It's Official: Bernie Endorses Hillary

At the moment, I don't have anything on tap to say about this that I haven't already said, but just for the record:

Democrats took a long-anticipated step toward unity Tuesday as Sen. Bernie Sanders endorsed Hillary Clinton, praising the party platform and its presumptive nominee here in the state that gave him his most powerful primary victory.

“This campaign is about the needs of the American people and addressing the very serious crises that we face. And there is no doubt in my mind that, as we head into November, Hillary Clinton is far and away the best candidate to do that,” Sanders said to the cheers of hundreds of partisans crowded into a high school gymnasium here, Clinton nodding at his side.

The next step, obviously, is to see how enthusiastic Bernie is and whether he can bring along the vast majority of his former supporters. My guesses are "very" and "yes."

While Hillary Clinton and Bernie Sanders are finishing up their lovefest in New Hampshire, how about another chart comparing retirement in America to retirement in other rich countries? Don't lie: you know you want it.

Here's one that makes the US look a little worse than yesterday's charts. It shows income replacement rates in all OECD countries: that is, the amount of income that retirees get compared to how much they earned when they were working. This is a very tricky number to compute because there are lots of different ways you can do it, and the OECD pension report spends several pages just outlining the various assumptions you can use. That said, here are their estimates for low-income workers when you include only public pensions like Social Security:

And here's the same chart including all pension income, both public and private:

Once again, the United States relies more on private spending than most other countries. When you count only Social Security, the US looks pretty stingy, ranking seventh from the bottom for low-income workers. But when you include all sources of pension income, we look better than a majority of OECD counties—including famously generous ones like Belgium, France, and Germany.

Now, as I said, these numbers are tricky to compute, and in this case I'm fairly skeptical of them. The replacement rate for Social Security in the top chart looks way too low to me. Conversely, the replacement rate for all sources of pension income in the US looks too high. Neither number matches up to figures for low-income workers from places like the Congressional Budget Office and the Social Security Administration. But that may simply be because the OECD made different assumptions in their calculations.

In any case, this gives you a decent idea of how we stack up using simple income replacement rates as your metric.

For the past year, an international tribunal in the Hague has been pondering China's claim to own the entire South China Sea. China has refused to participate in the trial because they were afraid they might lose. And lose they did:

An international tribunal in The Hague delivered a sweeping rebuke on Tuesday of China’s behavior in the South China Sea, including the construction of artificial islands, and found that its expansive claim to sovereignty over the waters had no legal basis.

....“It’s an overwhelming victory. We won on every significant point,” said the Philippines’ chief counsel in the case, Paul S. Reichler. “This is a remarkable victory for the Philippines.”

But then there's this:

While the decision is legally binding, there is no mechanism for enforcing it, and China, which refused to participate in the tribunal’s proceedings, reiterated on Tuesday that it would not abide by it.

So it's a moral victory, but not much else. Still, China cares about its international standing, no matter how much they bluster otherwise. This might be a first step toward getting them to enter into serious negotiations over ownership of the various rocks, reefs, and islands of the South China Sea—all of which are governed by different rules regarding maritime law and economic zones. Time will tell.

Remember when Republicans held hearings in 1998 about Bill Clinton's Christmas card list? We are getting into that territory again. Driven into madness by James Comey's decision not to recommend prosecution of Hillary Clinton over her private email server, Republicans promised last week to demand that the FBI investigate her for perjury instead. Today they made good on that promise. Let's listen in:

The letter from U.S. Reps. Jason Chaffetz (R-Utah) and Bob Goodlatte (R-Va.) asserts that evidence collected by the FBI during its investigation involving Clinton's email practices "appears to directly contradict several aspects of her sworn testimony" and asks federal authorities to "investigate and determine whether to prosecute Secretary Clinton for violating statutes that prohibit perjury and false statements to Congress, or any other relevant statutes."

At a hearing last week, Chaffetz asked whether the FBI had specifically investigated Clinton's previous statements, which he considered to be false. Comey said to open a criminal investigation, he would need a referral from Congress. "You'll have one. You'll have one in the next few hours," said Chaffetz, the chairman of the House Committee on Oversight and Government Reform.

Of particular interest might be a statement Clinton made to the House Select Committee on Benghazi in October 2015 that "there was nothing marked classified on my emails, either sent or received." Comey has said that investigators found three such emails with the notation "(C)"—meaning confidential—contained within the text.

Got that? Out of 30,000+ emails, the FBI found a grand total of three that were marked confidential. But note the following:

At most, then, we have the bare possibility that out of four years worth of emails, Clinton might—maybe—have failed to notice a proper classification mark on one of them. Why? Because it didn't include the proper header to warn readers that classified information was somewhere in the body of the email.

This is what Republicans want the FBI to spend time investigating. It makes the Christmas card hearings look positively reasonable.

