Geronto-Generosity: Brazil's Pensions

Brazil has become one of the most generous countries for retirement. The normal age of retirement is around 58 in Brazil which, is lower than the United States and Mexico by a significant amount. This has a huge impact in their economic standing and could lead to an economic crisis in the future.

Historically, this pension system came out of their 1988 reforms to their constitution and gave more rights to the people after the military presence many citizens lived under. On average, people retire at 58 however, there are groups of people that retire earlier than that. For example, female teachers and widows have significant pension benefits like early retirement and being able to secure their spouses pension as well as their own.

This creates many problems for Brazil's economy, The Economist details, that as a share of GDP Brazil spends 50% more on pensions than OECD average. In addition, with a budget deficit of around 8.5%, pensions account for more than half of the deficit. Since spending on pensions is so high it impacts the role of the state in other areas such as education, healthcare and infrastructure and it removes people from the workforce. This creates an economy that is not able to grow due to the heavy impact of pensions.

To combat this growing pension problem, the current President Michel Temer, has enacted reforms. He wants create a minimum pension age for everyone, have to contribute for 25 years and people cannot receive more than one pension. Getting these reforms through the Congress in Brazil is going to be hard and opposition to this is great.

It will be interesting to see how Congress responds to the attempted reforms of the pension system however, it is likely that without reforms, there will be a deepening economic crisis in Brazil leading to even more issues. It is also alarming to see that with pension spending so high it is creating strain on other areas like education, healthcare and infrastructure which are important in society.














http://www.economist.com/news/leaders/21717381-last-government-dealing-threat-countrys-future-fixing-brazils-pension

Watch Janet Not Donald

For the cohort of bankers and analysts on Wall St. who've been steadily watching the FED meeting minutes and addresses to congress over the few years, Donald Trump's administration has given them both a new focus and a renewed focus. These folks watch the minutes (notes) from FED's regular meetings intently as they might provide clues as to when the governing body plans to raise key interest rate benchmarks that underpin the majority of relevant interest rates in the United States. Thus, monetary policy has been a hot topic, although due to budget hawks in congress, this cohort had little to watch for in the way of fiscal policy.

Fiscal policy can be a signal of where the economy is moving and which sectors will likely advance or recede. Mr. Trump's administration has provided plenty of speculation. Prior to his election, people generally believed the markets would tank upon his election in a way similar to the fallout from Brexit in Summer 2016. However, the markets have been rallying since the nation found out it would be lead by a man preaching that we build a wall. There is reason to believe that there will be large fiscal stimulus and with employment nearly full and inflation beginning to gain some momentum, investors expect the FED meetings to get a bit more eventful.

Thus, when Donald Trump addressed congress this week, he likely had investors tuned in. However, investors are more aware of FED Chairwoman Janet Yellen's words that will come Friday. Trump may have brought a close eye to fiscal policy, but he's also brought a more anxious eye to monetary policy.


https://www.economist.com/blogs/buttonwood/2017/03/watch-janet-not-donald

Sliding towards Scoxit

       
              Though the implications of Brexit are numerous, one particularly interesting consequence is that Scottish independence from Great Britain is, now more than ever, a possibility. This stems from the fact that the traditional case for staying -the economic benefits - has been weakened as financial forecasts point toward a slowing British economy. Moreover, aside from economic concerns, the lack of Scottish representation in either the Tory or Labour political parties shows that the "precious, precious bond" between the two countries is, for all intents and purposes, a largely one-sided relationship. On top of this, Brexit itself has established a precedent that would appear to make it more difficult for British politicians, given their own experience, to advise against succession or head the warnings of objective institutions like the Bank of England.

