Archive for the ‘B1’ Category

Student Loans and Their Implications on the American Economy

May 22, 2013 1 comment

With everyone left in our Economics becoming seniors next year, the looming beasts of college and student loans are fast approaching.  Even after college, the fear of having to get a job to help pay off the loans almost seems more daunting.


Thinking about the Burden of Student Loans

In today’s economy, it almost seems like a better idea to not go to college as to not have to pay off the student debts.  However, this would leave young people in a precarious situation of not having a good enough job.  This would lead to a decision between a high school diploma with a weak job or a college degree, student debt and a much stronger job.  With those students with debts, it kills their credit scores and makes it nearly impossible to get a mortgage or a car loan or any other “big ticket” items.  The whole aspect of student loans is sending “a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too” (NY Times).  Students have  now become very burdened by a load that seems almost impossible to pay off.  While it might seem like an economic death wish to enter the economy after college with such a large amount of debt.  However, in today’s economy employers are more likely to hire a candidate with a college degree than without.  Therefore, it becomes a weighing of cost and benefits between a high school diploma and no debt or a college degree with large amounts of debt.


In 2012, about 60 percent of college students borrow a student loan.  ” There is roughly somewhere between $902 billion and $1 trillion in total outstanding student loan debt in the United States today” (American Student Assistance).  About $85 billion of this total is past due.  Despite all these economic statistics working against them, “in 2010, young adults ages 25–34 with a bachelor’s degree earned 114 percent more than young adults without a high school diploma or its equivalent, 50 percent more than young adult High school completers, and 22 percent more than young adults with an associate’s degree” (National Center for Educational Statistics).

High school seniors who are on the fence about attending college must weigh their costs and benefits and  look at their personal interests.  On one hand, they cannot go to college, not go into large amounts of debt, and enter the workforce at a net worth of zero.  On the other hand, they can go to college, get a degree that can get them a high profile job,  and enter the workforce with a large amount of debt.  Some students who would go into large amounts of debt, may want to be a doctor, actor, business or whatever their heart desires.  Those students have to weigh the benefits of following their dream against the costs of attending college.


Doctor in Debt


Man at “McDonalds”

Students who are graduating  now face a choice, being a doctor who followed his dreams but is in debt or a man working at McDonalds with little chance to obtain a high profile job.


Decrease in Unemployment Rate: True or False?

Source: American Progess

As the rate of unemployment has been dropping in 2013, we see this as a lagging indicator that more jobs are becoming available. The unemployment rate hit a peak in 2010 with a high of 10%. Ever since it has been steadily decreasing and most recently reported to be 7.5% as of April 2013 (Bureau of Labor). One of the largest gain in jobs occurred in Texas at 33,100 and the second largest in New York at 25,300 jobs gained. (Bureau of Labor).  As we near the end of the month of May, we see that an unemployment rate has not yet been determined for this month showing that it is a lagging indicator for how our economy is doing. The decreasing unemployment rate renders hope for our economy. This is due to the fact that there are more jobs available because more production of products is being called for as a result of consumers spending more money and demanding more products. More production to meet consumer’s demand simply cannot be accomplished by a minimal amount of laborers therefore more jobs become available thus lowering the unemployment rate.

As this rate continues on a downward trend, we see consumers spending more and more money to grow the GDP (gross domestic product). Also, as more and more people are obtaining jobs, more and more people have more money to spend which will also grow the GDP. Because consumer spending makes up approximately two-thirds of the GDP, putting more money in the pocket of consumers encourages them to spend more and increase the GDP. This is necessary in order to grow our economy because GDP is based on consumer spending, investments by businesses, government spending, net exports. America’s net exports are a negative number because we import more than we export and that lowers the GDP.


Source: Bureau of Labor Statistics

Although having more money in the pockets of consumers for them to spend is an ideal way to increase GDP because it makes up such a large portion of it, that is not always what happens when people have more money than before. The paradox of the Thrift suggests that as consumers obtain more disposable income, they will save more of it to protect their self-interest which in turn hurts the macro-economy. This idea lead to Keyne’s solution to increase government spending in order to make the depth of the trough smaller. This solution suggests that government spending is the way to fix the problem. At the end of 2012, however, both solutions were put into question and taxes were raised, lowering the amount of disposable income consumers have to spend to grow GDP and by March government spending was cut which slows the growth of  GDP as well.

