BF:
As you know, I respect John Mauldin, subscribe to his newsletter, like his books. Thank you for posting this, because it raises some important points.
I read this in his newsletter you posted:
"For most of history, the elderly--here defined as adults aged 60 and over--comprised only a tiny fraction of the population, never more than 5 percent in any country. Today in the developed countries, they comprise 20 percent."
"It should be clear to everyone that such an outcome would be an utter economic disaster."
This has become a popular alarmist theme among economists and central bankers alike (I am not sure they have the same objectives in mind) however this theme is a one-sided view. It is not that I disagree with his statement, however there are many ways of viewing this problem.
The Economist has a publication 'World in Figures' (p.17) and there is a book by McMorrow and Roeger "Economic Consequences of Ageing Populations" referred to in Niall Ferguson's Cash Nexus (p.211)
Using dependency ratios (defined as all dependents, children and retirees, children being under 15 retirees being over 64) and one comes to a different conclusion to the alarmists and the quote by Mauldin.
Due to the larger populations of children in developed nations, the dependency ratios (the ratio of the working population 15-64 to those under 15 and over 64) produce different numbers from Mauldin. The dependency ratios for 1900 then 2000, and then the projection for 2050 follow:
US: 0.62 0.52 0.66
Japan: 0.63 0.47 0.86
Germany: 0.61 0.47 0.69
France: 0.52 0.53 0.73
UK: 0.59 0.53 0.69
Italy: 0.68 0.48 0.78
In other words, including all dependents (ie children) in calculating the ratio shows that even at current levels the dependency ratio is not as high as in the past, and although the future ratio is set to rise, in the US the increase is less than 10%, and the UK, less than 15%, far less alarmist than is being made out, and less of a reason to increase retirement ages than Alan Greenspan and other politicians would have you think. (Proper funding and management of social security and small tax increases may do it)
From an investment perspective, using this ratio, one also comes up with a nice list of countries that do not need to raise taxes to pay for the ratio in 2050:
I quote the authors: "Britain, Canada, Australia, Ireland and New Zealand -are the countries with the least to worry about"
Another metric, generational balance, seeks to explain a similar relationship between working and dependent generations:
"A number of countries could achieve generational balance with relatively modest tax increases of under 5 percent: Australia, Belgium, Canada, Denmark, Portugal, and Britain"
"Only Ireland and New Zealand would not have to raise taxes to achieve generational balance"
"Ireland could cut its income taxes by about 5% to achieve generational balance"
Actually this makes for a compelling investment thesis for Ireland. In fact, Bank of Ireland, Fyffes and others Irish stocks could be used to create a portfolio of 'high' yield (4%+/-) Irish stocks. (I did not look at New Zealand)
thepost.ie
I do agree with Mauldin that we have a problem, but disagree with it being presented in such an alarmist one-sided fashion. Moreover, as a financial analyst, I would expect Mauldin to be able to come up with investment opportunities within this theme. |
