Final Assignment

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The study about the “Impact of Legalized Abortion on Crime” relies heavily on the distinction between correlation and causation. Donohue and Levitt in their article believe that they found the causation link between the unexpected decline in crime rates in the 1990s and the legalization of abortion about 20 years earlier due to the Supreme Court Roe v. Wade decision. They base this causation on two general factors. The first being that a high abortion rate would decreases the number of young people in the future and therefore reduce crime rates. Younger people are more likely to commit crimes than their elders. Second, the children born would be wanted since a mother would be able to decide if she was in a good situation to raise a child. They rule out other factors that could have contributed to the drop such as, the strong economy, the increased reliance on prisons, innovative policing strategies and aging of the population.

Levitt and Donohue present a valid case for the causation. They provide many statistics that are both shocking and convincing in support of their theory. For instance, they say that if a child went unborn during the years of legalized abortion, they would have been 50 percent more likely to live in poverty and 60 percent more likely to grow up with a single parent. (p. 139) These two statistics are the leading causes in the propensity to commit a crime. In the conclusion of their Freakonomics chapter, “Where have all of the criminals gone,” they provide a shocking statement, that lower crime rates are a public good of legalized abortion. Their theory is one that has received great controversial criticisms.

Following the release of Donohue and Levitt’s initial journal entry, Foote and Goetz released a comment on the paper. They had found several measurement and coding errors within the regression that the theory was based off of. Donohue and Levitt later countered the arguments raised by Foote and Goetz and readjusted their model. They still found a statistically significant relationship between the two variables with a slightly lower coefficient.

Many including myself had been too distracted by the shocking statistics and evidence to realize these coding errors. I found while reading both sides of the debate, that I should not look at is as a debate about the ethics of abortions, but rather a question of whether the Donohue- Levitt model is efficient and accurate. In the end, I was rather convinced by the Freakonomics passage and statistics regarding the relationship between the legalization of abortion and the sudden drop in the crime rate in the 1990s.

Extra Credit: Senator Feingold & Campaign Finance Reform

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Senator Russ Feingold of Wisconsin is well known for his contribution to the McCain-Feingold, Bipartisan Campaign Reform Act. However, he did not highlight this aspect of his political career during his lecture last Thursday. Senator Feingold was promoting the recent release of his book, While America Sleeps: A Wake-Up Call for the Post-9/11 Era. He critiques the way in which the U.S. has dealt with the issues arising after September 11. He touched on his opposition to the war in Iraq and the Patriot Act. He also stressed the importance for America’s youth to get more involved in international studies.

Towards the end of his lecture, Senator Feingold briefly discussed his thoughts on campaign finance reform. He had opposed the Citizens United decision and as a result formed Progressives United to overturn the ruling.

To combat the issues of corruption and disclosure, Feingold had suggested full disclosure and limits on donations from individuals, lobbyists and corporations. This would alleviate the issues of advertisements and elongated primaries during campaigns. By requiring full disclosure of where the money originated, instances of corruption may decrease within political elections and campaigns.

The McCain-Feingold Act, highlights the agreement between both parties in realizing that unlimited donations without disclosure is problematic for both sides during an election. By limiting the amount of gifts allowed, it would force candidates to raise their own funds and interact personally with their voters not just a few wealthy donators. This would ultimately prove to be beneficial for the candidates and add a new level of personal contact during a campaign. In addition, the act would put a stop to the possibility of money coming from foreign corporations who should not be contributing and having a say in the American elections. 

Extra Credit: Finance Symposium

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Bob Biersack, from the Center of Responsive Politics and Ellen Weintraub, the FEC Commissioner, both presented their take on campaign finance reform during the 2012 election. There was 7 billion dollars spent from outside committees during this past election. A majority of this money was not even used by the winning campaign. The whole campaign finance system is one that does not make sense and in reality has no boundaries.

Following the Citizens United case, individuals and corporations are not restricted by the amount of money they choose to give to a campaign. Take for instance, Adelson Sheldon, who alone donated 9.2 million dollars to the pro-Gingrich super PAC. Donations like these elongated the primary elections and perhaps forced Romney to lean more towards to extreme right of the spectrum to defeat Gingrich rather than focusing on targeting the independents in the center. The heavy spending of Republican super-PACs extended their primaries and took Romney’s energy away from defeating Obama in the general election.

Many have begun to question these campaign finance reforms and believe that they are detrimental to elections. An unlimited donation without any disclosure leads to an illusion of money precision. Where and who is the money actually coming from?

In addition, the question of whether the money is being spent legally also is brought to the attention of many U.S. citizens. This then leads to the idea of whether the money is supporting corruption of any sorts. The Supreme Court had decided that as long as it is being spent independently there would be no corruption. However, this is not true. Corruption definitely takes place in some way. The entire system of campaign finances is a network of groups within groups. Somewhere the core group lies, but this group is never revealed. 

Assignment #10

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In Chapter 7 of Poor Economics, Banerjee and Duflo use statistic to evaluate the institution of microfinance and how the world extends credit to the poor. Microcredit is an impressive social revolution that provides the world’s poor with reasonable interest rates in order to eradicate the issue of poverty.  The authors look at two examples of the microcredit institution, Kabul, India and Eunuch India.

