Allison's ode to the second moment

Hello,

Welcome to the nineteenth issue of Allison’s Ode to the Second Moment, a newsletter that makes you feel good about your shortened mortality.

Shorter lives

For the first time since 1993, American life expectancy at birth fell. Unless you are a pension actuary, this is terrible news. It may just be a data blip or evidence that drug deaths and obesity are taking their toll.

But the biggest increase in death rates comes from the fact that we are living longer lives. The number of deaths from Alzheimer’s disease is up more than 18% from the prior year!

Some experts think the increase is more people reporting Alzheimer’s as a cause of death.

That means there’s a silver lining to these morbid statistics. Deaths from dementia-related illness may have increased, but fewer people are developing dementia now. It seems, after controlling for age, the prevalence of the disease declined—a lot. It is not clear why, but speculation is that younger cohorts are better educated. More education reduces risk for dementia (glad I spent all those years in grad school).

At this rate, Alzheimer’s deaths could fall in the future and life expectancy may increase again. Sorry, pension actuaries.

A golden age for infrastructure

As you may have noticed, I am not an infrastructure enthusiast. I think it’s important and a potential source of growth and everything. I just don’t think it’s the magic elixir everyone else seems to think it is. It is important to pick the right projects and we often don't. Besides most infrastructure spending occurs at the state level. Have you seen the state of state budgets? I know I always seem to work unfunded pension obligations into every conversation, but it is a relevant issue here. Infrastructure fans don’t like to think about such arcane details.

Well maybe they do. The Trump victory released a torrent of infrastructure skepticism. I fancy myself a contrarian. So I am going to be hopeful his infrastructure plan will work out. Maybe his administration will choose useful, growth enhancing projects. The problem is few of those projects are shovel ready. It may take a few years, at least, to get them started. Meanwhile interest rates may go up right away, especially long-term rates which are forward-looking. In that case, we might get less growth before we get more. I have a low discount rate, so that’s fine with me. Maybe Trump has a low discount rate too.

A golden age for wage floors

It turns out increasing the minimum wage a little (the $15 level is being phased in slowly) in Seattle didn’t correspond to an increase in unemployment. Minimum wage proponents have declared all basic laws of economics open to review.

It may be more complicated than that. The Seattle area is experiencing a big economic boom. Nearby cities that experienced the same growth (and no wage increase) created even more jobs and in Seattle low wage earners worked fewer hours. So I am not sure minimum wage enthusiasts can declare victory just yet.

It is worth bringing this up because the minimum wage debate highlights a common misunderstanding of how economic models work. Somehow people have decided what holds locally can be applied globally. Increase wages a little in a booming economy doesn’t generalize to increasing wages a lot in a struggling economy. The world is non-linear.

It is fashionable to assume all traditional economic models are wrong lately. But critics don’t understand models are abstractions of reality. They don’t (and aren’t indented to) work the same way in every situation. The art of economics is not only understanding a model, but also knowing when to apply it.

A golden age for innovation

I’ve been reading wonderful Against the Gods. It contains a delightful story about the Renaissance doctor/mathematician Gerolamo Cardano. His compulsive gambling habit laid the foundation for modern probability theory. He wrote an autobiography that starts with him kvelling about how wonderful it was to be alive during the Renaissance. Every day seemed to bring new innovations. The whole world was opening up (though exploration) and information could be shared like never before (though the printing press). It sounds so much like today, except people now think these are bad things.

I wondered why we were so negative while reading a Wall Street Journal story on why we don’t have enough innovation. Grep Ip argues it’s because we’ve become more risk averse. It’s not clear why that’s true or when the golden age of risk taking was. Maybe we are just richer than we were in the Renaissance and it costs more to insure a pricier asset.

I am going to go out on a limb here, and say something no one else will admit. I am just as enthusiastic about innovation as Cardano was in his day. Total Factor Productivity statistics won’t convince me otherwise. Nor will the fact that some people earn less than their parents did when they were 30. It’s hard to argue living standards haven’t increased for most people since the 1970s. Remember the 1970s? I was pretty young them, but my impression is that it wasn’t so great.

Take cars. Driving used to be pretty dangerous. Ip complains car technology isn’t advancing fast enough, but there have been some fantastic innovations (anti-lock breaks, power steering, air bags). They may not be sexy, but we are much less likely to die in traffic accidents than we were in the 70s. I think that’s pretty awesome. I’ll take it over an electric flying car. Though some pension actuaries might disagree.

Until next time, Pension Geeks!

Allison