How Rich Are You?

I saw an interesting link today in a post in the Wall Street Journal Wealth Report Blog. It highlighted the Global Rich List.

Using World Bank income data, it lets you put in your income and find out how you compare to the rest of the world. Granted, it does so based on income rather than assets, but it's illuminating nonetheless. Out of curiosity, I played with the numbers until I found out what the top percentile would be. At aboout $47,500/yr, you'd be the 60,000,000th richest person in the world and would in the top 1% of all people.

According to the website:

We are obsessed with wealth. But we gauge how rich we are by looking upwards at those who have more than us. This makes us feel poor.

We wanted to do something which would help people understand, in real terms, where they stand globally. And make us realise that in fact most of us (who are able to view this web page) are in the privileged minority.

We want people to feel rich. And give some of their extra money to a worthwhile charity.

It certainly helps us to put our relative wealth into perspective.

Wal-Mart Deserves the Nobel Peace Prize?

With $330 billion in annual sales, Wal-Mart certainly attracts a lot of shoppers--and unflattering attention. It's often blamed for paying workers poorly, driving small merchants out of business, buying from overseas sweatshops, and killing downtowns. When you read about them in the news, it's usually about how their latest proposed store is being opposed by local civic groups, right?

Well, in an article in the January 2007 edition of Kiplinger's, Jeremy Siegel writes about the flip side of Wal-Mart's impact. He notes that "for millions of people, Wal-Mart is a lifesaver that provides what they want at prices they can afford." He also pointed out that Wal-Mart pays more than $10 an hour, on average, and that when they opened a new store in Chicago, they had 25,000 applications for 325 jobs. Despite that, Chicago City Council had voted to hold have higher minimum wages requirements for Wal-Mart and other big box retailers. Though the bill was vetoed, Siegel noted that it sends the message to prospective employers, that "We will penalize you for being a large, efficiently run company that offers consumers the lowest prices. Would Chicago prefer less-efficient companies with higher prices and fewer jobs?"

Wal-Mart's huge size means that other competitors, such as grocery stores and other merchants, need to be more competitive in price. Siegel cites a study that found that Wal-Mart's growth from 1985-2004 resulted in food-at-home prices that were 9.1% lower and overall prices that were 3.1% lower than they would have otherwise have been. Don't ask me how they figured that out, but that means that if it hadn't been for Wal-Mart, we'd be paying higher prices on most things we buy.

Siegel also addressed the criticism that Wal-Mart encourages sweatshops in the developing world. Here, he cites an editorial by Brian Tierney of the New York Times. Tierney makes the argument that Wal-Mart is as deserving of the Nobel Peace Prize as is Muhammad Yunus, the 2006 prize winner, who founded Grameen Bank. Grameen Bank helped people in poor villages in developing countries through microloans. Tierney makes the point that Wal-Mart is actually responsible for the creation of far more jobs in the developing world than Grameen.

Well, nominating Wal-Mart for the Nobel Peace Prize may be a bit much to swallow, but Siegel's article does point out the positive side of Wal-Mart that is rarely mentioned in the press and gives some food for thought.  I'd be interested in what readers have to say.

Will Hybrids Solve Our Oil Problems?

The EPA and DOE yesterday released the 2007 Top Fuel Economy List which featured the Toyota Prius hybrid as the car with the best fuel economy at 60 mpg city/51 mpg highway (at least based on current official EPA reported mileage, which is higher than real world mileage according to most tests). This brought to mind a recent report I received from AllianceBernstein entitled Ending Oil’s Stranglehold on Transportation and the Economy: The Emergence of Hybrid Vehicles, which makes the case that hybrids will greatly reduce our dependency on oil in the coming decades.

Today, transportation accounts for about 50% of oil demand. Of that, 45% is accounted for by light-duty vehicles (cars, SUV's, minivans, and light trucks). AllianceBernstein figures that light-duty vehicles will use less oil by 2030 than they do today. After reaching 21.5 million barrels a day in 2010, close to what the International Energy Agency projects, they figure demand will fall to 16.1 million barrels a day (half of what the IEA predicts). This is despite the increase in number of vehicles. The difference: better fuel economy due primarily to hybrids.

Hybrids are predicted to gain mass acceptance not only due to lower costs due to fuel efficiency gains, but also due to superior features, including faster acceleration and lower emissions. They also don't face some of the hurdles that alternative fuel (such as ethanol) vehicles do--you can use them just like you use a "regular" car now, you don't need a new infrastructure to deliver an alternative fuel. Their main drawback right now is the price premium, which is expected to drop rapidly since a large component of the cost is electronics and batteries.

