The economic legacy left by the baby-boomers is leading to a battle between the generations

Voters need to understand that US demographic trends are bad for growth, and very bad for the total future tax burden. But majority rule democracy is not well-designed to find an optimize solution to the growing conflict between aging retirees and the working population that pays for the elderly benefits. 

This Economist analysis seems to conclude that inflation is the only politically feasible outcome:

(…)Sadly, arithmetic leaves but a few ways out of the mess. Faster growth would help. But the debt left by the boomers adds to the drag of slower labour-force growth. Carmen Reinhart and Kenneth Rogoff, two Harvard economists, estimate that public debt above 90% of GDP can reduce average growth rates by more than 1%. Meanwhile, the boomer era has seen falling levels of public investment in America. Annual spending on infrastructure as a share of GDP dropped from more than 3% in the early 1960s to roughly 1% in 2007.

Austerity is another option, but the consolidation needed would be large. The IMF estimates that fixing America’s fiscal imbalance would require a 35% cut in all transfer payments and a 35% rise in all taxes—too big a pill for a creaky political system to swallow. Fiscal imbalances rise with the share of population over 65 and with partisan gridlock, according to other research by Mr Eschker. This is troubling news for America, where the over-65 share of the voting-age population will rise from 17% now to 26% in 2030.

That leaves a third possibility: inflation. Post-war inflation helped shrink America’s debt as a share of GDP by 35 percentage points (see article). More inflation might prove salutary for other reasons as well. Mr Rogoff has suggested that a few years of 5% price rises could have helped households reduce their debts faster. Other economists, including two members of the Federal Reserve’s policymaking committee, now argue that with interest rates near zero, the Fed should tolerate a higher rate of inflation to speed up recovery.

The Economist does not link the IMF study which they referenced. I think it is: The Challenge of Public Pension Reform in Advanced and Emerging Economies, December 2011. Excerpt on reform options:

IMF pension reform chartA. Advanced Economies

32. Most advanced economies face the double challenge of high debt and rising age- related spending, particularly in health care (Figure 12). A number of countries with above-average levels of pension spending also face large projected increases in age-related outlays (Austria, Belgium, Finland, Greece, Portugal, and Slovenia). In some other countries with below-average levels of pension spending today, projected increases in age-related spending are substantial (Luxembourg, Korea, New Zealand, Switzerland, and the United States).

33. Pension reforms that curtail eligibility (e.g., by increasing the retirement age), reduce benefits, or increase contributions can help countries address these fiscal challenges. The trade-offs across these choices are illustrated in Figure 13. Beyond what is already legislated, with no increases in payroll taxes and no cuts in benefits, average statutory ages would have to increase by about another 21⁄2 years to keep spending constant in relation to GDP over the next twenty years.23 Relying only on benefit reductions would require an average 15 percent across-the-board cut in pensions. Relying only on contributions would require an average payroll rate hike of 21⁄2 percentage points. To keep pension spending as a share of GDP from rising after 2030, additional reforms would be needed: for each decade, retirement ages would have to increase by about 1 year, benefits cut by about 6 percent, or contribution rates increased by about 1 percentage point.

Also on future liabilities The Financial Impact of Longevity Risk, April 2012

Eamon: Japan’s political dynamics after the Tohuku earthquake

A fascinating post by Japan-resident Eamon on Brave New Climate. It seems that even in Japan politicians “Never pass up a good crisis…” to seek political advantage.

Note the brief outline of “Amakudari”, the Japanese term for revolving door from regulator-to-industry. If this practice is permitted the resulting incentives ensure regulatory capture. In the US it is common for regulators to retire on a nice pension, move a few blocks to “K Street” into a cushy job lobbying their former officemates. You can make this transition without having to change car pools.

Roger Clifton, on 17 January 2012 at 6:40 PM said:

@Eamon — more questions. I’ve done some homework for you already — perhaps you could, as a Japan resident, prepare a short summary for us here on the political dynamics after the Tohuku earthquake?

No problem Roger, though my call for info was because the people on this forum would likely be able to point me in the direction of scientific studies, rather than the dross that abounds on the Web these days.

The political dynamics are shaped by two factors: a deeply entrenched bureaucracy that is used to shaping policy-making, and the political-class that appreciates the figurehead position that this creates.

After the earthquake people expected quick movement on generating and approving finances to help rebuild the Tohoku area. This got dragged out immeasurably by political sniping (some from inside the ruling party) by those wishing to be the next at the reins of power. Also, many minor parties, often needed to form ruling coalitions, have become firmly anti-nuclear, which will complicate things in the future.

