Outrageous Energy Prices

Dr. Thomas A. Gresik presented a very interesting analysis of one of the most relevant issue that the United States faces today: outrageous energy prices.  The seemingly constant fluctuations have been seen since the mid-2000’s and became increasingly apparent to me when I got my driver’s license.  The less apparent details regarding energy prices that were discussed by Dr. Gresik have to do with the influences on prices and the economic and policy decisions made in reaction to these influences.

One of these influences is the relative scarcity of sources of energy.  As oil consumption increases globally, it becomes more and more important to find either ways to conserve it or find alternate sources of energy.  These realizations have had effects on firms and households alike.  For example, automobile countries have invested much money in both more efficient vehicles, as well as alternate sources of power for vehicles.  Government policies such as the “Cash for Clunkers” program and cities choosing to use alternative fuels for their public bus systems exemplify the choices that have been made in order to manage the rising energy prices.  Many individual households tend to have their decisions influenced by energy prices, such as whether to turn on the heat in their house or drive a more fuel-efficient car.  This will affect preferences that will affect demand for goods both positively and negatively.

Another factor that affects the scarcity of energy sources is the location of these sources.  While the United States is increasing its production of energy sources, much of these remain in foreign countries.  This has had an obvious affect on policies and decisions made in the United States, one example being the war in Iraq.  Many other conflicts are occurring in nations around the world, however, the United States seems to choose only to intervene in those countries in which we are economically affected.  This does make sense and is likely the right decision as we cannot intervene in every conflict, but its motivation seems quite apparent. 

Dr. Gresik suggested that one of the major issues surrounding increasing energy prices is the large amount of political polarization hindering process.  Instead of constantly denying one another’s ideas, they need to support policies that promote affordable energy, environmental protection and energy independence.  Only then will energy prices become manageable and consistent.

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Lending to Poor People

One of the first statistics introduced was the ridiculously high interest rates.  The authors exemplify this using U.S. dollars, showing that a $5 loan going unpaid for a year causes a debt of almost $100 million.  By beginning the chapter with this figure, the authors display how challenging it can be for poor people to receive loans.  They then use this dilemma to show how microfinance institutions became popular in India. 

Another statistic has to do with the challenges that lenders face with making these loans to poor people.  Although only about two percent of these loans are defaulted, there is still much difficulty involved in actually obtaining the borrowed money.  In some cases borrowers mislead lenders about their financial situation because, if they have no money or property, they lender cannot collect anything.  Lenders also must find out information about the borrower before the loan is even given, as this will determine how much the lender is willing to loan.  This further explains the difficulty involved with loaning to poor people.  Beginning with the perceived solution to the high interest rate problem, the authors continue to show a problem just as bad, with a different victim: the lender.  This also brings arise to the problem of threats and violence involved in collecting loans.

These statistics that were presented in the beginning of the chapter are used most certainly as an introduction to the sections of the chapter on the successes and failures of microfinance.  The statistics provide background information on how and why these institutions came to be.  Although there was no radical transformation in the consumption habits of the people living in the villages in which microfinance institutions were located, there was a steady increas3e in the percent of people starting new businesses, however there was no change in household consumption or health and education spending. 

One of the criticisms of microfinance in this chapter is the rigidity of the loans in this system.  The authors provide examples of people having extreme health care expense obligations and being able to go to the local moneylender for a quick loan.  This would not be able to be done in the microfinance system, creating a predicament for poor people. 

This chapter introduces a financial structure that is completely foreign to many people in the United States, including me.  The way that some of these impoverished countries handle borrowing and lending are somewhat archaic as far as collection methods and harsh interest rates.  However, these microfinance institutions seem to be preventing some of these issues related to lending to poor people.  While these systems have provided an increased standard of living for many impoverished people, there are still many problems that coincide with this practice.  One question that I have after reading the chapter is how will either the government in the nations that microfinance is practiced or the firms themselves prevent the corruption involved with collecting repayments for loans. 