It turns out that the decrease in the unemployment rate is due to the fact that there are half a million fewer people in the labor force now (Money CNN).  What seemed like good news for the economy at the time the new unemployment rate was calculated is really just a decrease in people who are in the work force. The unemployment rate dropped for the wrong reasons meaning that there has not been a significant increase in consumer spending therefore no significant increase in GDP.

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“Keystone” For the Future

May 21, 2013 Leave a comment

While driving home from the store last month on April 24th, I came across a significant traffic jam not too far away from my home.  Upon inching closer to the intersection I noticed there were many police officers trying to keep order to what seemed to be about 200 people with signs, shouting through blow horns. While peaceful, the protestors were shouting “Say no to Tar Sands” while their signs not only referenced tar sands, but “Keystone XL.”



After finally arriving home yet still curious as to what I just witnessed, I researched Tar Sands to learn they consist of heavy crude oil mixed with clay and bitumen.  The tar sands are located in the Canadian forest near the eastern foothills of the Rocky Mountains.)  Tar sands are relevant to certain environmentalist groups opposing oil production.  Extracting the crude oil from the tar sands produces three times the greenhouse gas emissions of conventionally produced oil because of the energy required to extract and process the oil (Rainforest Action Network). I further learned that the term “Keystone XL” refers to the Keystone Pipeline. What does all this information have to do with a protest in Dallas on April 24th? Well, It turns out that the opening ceremony for the George W. Bush Presidential Center was scheduled for April 25th.  Since the protest site was near Love Field, I can only assume that the protest site was located on the route one or more of the living Presidents may have taken from the airport to their hotel.The Keystone Pipeline is a proposed 1,179 mile crude oil pipeline originating in Alberta Canada and extending through the United States, depending on the final route, from Montana to Texas.From a macroeconomic standpoint, and considering the current state of our economy in the United States, the pros far outweigh the cons.  For example, the pipeline will carry 830,000 barrels of oil per day thus reducing our dependence on foreign oil by up to 40 percent.  This increase of supply of oil, coupled with the reduction in transportation costs would definitely reduce the cost of goods to consumers.  In addition, our country would be less dependent on foreign oil, thus reducing our need to be so involved in the Middle East from a military and economic aid standpoint.  From a jobs standpoint, it is estimated that the pipeline would require 9,000 skilled American workers such as welders, mechanics, electricians, pipefitters, laborers, safety coordinators and heavy equipment operators.  In addition to the construction jobs, an estimated 7,000 jobs would be created to manufacture the pipe, steel fittings, pump and control devices for the project.  Also, the pipeline would generate an estimated $20 billion including $99 million in local government revenues and $486 million in state and government revenues during construction.  Finally, an estimated $5 billion is expected in additional property taxes during the life of the pipeline (TransCanada). In other words, the Keystone Pipeline would have a positive effect on many macroeconomic factors in our country including GDP and accelerate economic expansion during the business cycle.

KeystoneXLOilPipeline_updateWhile there are many environmental factors that must be considered with the Keystone Pipeline, the most pressing is the amount of additional greenhouse gasses that the project will produce.  In Joe Nocera’s article entitled “An environmentalists case for Keystone”, he writes, “According to a study by IHS Cera, a leading energy research firm, the oil from the tar sands emits only 6 percent more greenhouse gases than other, lighter forms of oil. (Environmental groups have tried to poke holes in the study, but even they don’t come up with the kind of increase that would doom the planet.) What’s more, there is plenty of oil being produced today with the same greenhouse gas consequences as the oil from the tar sands” (Nocera). Given the current state of the economy, our reliance on foreign oil and the positive economic impact, it makes sense for President Obama to support the Keystone Pipeline as a means to fulfill his campaign promise of repairing the United States Economy.

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A debate on Oil

May 21, 2013 Leave a comment

The United States always has trouble making decisions that are related to energy sources. A report from the Financial Times reports the US has been increasing imports of crude oil from the Middle East. In fact, these rates have been the highest since 2008. Increasing dependency on oil from the Middle East is detrimental because US would have to increase security and involvement. We could reduce these risks by looking to resources closer to North America.