Earlier today I wrote about retirement income in the United States, and that got me curious about how we compare to other countries. The obvious source for this is an international organization that does its best to make apples-to-apples comparisons, so I headed to the website of the OECD, the "rich countries club." (I don't really care how we compare to Chad. I want to know how we compare to peer countries like France and Japan.)

This in turn led me to "Pensions at a Glance," which turned out to be an enormous misnomer: the 2015 edition is 374 pages long. I haven't read the whole thing, of course, but I did find plenty of interesting stuff. I'm going to highlight one chart today, and maybe I'll do others throughout the week.

So how do we compare? The answer, unsurprisingly, is: It's complicated. There are lots of ways of comparing retirement income, and they produce different results. But there's a single broad measure that gives a rough idea of how generous each country is: the percentage of GDP spent on pension programs. In the United States, that's Social Security (public) plus 401(k)s, IRAs, etc. (private). Other countries give their programs different names, but they all employ a combination of public and private spending.

By itself, though, that's not enough. Countries with more elderly people are obviously going to spend more. So you want to adjust the GDP number by how many people are retired. The OECD report doesn't do this directly, but it does provide the old-age dependency ratio for each country, which is a good proxy. The higher the number, the more retired people a country has.

So all we have to do is divide the GDP number by the OADR number for each country. This provides a "retirement index" that indicates how generous each country's retirement is. Here it is for public pensions only:

And here it is for all pension income, both public and private:

As with many other things, the United States relies more heavily on private spending than most rich countries. If you compare Social Security to public pensions in other countries, we're about average. If you compare all pension income, our retirees are better off than nearly everywhere else.

Now, these are only average numbers. They don't tell us anything about how rich retirees compare to poor ones. Social Security, for example, tends to favor poorer retirees, while private pensions favor richer ones, and it's not easy to combine them to get a comprehensive distribution of retirement benefits. However, the OECD report has some other charts that come close to doing this, and I'll see if I can extract one for tomorrow. In the meantime, make what you will of this raw data.

Behold the Republican Platform Debate

Apparently Republicans are debating their platform right now. Behold my Twitter feed:

Is this a fair appraisal of what's going on in Cleveland? Probably not. But it's more fun.

Our long national nightmare is over at last:

Hillary Clinton's campaign is making it official: Former Democratic rival Bernie Sanders will join her at a New Hampshire event on Tuesday where he plans to endorse her.

....Though Clinton effectively clinched the nomination more than a month ago, Sanders has been slow to formally endorse her fall bid against Republican presumptive nominee Donald Trump. He has instead maneuvered to win commitments from Clinton and the Democratic Party to incorporate portions of his agenda into theirs.

Last week, Clinton announced revamped policy on college tuition and healthcare that did just that. And at a meeting on the Democratic Party platform, Sanders successfully pushed for liberal positions on an array of issues, including the minimum wage and climate change.

This all makes sense. Though I've had my issues with Sanders, I said a few weeks ago: "In the end, the threat of Donald Trump will prevent Bernie and his followers from hating Hillary too long, but in the meantime there's no reason not to use every weapon in his arsenal to browbeat both Hillary and the Democratic Party into moving in the direction he wants them to go."

And that's what he's done. He cooled it on the personal attacks, but used every bit of leverage he had to move both Hillary and the Democratic platform to the left. He didn't get everything he wanted, but unlike some of his more rabid supporters, he never expected to. He did lose the primary, after all.

Nonetheless, he got a helluva lot. He played his cards well, and in Hillary Clinton I think he had a fairly willing sparring partner. She didn't fight all that hard against his platform demands.

But yesterday the platform was finished, and Bernie is pretty happy with it. With that done, he's endorsing Hillary almost immediately. My guess is that it will be a fairly enthusiastic endorsement, too—and will get more enthusiastic as time passes and the wounds of the primary race fade away. In the end, I'm happy to see that Bernie has pretty much played things the way he should: he stopped the personal attacks, pushed the party to the left, and now he's diving in to the campaign against Donald Trump. Good work.

Andrea Leadsom has unexpectedly pulled out of the race to replace David Cameron as leader of Britain's Conservative Party. This means not just that Theresa May will become the next prime minister, but that she will become prime minister on Wednesday, rather than a couple of months from now.

This means that Brexit is now more likely to happen. There has been idle chatter about the possibility that after a couple of months of blowback from the referendum, the ardor to leave the EU could cool, providing a face-saving way to pull back and not leave after all. But although May didn't campaign for Brexit, she has very recently stated that "Brexit is Brexit" and there's no turning back. Since she'll be PM in two days, it will be pretty hard to walk that back. She'll be under a lot of pressure to pull the trigger right away.