The next step beyond our current hybrids is plug-ins. While today's production hybrids cannot use electrical power alone for significant distances, that changes once higher capacity batteries (which will be charged by plugging in, rather than solely through regenerative braking and the gas engine) become more affordable. According to AllianceBernstein, 40% of Americans travel 20 miles or less a day and 60% travel 30 miles or less. If a plug-in hybrid could go just 20-30 miles on a charge, many people would never have to use gas for routine driving, but still have it available anytime they needed it for longer trips. You can see how that would greatly increase MPG. There are already some people who have modified their Prius' in this way (albeit at a high cost).
The report considers the implications:

If most consumers recharge the batteries in their plug-in vehicles from the electrical grid, the fuel ultimately powering their vehicle is likely to be coal, natural gas or uranium, rather than oil...This could reshape the foreign policies of such oil-importing countries and regions as the US, Japan, Western Europe, China and India. The economic and political implications for the few oil-rich exporting nations, by contrast, are likely to be grim. Indeed, the transition to hybrid power could change the world!

That would be great news for us. I'm wondering, though, if there's a self-limiting mechanism in this march towards hybrids. As the recent volatility in gas prices have shown, we seem to worry only when the prices are high and quickly forget about the long-term when prices are low and oil is plentiful. If hybrids do help to keep a cap on gas prices by lowering demand, that would make hybrids themselves less attractive, slowing the development of economies of scale.

Maybe an increase in gas taxes would help? I'm sure that would be politically impossible right now but perhaps concerns about security in the Middle East will be enough to tip the balance in the near future.

Will We Treat Future Generations Fairly?

That's the subtitle of Fed Chairman Ben Bernanke's speech at the Washington Economic Club on Wednesday this week. In it he discusses the implications of the aging of the baby boomers and the ongoing increases in life expectancy. Economically, it's not a pretty picture, but it'll only get worse if we keep putting off doing anything about it.

...the broader perspective shows clearly that adequate preparation for the coming demographic transition may well involve significant adjustments in our patterns of consumption, work effort, and saving. Ultimately, the extent of these adjustments depends on how we choose--either explicitly or implicitly--to distribute the economic burdens of the aging of our population across generations. Inherent in that choice are questions of intergenerational equity and economic efficiency, questions that are difficult to answer definitively but are nevertheless among the most critical that we face as a nation...the fiscal consequences of these trends are large and unavoidable. As the population ages, the nation will have to choose among higher taxes, less non-entitlement spending, a reduction in outlays for entitlement programs, a sharply higher budget deficit, or some combination thereof.

He points out that if we tried to finance projected entitlement spending (Social Security and Medicare) entirely by revenue increases, our tax burden would have to go up by one-third over the next 25 years. If we tried to address it by cutting non-entitlement spending, we would have to cut the federal budget by $700 billion in today's terms. If we increase the federal budget deficit to pay for it, we shift the burden of paying for government spending to future generations.

In addition, Bernanke points out that the aging of the population is likely to lead to lower average living standards, all other things being equal. As the population ages, the share of working age (and employed) population decreases. Basically, this implies that the level of output per person must be lower since each worker's output will have to be shared among more people.

Bernanke argues that one way to mitigate these affects would be to increase our national savings rate, which could be used to increase our nation's capital stock which would make future workers more productive. The problem is that saving more now means that we need to consume less or work more. The tradeoff: "We can mitigate the adverse effect of the aging population on future generations but only by foregoing consumption or leisure today."

Citing a stylized model (i.e. a model that's not realistic, but illustrates the implications of changing saving and consumption now versus later) that the Fed has created (see the speech itself for more details), he points out

...the decisions that we make over the next few decades will matter greatly for the living standards of our children and grandchildren. If we don’t begin soon to provide for the coming demographic transition, the relative burden on future generations may be significantly greater than it otherwise could have been. At the heart of the choices our elected representatives will have to make regarding the distribution of these costs across generations will be an issue of fairness: What responsibility do we, who are alive today, have to future generations? What will constitute ethical and fair treatment of those generations, who are not present today to speak for themselves?

I think Bernanke brings up some important points. By not doing anything to address these issues now, we're really putting the issue on future generations by default. As the father of three young children, that would be like me saying I'm going to keep spending and not worry about the bill because I'll make them pay for it when they grow up. We really owe it to our children to educate ourselves about the hard choices that we'll collectively have to make and to push our elected officials to look beyond their next election. Since our children (or our future children) don't have any voice, we'll have to speak for them.