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‘Damn you, math, we meet again!’ A Russian YouTuber tries his hand at analyzing the country’s pension reforms

Meduza
“Damn you, math, we meet again!”
BadComedian

The Russian YouTube personality BadComedian recently reviewed a film starring the rapper Basta. The online critic, who typically confines himself to trashing films on the grounds of their own quality, spent the final third of this particular 45-minute review criticizing Basta for his politics. The rapper has publicly supported the Russian government’s pension reform proposal, which includes an unpopular increase in the country’s retirement age. Like Russia’s political leaders and federal TV anchors, Basta has framed the reforms as a difficult but necessary measure, telling those who disagree to “find themselves an economics textbook and a calculator.” BadComedian took up the challenge and tried to use statistics to prove that pension reform was unnecessary. The next day, Basta gave in to the YouTuber’s position and apologized for his political advocacy. However, there are serious flaws in BadComedian’s economic analysis. Meduza asked Maxim Buyev, an economist and leading administrator at Russia’s New Economic School, to analyze the video blogger’s misconceptions and explain why Russia’s pension system really does face a series of slow-acting but serious problems.

The claim: There are 76 million working people in Russia and only 44 million retirees. However, of those 44 million, 12 million continue to work, and 12 million have disabilities. “That is, in reality, the number of pensioners who are actually bumming off government funds is 20 million.”

The significance: If fewer retirees rely on pension funds now, it may not be necessary to raise the retirement age to keep more people out of the pension system.

BadComedian

The numbers are right, but the interpretation is not.

The central fallacy in BadComedian’s calculation of the number of “bums” is that both retirees with disabilities and working retirees do get their pensions from the budget of the Russian Pension Fund. It is categorically impossible to exclude them from that 44 million figure, and it is the overall state of the RPF’s budget that has led the government to pursue an increased retirement age.

The claim: “Life expectancy is the average number of years a person has left to live. As a rule, it is understood to mean the time someone is expected to live when they are born.”

The significance: Proponents of the pension reform plan who use life expectancy figures for people born today may overestimate how long people who are already retired will live.

BadComedian

Correct.

Here, we might add that when a nation’s life expectancy is calculated at any given time, it is assumed that mortality statistics in various age groups will not change. That assumption is by no means guaranteed to be true, and the life expectancy of a given generation sometimes changes unexpectedly over time and comes to differ from the figure that generation was given at birth.

The claim: “The burden of the pension reform is already weighing heavily on our shoulders, so it’s necessary for us to find up-to-date indicators of how things stand today.”

The significance: Proponents of pension reform say the problems at hand are urgent and demand immediate solutions.

BadComedian

False.

Russia’s pension system is not being reformed because the Russian Pension Fund is losing resources quickly, and once that flow is stopped, everything will be all right. The reform is being introduced to ensure that the RPF’s budget can be balanced at some time in the future. That moment may come when today’s newborns retire, that is, in 60 – 65 years.

The RPF’s budget is indeed facing a large deficit now. If the retirement age in Russia is not raised, that outflow of funds will grow, at least according to current estimations about Russian demographics in the coming half-century. However, that deficit will not be closed in a day; that will be a long, multi-step process. That is why it would be necessary to begin shifting toward reform gradually starting right now.

In his discussion of the issue, BadComedian doesn’t stop to figure that out and starts solving an entirely different problem. He asks how likely it is that the deficit in the Pension Fund’s budget was supposed to grow based on past demographic trends. In other words, BadComedian’s argument isn’t about whether the pension reform is necessary or not; it is about where the deficit in the RPF’s budget came from. This is a conversation about the past, not the future. It sheds more light on where the RPF’s money has gone than on whether it is necessary to increase Russia’s retirement age.

The claim: The mortality rate for the Russian population aged 60 – 64 changed from 21.9 people out of every thousand in 1990 to 19.5 in 2015. For those aged 65 – 69, it changed from 29.6 in 1990 to 26.2 in 2015. “In these graphs, I’m showing you a comparison of adults over 60 between now and the 90s. And it turns out that people in that age group are dying at about the same rate [then and now].”