Buses vs. Cars

“Public Transit Buses: A Green Choice Gets Greener” highlights the environmental benefits of public transit buses as opposed to transportation using cars.  It reviews the fact that buses, while emitting more pollution, are more efficient because they are able to transport more people. 

This article quantifies the difference between the emissions of a car or truck and a public transportation bus. Because the buses can hold so many people while many cars transport, for the most part, cars transport only one.  Therefore, the larger emissions from a bus are outweighed by their functionality when it comes to capacity. 

Because it is simply looking at the environmental effects of public transit buses, there are not really any issues regarding the assumptions of the classical linear regression model.

“Public Transit Buses: A Green Choice Gets Greener”

Commuting and Manufacturing’s Impact on Air

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I am very interested to see how certain types of pollution affect air quality in United States cities.  Two methods of pollution that I believe are prominent and have a negative effect on air quality are from vehicle exhaust and manufacturing.

So, I decided to run a regression to evaluate the impact that the number of people who commute to work in cars, trucks, or vans and the amount of GDP from the manufacturing and construction sectors has on the amount of Ozone in the air.  I found data on these three variables for 237 cities in the United States and proceeded to run my regression.

What I found did not quite support my original beliefs on this matter.  My estimated coefficients for people who commute to work in cars, trucks, or vans and the amount of GDP from the manufacturing and construction sectors are 1.66e-10 and 1.44e-07, respectively.  These figures tell me that for every one-unit change in either of these independent variables, there is a change in my independent variable, the amount of Ozone in the air, of almost zero.  The t-values for each coefficient, which determine if the coefficient is significantly different from zero, are 0.07 and 1.46, which will most likely make the null hypothesis unable to be rejected.

The R-squared value in the regression 0.0454, which tells me that only about five percent of the variation in the amount of Ozone in the air is explained by the variation in the independent variables.

Although these results are not what I had expected, they do say a lot about the data.  The next step in my process is to find other possible variables that would better explain my dependent variable.  Government regulations in different states could be a determining factor in how much pollution is actually emitted and not just how much GDP from manufacturing and construction come from each city.

African and Indian Education

Poverty and education are not always seen as related, however they are, in a large degree, co-dependent.  Poor Economics, by Banerjee and Duflo, bring some of these connections to light and show how troubling some of the educational systems in third world countries actually are.  The authors highlight education in India, revealing statistics regarding the influence that income, nutrition, and healthcare have on the quality of education a child receives, if one at all. 

But this is not unique to India alone.  Children living in poverty around the globe, even in the United States, are subject to these harsh standards.  A specific article that discusses this issue is “Poverty, Inequality and Africa’s Education Crisis” by Julius Agbor.  One similarity that this article has to Poor Economics is that it talks about the issues of finding quality teachers, especially in rural areas.  Because teachers are highly demanded in third world countries, they prefer to work in urban areas that have more amenities. 

Both works discuss the cycle that develops because of these issues.  People, in India and Africa alike, living in rural areas do not have access to education, therefore there is no incentive for parents to encourage their children to get an education, or even for them to try and get teachers to teach in their villages.  The cycle has continued and will most likely continue for generations. 

The only options for most of these villages are for government intervention.  The governments of these countries have to provide incentives in order for teachers to live in these poverty-stricken villages and many times there are not nearly enough funds to be allocated to the teacher incentive programs. 

The issues shown in both works are ones that will effect the development necessary for these third world countries to get rid of poverty.  The vicious cycles that the problem of poverty has on education is one that needs to be ended, although it will be a very difficult thing to do.

