Actuaries look for a positive stance on growth and pension provision
Escape the bottom of the barrel
I read with great interest - but increasing despair - September's article on oil prices (Gail Tverborg, Bottom of the Barrel?). The basic premise of the article runs as follows. Economic growth depends on oil supply. Oil is running out. Therefore there will be no more growth. Corporations will encounter difficulties. Governments will topple. The end is nigh. And the only bright spot is that the number of car accidents will fall, because there will be no more cars. The article is supported by a study from the University of California. I cannot argue with this study - it must be right as it has a) very many pages b) lots of pretty graphs and c) some scary formulas.
A key point of the article though is that the growth rate in oil supply has been flattening since the 1970s, and real GDP growth dropped in the same period. Therefore oil supply drives growth. A story I came across recently suggested to me that we could put a more positive spin on this point at least. Caesar once said to a Rabbi: "If you are so clever, tell me what I will dream tonight". The Rabbi said "You will dream that the Parthians will defeat you". (Caesar did not like the Parthians). Caesar mulled this over all day and, funnily enough, that night he dreamt that the Parthians defeated him. Did the Rabbi predict the dream? Or cause the dream? I leave you to figure out the cause and effect here.
Might it not also be the case that the cause is the GDP growth and this affects how much oil is placed on the market? Possibly hopeful thinking, but so what? I heard recently that Australia escaped recession because the press agreed not to report it. Everyone stayed positive and they thought themselves out of depression.
Let's all only write positive articles. We could then, single handed, think ourselves out of depression. Imagine the plaudits - "Actuaries save the world"! And at last we could change our motto from Certum ex Incertis to something more glam: Actuaries: the positive-thinking profession!
Alan Chalk, 4 October
Illuminating article
Thank you so much, Lydia! When I read your feature 'A Winning CV' on The Actuary website (bit.ly/winningCV), it was like you were talking to me directly. You just shone a bright light of hope to me.
I am currently studying in Moscow and will soon be finishing my first degree in economics. I have such a great passion for actuarial science (based on the insurance industry), and you have helped me to have a wide plane on actuarial science, especially as I'm preparing for some exams. Your help means a lot.
Thomas Simon, 26 September
Stop using pensions as collateral
I read with interest a news item on your website in September 'Clegg criticised over pension proposal', (bit.ly/pensioncrit). The curious thing is that everywhere there seems to be an attempt to use pensions as a sort of asset that can be traded or used as a guarantee, exposing it to the risk of even total loss.
Many people even find themselves using it as collateral against a property or building loan for their children. The old family bond used to be a help to the elderly when there was not a pension to fall back upon. But, with the spread of the philosophy of individualism, this is no longer the case.
For many elderly people, a pension is now an incentive for their children to look after them, as they see the pension as a source of income for their service. In some cases, the pension supports not only the pensioner but their children.
A pension has to be regarded as a socially guaranteed protection. It can never be seen as an asset that can be traded. With defined contribution arrangements for pensions in place, there is really a conflict of interest in every working person: should they live in as much comfort as possible now or save for their future survival when they can no longer work? The cost of providing for a decent pension from one's savings is rising worryingly, but individuals are powerless to control the events that shape this and can seriously erode the value of savings. If this is to be a permanent feature, people will start to question why they should save at all, as their savings could evaporate serving some other interests.
Governments must see this problem. Under a stable interest rate regime with judiciously managed credit control, saving for the future was attractive. But today, in place of a reasonably predictable financial future, we have violent economic storms springing from volatile markets.
If governments cannot provide a pension through legislation, then at least they should take measures to assure citizens that what they save will produce a decent pension. There is no sense in using a pension as collateral for economic decisions by others. In the event of a sub-prime-like crisis in future, the pension operating as a collateral will be heavily at risk. This is not in the public interest.
S Chidambaram, 28 September
RPI paper ignores geometric query
The National Statistician issued a consultation paper on 8 October on options for improving the Retail Prices Index (RPI). In doing this, the call by Roy Colbran and myself for justification of the geometrical mean component of the Consumer Prices Index (Letters, August and October) has not been heeded.
The inclusion of the geometrical component implies that changes in the ratios of arithmetical means of prices are the same as changes in the ratios of geometrical means. It would be appreciated if the mathematical demonstration of that could kindly be shared with us all.
Trevor Sibbett, 12 October