The significance: The number of pensioners in Russia is not growing as quickly as some people may claim.

BadComedian

The numbers are right, but the interpretation is too rigid.

If we assume that the overall population in these age groups was identical in 1990 and 2015, then there would only be about a quarter of a percent more pensioners. However, those numbers are insufficient for us to reach an unequivocal conclusion about the current load on Russia’s pension system. We also have to look at the relative dynamics of the mortality rate for the working population and retirees.

The claim: “What could account for this major increase in life expectancy that people are blabbering about on every TV channel, you ask? Well, the answer is a decrease in child mortality.”

The significance: It is the younger, working population supplying pension funds that is living longer, not the older population that needs those funds.

BadComedian

Partially correct.

Since the first general Russian census in 1897, the life expectancy of Russian citizens has doubled. This trend is tied primarily to a decrease in child and infant mortality (by 80 and 32 times respectively). BadComedian is certainly right on that count, but that is not a complete picture of what is happening in Russian demographics.

So what’s the whole picture?

The average life expectancy in Russia has also increased due to an overall increase in the quality of medical services, a changing quality of life, decreased alcohol use, and more. All this has caused mortality to decrease among adults as well. And here, Russia is no exception to the rule. It is slowly but surely following along with developed countries. Don’t believe me?

To prevent child mortality from spoiling the picture, let’s look at the average life expectancy of 10-year-old children. In Russia, it has grown from 58.5 additional years in 1990 to 61.1 additional years in 2015. The life expectancy for this age group has grown by 4.4 percent. Compare that to the same statistics in Norway (a country with very high life expectancy). There, 10-year-olds were expected to live 67.7 additional years in 1990 and 72.4 in 2015 — an increase of 6.9 percent.

The claim: “Here are some beautiful government statistics for you that show men who are at retirement age actually die more often than they did in the late 19th century. But all in all, life expectancy has grown unbelievably fast — just look at the change in children’s mortality rates.”

The significance: Older Russians who rely on government pensions are actually dying sooner, decreasing budgetary pressure on the Russian Pension Fund.

BadComedian

Partially correct.

Here, BadComedian is doing what economists call data snooping (or data dredging or data fishing). Rather than giving an honest assessment of the situation, the blogger chose to highlight data that confirmed his preexisting point of view while excluding figures that did not.

So what did he leave out?

BadComedian populated his infographic with old data from 2006. Mortality rates from 2017 actually show fewer people dying now than in the late 19th century in all age groups.

Complete data from the Russian Federal State Statistics Service can be found here.

However, even in 2006, BadComedian excluded women from his data. As a rule, they live longer than men. Therefore, relatively low mortality rates that cause an increase in pressure to reform the pension system should have played a more significant role in BadComedian’s discussion. However, even taking better mortality data into account would not have made his reasoning perfect; mortality data alone is not enough to analyze the financial exchange between working and retired people.

The claim: “The same analysis works when you compare now to the 90s. Both women and men have started living just a little bit longer, but technically, life expectancy has increased substantially anyway. It’s probably the 90s’ fault: so many people were killed, birth rates dropped, and we got this damn demographic pit.”

The significance: Here, too, BadComedian is implying that Russia’s workforce is growing and will be capable of supporting the Pension Fund.

BadComedian

His intuition is right, but the presentation is wrong.

The word “technically” and the fact that BadComedian is clearly guessing here once again show us the impossibility of describing overall changes in life expectancy based on two or three mortality rates at different points in time. The math here is simple but tedious: the results depend on the relative changes of the mortality rates for various age groups.

The pressure on Russia’s pension system can increase or decrease without regard for changes in every generation’s life expectancy at birth. What’s important is the mortality rate among various age groups in the whole population and especially among retirees and working adults.

