Chapter 7 of Poor Economics discussed the issue of microfinancing, and how producers in developing countries are not able to obtain loans because the interest rates are so high, that they end up having to pay back an exponentially larger amount of money than they initially borrowed. I think it is a shame that microfinancing has not been successful, because I think the rationale behind it is really great. I believe that anyone should have the opportunity to better themselves if they are willing to put forth the effort to obtain their goals. One question that I have now is how is the microfinancing industry doing in the more recent economy where interest rates in the United States are so low. I would think that the rates of our economy would have some effect on that industry. It also makes sense that investors who, frustrated with the looming uncertainty of financial markets and government regulation, may be looking for alternative investments, and microfinancing could prove to be a lucrative endeavor.
The movie Margin Call was very shocking to me. It follows the story of a highly leveraged financial firm in the waktook the 2008 crisis. The characters are put in a tough ethical situation, as they can either lose their jobs and get swallowed up in the crisis like a lot of the people around them, or they can fight for their own survival by selling off the toxic securities to the people they have done business with. In the end, one man is promoted for selling the securities and will make a lot of money from the crisis.
This applies to the current economy because within a capitalist economy one may be forced and choose between ethical choice and a lucrative one. There is little doubt that these choices most likely exacerbated the crisis of 2008 when it was becoming clear that MBSs were toxic. The movie made me realize how interconnected the economy is, and how the decisions of a small group of people can affect the entire society.
In my regressions, I examined the correlation between the unemployment rate and several variables: effective federal funds rate, government expenditure, minimum wage, and GDP. My initial expectations for the relationship were that increases in the FFR would cause an increase in unemployment, because low interest rates theoretically encourage spending, which would eventually lead to a decrease in unemployment (an assumption that seems to align with current monetary policy). I also assumed that government expenditure would have a negative relationship with unemployment, because government spending is supposed to stimulate the economy, which creates jobs. I expected the minimum wage rate to have a positive relationship with unemployment, because when wages increase, employers can afford to employ less people. Finally, I expected GDP to have a negative relationship with employment, because a growing economy usually has a growing demand for jobs.
When I ran the regression between the FFR and unemployment, there was a negative correlation. When I added in more variables, however, the correlation switched to positive. This can mean one of two things: the introduction of new variables affects the relationship between the FFR and unemployment, or my regression is flawed. For the most part, all of my assumptions were correct, however I noticed that as I introduced more and more variables into my regression, the p value grew larger and larger. Therefore I plan to amend my regressions in the future to see if my model can maintain its complexity while having more accurate results. I think my model would be more accurate if I incorporated data from past time periods and analyzed their effects of present unemployment. It makes sense that actions, especially government action like spending and rate manipulation, would not take full effect until time has passed. I also think I can elicit more accurate results if I used the growth rates of some variables such as GDP and government expenditures. By measuring the values by relative change instead of nominal value, a stronger correlation may be revealed.
In chapter for of Poor economics, the author discusses how education in other countries are improving. This is caused by some of the programs that are being implemented. Private schools and cash transfers are aiding students to further and better their education. Also, education for girls is improving. They are attending high school and are improving their quality of life. Reading this chapter, made me think of a type of program that I strongly support; the Voucher system. Therefore, I chose to read the article “Expansion of state’s school-voucher system takes effect today,” by Anne Ryman.
In this article, the author states how one out of five students will now be eligible to apply for public money to attend private schools. This is a very controversial program that many school administrators do not like. In the article, she talks about the pros and cons about the voucher system. First, these scholarships are only given to low income families that attend poor performing schools. Using the voucher system, low income families can place their children into private schools. This will further their education. Not only will it allow these children to go to low better schools, rich people will be paying for it through their taxes. Next, this sparks competition throughout schools. Poor performing schools have two choices. They can either change their ways to produce higher test scores or everyone will leave that school to go to private schools. Therefore, they would no longer receive funding and the school would be shut down. And finally, this would lower cost for the state. They would not be spending their money inefficiently on failing schools. The book and article bring up good points. However, when it comes to schooling, the best option is always the voucher system.
For the author:
It seems that the state of Arizona is taking the correct steps to fix their educational program. While areas such as Chicago and my home town Washington D.C. have a terrible schools, I am glad to hear Arizona is making progress. It is embarrassing to see a failing school system such as D.C. and I really wish they would implement such changes.
link to article
Since the crisis of 2008, policy makers have been pressured to make changes that will spur economic growth and decrease unemployment. Although the job market has rebounded slightly within the past few years, people are still enduring heightened levels of unemployment. These lingering conditions are causing people to look for alternative solutions. Many economists are quick to offer their opinion on ways to solve this issue. Before a solution could be reached, however, one must first identify the cause. Once the main cause of unemployment is identified, only then can an appropriate and efficient solution be reached.
