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The Wall Street Journal says that most European countries are insolvent if you account for current Social Security and other government pension promises. Excerpts from a recent article:

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.

Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers, says the Bureau of Labor Statistics, which doesn’t have a projection for 2060.

The pension squeeze doesn’t follow the familiar battle lines of the eurozone crisis, which pits Europe’s more prosperous north against a higher-spending, deeply indebted south. Some of the governments facing the toughest demographic challenges, such as Austria and Slovenia, have been among those most critical of Greece.

While a few countries—including Norway, the U.K. and the Netherlands—have considerable savings in public funds or employer-sponsored pension plans, many others have little.

Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

In Poland, birthrates are even lower, and here the demographic disconnect is compounded by emigration. Taking advantage of the EU’s freedom of movement, many Polish youth of working age flock to the West, especially London, in search of higher pay. A paper published by the country’s central bank forecasts that by 2030, a quarter of Polish women and a fifth of Polish men will be 70 or older.

With their berry sales, the two [married Polish retirees] have a combined posttax income equal to $6,400, about 60% of Poland’s median for two people. … Her first daughter, 46-year-old Anna Mazurek, lives across the lane in Zaraszów. She teaches school—earning about $1,375 a month—cares for two children and spends many hours minding a shop she and her husband built. … Once a year, the pension plan sends her an estimate of her benefits when she retires. The most recent was about $138 a month. A spokesman for the plan said it would provide at least $224 before taxes, a legal minimum the calculator doesn’t take into account.

An hour’s drive away in Lublin, a picturesque medieval town close to the Ukrainian border, her sister, Małgorazata Olechowska, works as an office manager for an EU-funded nonprofit for about $1,600 a month. She pays at least a third of her income in taxes, including 9.76% that is earmarked for retiree pensions. Her employer chips in an equal amount. The government pays all of that straight out to current pensioners, supplementing it with other tax revenue.

Could this be what causes the EU to fall apart? Unlike the U.S., European countries don’t tax citizens who live elsewhere. So if a high-income Polish citizen moves to London, the Polish government stops getting any taxes from that person. In a world where income is increasingly concentrated in the most successful cities, countries without a London, Paris, or Amsterdam could be hard-pressed to meet unfunded pension liabilities. Those countries that have saved up, such as Holland and the UK, may be reluctant to share the pain when the EU recognizes that EU-wide taxes are necessary to bail out the various countries.

Readers: What do you think? If Europeans thought about their forthcoming day of financial reckoning would the financially soundest countries try to get out?

[Separately, the income numbers for the Polish women profiled are interesting. The sister who works in Lublin makes about $1000 after taxes. What if she read “Child Support Litigation without a Marriage,” came to the U.S. on vacation, had sex with an American, and went home pregnant? If she had sex with an American earning $250,000/year in Massachusetts, for example, she would get a tax-free $3,333/month wired to her in Poland, thus enjoying 4.3X the spending power compared to her current situation. If she saved up all 23 years of Massachusetts child support, minus $250/month for actual child-related expenses, that would be a nest egg of approximately $850,000. If such a nest egg earned a 2 percent real return starting at age 30, the result would be a $1.7 million fund at age 65. Applying the conventional “spend 4 percent per year” rule, the sister would be able to spend $68,000/year (in today’s dollars) from her nest egg starting at age 65. Thus the trip to Boston or Martha’s Vineyard at age 20 would result in a healthy child (we hope) and at least a 10X improvement in old age pension. Note that the child, once reared to adulthood and working, would improve the dependency ratio in Europe.]

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Folks:

Puerto Rico is embroiled in a debt “crisis” that seems to have stretched out for several years. Here’s a plea for help from a Puerto Rican who has chosen to live and work in New York: ” I’m not a politician or an economist. I’m a storyteller. [shades of Team America!] … Puerto Rico’s $72 billion debt, which is equal to about 68 percent of the island’s gross domestic product, thwarts efforts for economic development.”