The claim: “According to those same government figures, we hit rock bottom in the demographic pit during the 2000s. And that drop isn’t going to affect anything by 2023.”

The significance: Russia’s past demographic difficulties may not inhibit the future growth of its workforce.

BadComedian

False.

Russia’s demographics hit rock bottom in the 2000s in the sense that in 2012, birth rates overtook death rates, and the population once again began increasing naturally. However, first of all, that growth turned right back around by 2016, when Russia’s population began to decrease naturally once again. Until last year, that decrease was counterbalanced by an influx of immigration, so the overall number of people residing in Russia grew nonetheless. However, by the end of 2018, that trend changed as well, causing an overall population decrease of almost 87,000 people Deaths are expected to continue to exceed births in Russia until 2023 at least, and the country’s overall population will likely decrease gradually for the entire stretch statistical reports currently predict, that is, until 2035.

Second of all, the so-called demographic pit from which Russia emerged in 2012 will still be felt for a long time. That’s because the pension system is affected not only by the overall birth and death rates but by the number of people who die in each age category.

The claim: “In 1990, there were 764 non-workers for every 1000 workers, and in 2017, there were 785. Even if you look at the latest government diagnoses, the situation is far from catastrophic.”

The significance: The ratio of non-working Russians relative to working Russians who contribute to pension funds has not grown significantly since 1990.

BadComedian

The numbers are right, and so is the general claim, but we’re not just talking about pensions anymore.

Here, BadComedian is talking about the dependency ratio. He is not only comparing the number of retirees to the number of workers; he’s including children under 15 who have not yet entered the workforce. BadComedian is right that this ratio is important for understanding how the financial pressure on Russia’s working adults grows over time. However, because children are included in the dependency ratio, this is not just a discussion of the pension system. It’s about the social system as a whole, including government spending on schools, daycares, and so on. This number is about something much broader than whether the retirement age should be increased. What’s important in the integrity of the pension system is not the number of non-working people overall; it’s whether the pressure of caring for children exceeds the pressure of caring for retirees.

According to the Russian Federal State Statistics Service:

  • The dependency ratio will continue to grow
  • The pressure of caring for retirees in Russia will exceed the pressure of caring for children by greater and greater amounts

This means that the country’s population is getting older, and the pension system will experience more and more pressure. Its current deficit will not shrink on its own. Measures must be taken to deal with that problem, but the current state of things cannot be called a catastrophe. However, that’s only true right now. What if birth rates in Russia increase, and education spending begins to increase along with them?

In conclusion

BadComedian made several mistakes in extremely simple calculations and misinformed his viewers as a result. All in all, that just reflects the complexity of both the calculations and the pension reform question as a whole. However, it’s possible that BadComedian intentionally used data fishing to convince his viewers that the Russian government is shoving pension reform down citizens’ throats to their detriment and that there’s no budgeting catastrophe in the system at all.

All that said, whether Russia’s pension system needs more money is not the real essence of the problem. Among experts, there is no doubt in the negative demographic trends and the budget balancing problems described above. The real question is how to fix or change that situation. On one hand, the retirement age could be increased. That’s a simple solution. On the other hand, the government could increase taxes on the rich, decrease spending, decrease corruption, or decrease the administrative expenses of the Pension Fund. It could buoy the RPF using the National Welfare Fund or income from sales of natural resources (which, in theory, should belong to all Russians). Finally, it could create conditions that are conducive to economic growth, salary increases, and ultimately an increase in the Pension Fund’s budget. However, that would be a complicated task; it would require political will and, in practice, a fundamental shift in the government’s mentality.

Any solution, whether simple or complex, is first and foremost an unpopular measure in the eyes of the government. The real question is how much pushback each option is likely to face. By opting to raise Russia’s retirement age, the government has chosen the path of least resistance.

Maxim Buyev

With Denis Dmitriev. Translation and international adaptation by Hilah Kohen.