Ask an Economist (Post #1005 and counting)

[Cutlass]

I have a question:

I heard somewhere (can't remember the source) that in highly developed industrial countries, within 50 years only 1/3 of the workforce will actually have to work in order to support everyone else ("keep the wheels of the economy turning"). Have you heard anything similar, or is this just utter BS? (by workforce I mean people aged ~ 20-65)

Thanks.

It may be technically possible, but i would neither consider it a good idea or at all likely to happen. Not outside France anyways

 

[ainwood]

I have a question:

I heard somewhere (can't remember the source) that in highly developed industrial countries, within 50 years only 1/3 of the workforce will actually have to work in order to support everyone else ("keep the wheels of the economy turning"). Have you heard anything similar, or is this just utter BS? (by workforce I mean people aged ~ 20-65)

Thanks.

I have heard the within 50 years, only 1/3 of the population will be of working age, and will be trying to support the other 2/3rds to have social security (ie. longer lifespans & baby-boomers causing a large proportion of retired people).

The general view is that there won't be state-supplied pensions, because there's not enough people working to support them.

 

[JerichoHill]

AInwood beat me to it

 

[GenMarshall]

What effects does transitioning from a Communist economic system to a Capitalistic/Free Market economic system (Such as the reunification of East and West Germany and the fall of the Iron Curtain) would have on a nation?

 

[Norseone]

Hey Jericho, what are the downsides for economic growth would having a fairly large capital gains tax? Im curious and trying to decide where I stand on various political things that im sure you aware of haha.

 

[JerichoHill]

What effects does transitioning from a Communist economic system to a Capitalistic/Free Market economic system (Such as the reunification of East and West Germany and the fall of the Iron Curtain) would have on a nation?

This is a very broad questioning.

The best way I know how to answer this is to tell you to look at the history of the transition from Communism to Capitalism in both China and Russia. China is doing a good job in transitioning (it mainly is opening itself up very slowly, and liberalizing very slowly. Russia tried to change far too fast, and left itself with chaos.

 

[JerichoHill]

Hey Jericho, what are the downsides for economic growth would having a fairly large capital gains tax? Im curious and trying to decide where I stand on various political things that im sure you aware of haha.

Capital Gains taxes are progressive, in that they will moreso fall on higher income households than lower incomes. So first, their effects are more felt by higher income households.

Capital Gains taxes only apply on the sell of the capital, so, their actual amount can vary. Their effect is to distort / repress purchase of goods that are subject to said capital gains. The downside is that too high a tax rate and you lower investment spending by households with income that have excess funds that would be better utilized through investment than through say, sitting around.

Make Sense?

 

[Norseone]

Yeah...I figured that. I was just wondering if there was a consensus about how much was too much and all that.

 

[Cutlass]

But if short term capital gains taxes are low it encourages speculations that pay off quickly instead of investments that could take years to mature.

 

[JerichoHill]

But if short term capital gains taxes are low it encourages speculations that pay off quickly instead of investments that could take years to mature.

Low capital gains taxes are not going to encourage speculative behavior in the way that low interest rates encouraged housing speculation. A high allowable margin encourages speculation. Capital gains taxes only matter at selling point.

As part of the tax question, we would need to consider what exactly the tax is going to fund. It's not just that the ideal tax level maximizes revenue, but what is the best use of said money that could be taxed. There are tradeoffs.

 

[Mise]

Don't speculators tend to have their winnings taxed as income, rather than capital gains? And how long is the time period for the 0% CGT band? 1 year? Does unused tax-free capital gains get transferred into the next year? I.e. if the amount of tax-free capital gains you can get in 1 year is S, the CGT rate is t, and someone buys a stock at price A, sells it 2 years later at price C, with the price at the end of year 1 as B, does he get taxed
(C-A-S)*t
or
(B-A-S)*t + (C-{B - [B-A-S]*t} - S)*t = (A-C-2S + {B-A-S}*t)*t

 

[JerichoHill]

Capital gains applies on the point of sale. If its not sold, no capital gains.

There are loopholes that allow higher income earners to tax the cap gains rate (15%) then the income rate (33%). Folks like Warren Buffett do not support these loops (myself included).

 

[Mise]

Well, lets say that for anything up to £10,000, you don't get charged CGT. Now, lets say someone buys a stock for £1 on Jan 1st 2008. He sells it for £15,001 on Jan 1st 2009. He makes a capital gain of £15,000, of which he is liable to pay CGT on £5,000.

But lets say he bought on Jan 1st 2008 for £1, but sold it on 31st Dec 2008 for £7,501. He makes a capital gain of £7,500, but that's within his allowance for that year, so he pays no CGT. Then, on Jan 1st 2009, he buys the same stock for £7,501, and sells on Dec 31st 2009 for £15,001. Again, he makes a £7,500 capital gain, and again, he pays no tax on it.

So the first guy has to pay CGT on £5,000; the second guy doesn't pay any CGT. It doesn't make sense that CGT allowance isn't transferable to the next year.

 

[innonimatu]

This is a very broad questioning.

The best way I know how to answer this is to tell you to look at the history of the transition from Communism to Capitalism in both China and Russia. China is doing a good job in transitioning (it mainly is opening itself up very slowly, and liberalizing very slowly. Russia tried to change far too fast, and left itself with chaos.

China went for "state capitalism" by decentralizing control over most businesses. They're still "public" but controlled by local governments and bosses. Russia and Eastern Europe played around with the idea of "market socialism", but failed to recognize that the critical issue was that of the inadequacy of central control - without relaxing that there would be no real market. After the implosion of the USSR they were foolish enough to take Jeffrey Sachs' venomous advice...

 

[JerichoHill]

Yes, thats kind of the point. China is managing their transition (they'll be capitalistic like western countries in a few decades). Russia made the transition in one abrupt step, having no experience or institutions with private property or free markets, nor any experience with democracy.

 

[innonimatu]

Yes, thats kind of the point. China is managing their transition (they'll be capitalistic like western countries in a few decades). Russia made the transition in one abrupt step, having no experience or institutions with private property or free markets, nor any experience with democracy.

Not necessarily like current western countries. I have always wondered if "market socialism " could have worked, if the pressure from the central bureaucracy was lessened.

I guess that where ownership of businesses lies is not that different between a "China-like" system and a "capitalist" one. In current western capitalism managers pretty much run their corporations as they wish, just as "public" appointed managers would be able to do without actually "owning" the company.
It it worse to have a competitive market with companies owned by local governments, or a competitive market with companies owned by nameless investors, most of its capital dispersed? In the first there's the possible problem that managers will serve political interests that do not make "economic sense" in the long run. In the second, that managers will serve the interest of banks, or hedge funds, or simply their own, careless of the company's "health" in the long run.

 

[JerichoHill]

Well, thats why there are regulators to watch the markets. You'd have to have them for government run market socialism as well, but one is probably more likely to have conflict-o-interest issues there

 

[The Yankee]

The money men on OT can answer this much better than the random population at large, so here goes:

What would I need to do to start and pass the CFA program? What could I do with it afterwards? How rigorous and time consuming is it, especially if I also look for graduate studies? What could I do with it that I won't be able to do with just my little Bachelor's?

Thanks, guys!

 

[JerichoHill]

Dedicate your life for a whole year to the CFA. A friend of mine took and passed the first series. He literally had no life outside of that exam.

 

[The Yankee]

Does it get easier after that first exam? Whatever has to be done has to be done, but might as well not walk into something unexpected.

My sudden renewed interest came when I saw a classmate in a management class carrying around a textbook for it, which made me think it might be able to be done sooner than I thought.