1114_100711tarsandsOne of the largest sources of oil on earth is in Alberta, Canada. It contains oil sands, which contain clay, sand, and bitumen. The bitumen can only be extracted through a complex and expensive process. Also, oil sands are more corrosive than crude oil, so transportation will require more attention. However, building the pipeline would mean an estimated 3.75 trillion barrels of oil. The world’s known crude oil reserves are about 1.76 trillion barrels.

It is a matter of cost and benefits to decide whether the US should build the pipeline. Canada has been pushing the States to build the pipeline. Although, lawmakers are worried that the corrosive oil will cause multiple spills and accidents. I believe that the US should build it for a few reasons. The pipeline will allow the US to reduce dependency on the Middle East. Also, Alberta has a lot of oil so the amount of output will be extremely beneficial. The creation of this pipeline would be a huge investment, but the rewards will ultimately outweigh the costs.

Categories: B1

Revenue Neutral Carbon Taxing

May 20, 2013 1 comment

ImageIn economics this trimester, we discussed the idea of a revenue neutral carbon taxation and while I think the goal of the idea, to have less pollution in the environment is a very noble one, I do not think this is the best way to go about reaching the goal. Climate change is a real problem caused partially by carbon usage and in trying to do our part to lessen that effect, we thought of revenue neutral carbon taxing. According to the province of British Columbia, which has implemented such a policy, this is a situation in which, better alternatives to coal will be made cheaper and the tax on coal will be made higher. The idea is that this will promote usage of materials that are better for the environment without affecting people’s personal revenues.

While the concept behind this idea is very intelligent, I think it has one fatal flaw, the fact that it is revenue neutral. Anything that is revenue neutral has no affect on the amount of money a person can spend and therefore no effect on the environment. Yes, many people would see the money saving advantage of switching to more efficient methods, however, I feel some would understand the fact that not doing anything does not make them worse off and not change their ways.Button+-+No+Carbon+Tax

I think we do need to do something to help us reduce carbon consumption in America and this idea is definitely on the right track, however, it may not be enough to get us all the way to where we want to be. We might need to consider either combining this method with others or using a different method entirely. My feeling is that many people in America will not feel affected by this policy change if it is revenue neutral because that means there are no negative consequences should someone fail to try to consume less carbon.

The Fight of the Electric Car

May 20, 2013 Leave a comment

In the past few decades there has been a big  increase in demand by consumers for an alternative energy source other than gasoline regarding vehicles and transportation. Companies have attempted every imaginable configuration for powering a car, diesel, hydrogen, and steam powered are just a few of the more normal energies attempted. However in the past few years the field of electric cars available on the market has truly started to explode. But not many are seen on the road on a daily basis and that is because some the cost and benefits just don’t seem to make sense.

Electric cars in the past few years have really started to advance in the area that has always been their Achilles heel , fuel range. Time Magazine talks about how the MPG (miles per gallon) of and average gasoline burning vehicle often far exceed the MPC (miles per charge) of electric vehicles. This is why many companies such as Tesla and Fisker have developed charging systems in the cars that charge the cars while either driving, through solar panels in the roof, or through regenerative braking. Companies have been able to take electric cars from the shadows of the gas powered cars that could drive 200-300 hundred miles per tank, to leading them with the near 400 mile per charge RIMAC. The new wave of electric cars with plenty of range seem to be drawing drivers of gas powered cars to the more environmentally friendly electric car.

The first problem that most consumers see in the electric car fleet is the amount of pollution it takes to make the cars and more specifically the batteries themselves that power the cars. The car research website Car Connection wrote an article  about how it takes far more energy to build, drive, and destroy a Toyota Prius, what is considered the poster boy of hybrid and electric cars everywhere, than it does to do the same to a “gas guzzler” like the Hummer H2 SUV or Dodge Viper sports car. The production of a electric car battery requires a massive amount of resources that have to be shipped all over the world on polluting ocean freighters, then into polluting factories and then into cars, and unfortunately to hurt the electric cars even more, their batteries do not last nearly as long as those of normal gas production cars. iStock_polluting shipThese batteries also require a much more energy consuming and usually less Eco-friendly proses of breaking down the batteries after use, which also discourages environmentally conscious potential buyers from purchasing these cars.

