Ask an Economist

Question:
Hello, I am a Clemson student in Biosystems Engineering of all subjects and I was working on a side project that had me consider how inefficient urban development is. I suppose this has two parts: Why are there no private toll roads being constructed by the developers who are turning places like Greenville, Columbia and Charleston SC into parking lots? Is there a legal restriction on the use of toll roads considering South Carolina has two of the only private toll roads I know of?

A shorter way to ask this would be is if there is a true economic incentive to build roads when the government says that they will pay for it anyway.

Answer when you can. Thank you!
Answer:

Private developers will identify profitable opportunities from constructing toll roads; the current road system may be too congested or outdated, or an undeveloped route may have potential to be lucrative. Typically, proposals made by individual...

Question:
What percent of the US workforce is employed in local, county, state and federal government? Average yearly income of governmental workers? Average yearly income of non-government workers?
Answer:

I found a policy report that might be a little dated (2013) but I think is probably still relevant. You can find the report here: <https://fas.org/sgp/crs/misc/R41897.pdf>

The...

Question:
What problems will economists have to solve in the next 20 years?
Answer:

As many observers have noted, economists are not especially good at forecasting the future. Nonetheless, intellectual trends generally move slowly.  So I would expect that the issues economists deal with in the next twenty years will look a...

Question:
My understanding of the Fed is that it must keeps its books balanced as follows:
value of securities held at central bank = amount of central bank money.

If the value of the securities rise, then the Fed needs to increase the amount of central bank money, which it does by passing its "profits" to the US treasury. Normally, the securities held at the Fed are US Treasury Notes, but starting with the Great Recession, the Fed began accumulating mortgage backed securities as well. Ultimately, these securities gave a profit, and these were passed on to the US treasury like always. However, what if that was not the case? What if these securities defaulted, and the Fed incurred a "loss"? Would it have to pass the loss onto the US Treasury as well? What would that look like? Would the US treasury simply give the Fed US Treasury Notes without getting central bank money in return?
Answer:

The following FEDS Note by Bonis, Fiesthumel, and Noonan (2018) provides detailed answers to your questions: https://www....

Question:
Student mental health issues and resulting disruptive behaviors are becoming increasingly difficult for schools to manage. As a result, sometimes students are staffed into special education strictly for assistance with behavioral goals (and not academic issues). Special education costs are 2-3x the cost of general education, resulting in many school districts' having a year-end budget with a special education deficit. To cover this budget shortfall, local property taxes are often raised. Could early identification and early treatment of student mental health issues help reduce the special education costs a school district pays every year? What is the potential ROI, and how would the impact of this investment be measured?
Answer:

There is a large body of research that shows that peers matter for later academic and economic success.  A prominent study in which children were randomly placed in kindergarten classes showed that children who were placed in schools with...

Question:
Hi! So my original question, that I posed to several different online communities was this: I am currently reading Naomi Klein’s book “the shock doctrine, the rise of disaster capitalism”. In it, she has a chapter critiquing Milton Friedman, specifically on his involvement with the Chilean government and the spread of neoliberal ideals common to the Chicago School of Economics. In this chapter, she basically argues that the Chilean neoliberal experiment was a failure, and speaks about Pinochet’s policies and their results.

Here are some quotes from her book: “He took no pity on local companies and removed even more trade barriers; the result was the loss of 177,000 industrial jobs between 1973 and 1983”

“Pinochet had deliberately sent his country into a deep recession, based on the untested theory that the sudden contraction would jolt the economy into health”

“In the first year of Friedman-prescribed shock therapy, Chile’s economy contracted 15 percent, and unemployment- only 3 percent under Allende— reached 20 percent, a rate unheard of in Chile at the time”

“He calculated what it meant for a Chilean family to try to survive on what Pinochet claimed was a ‘living wage’. Roughly 74 percent of its income went simply to buying bread... by comparison, under Allende, bread, milk, and bus fare took up 17 percent of a public employees salary”

“In 1974, inflation reached 375 percent- the highest rate in the world and almost twice the top level under Allende”

So I’d like to ask;

1) are there any statistics/ data that contradict these claims, or maybe give more context to them
2) was Pinochet’s “neoliberal experiment” really an example of neoliberalism? And if it was, was it a failure?