“Poverty, Inequality and Africa’s Education Crisis”  

Commuting and Air Quality

Emissions and pollution have become increasingly examined as a cause for environmental damage, and the source of these pollutants are numerous.  Many studies and reports have been released displaying the daunting consequences of these pollutants on the well being of the environment.  While in many countries these pollutants come from factories and manufacturing plants, many of the pollutants in the United States stem from automobile exhaust.  This difference could perhaps be explained by the decreased propensity for people in the United States to utilize public transportation compared to their international counterparts.  Not only do many Americans choose to drive a car, but a majority are the only person in the car when they are driving, increasing the amount of cars on the road and, therefore, the amount of pollutants released into the atmosphere.  This can be seen every day when Americans commute to and from work.  Because of this, I chose to examine the effect that different modes of commuting to and from work have on air quality in the United States.

“Travel to Work Characteristics for the 50 Largest Cities by Population in the United States: 1990 Census.” Census.gov. United States Census Bureau. 1990. Web. 30 Jan. 2013. 

“National Air Quality and Emissions Trends Report, 1990” EPA. United States Environmental Protection Agency. 1990. Web. 2 Feb. 2013.

Slingin’ Crack

Crime is both a fascinating and frightening thing to think about.  What goes on in a criminal’s head before, during and after he or she commits such acts?  What leads these people to even get involved in crime in the first place?  There are an abundance of trends and statistics about every type of crime, but considerably less about the criminals themselves.  More specifically, there are practically none regarding the daily life of a person wrapped up in the world of crime.

So, when Sudhir Venkatesh released his work on the Black Disciple gang of Chicago, it allowed a look inside a group of crack dealing gangsters that had only ever been seen by those personally involved in it.  His time with the gang provided the outside world with the perspective of the day-to-day operations of the business that supposedly rotted the inner cities of the United States ever since its invention.  It shows the death and destruction that crack can directly and indirectly cause in neighborhoods.  It shows the dangerous conditions that are a part of each low-level crack dealer’s life.  But Venkatesh’s work also shows that such a lifestyle is often one of the only options to overcome the hardships faced by the people of these neighborhoods. 

One person who overcame these hardships was the leader of the Black Disciples, J.T.  He was college graduate with a business degree, and he treated the gang like his business.  He would make about $100,000 annually, a salary that is unheard of in the ghetto (99).  This is what provides the incentives to the young members of the community to get involved in the crack business.  However, this figure is quite misleading due to the fact that very few others make even close to this much money.

This is displayed when Venkatesh releases J.T.’s records of wages paid to the gang members below him.  He pays these fifty-three employees a total of $9,500, only $1,000 more than his own monthly salary (100).  This income inequality is so extreme, yet people still get involved in hopes of being in his position someday.

The actual street-level dealers of the gang make a wage of just $3.30 an hour (100).  This low wage is not enough to sustain a healthy lifestyle and superior income can be earned at a legitimate job.  It could be argued that the inability to provide for a family on this wage creates a new generation of children growing up in a broken home and setting up the next round of soldiers selling crack for the Black Disciples.

The final and most shocking statistic of the chapter claimed that a four-year member of the gang had a one-in-four chance of being killed.  This figure makes this job, especially with such a low pay, one that it would seem no one in his or her right mind would do.

It is interesting how the authors introduce these statistics.  They begin by showing the power and wealth that can be attained by these criminals and finally announce the horrific dangers that are faced each day by the lowest members of the Black Disciples gang.  However, there is always a supply of eager employees willing to get the job done, which might be the most frightening thing of all.

U.S. Commutes

When I began to look at data for this research project, I simply skimmed different categories on the U.S. Census website to see if anything sparked my interest.  After reading through different categories and data sets for about a half an hour, I was beginning to think that I would just pick variables with very accessible data.  But then I came across a data set on the methods of transportation in which people in the United States take to work.

It seemed like a somewhat unexciting area of research, but one figure in this set caught my eye.  I don’t recall the exact percentage but somewhere between seventy and eighty percent of workers in the United States drive a car by themselves to work each day.  This seemed like much too large of a percentage, until I actually thought about it.  Almost everyone I know not only does not use public transportation, but do not even carpool to work, even if they work in the same area or even the same building.  Could it be a convenience factor or do people not even think twice commuting by themselves every day?