The beginning of the chapter offers many statistics that highlight both the successes and failures of the microcredit institution. For example, in Chennai, India, a normal fruit seller, experiences an interest payment of 4.69 percent per day. This lending comes from moneylenders and not from formal institutions. Since banks are unwilling to lend to the poor, moneylenders step in and offer these high interest rates. This epitomizes the extremely high interest rates. Following this statistic, the chapter offers the fact that, “households living below $2 a day primarily borrow from moneylenders (52 percent).” Where exactly is this statistic coming from in the 18-country data set? The issue with microfinance is that there is too much rigidity in the system. It seems that it is much easier for the poor to quickly go to a moneylender to borrow rather than the system that is put in place to eradicate the world’s poverty.

I am not too familiar with the institution of microfinance, but this chapter of Poor Economics has provided with me more insight on the implications of lending to the world’s poor. However, I wish that the authors addressed the issue of dealing with corruption when collecting the loan payments. Also, the authors at times do not provide substantial statistics to support their claims, such as with the issue of suicide. However, they do provide support for the fact that the microfinance system can work in lending to the poor since it is able to reach such a wide range of people. 

Assignment #9

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I have been researching the correlation between the unemployment rate and the rate of economic growth. I believe that Okun’s Law does not always hold true during certain time periods. I found that I am not the only one that challenges the negative relationship between the unemployment rate and economic growth. The paper, “How Useful is Okun’s Law” by Edward S. Knotek, II sets forth the idea that the simplicity of Okun’s Law is subject to change in the constantly changing macroeconomic world. The article sheds light on the statistics that in the United States during 2006, the economy experienced a positive correlation between the two variables. Okun’s law will not consistently hold true during all time periods, but is known to undergo some instability.
 
The article goes on to elaborate on the regressions that they ran to determine the time periods in which there were observed instabilities in Okun’s Law. However, the author uses a purely linear regression. I also chose to avoid changing the functional form of my regression. I will continue to research and consider what other economists have used when running the regression between unemployment rate and the rate of economic growth. Perhaps, I should consider possible functional forms.
 
Knotek E. How Useful Is Okun’s Law?. Federal Reserve Bank Of Kansas City Economic Review [serial online]. 4th Quarter 2007;92(4):73-103. Available from: EconLit, Ipswich, MA. Accessed March 29, 2013.
 

Margin Call

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The financial crisis in 2008 was on the brinks of catastrophe and an entry-level analyst in the fictitious Wall Street investment firm depicted in Margin Call uncovered statistics that would shortly be detrimental to the firm. It could possibly be a representation of Bear-Sterns, Goldman Sachs or JP Morgan. The depiction of the characters and their actions did not lead me to react solely with disgust, but I was also able to see the ethical struggles of their situation in their moment of panic.

Peter, the “rocket scientist,” analyst worked out a mathematical model that illustrated the effects of the firm’s leveraging up and buying mortgage-based securities. The consequences would result in losses of over trillions of dollars to the firm. The events and decisions of the firm that unfold within the 24-hour period prove to humanize the events of the financial crisis on Wall Street. I found one of the most interesting aspects of the movie to be the depiction of the hierarchy within the firm’s structure. Starting with a mere analyst and working up the ladder, we can clearly see the greedy at the top who know little about what was happening within the economy at the time. Tuld was never hesitant to hurt his employees or his buyers because he knows that he would not suffer from the catastrophe lurking in the near future.

I was most intrigued with the characters of Kevin Spacey and Demi Moore and the ethical decisions that they faced with the damage of past decisions unfolding. The firm is stuck and had no choice, but to sell these mortgage-based securities in one trading day to buyers with no idea that they have no value. I found myself sympathizing with Sam (Spacey) and Sarah (Moore) and realizing the predicament that they had faced. Although, there is this humanizing theme within the film, it does not allow me to completely ignore the damages that these characters caused and they should be held accountable for the crisis that resulted.  

 

Assignment #8

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Okun’s Law is a widely accepted economic theory that states there is a negative correlation between GDP growth and unemployment. Generally, an economy experiencing a slowdown in economic growth will simultaneously experience a rising unemployment rate. However, there have been known periods in the United States’ economy that have shown signs of a positive correlation between the two economic variables.

Using the World Bank data indicators between the years of 1960 and 2011, I was able to run a regression between the U.S. unemployment rate and its GDP annual growth rate to observe any correlation between the two variables. This initial regression included other independent economic indicators that could have an effect on the unemployment rate. By including these indicators, I am able to observe a more accurate model between unemployment rate and economic growth rate. These independent variables that I included were: health expenditures as a percent of total GDP, annual population growth, education primary completion rate, and the percent of GDP value added to industry growth.

My conclusions show that there is a positive coefficient indicating a positive correlation between the rate of unemployment and GDP growth within the United States between the years 1960 and 2011. These results appear to be relatively statistically significant. However, my data may need to be enhanced. The World Bank does not have recorded all the values for the indicators within this time period leaving me with only 13 final observations. To make my model more efficient a larger data set would be desirable.

In addition, some of the proxy variables that I chose to represent the independent variables affecting the unemployment rate may need to be changed. For instance, I believe that education has an influential affect on the unemployment rate, so I included the total primary completion rate as a proxy variable for this variable. This may not be the right choice to measure the level of education during a given year. Similarly, I will reconsider the proxy variables that I have chosen to improve my model. I will then use the model to observe the correlation between unemployment rate and GDP growth in other developed countries and finally in developing countries.