Also,

1) was the economy under Pinochet really that terrible
2) if it was, was it due to the pushing of neoliberal ideals by the Chicago boys (those educated at the Chicago school of economics)
3) is Chile proof of the failures of neoliberalism
Answer:

My name is Marcelo Oviedo and used to work as Assistant Professor at Iowa State University. My ex-colleagues in the Department of Economics have invited me to answer your questions posted in the Ask An Economist section in that...

Question:
The Department of Veterans Affairs sent me a letter saying they were going to cancel my student loans, (about $7,000) but that I could stop them from forgiving my student loans if I want to.

I have a few questions;

1. Will canceling my debt negatively impact my credit score?
2. Will I be able to get future student loans if I want to go to graduate school?

(The process states that I WILL be able to get those loans if I waive some stuff and agree to have my old loans reinstated). But my question is more basic:

will anyone give me a loan?

References;
studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/disability-discharge
https://www.insidehighered.com/news/2019/08/22/trump-administration-grant-disabled-veterans-automatic-loan-forgiveness
Answer:

1. The most common credit score is of the form used by FICO (Fair Isaac Corporation).  The calculation has five components, payment history, amount owed, length of credit history, new credit, and type of credit used.  The first two...

Question:
What if I were to buy nearly 100 stocks in different companies and build an algorithm to sell them the minute I make money, and then buy a stock again, but different from the one I had just purchased. Wouldn't the build-up of all the stocks being sold and bought cause a rapid increase in profit? Sorry if this seems like a dumb question. I am 16 and I just had this question about how to exchange market works and if this is plausible.
Answer:

For such a strategy to work at the least following two conditions must hold:

- each time you transact, you need to correctly pick a stock that would eventually rise in price by enough to offset the bid-ask spread and transaction fees you...

Question:
In the world of vintage car collecting, a frequent topic of discussion is whether prices for a particular model or type are rising or falling. Answering this question is made more difficult by the fact that very few transactions are documented. We know that a given car was listed for price X, but we don't know what price it actually sold for, or to whom.

Does economics provide any model by which one can infer anything about actual selling prices for something, based only on data obtained from published asking prices? For example, if we had a data set of ~3000 sales over 20 years, and we knew that asking prices in real dollars were basically flat, would that tell us anything about the selling prices? Would they also be flat? Or maybe instead would they be gradually approaching the asking price? I have no idea.

Thank you.
Answer:

The question you are asking is about the bid-ask spread.  The bid is what a buyer wants to pay for an item. The ask is what the seller wishes to receive.  You know the ask, you want to know the bid.  The bid would be demand, the...

Question:
Can artificial scarcity be considered a nudge under nudge theory (from readings it sounds like nudges should be transparent if so, can I call it a non-transparent nudge?
Answer:

Thaler and Sunstein in their book define nudge as “any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives.”

...
Question:
Which is better for/has a more positive impact on the American economy:

Purchasing a vehicle from an American car company that is mostly manufactured overseas with foreign parts

Or,

Purchasing a vehicle from a foreign car company that is mostly manufactured in the US with US made parts (list for reference: https://www.usatoday.com/story/money/cars/2018/06/22/american-cars/724724002/)
Answer:

This question addresses an important debate in the current economic climate in which global production network and offshoring are prevalent. Economic research on this topic from both theoretical and empirical aspects is vast and is still ongoing...

Question:
I think the treatment of Blacks in the south, by restricting Blacks' jobs, low pay, restrictions of where to spend their money, and other negative economic measures, had to negatively affect the southern economy by -30 percent or more during the 100 years after the civil war. What would economists say?
Answer:

Economists and economic historians in particular have been quite interested in the economic impacts of slavery and its aftermath, including the effects of race-based discrimination. There is by now an extremely large and extensive literature of...