              With all of this in mind, however, it is imperative to note that while the political climate may be ripe for Scottish independence the current economic state of Scotland indicates otherwise. Specifically, since a referendum to leave Britain several years ago, Scotland's economy has experienced stagnant growth as its dependence on fossil fuels and finance has failed to deliver much of anything(the price for a barrel of oil has stayed cheap hovering around $59 a barrel and Scotland has lost roughly a 1/10th of its financial jobs). Accordingly, losing the valuable free-exchange that Scotland has had with Great Britain at this particular moment in its history could prove too high a hurdle to overcome though remaining in the "Brexit-bound union" also poses its own challenges to future growth and prosperity. Although Scotland could certainly choose the "middle path" of independence from Britain while also rejoining EU's single market this would be essentially pointless given that "Scotland exports four times as much to the rest of Britain as it does to the EU." Considering all of this, where do you see Scotland headed in the coming months and years ahead?

http://www.economist.com/news/leaders/21717038-decision-leave-eu-appears-strengthen-case-scottish-independence-fact

Trump's first budget proposal will call for $54 billion increase in defense spending

President Donald Trump's first budget proposal will follow the "priority of the United States" principle,  transfer the budget overseas into national defense, law enforcement and veterans. President Donald Trump plans to increase the defense budget by 10%, if adopted by Congress, will be a historic increase in defense spending.

According to the budget proposal issued by the Office of Management and Budget official (OMB) on Monday, defense spending will increase to $ 603 billion in 2018 and $ 462 billion in non-defense spending.

Trump's proposal includes an increase in defense-related spending of $ 54 billion, while cutting the same amount of other federal agency spending. If it is passed by Congress, this means that federal spending on national security will increase on a large scale, while other priorities, such as foreign aid and environmental protection budgets, will be significantly reduced. This is the first time that the authorities have pointed out the budget priorities. Before the adoption of the Budget, President Trump and Congress are expected to go through months of consultation.

The White House did not talk about mandatory spending or tax policy changes, but said the details will be announced later. The welfare program is the most important part of government spending, such as social security pension, Trump authorities have said it will not be modified.

President Trump's budget proposal will be submitted to Congress on March 16, the final version will be issued in early May. In view of the new government plans to cut the tax system and increase defense spending, the outside world worried that this will further increase the size of bonds.

http://www.cnbc.com/2017/02/27/trumps-first-budget-proposal-will-call-for-54-billion-increase-in-defense-spending.html

Clean energy’s dirty secret

The podcast which accompanied the article discusses how there lies a paradox in subsidizing renewable energy given that the money also goes to fund fossil fuel-based energy production. The speakers talk about how despite the falling costs of renewable energy, it has yet to become sustainable by itself.Wind energy or solar power are often not reliable which leads these companies to use government funds to provide fossil fuel-based (coal/gas/oil) power during downtimes.

Another added problem to the falling costs is how this is causing a crisis in the electricity market, so while costs for producing renewable energy are getting cheaper, consumers are being forced to pay higher bills in countries that have not adopted these new changes. While certainly, this may help to disincentivize people from buying electricity from these places but for the most part, the choice to buy an alternative might not be available to them for a while.

The article discusses how this abundance of subsidies (not necessarily misplaced) is also having the negative consequence of lowering the revenues one could expect from the power markets. This brings to the final conclusion about how renewable energy is not just unsustainable on its own right as of now, but also how this is deterring further investments into the industry due to its consequences on the global electricity market.

But of course, this is no reason to backtrack from investing in renewable energy (which will need to account for half of the global electricity consumption in the next 30-40 years) but a reason to look at other aspects of what needs to be changed. One of the suggestions discussed in the podcast looks at how the technology for storage of power is still highly underdeveloped and bears great potential for the renewable energy industry. Both the article and the podcast talk about how it is important to adopt flexible measures regarding regulations and prices and focus on smoothing out and possibly reducing demand by adopting digital meters, batteries and small, modular plants.

It is ironic how at its current form renewable energy sources are not sustainable economically, but it is understandable how governments undertaking the costs to correct a market failure inadvertently stemmed its own problems of crowding out private investors. The government really needs to focus on the other aspects of this industry in order to make sure that this investment is carried out efficiently and has the potential to grow on its own without this level of subsidy incentive.

