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Assignment #10

Chapter 7 of Poor Economics focuses on lending to the poor, and the interest rates involved in it. A point is made, that banks are not inclined to lend to the poor, because they do not have sufficient credit, or are unlikely to repay. This brought upon the concept of microfinance and micro loans. 

While focusing largely on the Bangledesh and India area, up to 2/3 of the poor population has loans with either family, money lenders, shop keepers, and a small amount from a formal financial institution. Banks simply do no want to take the risk in not recieving their principle back. so many resort to money lenders as sources of funds to get by in their every day business. 

Yearly interest rates with these money lenders range from 40-200% annually, and require payment on a fairly regular basis. It is hard to believe that people would pay the interest on these loands, however, the returns from having cash in hand is far higher than taking on credit. Poor Economics presents the an example of a 1000 rupee loan with a 10% monthly interest rate. The debtor pays for his product in cash, rather than credit, and saves himself 4000 rupee in credit interest over the course of one month. The loan is easily repaid and the debtor now has the ability to climb out of poverty. 

I read a case study in my BUS 400 class a few weeks ago that was on the business of Microfinance. It was incredible to me the rarity that the debtors did not repay was. Despite the high interest rates, many debtors were able to fund themselves and earn money, rather than building up credit debt. The book uses statistics to support the benefits of microcredit, and its limitations. 

 

Aside

US Peak Oil is considered to be the time when Oil Production reaches its maximum, and begins to decline in a bell shaped curve. US Peak occurred in 1970. In my regression I used US Peak oil as my independent variable, and GDP, Crude Oil Imports, and Renewable energy production as dependent variables. This regression confirms my hypothesis that Peak Oil has a negative effect on the nations GDP. Also notable is that the relationship between Peak oil and crude oil imports is very strong with a high t-value, This makes sense because when imports rise, it has a negative result on GDP. Furthermore, I found that after Peak Oil, renewable energy production rose. However, Advances in technology may have had a significant effect on production. My research is missing a comparison to how other economies have adapted to peak oil, but I expect the results to be similar.

Aside

Assignment 6

The production of crude oil is a worldwide industry that is essential for the everyday living of just about any economy in the world. Furthermore, crude oil is involved in the production and function of everything on a day to day basis. In other words, without crude oil the world cannot run. It especially plays a factor in economic growth in the US. The production of crude oil has historically played a role in the growth of the United States economy with constantly increasing consumption, imports, and significant exports. Hubbert’s Peak Theory suggests that once the maximum rate of oil extraction is reached, the rate of production will terminally decrease and prices will rise causing economic uncertainty. With expectations of “peak oil” coming by 2020, the United States and other worldwide economies will need to find alternative forms of energy to compensate for the shortage. In the rest of this paper I will identify the relationship between crude oil production and economic growth through economic data and literature throughout the past 10 years. Furthermore, I will discuss how Hubbert’s Peak has effected individual economies on an individual basis. Next, I will look at economic growth from an alternative energy standpoint and how the growth in that industry has affected the economy. Finally, I will conclude that crude oil has a significant impact on world growth and a sufficient alternative needs to be found and implemented before Peak oil takes place.

Works Cited

Boyce, John R., and Linda Nostbakken. “Exploration and Development of U.S. Oil and Gas Fields, 1955-2002.” Journal of Economic Dynamics and Control 35.6 (2011): 891-908. Print.

Fazlioglu, Burcu Afyonoglu, and Huseyin Cagri Saglam. “Energy Saving Technological Progress in Overlapping Generations Economies with Renewable and Non-Renewable Resources.” Iktisat Isletme ve Finans 27.318 (2012): 27-55. Print.

Hahn, Robert, and Peter Passell. “The Economics of Allowing More U.S. Oil Drilling.” Energy Economics 32.3 (2010): 638-50. Print.

Jabir, Imad. “The Dynamic Relationship between the US GDP, Imports and Domestic Production of Crude Oil.” Applied Economics 41.22-24 (2009): 3171-8. Print.

Lutz, Christian, Ulrike Lehr, and Kirsten S. Wiebe. “Economic Effects of Peak Oil.” Energy Policy 48.1 (2012): 829-34. Print.

Michl, Thomas R., and Duncan K. Foley. “Crossing Hubbert’s Peak: Portfolio Effects in a Growth Model with Exhaustible Resources.” Structural Change and Economic Dynamics 18.2 (2007): 212-30. Print.

Mohn, Klaus, and Petter Osmundsen. “Exploration Economics in a Regulated Petroleum Province: The Case of the Norwegian Continental Shelf.” Energy Economics 30.2 (2008): 303-20. Print.

Waisman, Henri, et al. “Peak Oil Profiles through the Lens of a General Equilibrium Assessment.” Energy Policy 48.1 (2012): 744-53. Print.

Assignment #5

The main argument for why drug dealers still live with their mothers is a very logical and proven point. Drug dealers are simply pawns of a greater organization. The author relates the drug trade to any other organization in America, most similarly McDonald’s. The executives, or “board of directors” make the largest income, while doing little work are the focal point of the police. Then as the chain goes down, there are the managers of each branch, the officers, and the foot soldiers. As the ranking gets lower and lower, the pay becomes smaller and smaller. While the board of directors are raking in cash, the dealers on the actual street corner are only collecting a fraction of the revenue they bring in from the street corners. It comes out to just over $3 per hour for the lowest dealers on the totem pole. So resultantly, drug dealers live with their mothers out of necessity. 