Lastly, the electric car market has had its problems with cost, not cost benefit cost, but true monetary cost. With the price of a minimalist electric car running between 25 and 30 thousand dollars many buyers are dissuaded due to their starting prices or the sky high, top of the line, bank busting, million Fisker-Karma-fire.jpg&MaxW=630dollars plus needed to be shelled out for the above mentioned RIMAC.  These cars make the high mpg gas powered cars produced by Chevrolet and Ford that cost a mere 13 thousand dollars that produce a near 40 mpg. Electric cars are not for those on a tight budget due to their high prices and this is before maintenance is factored in, or risk. In recent months there have been many reports of the electric based hybrid Fisker Karma, a mainly electric powered performance car that has a gas engine for high speed when wanted by the driver, suddenly exploding in a ball of flame. This has not only led to many injuries, but also the impending bankruptcy of Fisker due to lawsuits and government fines. There is still much research and development needed in the safety and production cost of electric cars.

Electric cars are just breaking on to the mainstream market, and for that reason they have a lot of advancing to do before their benefits out weigh the costs enough to  make electric cars an everyday product used by a majority of the people. Even for the eco friendly fanatics their are still many problems with the ways these cars are produced and how polluting that can be. The safety of these cars also comes into question as well as their range of transportation on a single charge. While electric cars may be new to the market, they are extremely young in their development and need much advancement before the average person will want one, let alone have one, due to the costs, for now, far outweighing the benefits.

Should We Tax the Gas?

In this day and age gasoline and carbon emitting fuels are a key product in every man and woman in the United States. But this is causing a huge amount of carbon to be released into the atmosphere, which is slowly killing the planet and all of its inhabitants. To try and stop the effects, the government has decided to make it so that not as many people use gasoline and fossil fuels. As described by the Stanford Hoover Institution, the plan is to use a tax on fuels called the revenue-neutral tax. This tax is designed to increase the price of fuels, but put the money earned by the fuel tax to decrease the taxes in other places, for example income tax.

Graph explaining the effects of a Revenue-neutral carbon tax provided by Carbon Tax Center

It is beneficial because the government is not trying to earn money but rather keep the money in the hands of the citizens. Also because of the higher gas prices the incentive to buy gas is lower which will prevent people from buying as much. This eventually leads to a decline in the use of gas, which in turns slows down the amount of carbon being released in the atmosphere. I believe this is a very good idea, because not only does it discourage customers from using fuels, but it also promotes businesses to make more fuel-efficient and hybrid cars. Not only does this help the planet from harmful carbon emissions, but it also helps the US economy because the US would not have to import foreign oil from and sell more American made cars that have a better effect on the environment.  So the tax could help bring economic growth back to the US so our import costs would not be more than out export profit. After hearing all of these examples of how this tax is great and will help the country tremendously, there are still people who do not like the idea. One opposing idea that I have heard is that ‘if the citizens are getting more money (from the decreased income taxes and such) then won’t they continue buying gasoline’. This is a good argument to the tax. But I believe I have the explanation about why the tax works rather than what the opposition says will happen. My idea centers on an idea brought up in the video Comedy, Economics, and Carbon taxes. In the video it describes a hypothetical situation about three people selling each other fuel consuming machines and as a consequence have to pay extra for medical bill because of the major air pollution. In the end the three people each sold on machine and earned 100 dollars, but had to pay 140 extra dollars in medical expenses. In conclusion each person had lost 40 dollars with out even knowing they had done so. This is a similar situation to the revenue-neutral tax.  A person finds out that the price of gas is too large, but does not necessarily think about the fact that he/she has enough money to afford it. The consumer thinks they are doing the best for themselves by not buying the pricy gas when they could.

Data given by the British Columbia Budget Website. The British Columbia is currently experimenting with the tax.

Another argument is that the law of demand clearly states that when the price of a good is raises the demand of the good is decreased. This is the case most of the time, except for inelastic good, which are goods that are bought no matter the price. This may be the case in today’s society, in which fuels are used everyday, which would make the revenue-neutral tax a flop. But there is no real evidence whether this tax actually works or not, but all eyes are turned to the British Columbia which is in the process of figuring out if it works or not.

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