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February 21, 2015

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Posted: 21 Feb 2015 12:06 AM PST

'Investment Charges When Mexico Privatized Social Security'

Posted: 20 Feb 2015 09:21 AM PST

What happened after Mexico privatized Social Security?:

Investment Charges When Mexico Privatized Social Security, by Tim Taylor: If many people start making choices about how to invest their retirement assets, how much of their money will end up in the hands of financial advisers? The answer will of course vary across countries and situations, but Justine Hastings explains the dispiriting outcome in Mexico in "Privatizing Social Security: Lessons from Mexico," appearing in the latest NBER Reporter (2014, Number 4).
When Mexico privatized its Social Security system in 1997, it wanted to avoid a situation where people would make risky investments with their retirement accounts, In fact, the regulations that it set up were so tight that everyone was required to have essentially the same investment. Hastings writes:
"Mexico launched a fully-privatized defined contribution plan in 1997, with 17 participating fund managers which could compete to manage investors' privatized social security accounts. Given the tight regulations on investment vehicles, fund managers each offered one, essentially homogenous investment product. Investors could choose which firm they wanted to have manage and invest — for a fee — their personal social security account. Despite the large number of competitors selling an essentially homogeneous product, management fees and fund manager profits were high."
Here's some evidence on the fees that emerged. The "initial load" is the amount of each deposit that is is immediately paid to the investment adviser. The "annual fee" is then paid each year on the balance in the account. As Hastings explains: "Fund managers charged an average load (a fee taken as a share of account contributions at the time of contribution) of 23 percent and an annual fee on assets under management of 0.63 percent, implying that a 100-peso deposit earning a 5 percent annual real return would only be worth 95.4 pesos after five years." ...

Growth in Real Average Income for the Bottom 90%

Posted: 20 Feb 2015 08:57 AM PST

Paul Krugman: Cranking Up for 2016

Posted: 20 Feb 2015 08:39 AM PST

Creating an alternate reality:

Cranking Up for 2016, by Paul Krugman, Commentary, NY Times: Scott Walker ... did what, these days, any ambitious Republican must, and pledged allegiance to charlatans and cranks. ...
Mr. Walker, in what was clearly a rite of passage into serious candidacy, spoke at a dinner at Manhattan's "21" Club hosted by the three most prominent supply-siders: Art Laffer...; Larry Kudlow...; and Stephen Moore... Politico pointed out that Rick Perry, the former governor of Texas, attended a similar event last month. Clearly, to be a Republican contender you have to court the powerful charlatan caucus.
So a doctrine that even Republican economists consider dangerous nonsense has become party orthodoxy. And what makes this political triumph especially remarkable is that it comes just as the doctrine's high priests have been setting new standards for utter, epic predictive failure.
I'm not talking about the fact that supply-siders didn't see the crisis coming,... the people Mr. Walker was courting have spent years warning about the wrong things. "Get ready for inflation and higher interest rates" was the title of a June 2009 op-ed ... by Mr. Laffer; what followed were the lowest inflation in two generations and the lowest interest rates in history. Mr. Kudlow and Mr. Moore both predicted 1970s-style stagflation. ...
Something else worth noting: as befits his position at Heritage, Mr. Moore likes to publish articles filled with lots of numbers. But his numbers are consistently wrong... And somehow these errors always run in the direction he wants.
So what does it say about the current state of the G.O.P. that discussion of economic policy is now monopolized by people who have been wrong about everything, have learned nothing from the experience, and can't even get their numbers straight?
The ... modern American right seems to have abandoned the idea that there is an objective reality out there... What are you going to believe, right-wing doctrine or your own lying eyes? These days, the doctrine wins.
Look at another issue, health reform. ... Then there's foreign policy. ... And don't get me started on climate change.
Along with this denial of reality comes an absence of personal accountability. If anything, alleged experts seem to get points by showing that they're willing to keep saying the same things no matter how embarrassingly wrong they've been in the past.
But let's go back to those economic charlatans and cranks: Clearly, failure has only made them stronger, and now they are political kingmakers. Be very, very afraid.

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