I originally wanted to take these figures on commuting in the United States and compare them to a place like Germany, a country where public transportation is much more common, or even Europe as a whole.  As I began my attempt to compile data for these European commutes, I realized that I would most likely be unable to write a thorough paper with the information I had found.

Therefore, I decided to focus my research strictly on the United States.  I found data on the means of transportation of seventeen major U.S. cities in which driving alone ranges from twenty-four percent of the working population all the way up to more than seventy-four percent.  I am hoping that my research will show how these commuting patterns affect the air pollution and commuting time in these seventeen cities.

Poverty Traps

The study completed by Shafir and Mullainathan highlighted in “How To Make Better New Year’s Resolutions” looks at time management and decision making in a very interesting way that is not always considered.  Although almost everyone enjoys relaxing, people tend to be very busy and, in fact, seem to be at their most productive when they have a limited amount of time to get things accomplished.  Shafir and Mullainathan argue that these hectic lifestyles, although seemingly productive, are actually not beneficial to people due to an overabundance of activity, which can often lead to bad decision making.

They take this approach when looking at scarcity of money as well.  They claim that the stress of managing money, or always looking for a way to pay for the next meal or bill takes away from the long-term decisions that need to be made by a person with financial stability.  Shafir and Mullainathan explain, “It’s the stresses of poverty that lead to bad financial decision-making in the first place.”

This is a similar concept to the poverty traps that Banerjee and Duflo describe in Poor Economics.  I find it interesting that both works ultimately have the same idea, just regarding different cultures.  Poverty-stricken people in India face the same difficulties illustrated in “How To Make Better New Year’s Resolutions.”  They are constantly focused on getting enough food that when they do receive an surplus in income, instead of saving the money for future healthcare or instances when no money is available for food, most simply buy more expensive food while they have the money.

The ideas of Shafir and Mullainathan certainly make sense, however, they show little evidence explaining how they arrived at their conclusions.  They discuss their Family Feud experiment, but that strictly deals with time constraints, and they seem to extrapolate those results for monetary constraints.  It would be interesting to see if results for monetary constraints would be as conclusive as those of time constraints.

Poor Economics, Chapters 2 & 3

Chapters two and three of Poor Economics discuss two necessities that people in the United States and particularly Gettysburg students take for granted: food and healthcare.  Banerjee and Duflo present the information in a way that is not only surprising, but also very statistical.  In fact, I believed that much of these two chapters are overwhelmingly statistical.  Although these facts and figures do a great job of defending the authors’ arguments, it provides for choppy sentence structure that makes the chapters somewhat unpleasant to read.

Besides this detail, the authors deliver the stunning details of the poverty-stricken lifestyles of what seems like far to many people in this world, much of which is hard to imagine.  I had heard of the starvation epidemics in these third-world countries, but some of the details regarding healthcare are absolutely appalling.

At one point in chapter two, the authors claim that only about two percent of people consider that they do not get enough to eat, a figure that has dropped fifteen percent over about a twenty-year span.  But this statistic refers to people’s opinions of whether they have had enough; the researchers do not have a rigid definition of what “enough to eat” actually means.

The authors say that the fact that people do not have substantial nourishment is not that they cannot afford it.  They state that it is an issue of how food is distributed among people.  According to Banerjee and Duflo, even those who live off of a budget of ninety-nine cents a day can afford sufficient nourishment.  They continue to discuss that the poor are simply not eating foods containing necessary nutrients and not eating enough.  Also, poor people often have costs, such as health care, that they deem more important than food. 

This is an interesting way to look at hunger problems, but I do not believe it is the most revealing statistic.  It does not include other important variables, such as how healthy the foods being consumed actually are.  It also does not take into account how much physical activity these people do.  It does, however, show readers the struggles that many people face to consume the necessary element of life that is so readily available in many parts of the world.