This paper will identify what factors have the largest impact on unemployment. In light of the current economic condition, knowing how the unemployment rate reacts to economic variables has become of great interest to contemporary economists. The unemployment rate is currently hovering around eight percent, which has caused a lot of strain on the people of the United States. So far the chosen strategy seems to be aimed more towards increases in GDP growth, with the belief that this increase will automatically cause an increase in employment. So far, this has not been the case, and the United States has experienced a jobless recovery. Therefore the question begs to be asked whether GDP targeting is in fact the most effective method to increase employment.
This paper will build a model that examines the relationship between the unemployment rate and several factors such as GDP growth rate, the federal funds rate, unemployment expenditure, and the nominal minimum wage. All of this historical data is measured quarterly from January 1959 to October 2010 and will be supplied by the Federal Reserve Economic Data.
Amine, S., & Lages Dos Santos, P. (2010). Technological Choices and Unemployment Benefits in a Matching Model with Heterogenous Workers. Journal Of Economics (Zeitschrift Fur Nationalokonomie), 101(1), 1-19.
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Krugman P. Past and Prospective Causes of High Unemployment. Federal Reserve Bank Of Kansas City Economic Review [serial online]. 4th Quarter 1994;79(4):23-43. Available from: EconLit, Ipswich, MA. Accessed February 28, 2013.
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Sabia, J. J. (2009). Identifying Minimum Wage Effects: New Evidence from Monthly CPS Data. Industrial Relations, 48(2), 311-328.
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The common misconception that drug dealers live a life full of wealth which is enhanced by music and social medias is proven wrong in chapter three of freakonomics. The purpose of this chapter is to to prove how conventional wisdom is simply not true. Using the example of why drug dealers live with their moms, chapter three disproves conventional wisdom.
While so many seek the prosperous lifestyle of a drug dealer, there are very few that actually reach the top. And in order to be successful in this industry, a person needs to be at the top. For example, the lead gang member makes an annual salary of $100,000 (95) tax free cash. I pretty good salary. However, if you are not at the top your salary drops dramatically.
As it turns out, the average foot solider make an average salary of $3.30(102). This is far below minimum wage, therefore it is not uncommon for drug dealers to have another job and live at home with their moms.
Another very intriguing statistic about this chapter is the distribution of wealth. While the top 120 gang members of the black disciples make up only 2.2%, they take home over half the profits (100). This makes it even more difficult for young drug dealers to survive in this market.
And finally, the most important statistic in this chapter is that a gang member who is committed to this industry for 4 years has a one in four chance of getting killed (101). This statistic shows the harsh reality of this industry. While music videos and rappers brainwash the youth surrounding ghetto areas with these false illusions of wealth, the truth is that most drug dealers a) do not make enough to move out of their mother’s home, b) make enough to have only one job and c)run the risk of being killed without any type of compensation. The bottom line, don’t become a drug dealer if you are trying to become rich.
For my research project, I intend to examine the factors that cause unemployment. I was inspired to choose this topic by the current economic situation. Even though the job market is better than it has been in the past few years, unemployment is still a lingering symptom of the crisis of 2008. I wholeheartedly believe that in order to find a solution to a problem, one must first identify the cause. Therefore I would like to build a model that identifies the relationships between employment and various factors such as the federal funds rate, public welfare programs, and the minimum wage. Should my model identify a comparatively stronger relationship between employment and one of the variables, my results may identify a main cause of unemployment. Once a cause is identified, then policymakers may better implicate certain measures to counteract and possibly prevent unemployment.
From the data that I have gathered so far, I am beginning to think that in order to identify a cause of unemployment, it may be more realistic for me to take into consideration of variables in the past. For example, when the federal funds rate changes, unemployment may not be effected immediately. The effects of changes of the rate may take a few quarters to actually present themselves. Therefore I plan to take this into consideration in forming my model.
I also believe that my paper wouldn’t be complete without examining ways my paper can be interpreted by policymakers in order to come to a solution for the current unemployment problem. I plan to examine the literature of other economists whose theories may fall in line to the findings of my model. By no means to I believe that my model will be complete enough to truly identify the cause of unemployment, but I hope to gain some insight on what factors affect unemployment compared to others.