Question:
I just saw this quote in Seeking Alpha by "Goldmoney": "Entire AAA-rated bond yield curves are likely to be forced into negative territory, following the Swiss government bond market, which is already there. The denial of time-value will mean a government bond with no final redemption date priced at less than infinity will be technically a bargain. That is the measure of distortion." My background is statistics. I'm trying to teach myself economics. Thanks in advance.
Answer:

The unusually shaped yield curve was in the news the other day. But it was attributed to the Fed buying 10-year T-notes, which temporarily lowered their yields relative to notes/bonds with shorter maturity. It sounds to me the quote cited by...

Question:
Do Trump’s new tariffs affect things that were made in China, but were NOT sold from China? As in a toy from Xplus. They are made in China, but are sold and exported by Japan.
Answer:

Trumps tariffs are collected by U.S. customs officials when Chinese goods are imported into the US. They are not collected on goods imported from Japan. However, the tariffs have created worldwide perturbations and there may be modest second...

Question:
Hi! I'm trying to do more reading on economics this summer as I consider applying to master's of economics programs after working in IT for 13 years. I came across a paper (linked at the bottom) on inequality. I only have an undergraduate level understanding of economics and statistics (think intermediate micro/macro and an introductory stats class I took around 2003) so I'm limited in my understanding.

I'm reading through this paper and while I can think of reasons why some of the conclusions might be true I don't get how empirically they are reaching their conclusions.

1) According to page 16 item #23 "The empirical results show that inequality has a negative impact on economic growth. The baseline results are reported in columns 1 to 4 of Table 1" and then goes on to explain its reasoning why inequality negative impacts growth and says "Based on the estimated coefficients in column 1, for example, lowering inequality by 1 Gini point would translate in an increase in cumulative growth of 0.8 percentage points in the following 5 years".
2) In item #29 (page 19) they go on to say "Taken together, these results suggest that inequality in disposable incomes is bad for growth, and that redistribution is, at worst, neutral to growth". Again while I can think of some reasons why this may be the case (and some reasons why it may not like if some of the wealth leaves the country so as not to get redistributed depending upon implementation) I'm not sure how they are coming to that conclusion empirically.
3) Then several times they estimate what the impact on growth would be for every % change in the Gini index but I'm not sure how they built that numerical assumption.

I came across the paper because I was trying to do some simple research into whether income inequality can lower the velocity of money (though so far I've just pulled some data from FRED on MZM and the Gini index and found like a -.46 correlation.

I'm hoping I could learn from someone to better understand how the tables this paper provides actually translates into the conclusions they claim; I don't know how to properly interpret the tables.

https://www.oecd-ilibrary.org/social-issues-migration-health/trends-in-income-inequality-and-its-impact-on-economic-growth_5jxrjncwxv6j-en;jsessionid=g-XlVT6DTb4_r_CW_3M5veza.ip-10-240-5-57

Thanks!

Christopher

Answer:

1) According to page 16 item #23 "The empirical results show that inequality has a negative impact on economic growth. The baseline results are reported in columns 1 to 4 of Table 1" and then goes on to explain its reasoning why inequality...

Question:
Dose any branch of the field of economics have a term for when producers cease to compete at the production level, but continue to compete fiercely in marketing. The example I have in mind for this is the sports shoe industry (Rebok, Nike, Adidas, etc.), where production has been subcontracted to East Asian companies that specialize in finding the lowest cost producers in China, Vietnam, Indonesia, etc., where the same manufacturer can be in the business of making shoes in the same factory for several companies (Rebok, Nike) at the same. And what precisely are the theoretic conditions that enable this to happen? Are production costs that their absolute lowest so that no production competition is possible?
Answer:

The term you are looking for is product differentiation. This is the name we give to a class of models (most prominently, the Hotelling linear city and Salop circular city models) where firms may have identical production costs and competition is...

Question:
I've read articles recently which conclude that--adjusted for inflation--paychecks have roughly the same purchasing power that they had 40 years ago. As a layman, this suggests to me that although the average American standard of living hasn't improved in several decades, it hasn't worsened either. I am trying to reconcile this statistic with the "shrinking middle class" and the need for people to work multiple jobs to get by, trends which have emerged gradually over the same 40-year period. I suspect that the answer lies in the rising costs of housing, education, and healthcare, but aren't these variables included in the inflation adjustment calculation?
Answer:

The challenge in describing a large economy with more than 300 million people in it is in finding helpful ways to simplify the data.  Economists often measure economic performance by using one very simple statistic: income per capita, which...