As noted in a June 2015 posting (see below), the U.S. as a whole has debt that is over 100 percent of GDP, according to the Federal Reserve Bank. Puerto Ricans don’t pay federal income tax so they aren’t responsible for that debt. Nor are Puerto Ricans responsible for debt run up by the 50 states. Finally Puerto Rico seems to have recorded a lot of debt that would be private in other parts of the U.S., e.g., for utilities, as public debt. Thus it would seem that Puerto Ricans are actually less indebted than typical Americans (albeit they don’t have a printing press for dollars the way that the federal government does).

Why has this level of debt supposedly resulted in a crisis? Readers last time said that it was high interest rates. If Puerto Rico could borrow at the same rates as the U.S. Treasury then they would be fine. Suppose that the Federales paid off the creditors (bailout for Hillary’s friends on Wall Street and the future payers of Obama speaking fees!) and lent the island’s government money at the same rates being paid by the Treasury. Would Puerto Rico then be in good shape? If not, why is the debate primarily around debt? Shouldn’t it be about “Why do people want to invest in other states and countries around the world but not in Puerto Rico?”

Related:

• Can Puerto Rico be a laboratory for the future of the rest of the U.S.?
• If Puerto Rico owes 70% of GDP, why is that a crisis? (from June 2015; the good thing about the “news” is that it is the same every year)

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Here’s a map that explains one reason old people head south: “State Estate and Inheritance Taxes in 2014”. The cross-border differences are almost as interesting as those in the Minnesota and Wisconsin family law statutes. Why does Minnesota rely on estate tax while Wisconsin does not? I asked an estate planning lawyer once why California, given its constant struggles to find more tax dollars to spend (as a percentage of residents’ income, the state already spends more than all but 4 states). He replied “They would love to grab that, but estate taxes are prohibited by their constitution and the constitutional amendment process is extremely cumbersome.”

[Separately, if Warren Buffett stays in Omaha, Nebraska, the maps suggests that any budget problems may be resolved!]

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“Chicago Pension Nightmare” is a Wall Street Journal article that is inaptly headlined from the perspective of a government worker:

On Thursday the Illinois Supreme Court struck down the city’s pension reform, which required city workers to chip in more to their retirement plans, raised the retirement age and cut back on cost-of-living adjustments. … The ruling further limits Mr. Emanuel’s fiscal options as pension payments take an ever-growing share of city revenues.

Absent an epidemic disease killing all of their retired employees, Illinois and Chicago will run out of money, of course. The only question was who wouldn’t get paid. The courts have answered “The former workers will get paid.” That means that bondholders won’t be paid.

Politicians can’t resist promising lavish payments to be drawn from future tax revenues. Unless the U.S. makes it illegal for politicians to hand out defined-benefit pensions, in my opinion investors should avoid state and local government bonds. (The federal government is different because it has a printing press for dollars so it can pay both bonds and pensions as long as it can afford paper and/or computer memory.)

Readers: What do you think? Who wants to defend bonds from U.S. states and cities?

Related:

• “US Treasury pushes Congress to pass Puerto Rico bankruptcy plan” (Guardian), which can be translated as “people who lent money to Puerto Rico won’t get it back”

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Consider this part of the following Hillary Clinton ad (I saw it broadcast in Columbus, Ohio):

“Her life’s work has been about breaking barriers and so would her presidency, which is why for every American who’s not being paid what they’re worth, who’s being held back by student debt or a system tilted against them, and there are far too many of you, she understands that our country can’t reach its potential unless we all do,”

Could political messages from heavily-funded, consultant-advised candidates such as Hillary be the best guide to the current psychology of the American people? From the above it would seem that we can infer that American voters want the government to set wages (so that everyone can be paid “what they’re worth”), presumably as part of a planned economy. They also want the government’s welfare program for universities made explicit by turning all of that extra tuition cash that was shoveled out as loans to be converted to gifts. (If these are in fact the things that we want, why not vote for Bernie?)

