12/8/20: Beware of Longing for Pre-COVID19 Days

 

We tend to focus on shorter-term and sharper shocks than on longer-term trends, a sort of 'boiling a frog' conundrum in our behavioural biases. Hence, with the development of the current pandemic, we seem to have forgotten a simple fact of pre-COVID19 reality: things weren't going all too happily for the global economy in 2019 before the pandemic struck.

Here is a reminder: look at the economic policy uncertainty measures from the late 1990s through today

As it says in the chart comment box, economic uncertainty was running at elevated levels well before the pandemic struck. 

Here is another way to see this point:

There is a 'problem', folks, even though there is no Houston to page about it. The legacy of the Global Financial Crisis did not dissipate when non-performing loans were finally (largely) wiped out from the banks balance sheets. Since the 'recovery' from the Great Recession, we have been living in a state of perpetual precariat all the way into the current pandemic shock. This state of precariat has been evident in the world data and the European data, so the problem is not 'demographic' or at least not that of ageing. May be it is generational? 

Here is an interesting view on generational changes via Pew Research: https://www.pewsocialtrends.org/essay/on-the-cusp-of-adulthood-and-facing-an-uncertain-future-what-we-know-about-gen-z-so-far/.  As education levels rose across generations, state of insecurity rose as well. Quote; "There are already signs that the oldest Gen Zers have been particularly hard hit in the early weeks and months of the coronavirus crisis. In a March 2020 Pew Research Center survey, half of the oldest Gen Zers (ages 18 to 23) reported that they or someone in their household had lost a job or taken a cut in pay because of the outbreak. This was significantly higher than the shares of Millennials (40%), Gen Xers (36%) and Baby Boomers (25%) who said the same. In addition, an analysis of jobs data showed that young workers were particularly vulnerable to job loss before the coronavirus outbreak, as they were overrepresented in high-risk service sector industries." Note that GenZ has higher levels of educational attainment of any generation. And yet, they are more susceptible to labour market shocks. 

The younger generations are also progressively more attuned to news flows and more anxious about key structural (non-COVID shock) problems we face. 

Have the mid-2010s been a pivoting point toward the new Age of Anxiety? Did COVID19 pandemic exacerbate this onset of the new age? In the long run, these are more important questions than the coronavirus threat alone.

15/5/20: Generational Effects of Ultra Low Interest Rates

Just because jobs are so plentiful and careers are so rewarding in terms of potential growth in life cycle income. the Millennials are really cheering their future in the Social Mobility Central, the US of A... oh, wait, sorry, theatre of absurd is so 1990s...

Here is the chart showing returns on savings for the already financially-distressed younger generations, updated through March 2020:

Things are ugly. In March 2020, retail nominal deposit rates for 3 months-duration Certificates of Deposit in the U.S. banks have fallen from December 2019 levels of 1.76% (annualized) to 1.35%. This is the lowest level since November 2017.

Think of the longer term comparatives. During the decade of the 1960s, average nominal rate of return on 3mo CDs was 5.51% with real return of 4.76%. In the 1970s, this rose to 7.27% and 5.66%, respectively. Through the 1980s, nominal average was 9.89% and real average was 8.73%. In the 1990s, things crumbled, with the nominal savings returns falling down to 5.32% and real rates down to 4.75%. The first decade of the 2000s saw nominal rates averaging 3.2% and real rates falling to 2.67%. And over 2010-2019, average nominal rate was 0.76% and average real rate was 0.39%.

Yes, avocado and toast are killing Millennial's financial wealth. Not ultra low returns on savings.

28/1/2020: Federal Tax Revenues Over Time

Via the @SoberLook, WSJ's data / charts newsletter, a neat summary of changes in the U.S. federal taxation base over the years:

What does it tell us? In the 1940s-1960s, the share of excise, inheritance and other taxes, plus the share of corporation taxes in total federal tax revenues ranged above 30 percent, declining from around 45 percent in the 1940s to roughly 35-36 percent in the 1960s. Over the last decade, that share was around 14-15 percent. The burden of taxation, instead, has dramatically shifted onto labor income and personal income. This trend is forecast to worsen over the 2020s decade, with non-income taxes expecting to decline in their importance to around 12-13 percent of the total tax revenues.

It is worth noting that the benefits distribution has been also trending against current income earners, with a rising share of Government spending accruing to old-age support programs, social security payments and, of course, as usual - Pentagon.

Given these trends, it is hard to see how the politics of the younger electorate (growing role of the Millennials, GenXers and GenZers in voting) is going to be compatible with this situation. Likewise, given the likelihood for future shift in electoral politics against low corporation tax revenues share in total tax take in the U.S., it is hard to see how continued prosperity of the well-known corporate tax havens, including Ireland, Luxembourg, the Netherlands et al, can be sustained either.

13/12/19: UK Vote and Younger Voters

On foot of the UK General Elections results, here is a telling sign of the changing generational effects on voting with some questions for the U.S. 2020 election:

Given the above numbers, the 'younger voters tide of change' expected in 2020 in the U.S. elections is a function of two factors: turnouts and demographic concentrations. We are, of course, yet to get this data from the UK polls.

Worth thinking about these, if you are a political analyst.

Note: some data on voter turnout as of 627 MPs elections completed.

• Turnout was about 67%; circa two-points lower than in 2017, signalling no upswell in political activism by the voters. Given that younger cohorts of eligible voters increased in numbers, while older cohorts diminished due to time lapse, this suggests that younger voters were not as energised to show up at the polls as media hype suggested.
• Per Brunel University analysis: "youth turnout lagged well behind that of their elders. If we look at the 20 constituencies with the highest proportion of 18-35 year olds, the average turnout yesterday was 63%; the turnout for the 20 constituencies with the fewest 18-35 year olds was 72%." See: https://www.brunel.ac.uk/news-and-events/news/articles/Labour's-car-crash-result-by-age-group. Again, evidence that the younger, more 'Remain', voters were not sufficiently fired up to show up at the polls. 
• Per same source: "The decline in turnout since 2017 was also slightly greater – at 1.5 points lower – in those constituencies with more young adults than those with the fewest – where it was 0.8 points lower." Again, a signal of younger voter apathy?
• Younger voters did go for Labour: "Labour held onto every one of the constituencies with the highest number of 18-35 year olds that it won in 2017."

Here is a really damning conclusion, emphasis mine: "What is clear is that, once again, claims of a youthquake – a sharp rise in turnout among young voters that would benefit the Labour party – have proven well short of the mark. At no point in the campaign have the opinion polls suggested that a youth turnout surge would materialise, but there was a great deal of excitement surrounding the surge in voter registrations among the under-35s – 2.8 million between October and December of this year, more than half a million more than in the same period before the 2017 election – which fuelled claims that a youthquake was on the horizon."