Given how this is a relatively new turf for investments, the industry needs to be shaped in a way where it can be monetized enough to incentivize spending. But for now, the transition is going to be slow and we need to find alternative approaches to make this sustainable soon. Influencing demand by marking up taxes and disincentivizing consumers from buying dirty energy could be a temporary proposition but in the long term, regulations will need to be put into place for the renewable energy industry to truly make an impact.

http://www.economist.com/blogs/freeexchange/2017/02/podcast-money-talks-1

2nd Shale boom to be better than the 1st

Trumps campaign drove home the idea that he could bring back American jobs and we have yet to see much in the way of true job creation.  But, that's not stopping the shale industry.  Shale production in the United States had hit an all time low in September of 2016.  But in the short months since it has nearly recovered all of the previous years losses.

The Boom is predicted to be bigger than the last. This is larger due to a few factors. First the increase in available technology, this has allowed cost to drop significantly which allows for shale oil to compete with other rather easily attainable oils. Next, is the drop in OPEC output. After terms were agreed upon in early December to cut OPEC's production shale output began to rise.


Trump has said that he will remove the regulations that are holding American companies back if this is true and American oil exports could increase this could be largely beneficial for the jobs market and the trade in balance. Only time will tell.







https://www.bloomberg.com/gadfly/articles/2017-02-26/with-shale-oil-production-like-this-who-needs-trump

Possible visa changes could devastate the entire US Economy

President Trump and his administration have been toying around with the idea of making the visa process much stricter for many categories of people including foreign nationals who travel to the United States for business, hired by American companies, and students enrolled in U.S universities. There are reports of a draft order circulating in Washington. It is a highly controversial move by the Trump administration as the Muslim ban that he previously imposed was met with outrage across he country and then temporarily blocked by a federal ruling. However, last week the Department of Homeland security released information about new policies which include the detaining and deportation of foreign nationals that have previously held a criminal record or are suspected of being involved in crime. Trump's plan of restricting all business travelers to protected U.S jobs will not go well. This will include the travel of American citizens and green card holders. I agree with the attorneys saying it will have a devastating blow to the American economy. In my opinion I think this blow will be short lived and eventually the economy will shift into a more pro growth gear. However,  the Trump administration needs to make this a much smoother and less chaotic transition even if they are restricting business travel. It is true that American economy will receive a blow as a huge percentage of students that study in universities here, are STEM pupils. We have already seen the implications these sort of policies could have on the tech industry as many immigrants are CEOs of large corporations which employ thousands of people across the United States and across the world. The tech industry relies heavily on workers with H1B visas and to immediately strip them away will be detrimental to the economy and increase unemployment in general. This makes Trump's promise of creating more jobs on the line. Even if U.S workers were hired, wages would will not go up despite what people think. An economy cannot just make that shift overnight. So it will quite interesting to see the actual implantation of Trump's newest executive order and the backlash it will receive.





http://www.miamiherald.com/news/local/immigration/article135111869.html

Lower immigration could be the biggest economic cost of Brexit

British prime minister Mrs May and Amber Rudd’s commitment to reduce net migration to “ten of thousands” can only be realized at a significant economic cost. Net immigration to Britain was a record high of almost 300,000 in 2016 and it was made up mainly of skilled workers. So, it is impossible to reach the target without banning some of the skilled workers to enter country. Since 25% of the scientific researchers are foreigners, lower immigration of skilled workers would be problematic for skilled industries. Reducing entrance to foreign workers will also be significant on the unskilled industry such as food manufacturing. Food manufacturers rely heavily on non-British unskilled workers. If the supply of cheap labor diminishes, it could pose a big threat to the survival of many firms.