Readers: What else can we learn from political ads that you’ve seen? And is looking at ads from the most popular candidates a sensible approach to understanding our country?

[Separately, the ad may show the incompatibility of traditional English grammar with current gender thinking. “for every American who’s not being paid what they’re worth” would ordinarily be “for every American who’s not being paid what he or she is worth” but that doesn’t work if there are more than two genders.]

 

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The low level of education among young Americans has been well-documented (see “Smartest Kids in the World Review”), but what happens when uneducated American young people go through college and enter the workforce? The “International Assessment for Adult Competency” data show our rank against international peers: “Americans Rank Last in Problem-Solving With Technology: New report finds U.S. workers lag behind other industrial countries in using digital skills for tasks” (WSJ). Some samples:

A new report finds U.S. workers rank dead last among 18 industrial countries when it comes to “problem solving in technology-rich environments,” or using digital technology to evaluate information and perform practical tasks.

“When you look at this data it suggests the trends we’ve discerned over the last 20 years are continuing and if anything they are gaining momentum,” said Joseph Fuller, a Harvard Business School professor who studies competitiveness. … The countries that scored the highest on the problem-solving with technology criteria were Japan, Finland, Sweden and Norway. Poland scored second to last, just above the U.S.

One stark revelation is that about four-fifths of unemployed Americans cannot figure out a rudimentary problem in which they have to spot an error when data is transferred from a two-column spreadsheet to a bar graph. And Americans are far less adept at dealing with numbers than the average of their global peers.

Data on 16- to 34-year-olds, for instance, found even workers with college degrees and graduate or professional degrees don’t stack up favorably against their international peers with similar education levels.

That a growing percentage of U.S. workers are incompetent is consistent with declining labor force participation compared to other countries (WSJ). It is also consistent with industry expanding at a higher rate in other countries where, even if the average worker is not necessarily better educated than his or her U.S. counterpart, wages and taxes are lower. So at least we can say that we are seeing the global labor market functioning in a manner consistent with Econ 101.

[Update: A few hours after this posting went live, we stopped to have an airplane refueled at one of America’s larger airports and higher-grade FBOs (ramp cluttered with $10 million bizjets and a Boeing 737 for a sports team). Here’s a photo of the right wing taken during the final preflight inspection:

When we got to our destination we rented a car. Here’s how the previous renters had the audio system set up…

I can’t figure out if the typical audio system setup in a rental car is more or less interesting than the fact that Uber drivers seem unable to find and/or use the “Auto” climate control setting.]

 

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Camera/phone experts: Who has the Samsung Galaxy S7? DxOMark says this is the phone with the best camera hardware and, at least to some extent, software. I’m skeptical due to the painful experience that I had with the camera software (unresponsive) on a Note 3.

A friend recently purchased an S7 (not an S7 Edge) and I took some photos of the same scene (indoor close-up; subdued evening light through the window) with her new Samsung and my iPhone 6 Plus. The Samsung images were plainly better in terms of detail and color balance. But I’m wondering how well the Samsung would cope with running children/dogs/etc. This where the Note 3 fell apart and the iPhone does pretty well due to Apple’s brilliant software.

Readers: What do you have to say about the latest Samsung as a practical picture-taking tool?

[Separately, the new Sony A6300 is potentially revolutionary due to its ability to focus on a subject’s eye. (Olympus tried this a few years ago in one of their Four-Thirds camera but it didn’t have a state-of-the-art sensor like the Sony’s.) I am enthusiastic about upgrading from my old A6000.]

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“She Wanted to Do Her Research. He Wanted to Talk ‘Feelings.’” is a New York Times article by a science professor, A. Hope Jahren, that describes women abandoning science:

Within my own field, physical sciences, the results of this shedding were clear. According to the National Center for Education Statistics, seven B.S. degrees are granted to women for every 10 granted to men; three M.S. degrees granted to women for every five granted to men; one Ph.D. degree granted to a woman for every two granted to men. The absence of women within STEM programs is not only progressive, it is persistent — despite more than 20 years of programs intended to encourage the participation of girls and women.