One of the consequences of the powerful bureaucracy is that it is used to sharing knowledge sparingly within its myriad departments, and there has been little need for the public or politicians to challenge this given the Confucian ethos that, until recently, permeated Japan.

This gave rise to some of the most damaging revelations during the disaster, though typically, an increasing anti-nuclear media is portraying this as an nuclear industry issue, rather than a bureaucracy issue. The revelations include:

* The Nuclear Safety Commission ignoring information from the SPEEDI System (System for Prediction of Environment Emergency Dose Information, Department of Trade, Industry and Education). This lead to evacuees staying in an area of high radiation, which could have been avoided by consulting SPEEDI.

* The Nuclear Industrial Safety Agency asking TEPCO to assess the risk of Tsunamis to its Fukushima Plants. TEPCO reported back a few days before the tsunami that there was a risk of a 9-metre tsunami.

* The Agriculture Ministry banning the feeding of livestock with hay, as it could be contaminated by fallout. They forgot that Japanese farmers also use rice straw to feed livestock. Result – contaminated meat.

* Bureaucrats forgetting that gravel and other aggregates are stored outdoors. Contaminated gravel was widely used in construction in Fukushima Prefecture after the disaster, one condominium’s ground floor having two orders of magnitude more radiation than the local background.

* Prime Minister Kan ordering the halting of seawater injection into the damaged cores due to NRC quavering on its pros and cons. Luckily the site manager requested that his staff ignore the order and they did.

Please note I’m referring to public perceptions here – contaminated meat in small amounts will not have a noticeable effect (if at all) on a person’s health, though there is argument on the sensitive of young children to radiation doses. Also note that an increasing distrust of the bureaucracy (and with good reason) leads people to question what they hear from them – especially with regards to food safety these days.

One of the lessons learnt from the evacuation in Ukraine was how it damaged the health of hundreds and the quality of life of thousands of evacuees. Assuming the lesson had reached his advisers, why then did PM Kan order an evacuation from a 20 km radius of the damaged power station? Did competent authorities get excluded from the advice?

I will say first, that I agree with his decision, as a precautionary measure – though I think it should have also been bounded by probable contaminated areas (Using data from SPEEDI) rather than a simple radius. Until a good picture of the actual dangers on the ground are it seems sensible, and moreover, was a political necessity given the public pressures on the administration. There was also the additional factor of having to deal with the tsunami and earthquake damage across Tohoku

I will add at this juncture that my knowledge of that time is spotty – we were without electricity, kerosine and petrol, and low on supplies. We got general emergency updates over a battery powered radio. So apologies if this seems a broad summary.

As for competent authorities, it’s very hard to judge, given the bureaucracy’s secrecy and industrial ties (Amadukari#), but when we got our power back the experts consulted on NHK News seemed to be non-activist academics, though that changed as bureaucratic bungling came to light.

Alternatively, the Japanese Cabinet may have been misled by other advice, that more deaths would result if these people were left rebuilding after the tsunami than if they were evacuated. If so, he would have quoted an estimate of the net number of deaths averted. Please advise us of any official estimates of the consequences of action and inaction.

That kind of information is not available, as far as I know, and given the lack of solid information at the time of the evacuation order it might not have been reliable enough to accurately weight scenarios.

Or could it be that the order to evacuate was just a placation of a public made needlessly frightened ?

Given the advance to INES Level 7 (we really need a 6.5 here!) it probably was the right choice, solidly from a public relations viewpoint, and generally from a precautionary viewpoint. The partial melt-downs that occurred back up the latter, especially given that fact that jury-rigged systems were needed, fed by an erratic power supply, to fight to stabilize the plant in the days and weeks ahead.

Finally, sorry for the delay in my response. Family, work, and the need to combat anti-nuclear hype in the various fora I’m a part of in Japan kept me from it.

#Amakudari – the system where bureaucrats retire to cushy jobs in the industries they previously supervised. Serving bureaucrats must ensure they do not affect bureaucracy-industry links so much that they find themselves without a lucrative post-retirement position. This makes for ineffective oversight, and often out-and-out corruption.

Japan: What Lost Decades?

Thanks to Roger Pielke Jr. for this referral and analysis:

Sunday’s NYT had a provocative essay by Eamonn Fingleton challenging conventional wisdom of Japan’s “lost decades” (Fingleton blogs here). Here is an excerpt:

Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back.”

But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.

Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.

