The Financial Riddler -- 2/8/22

The More You Miss, the More You Get

Riddle me this. Are economists more likely to plan for their financial future? Does Uncle Sam impose a huge tax that it secretly returns? Will China stop since its population is now falling? Is illegal immigration setting record highs? Is S. Korea committing national suicide with its record low fertility rate? What’s caused eggflation?

1. Do economists do financial planning more often than others?

   a. Yes

   b. No

And the answer is …

The answer is no from what I can tell. The evidence? I indirectly (through their department chairs) emailed roughly 1,500 economists offering them a free license to my company’s MaxiFi software. The software does economics-based financial planning. It’s the only such software on the planet. Most economists know my name. All were able to Google me and check out the software at maxifi.com. I also wrote them that the tool was an excellent teaching resource to cover life-cycle consumption smoothing — a standard topic in macroeconomics. Remarkably, only a handful of economists emailed me to get the software. Maybe their chairs didn’t forward the email per my request? But maybe they are like everyone else — too scared to look at their finances. But the beauty of MaxiFi is it can find you safe ways to raise your sustainable living standard — often to a huge degree. Yes, financial planning takes a bit of time. But if you’re playing with a money machine, you’re engaged in the best online game going.

2. Does the government have a huge tax, with an enormous work disincentive, that it secretly returns?

   a. Yes

   b. No

And the answer is …

The answer is yes. But you won’t learn this from reaching the misleading statements on Social Security’s website. If you go to that link you’ll learn the following. If you are older than 62, but younger than your Social Security full retirement age, Social Security reduces your retirement and dependent benefits, assuming you filed for them, by 50 cents for every dollar you earn over $21,240. Once you reach January 1st of the year you’ll turn full retirement age, you’ll lose 33 cents in benefits per dollar you earn above $56,520 until the month you reach full retirement age.

The extensive discussion of the earnings test swamps the one-liner statement: “We will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.”

What the page should say is:

If you earn above certain limits before achieving full retirement age we tax away the Social Security benefits you are collecting, regardless of their type. However, we return these taxes in the form of a higher level of benefits that begin when you reached full retirement age. Hence, if you aren’t going to switch to a spousal or survivor benefit at full retirement, what you lose from our earnings-test tax is not a real tax. Why do we levy such a high tax only to hand back the revenues in a highly cryptic manner, which we make sure not to explain on our website? We don’t want workers to take their retirement benefits early and keep working because this the benefits that aren’t taxed away will be permanently lower than would otherwise be the case. So, we’re using this subterfuge to discourage workers from taking benefits early. What about workers who are laid off, take benefits early and are then discouraged from going back to work? Too bad for them.

This is possibly the worst public policy on the books.

3. Will China stop growing now that its population is in decline as implied by this recent CNN article?

   a. Yes

   b. No

And the answer is …

Absolutely not. A country’s growth depends on the growth of its workforce, the growth of productivity of its workforce, and its capital stock. The fact that China’s death rate now exceeds its birth means that eventually, the growth of its workforce will decline. But its effective labor supply can rise if China’s labor productivity continues to grow. Indeed, as this paper shows (see table 10, the Univariate results), under conservative assumptions about China’s labor productivity growth, it will account for 27 percent of world output in 2100 — up from 16 percent in 2017. This holds despite a 400 million project decline in the Chinese population between now and the end of the century. The U.S. global output share will fall from 16 percent to 12 percent over the same period even though our population will rise by roughly one-third.

CNN was only one of the major media outlets to suggest that China’s growth would potentially mimic its population growth. My question is why they don’t have economists writing for them. The ratio of economic nonsense to sense exceeds 1.

4. Is U.S. illegal immigration at a record high?

   a. Yes

   b. No

And the answer is …

The answer is no. There were 11.3 illegals in the U.S. in 2022. In 2012, there were 12.2 million. Interestingly, concern about illegal immigrants has, it seems, increased dramatically even though illegal immigration has fallen over the past decade. Much of the focus has been on the number of people trying to immigrate to the U.S. In 2021, a record number — 1.7 million encounters — of migrant encounters at the Mexican border. But that was 2021. Arrests at the Mexican border exceeded 2 million in 2022. Hence, we have an onslaught of people trying to enter the U.S. legally or illegally, but no increase, relative to a decade ago, in the number succeeding.

5. Is S. Korea committing national suicide with its .81 fertility rate — the lowest in the world?

   a. Yes

   b. No

And the answer is …

Maybe. South Korea’s population is now 51 million. Its 2100 projected population is 16 million. Extrapolate out to 2200 and, well, bye bye S. Korea. Yet new means of producing children may emerge. For example, males can donate sperm and females can donate eggs and the government can cook children in pods as has already been done with lambs. This sounds awful — something out of Hitler’s playbook for expanding the Aryan population. But who’s to say such technology won’t be used? I think the real question is whether S. Korean young women have given up on S. Korean young men? Maybe the men need to change their approach? I was just in S. Korean and engaged in a “scientific” survey of two young S. Korean women. But they were very perspicacious and seemed to have a good handle on the situation. They made clear that neither they nor most young S. Korean women are particularly interested in dating, let alone marrying or having children.

6. Why has egg inflation cracked the record books?

   a. The Fed has printed too much money

   b. Avian Flu

   c. Putin’s war on Ukraine

   d. China

And the answer is …

It’s Avian Flu. PBS NewsHour’s, Paul Solman, has a great segment on this that’s gone viral. It will make you crack a smile.