Britain has a huge aging population and higher tax income is needed to accommodate spending on growing pension and health care. Foreign workers are subject of tax and limiting their presence would put more burden on Britain. There are some arguments saying that reduction to net annual migration of 100,000 would increase the wages by 0.2-0.6% by 2018. However, According to research by Katerina Lisenkova of Stratchclyde University, this wage boost will be offset by decline in GDP per person by 1% in long term.

http://www.economist.com/news/britain/21717418-annual-net-migration-amounts-about-three-times-attendance-manchester-united-football

Economists Have Been Demoted in Washington. That’s a Bad Idea.

Economists Have Been Demoted in Washington. That’s a Bad Idea.

This articles discusses the downfall of Trump's cabinet which fails to include the chairman of the Economic Council Advisers.  This eliminates any academic economist from contributing perspective to the nations economic standing.  Trump's administration is well represented by individuals from the corporate world and this is likely to play a large role in the perspective of his cabinet.  Removing an academic economist does less to ensure a impartial outlook on the economy as a whole.  The article goes on to state how Dr. Feldstein, an economist, provided council during the Reagan administration speaking outwardly about the nations increasing deficit.  This was not well received by many but it serves the point of the importance of such a voice in not being swayed by conflicts of interest.



For full article, click here.

Emmanuel Macron is edging closer to France’s presidency

The French election is currently being dominated by the Right, the farthest left candidate, who has a chance of winning the election is an independent. Emmanuel Macron is a former Socialist economy minister who has risen to second place in the upcoming election. Because of the investigation into his competitor Francois Fillon, regarding allegations that he gave his wife a highly paid job with no responsibilities, Emmanuel has taken a slight lead.

Macron has not been entirely scandal-free however, his recent comments regarding the french occupation of Algeria landed him in hot water with National Front supporters. By claiming that what France did during the colonization of Algeria he may have alienated a portion of voters. However, the support he is rallying seems to stem from the unique approach to politics Macron takes. The National Front will not be voting for Macron regardless, their support is for their candidate Marine Le Pen, who seems to be in the lead at the moment. Her supporters have more conviction behind them than any other candidate's currently, three-fourths of them are certain of their vote.

Macron is the founder of the "En Marche" movement which is an ideology that draws upon his socialist background, however, seeks to transcend party lines. Its supporters are widespread, and it has enlisted several political important politicians and economists in its ranks. The movement seeks to reject the choices of yesterday in order to make a brighter tomorrow

This will not be an easy election for him, though, he is seen as an intellectual with a "pro-European" agenda in a nation with rising nationalism. His belief that Germany's open borders to Syrian refugee "saved our collective dignity" is becoming unfashionable in a nation that has suffered from several high-profile terrorist attacks. He may be ahead in polls against Le Pen for the final election, however, he has some serious hurdles to overcome before then, and when he finally gets there he has to defeat Le Pen, a woman deemed to be France's, Donald Trump. In a nation where nationalism is becoming a dominant ideology it will not be easy to defeat Le Pen.

http://www.economist.com/news/europe/21717389-charming-outsider-now-needs-show-he-has-substance-emmanuel-macron-edging-closer?fsrc=scn/fb/te/bl/ed/themanwhowouldstoplepenemmanuelmacronisedgingclosertofrancespresidency

Mexican senator aims to hit U.S. for Trump's 'big lie' on NAFTA

In the article by Patrick Gillespie he mentioned how Mexican Senator Armando Rios introduced a new legislation that will cut down Mexico’s purchase of US Corn. According to the article Mexico bought about 25% of all US corn, which gave the US about $2.6 billion dollars in profit. Trump has mentioned that when it comes to NAFTA, the free trade with Mexico it benefits Mexico more than it benefits the US. However, Senator Rios disagrees with Trump and has therefore decided to reduce their imports of US corn. Rios hopes that in 3 years they will not be buying any corn from the US. This legislation can potentially cost US farmers their jobs since Mexico is one of the biggest consumer of corn. If they are to reduce their import it can potentially affect our economy as well as our free trade with other countries.

The legislation also states that they will look into trade deals with other Latin American or European countries. This legislation comes after Trump statements about how he is to impose a tariff on Mexican goods to fund the Mexican-US border wall.