However, more important than the close ties between gangs and businesses, the resulting behavior is an even larger part of the chapter. The drug trade was seen by youngsters in the poor Chicago neighborhood as a pathway to gamour and fame among the community. The drug trade King Pins were seen with high regard throughout the neighborhoods and all of the children aspired to reach that level of success and wealth. Similar to reaching professional level in sports, there are a lot fo candidates, but not enough spots for every on to make it. The resulting effect is the actions people take to gain an edge on any of the competition. Bring in the most money, show your dedication, etc.. Many of the foot soldiers endure such difficult living conditions in the unrealistic hopes of making it big one day.

1) Monthly Income (100) – “the top 120 men in the Black Deciples gang represented just 2.2% of full-fledged gang membership, but took home well over half the money”. With a monthly income of $32,000, he owes $14k in non wage operating costs. Further, after taking his cut of the salary, $8.5k, the remain 9.5K goes to his 3 Officers, and 50 Foot soldiers. Each officer takes home $700 each month ($7/hour) and the foot soldiers receive just $3.30/hour, about half of minimum wage. This seems somewhat familiar to 1% of the population holds 95% of the wealth in the US.

2) Risks (101)- “Avg number of times arrested 5.9; Number of Non fatal wounds or injuries – 2.4; Chance of being Killed – 1 in 4… In 4 years time, a timber cutter would stand a 1-200 chance of being killed”. This statistic is something that really hits home. Compared to the most dangerous job in the country, it is 50x more likely to be killed being a drug dealer. That is something that really strikes home about the dangers of the drug trade. 

3) Surrounding economic status (102) – “56% of the neighborhoods children lived below the poverty line, 78% came from single-parent homes. Fewer than 5% of the neighborhood’s adults had a college degree; barely one in three adult men worked at all. The neighborhoods median income was about $15,000 a year” It is not surprising that the the drug trade was held with such high regard in this segment. It is the only visible path to success from such a poor area. Children see a successful man who has a similar background as them, and think that their lives can be successful as well if they take a similar path. It’s no different than a child seeing a NHL hockey game and devoting all of his time to try to make it all the way to the pro’s. In both cases, the chances are slim to none. 

4) Crime (112) –  “Within a five-year period, the homicide rate among young urban blacks quadrupled.” With every foot soldier trying to impress their officers, the way to get noticed was to kill. Although there may not have been any specific reason to shoot another, other than to show the dedication to the gang and maybe get noticed, the crime was an undeniable consequence of the drug trade. 

Assignment #4

For my research topic, I chose to look at the relationship between oil extraction and GDP fluctuations. I believe that higher oil extraction will have a positive effect on gdp and help boost US growth to a more favorable level. I became interested in this topic for a variety of reasons. The first started when I was abroad in Copenhagen this past Fall. Maersk Oil, a Danish based oil company, Played a huge role in the Danish economy and creates huge revenue and benefits for the community. Most notable, a DKK $6 Billion (roughly USD $1 Billion) Opera house. The opera house is one of the most notable Danish landmarks, and I found it intriguing how much revenue the company produced, and also had to spare. The second influence came more recently while applying for internships this summer. I applied for a position as a Offshore Drilling and Oilfield Research analyst so I have been doing a lot of research on the industry and the pro’s and cons of Oil extraction in the US. Finally, US Oil extraaction has been booming recently and has been a hot topic over the past few years. It will be interesting to see what the economic benefit, if any, we will see in the coming years.

I’ve started my data collection with pulling US real GDP over the past 60+ years. As well as pulling data on consumption, extraction, imports and exports on barrels of oil since 1950, which seems to be the earliest I can find data on the said variables. One of the major hurdles in my research is going to be relating barrels of oil to GDP in dollars. I am thinking of taking each yearly average price of oil and converting the amount of barrels in order to compare it to the dollar value of GDP. I also plan to look at changes in oil prices as it relates to gas prices effects US consumption, imports and exports.

Assignment #3

After reading the the Slate article, my perception of the poverty trap is only slightly changed. It could be because I’m thinking more in terms of the Hunger Trap, however I still feel as if people can manage their time and money in a way that doesn’t put them in a bind to make irrational long term decisions. I understand that people may have to live their lives on their day to day earnings, but that doesn’t prevent you from being able to plan out your needs.

Obviously, if you are going to plan out your needs, the immediate things are going to come first. Food: you can make sure that you are getting all of the essential nutrients before moving onto improving the quality of the food (because as discussed in Poor Economicswell-nourished people are more productive and wealthier), so in time, the quality will rise.

I also understand that I have never witnessed or experienced poverty trap, so it is difficult for me to make a judgment on it. I think that comparing poverty to Family Feud is a little irrational. Making split second-decisions is not the same as deciding what I am going to eat today.  I think the only real decisive way to do a study on poverty traps is to do some role reversal. Put well-off people in poverty for a period of time, and vice versa. See how the behaviors change when each individual is under different circumstances

Blog #2 Question 1

On page 26 of Poor Economics, the author introduce the statistic of the world not having enough food by first stating that there is actually enough calories in the world to feed the entire population on a 2,700 calorie diet. They make a point in saying that rather than not scarcity of food that is the problem, it is more that the distribution is skewed.

Furthermore, the author presents an argument that for just $.21 USD a person can have a well balanced 2,400 calorie diet (strictly on bananas and eggs). The affordability of food has risen over the past 20+ years, making less families note that they are hungry, and have enough food everyday. from 1983-2004 the percentage of people who said they were hungry fell from 17% to just 2%.

Despite the evidence that the author shows, It is difficult to tell how accurate the statistic really is. The author poses the question that poeple may just be less hungry than they were in the past. Later on in the chapter, the author states that malnourished parents, normally give birth to small children. In comparison, when immigrants move to the US, within 2 generations the offspring is larger, and thus needing more food. So in point, I do think that this statistic is valid, in that since the previous generations are malnourished, they are in turn small and needing less food.