Definitely, read the whole thing.

Why is Fukushima Daini NPP fine while neighboring Daiichi NPP has 3 damaged reactors?

Corrections 28 May: After reviewing the 87-slide TEPCO presentation [PDF] from 24 May I think the main conclusion of this post is incorrect. The tsunami impact on the two sites was different. Ignoring any issues of design errors, my take away is this:

1. I don’t think the updated Daini BWR designs were decisive in the relative outcomes of the two NPP. It isn’t clear to me how the newer designs handled the seismic accelerations — did Daiichi suffer greater damage in critical components? The TEPCO slide #1 compares the earthquake ground motion recordings for the two plants. Daini accelerations were smaller – how significant were the differences?

2. It is clear that the tsunami flooding was significantly different. Daini experienced 14M only on the south side of unit 1 but overall the site was subjected to a 7M inundation. Secondly the flooding depths were less at Daini being sited 12 meters above sea level (O.P.) vs Daiichi 10 meters above sea level (O.P.) Is the 7M vs. 14M local water height difference because the Daini seawall was more effective?

3. The bottom line of course is that Daini retained enough electrical power to operate reactor cooling: one (of four) off-site power lines survived, and 3 of 12 backup diesel generators. We don’t know how Daiichi would have fared if the same level of power supply for cooling had survived there.

201105272058.jpg

Before I read Steve Packard’s The Other Fukushima Nuclear Power Plant, it had not occurred to me to compare the two neighboring Fukushima plants. I created the above public Google Map if you wish to study the siting of the two nuclear parks.

Daini NPP is only 6 miles north of Daiichi NPP. Both plants were struck by the monster earthquake and 14-meter tsunami. The Daiichi NPP suffered three (of six) damaged reactors whereas all of Daini’s four reactors are safely in cold shutdown. What is the difference? Here is an excerpt from Steve’s homework:

(…) Why Daini survived the quake and tsunami so much better than Daiichi:

There’s really only one glaring difference between Fukushima Daiichi and Fukushima Daini: the vintage of the nuclear technology of the plants.    While Fukushima Daiichi was built with reactor designs from the late 1960’s and early 1970’s, Fukushima Daini was built with technology of the early to mid 1980’s.

A comparison of the reactors at Fukushima Daiichi and Daini:

(…) The conclusion that one can draw from the events at the two Fukushima plants is relatively straight forward: While the older BWR-3 and BWR-4 designs are sufficiently safe in most situations, their designs are nowhere near as robust and reliable as newer reactor designs.   Of course, despite holding up so well against forces far beyond what designers had planned, the BWR-5 is, by today’s standards, old technology.   Newer reactors are much safer still and have even more reliable passive-based safety features.

This is all the more reason why we should be building more nuclear plants.   As newer reactors are built we will be able to eventually shut down the older reactors, thus improving economics and safety even further.   The events in Japan do not diminish the picture of safety we have when it comes to new reactors. Rather than assuming that reactors will fail in the manner that they did at Fukushima Daiichi, we should consider how well they held up at Fukushima Daini.   This is far more representative of new reactor designs, although those are even safer and more reliable still.

Read the whole thing – including the comments.

Fukushima: a temporary circulation strategy for unit #1

201105181146.jpg

In TEPCO’s May Progress Status [PDF] report and in this attachment to the report, I see for the first time (for me) the plan to reuse the contaminated water leaking into the turbine building — which should address my concern that operators would be overwhelmed by the volume of contaminated water leaking from the primary containment of unit #1. On this temporary circulation strategy TEPCO writes:

Issue 1. Reactors: revision of prioritized countermeasures due to the coolant leakage

・ Entered into R/B in Unit1 after improving work environment. Confirmed status of R/B and calibrated instrumentations (reactor water level, etc.)

・ As a result, it turned out that the coolant leakage from PCV occurred in Unit 1 as well as in Unit 2. There will be the same risk in Unit 3.

・ Accordingly, as a major countermeasures to achieve “cold shutdown” in Step 2, revision was made to prioritize “establishment of circulating injection cooling (please refer to the figure in upper right)” over flooding operation (flooding the PCV up to the top of active fuel). In circulating injection cooling, contaminated water accumulated in buildings is reused to be injected into the PCV after being processed.

