Welcome to the fourth installment of Allison’s Ode to the Second Moment, a newsletter that celebrates the special, high, and low statistical moments in our lives.
The fundamental question of our time
All debt crises are terrible in their own way, but they all seem to come down to one question—who gets paid first? Austerity critics like to paint each debt crisis as vulture-like bond-holders (often hedge funds) demanding they get paid at the expense of poor tax-payers who need services like schools and infrastructure. But this narrative ignores the main power-player, pensioners.
The real battle is between pensioners and bond holders. The tension featured in Detroit, Greece, now Puerto Rico, and soon Greece again. These battles get ugly, drag out debt crises, and tax-payers end up paying more. Pensioners always seem to prevail, taking smaller, if any, hair-cuts to their benefits.
At first glance, this seems right. Grandmothers and retired policemen are more sympathetic figures than hedge funds. But when you think about it, aren’t they just like any other creditors? The major difference is that their claims are based on supplying labor instead of capital. And often, other pension funds are the bond owners. The moral distinction is not always so clear.
I think the problem is we don’t count pension obligations as debt, even though they really are. And when push comes to shove, pensioners come out as senior. The sooner everyone acknowledges this, the more efficient debt markets will be. I have some sympathy for Puerto Rico’s creditors, but anyone who lent money to a municipality whose pension-funding ratio was 4% was smoking something.
And it is just the beginning. Keep your eye on the city of Hartford, which may be the next municipality to declare bankruptcy.
You may have heard the American middle class is disappearing. For some reason we all assumed that meant many more poor people and a few lucky rich people. But, as you can see in this animated figure from the Financial Times, the income distribution flattened and widened. Or the middle class is disappearing because some people who used to be middle class are now poor, but many others are now upper-middle class. Some people are better off and others are worse off and which camp you fall into depends on where you live according to a new Pew study. The study does not include it, but I reckon an aging population is driving some of the trends in certain parts of the country. For instance, parts of Florida have many more low earners, but they may be retirees.
And while we are on income inequality, does it really matter? All that matters is that people are happy, which economists define as security, leisure time, and buying stuff. Turns out there’s more inequality in all these areas too. Consumption inequality has increased; the haves are spending much more than the have-nots. True, low earners have nicer things like iPhones and big screen TVs, but inequality in food spending widened considerably. Poorer people may be eating lower quality food and that may contribute to widening disparities in life expectancy at retirement.
But it turns also out the inequality goes the other way when it comes to leisure. Low earners are working fewer hours compared to their high earning peers. Maybe the two are related. Previous research estimates less work time is correlated with spending less on food.
Inequality is widening, but what that means for our well-being may need further study.
Sometimes a little uncertainty is a good thing
I think this whole universal basic income idea is pretty terrible. The idea is we pay everyone, regardless of income or employment status, a universal income benefit. It’s sort of like taking the Alaskan dividend national and making it bigger. Sounds nuts right? Maybe that’s why the idea polls so poorly among the people who will probably have to pay for it.
They are not wrong. The hope is that the certainty of a constant income will remove the constraints of tedious work and unlock our creative potential. But risk and uncertainty is what propels the economy forward. Research finds motivation is driven by the need to resolve uncertainty---like the uncertainty of whether you can pay rent and eat.
Also, I reckon what’s wrong with the world is polarization and under-employment. Work may sometimes be tedious and unpleasant, but it brings people together for a shared purpose and bonds them. Sometimes you might even have to work along side someone who votes or worships differently than you, if at all---imagine that.
Until next time, pension geeks!