Perpetual Dividend of the United States, the dividends each US citizen receives for being a shareholder in the United States of America. I know this kind of terminology works, because the Permanent Fund Dividend in Alaska is a successful and enormously popular basic income. Even conservatives in Alaska dare not suggest eliminating the PFD.
And in fact it could literally be capital income: While public ownership of factories generally does not go well (see: the entire history of socialism and communism), the most sensible way to raise revenue for this program would be to tax income gained by owners of robotic factories, which, even if on the books as salary or stock options or whatever, is at its core capital income. If we wanted to make that connection even more transparent, we could tax in the form of non-voting shares in corporations, so that instead of paying a conventional corporate tax, corporations simply had to pay a portion of their profits directly to the public fund.

I’m not quite sure why people are so much more uncomfortable with redistribution of wealth than they are with the staggering levels of wealth inequality that make it so obviously necessary. Maybe it’s the feeling of “robbing Peter to pay Paul”, or “running out of other people’s money”? But obviously a basic income won’t just be free money from nowhere. We would be collecting it in taxes, the same way we fund all other government spending. Even printing money would mean paying in the form of inflation (and we definitely should not print enough money to cover a whole basic income!)

I think it may simply be that people aren’t cognizant enough of the magnitude of wealth inequality. I’m hoping that my posts on the extremes of wealth and poverty might help a bit with that. The richest people on Earth make about $10 billion per year—that’s $10,000,000,000—simply for owning things. The poorest people on Earth struggle to survive on less than $500 per year—often working constantly throughout their waking hours. Even if we believe that billionaires work harder (obviously false) or contribute more to society (certainly debatable) than other people, do we really believe that some people deserve to make 20 million times as much as others? It’s one thing to think that being a successful entrepreneur should make you rich. It’s another to believe that it should make you so rich you could buy a house for every homeless person in America.
Automation is already making this inequality worse, and there is reason to think it will continue to do so. In our current system, when the owner of a corporation automates production, he then gets to claim all the output from the robots, where previously he had to pay wages to the workers—and that’s why he does the automation, because it makes him more profit. Even if overall productivity increases, the fruits of that new production always get concentrated at the top. Unless we can find a way to change that system, we’re going to need to redistribute some of that wealth.

But if we have to call it something else, so be it. Let’s all be shareholders in America.