Why should this be?

My own experiences as a student, scientist and mentor lead me to believe that [sexual] harassment is widespread. Few studies exist, but in a survey of 191 female fellowship recipients published in 1995, 12 percent indicated that they had been sexually harassed as a student or early professional.

Since I started writing about women and science, my female colleagues have been moved to share their stories with me; my inbox is an inadvertent clearinghouse for unsolicited love notes. Sexual harassment in science generally starts like this: A woman (she is a student, a technician, a professor) gets an email and notices that the subject line is a bit off: “I need to tell you,” or “my feelings.” … The author goes on to tell her that she is special in some way, that his passion is an unfamiliar feeling that she has awakened in him, the important suggestion being that she has brought this upon herself. He will speak of her as an object with “shiny hair” or “sparkling eyes” — testing the waters before commenting upon the more private parts of her body.

In other words, harassment of women in science is not due to animosity towards women as scientists but rather due to their attractiveness as potential sexual partners.

If Professor Jahren is correct then shouldn’t we expect to find that female science professors are less attractive than female science graduate students who are in turn less attractive than female science undergrads?

[We also have to adjust for “Beautiful People Really Are More Intelligent” and the fact that science requires at least a moderately high IQ. It might be necessary to do this analysis on a state-by-state level. Attractive female scientists in Massachusetts, for example, might learn that having sex with a medical doctor would yield a higher after-tax cash flow under the state’s child support guidelines than working at the median salary for a science professor (see “Women in Science” for an analysis). On the other hand, a female scientist in Minnesota, Nevada, or Texas, would find it more lucrative to continue on through the Ph.D. and then work for wages. It may be the case that female scientists in states that offer unlimited child support revenue abandon the field in greater numbers than those in states where working with a Ph.D. pays better than having children.]

How about an alternative hypothesis? There are a lot of women in undergrad science because they want to go to medical school (roughly 50 percent female). Thus many of them were never on the academic science track to begin with. The observed drop-out rate from master’s to PhD occurs as women get older and more savvy about the life of a working scientist versus alternatives, some of which are almost exclusively available to females.

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“Life and Death in the App Store” chronicles the rise and fall of an app company. The programmers are skilled but the products are not always hits. Maximum annual revenue was under $1 million.

My personal theory about having a successful business is that you need to have either (1) a lower cost of capital than everyone else, (2) knowledge and skill that nobody else has, or (3) experience with customers and a market that few others have.

Way #1 works great for government cronies. They can get capital to build a factory for free. Way #2 is the path taken by a lot of MIT spinoffs. Unfortunately it carries a lot of risk, e.g., if the exciting new technology turns not to work as well as hoped. Way #3 seems to characterize most successful software companies. The founders of SAP, for example, had experience as IBM employees building accounting software for manufacturing companies.

Pixite, the company described in the article, would seem to have tremendous prospects if they were to partner with enterprises that have already identified business needs but don’t have the tech skills to implement. Healthcare.gov and associated Obamacare sites, for example, generated about $1 billion in revenue for the software industry. A company such as Pixite might be better off working together with a health insurer, health care provider, or pharma company in order to mine some of the gold in this part of the economy.

Readers: What should these guys do? Go into a business area with a partner or fold their company and get jobs at Google and Facebook?

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Friends who are parents and/or JavaScript experts: Avni Khatri, John Morgan, Isaac Reilly, and I would appreciate your feedback on an application that we’ve developed: postclipper.com (enables a parent to designate a subset of Facebook postings as an electronic baby book for a child, for example, and then share the book with Facebook friends). You can follow this test script. Feedback via email or here as a comment would be great; we are chasing some JavaScript issues that seem to be browser-dependent.

Thanks in advance for any assistance!

[Note that the app, though designed for parents, can also be used to designate a subset of Facebook postings as a memory of a trip taken, for example.]

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