One other note. May is a pretty reliable conservative. But here's a Guardian summary of a speech she gave this morning:

In the hardest-hitting passage of the speech, she said: “We need a government that will deliver serious social reform — and make ours a country that truly works for everyone. Because right now, if you’re born poor, you will die on average nine years earlier than others.

“If you’re black, you’re treated more harshly by the criminal justice system than if you’re white. If you’re a white working-class boy, you’re less likely than anybody else to go to university. If you’re at a state school, you’re less likely to reach the top professions than if you’re educated privately.

“If you’re a woman, you still earn less than a man. If you suffer from mental health problems, there’s too often not enough help to hand. If you’re young you’ll find it harder than ever before to own your own home.”

I don't know if she means this or not. But even if it's insincere, can you imagine a Republican in the US even saying this?

Negative yields on government bonds! That's the hot topic in investor circles these days, especially now that Switzerland has issued a 50-year bond with a negative yield. But it's worth keeping in mind that the inflation rate is Switzerland is currently about -1 percent, and expected to stay negative for some time. Given deflation of that magnitude, it's not that surprising that bond yields are negative.

Here in the US, inflation is low but still positive, so nominal yields of US Treasury bonds remain positive for the time being. However, as in Switzerland, the real yield of US treasuries is negative until you get into the 20-30 year range. Real yields are higher than in Switzerland, but the difference has little to do with the safety of the bonds and everything to with investor sentiments about the likelihood of continuing low inflation in both countries. In Switzerland, with an aging population and a fierce dedication to tight money, it's likely that inflation rates will stay low or negative for a long time. That's less likely in the United States.

Nonetheless, low yields present plenty of risks. Here is the Wall Street Journal:

Even as yields fall in emerging-market debt, for instance, the credit quality of some of these countries is falling, analysts say.

....Changes in monetary policy could also trigger potential losses across the sovereign-bond world. Even a small increase in interest rates could inflict hefty losses on investors....Low yields, analysts say, are also distorting the signals for which bond markets are typically relied upon.

The recent collapse in the 10-year Treasury yield to record lows has produced signals usually associated with a slowing economy, for instance. That is despite little sign the U.S. is heading for a recession.

A big part of the housing bubble of the aughts was caused by investors chasing yield in a market that presented few opportunities. That could happen again, as investors become ever more desperate to find something—anything—that will provide an allegedly safe yield of more than a percent or two.

The real question, though, is why there's so little opportunity for profitable investment in real-world business development and expansion. Is it truly because we're entering an era of "secular stagnation"—that is, permanent low growth rates? That's possible, given the aging of the population in most of the developed world. In any case, it's probably the most important question in economics today.

Expand Social Security? Sure, For Low Earners.

Here is Steven Hill in the Los Angeles Times today:

The real problem with Social Security is not a shortfall but that its payout is so meager. Social Security is designed to replace only about 35% of wages at retirement, yet most Americans need twice that amount to live decently. With the other components of the retirement system looking wobbly, and with incomes low, Social Security is too skimpy to be the nation’s single pillar retirement system.

The obvious solution is to expand it. There are numerous revenue streams that would allow the nation to greatly increase the monthly payout for the 43 million Americans who receive retirement benefits....First, we should eliminate the Social Security payroll cap....stop exempting investment income....scrap income tax shelters for wealthy households and businesses....end or reduce tax breaks for private retirement accounts, including 401(k)s and IRAs....Just these four revenue streams would come close to raising the $662 billion necessary to double Social Security’s monthly benefit.

This kind of thing pisses me off. It may be true that Social Security is "designed" to replace only 35 percent of wages at retirement, but that statement is wildly misleading. Here are the latest replacement rates for future retirees according to the Congressional Budget office:

  • Low earners: 82 percent
  • Median earners: 44 percent
  • High earners: 22 percent

There are two things to note here. First, replacement rates have steadily gone up for low earners and will keep going up in the future. Scheduled replacement rates for low earners are about 63 percent for those born in the 1960s; 79 percent for those born in the 1980s; and 82 percent for those born in the 2000s.

Second, and more important, replacement rates are far higher for low earners than for higher earners. This is exactly how it should be. Low earners typically have very few sources of other retirement income and rely almost entirely on Social Security. If I had my druthers, Social Security would replace 100 percent of working-age income for low earners.

But higher earners don't need those high replacement rates because they have other sources of retirement income: savings, 401(k) accounts, IRAs, pensions, etc. Obviously this differs from person to person, but the Social Security Administration estimates that, on average, the total replacement rate for median earners and above—which includes all sources of retirement income—is 80 percent or higher (Table 11 here).

Expanding Social Security to double its monthly benefit is dumb. It would be a massively expensive solution to a problem that doesn't exist. We should instead focus on increasing benefits for the low earners who need it. That would cost far less and solve a problem that really needs solving.