TEPCO has released a useful presentation containing many diagrams and photos of work in progress: Progress status of cooling (reactors)

Fukushima: TEPCO presentation on reactor #1

The zig-zag announcements regarding unit #1 fuel status is probably due to data available to TEPCO before and after they regained access to the control room. John Timmer at Ars Technica summarized the latest TEPCO release yesterday, covering much of the same ground as Will Davis (that I linked yesterday). But also including some info that was new to me:

The new analysis was enabled by the recent installation of air purifiers that let personnel reenter the reactor control room for the first time. Once inside, they were able to recalibrate some of the instruments that have been monitoring the reactor core; the revised numbers have enabled TEPCO to better understand what happened in the wake of the tsunami.

Timmer also linked the new TEPCO slide deck. That presentation is worth a careful read. Note the “Temperatures around RPV” chart at the end with diagram of sensor locations.

TEPCO says the bottom line is this:

1. RPV cooling water leak is likely

2. RPV significant bottom damage unlikely (inferred from temp/pressure data)

3. The corium on bottom of RPV “considered to be sufficiently cooled inside the RPV”

Not discussed are the leak(s) from the PCV, where the contaminated water is going, and what they are going to do next. In particular how are they going to achieve recirculation cooling? The following thumbnail is the temperature data from the PDF slide deck:

201105170939.jpg

Fukushima and Amakudari:

Gail Marcus lived and worked in Japan. Here’s an excerpt from her thoughts on Japan’s utilities and regulators:

(…) The Japanese system, often called amakudari, or “descent from heaven” has long been criticized by outsiders. In earlier days, it undoubtedly helped foster the image that used to be called “Japan, Inc.” At one time, that mode of operation had considerable benefit for Japan, as it seemed conducive to developing unified positions in confronting the global marketplace. Somewhere along the line, however, that benefit seems to have lessened, and people stopped using that term as much. In fact, at that point, some of the disadvantages of amakudari seemed to emerge, particularly the inefficiencies caused by sometimes force-fitting people into positions for which they were not well matched.

Now, perhaps, a more serious shortcoming of amakudari may have reared its head and it may become more imperative to alter the kinds of relationships that have existed between the regulators and the regulated community.

It would be far too simple to say that reform of the government pension system is the solution to any problem in Japan. Amakudari is certainly not the fundamental cause of the Fukushima crisis, and it is unclear at this time whether any of the problems at Fukushima will be traced to repetitions of the previous instances of TEPCO misconduct and regulatory “indulgence” that have been dredged up by the press. In fact, my guess at this time would be that amakudari is not a factor. Furthermore, there are other Japanese government and industry practices that might also merit scrutiny in the face of current events. Perhaps I might address them in a future blog.

However, getting rid of amakudari will be a giant step in the right direction for an industry that is now under siege, and should help restore the faith of the Japanese people and the world that the nuclear industry–as well as other industries in Japan–will be subject to the kind of regulatory scrutiny the world expects from one one of the most advanced countries in the world.

Many people feel that Chernobyl helped to topple the old Soviet Union. It would be fitting for Fukushima to topple amakudari.

TEPCO responds to NISA on reactor building, and more

Will Davis posted very interesting details on TEPCO’s reactor stabilization plan – including a diagram of the recirculation cooling system:

(…)

-TEPCO has finally revealed some details about the actual construction of the temporary cooling system it will install.. at least at Unit No. 1. Here is a clip from the handout:

(…) [From TEPCO responds to NISA on reactor building, and more]

NISA instructs TEPCO to demonstrate dry well flooding is safe from seismic

Will Davis examines the NISA letter to TEPCO, dated April 30, 2011.

NISA, or for those who are recently joined readers, the Nuclear and Industrial Safety Agency, has instructed TEPCO (Tokyo Electric Power Company) to make a very thorough analysis of various parameters relative to TEPCO’s plan to flood the dry well of Fukushima Daiichi No. 1 to a level above that of the active fuel region inside the pressure vessel.

It is beginning to look as if NISA seriously questions this move… not in terms of restoration of core cooling, but rather in terms of building safety and more importantly (and directly) reactor safety in the event of a further earthquake, taking into consideration the large increase in mass that this much water will add to the dry well structure.

This is perhaps one of those watershed moments, because if TEPCO finds that this plan is not safe in this seismic environment (or if NISA doesn’t like TEPCO’s answer and stops the plan anyway) then this will entirely derail TEPCO’s sole plan to restore core cooling in a timely manner.

(…)

Read the whole thing — it’s a bit complicated. If NISA concludes the flooding strategy is not prudent, I do not know what the fallback will be. Will Davis concludes with this:

This is a pivotal report for the movement of plant recovery forward, so we will be watching for the response and have it up here as soon as we see it.