Article: http://money.cnn.com/2017/02/22/news/economy/mexico-us-corn/index.html?iid=SF_LN

Why governments should introduce gender budgeting

This article discusses the concept of gender budgeting. While not a new idea, it is again being brought to the forefront as countries across the world are implementing policies based on this modeling.

At its core, gender budgeting simply does a cost benefit analysis of the effects of different policies for men and for women. While this seems like a logical method for analyzing policy, it is not used nearly as much as it should. Methods such as gender budgeting allow women's issues to be brought to the forefront and infuse every policy decision with the impact it will have on women. Despite making up half our population, women largely fall to the wayside. The growth of gender budgeting is a step in the right direction for women all over the world.

Donald Trump and NATO: Pay Up

Last week, defense secretary James Mattis visited the NATO headquarters in Brussels to calm United States allies.  President Trump's campaign rhetoric elicited fear in NATO allies, as Trump stated the alliance was obsolete and that the US should not continue to support its upkeep. Mattis took a different approach as compared to the president, stating that NATO is a "fundamental bedrock for the United States and the trans-Atlantic community."  However, he did warn that if changes were not made, then the commitment of the United States would "moderate."  While this has always been a threat from the United States, President Trump's threat is taken with much more heed.

In 2014, after the Russian invasion of Crimea, a NATO summit was held in fear of Russian aggression.  There, it was agreed upon that NATO members will spend 2% of the GDP on defense by 2024. Jen's Stoltenberg, NATO's secretary-general, is behind this push, and agrees with President Trump's push for NATO defense spending to increase.  And it has- military spending has increased by 3.8% (about $10 billion); however, only Britain, Poland, Estonia, and Greece have met their 2% threshold.  That leaves powerhouses like France and Germany lagging behind.  Further, Spain and Italy will struggle to meet the 2% defense spending threshold if they want to continue meeting the European Union budget rules.

What I find interesting is the fact that these European countries who would be the most affected by Russian aggression do not seem to seek further protection.  Instead, their focus has been on social programs and infrastructure, despite the threat of Russia at their door. While it is understandable that the United States does have a large stake in the claim against Russian aggression as the world's hegemonic power, it is understandable why President Trump is taking such a hard stance on the issue of NATO defense spending.  What is troublesome is that if NATO member countries decide that President Trump's threats are empty, what will he do?  The collapse of NATO is detrimental to the balance of power in the world, as well as the United State's stake in Europe. Yet, if President Trump threatens but does not deliver on such threats, he still loses his hardline reputation.

"Donald Trump and NATO: Pay Up." The Economist. The Economist Newspaper, 18 February 2017. 

The Big Question for the U.S. Economy: How Much Room Is There to Grow?

            I found this article interesting because some economists are suggesting that the United States is reaching its full productive capacity.  It is mentioned that just about everyone who wants a job has one, and offices/factories are operating at full speed.   GDP is rising and nearing the Budget Office’s estimated point of the highest “potential GPD” that the United States can reach.  In order to break the “potential GDP” limit, an economic boom is needed.  Without the boom, “higher growth will translate into inflation, not higher output and outcomes.”  The article suggests that in order to break the limit the United States needs to focus on reducing its economic slack.

 

            Slack is created from millions of Americans who are “coaxed” into working in the economy, but are not searching for/wanting to work a job. Other evidence of slack in the United States is that “American companies were operating factories at 75.7 percent of their potential in January.  That’s roughly the rate they’ve been for the last five years.” If the United States wants to experience this boom, they need to figure out how to eliminate as much slack is possible.  It is suggested that before we develop new office space, we need to focus on filling up the vacant spaces in order to become more efficient.  The question is how much slack truly exists in the economy and how can we work on reducing it?

 

https://www.nytimes.com/2017/02/24/upshot/the-big-question-for-the-us-economy-how-much-room-is-there-to-grow.html?hp