Sunday, August 27, 2006

Gladwell on dependency

Malcolm Gladwell has an article in the New Yorker that already caught Steve Sailer's debunking eye. He discusses private pensions in the US, and rightly points out how inherently underfunded they are.

Less solidly, Gladwell's long piece also suggests that the key to economic productivity is a favorable (low) dependency ratio (the number of the young and old compared to those of working age). He specifically singles out Ireland, the Celtic Tiger which restricted contraception up until 1979 (he fails to mention how Ireland has altered its tax structure to allow huge technology companies to set up financial shop there for tax purposes, from which Microsoft dropped its global tax rate from 33% to 26% in large part by leaving profits in Ireland):
This relation between the number of people who aren’t of working age and the number of people who are is captured in the dependency ratio. In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.
Gladwell should refine the dependency ratio explanation to an urchin ratio explanation. Why? Because there exists a strong, stastically significant relationship (r = .71) between the percentage of a nation's population over the age of 65 and its purchasing power parity. That is, the more old age dependents a nation has, the wealthier it is.

Oops. So instead of all this doom and gloom about the coming entitlement crisis when the baby boomers retire, we should be celebrating the coming economic boom! Well, all those ancients I served at my part-time job in junior high and high school sure didn't seem to be contributing to the late nineties economic miracle by playing bingo and whining about the menu choices, but it looks they were. It provides a stronger explanation than does Gladwell's thesis (the percentage of a country's population between the ages of 15-65 correlates with ppp at a more modest .59).

The theory Gladwell puts forth with the Irish case study does hold when quantified, but it's likely a consequence of other more powerful indicators of economic prosperity. It really runs into trouble when the ex-Soviet states are considered. Russia, Slovakia, Slovenia, and the Czech Republic all have a more favorable dependency ratio than anywhere in Western Europe or North America, but they're hardly economically more fearsome.

Since it is actually the burden of children that Gladwell really suggests to be economically detrimental, that's what has to be considered. And developed countries, which offer an array of opportunities for women other than spending time barefoot and pregnant in the kitchen making dinner, have longer educational tracks, and enjoy ubiquitous birth control methods, create disincentives to having children. Further, the less developed a country is, the less costly a child becomes (helping on the farm or doing chores instead of running up costly sports fees and school tuitions, therefore calling into question the assumption that children are necessarily dependents). Also, developed countries have better medical and health care. Not surprisingly, the correlation between ppp and the median age (fewer children and longer lifespans) is .71. Causation seems to mostly run the other way around.

Tautologically, though, Gladwell isn't wrong, at least in the short-run. When an infant is born, he obviously costs more than he produces. And he diverts attention and resources away from other tasks (doctors, latex gloves). But that cost is relatively minor in comparison to his father's productivity. In Indonesia, he'll only be producing an eleventh of what he will be if he's an American. Of course, a contemporary birth dearth means less dependents now and a lot more a couple of decades down the road.

I thought the kids getting knocked up freshman year were shortsighted and condemning themselves to a life of poverty. Little did I know that having lots of kids was an astute way to delay gratification and gain a big payoff in the future. Speaking of children, if you care about your grandkids you'll pull that money out of the 529s and put it into Niger--at 7.46 kids per woman, in twenty years the country's enormous workforce is sure to turn it into the next Hong Kong!

I suspect the reason Gladwell was hosted by the New Yorker for such an article is that he implies that birth control makes people better off and it vindicates the choices of so many of the magazine's single-child and childless readers. Like the abortion cut-crime theory, leftists will dig it because it purports benefits to lots of abortion. But like Steven Levitt's theory on crime, Gladwell's position begs for social engineering. Abort babies, euthanize old fogies, and knock out anyone else who is an economic dependent. Phrased in that way, would the New Yorker still dig it?

While I'm not at all convinced that having fewer scamps is what makes a country wealthy, I'll be happy to repackage his idea and take it to the UN. Kofi, African countries, especially the sub-Saharan ones, need to have much fewer children. Ditto the Arab world. Indeed, let's not let Muslims reproduce at all, since poverty causes terrorism and all. East Asia needs to have whelps, and so does the West. This'll make the third-world wealthier and the developed world poorer. International wealth transfer, Kofi. That is the UN's raison d'etre isn't it?

If we somehow instituted Gladwell's logic on a global scale, I'd feel infinitely better about the future. It'd be the realization of SENS for the moribund West!



JSBolton said...

Dienekes 8-27-06 has more correlation calculations along these lines.

crush41 said...

John is referring to this post.