Question:
What happens as new products enter the market? What factors determine gaining market share from existing products? For example, as nylon and polyester entered the market in the 1940s demand for wool decreased drastically. However, in cases of new, similar products, this isn’t always the case. Another example, “milk” like almond, soy, and coconut milk have taken away from conventional dairy milk; however, it’s certainly not as detrimental as synthetic fiber was for wool. How can we determine the factors that will influence consumer buying decisions as consumers have more choices?
Answer:

For consumers, changes in prices and per capita income are influential determinants of demand. Consumer demand is often measured as an elasticity, which is a relative measure, providing a useful means of comparison across all ranges of quantities...

Question:
I know if the minimum wage is increased to $15/hr consumer prices will increase. Will those with higher paying jobs see a decrease in their salary if the minimum wage is increased to $15 /hr nationwide?
Answer:

In theory, a stiff and swift increase in the minimum wage may result in less employment (of minimum-wage-eligible workers) and may increase prices to some extent as firms pass on higher wage costs to their consumers. But it does not follow that...

Question:
There is a huge trend in uploading personal receipts to various apps, either for fundraising or rebates. Moreover, businesses are uploading invoices and such to be processed digitally for cost analysis. Who reads these receipts and invoices? Is it being done through automated technology or are there low-wage workers in India doing this for hours on end? I'm not sure how I feel about supporting technology that creates horrible, repetitive, and invisible jobs in other countries. I feel like we continually take advantage of workers in developing countries.
Answer:

Some of it is read by computers and some by humans. An online marketplace like Amazon's Mechanical Turk, employs millions around the world (including the U.S.) to work on these tasks at wages of 5 cents an invoice. The argument can be made that...

Question:
The S&P 500 is a list of the top 500 companies based upon market capitalization. As such it is viewed as a good representation of the whole economy. There are 11 sectors in the S&P, for example Financials which accounts for 13% of the whole list, ranking 3rd after the healthcare and information technology sectors. Berkshire Hathaway (BRK.B = $530 billion market value) is included in the Financials sector. BH also owns a significant amount of stock in most of the financial sector, as well as other sectors. BRK.B is represented on the S&P mainly as an owner, not a producer of products or services. Does including BRK.B in the S&P 500 skew the results of the economic ratings, because, like circular reasoning, it means many of the S&P are represented twice?

Since I am not an economist, I am asking out of curiosity, not criticism and would like to better understand this situation. Thank you for your consideration and any response.
Answer:

Yes, there is a potential for double counting---in the case of publicly traded companies included in the SP500 that are also held in the Berkshire's portfolio (e.g., Apple or American Express). The extent to which this may skew any ratings or...

Question:
I work with a US company that manufactures vitamin/mineral supplement for grazing animals, cattle, sheep, and horses. We have been approached about expanding our operations and extending our technology into Australia. But, I have significant reservations about the ability of rancher in Australia to spend any resources beyond absolute survival. Any responses or suggestions to find information regarding the financial viability of Australian ranchers would be appreciated.

Cheers,

Abe
Answer:

On January 29, 2019, Meat and Livestock Australia (MLA) released updated forecasts, the general link is:https://www.mla.com.au/...

Question:
I’m currently doing a research on the subject of American founding father Alexander Hamilton as a character in the musical “Hamilton: An American Musical” vs the portrayal of Hamilton by professional historians. To be able to understand the importance of the historical Hamilton as a founder of the US in order to write about him, I need to be able to explain (and first of all understand) what “Hamiltonian finance” is. Could you in a simple way explain the basics of Hamiltonian finance? It is something I have had a difficult time finding an pedagogical and reliable source on. It would be of immense help for me.
Answer:

Alexander Hamilton was, as the musical portrays him, an influential figure in the early history of the United States.  A full description of his views about and impact on financial arrangements in the newly formed United States would be well...

Question:
Disinflation describes a lower inflation rate than the previous month, using YoY values. Does it make a different interpretation if the MoM value decreases or increases? I have seen a decrease in the MoM value corresponding to a decrease in the YoY inflation as well as a decrease in a MoM value corresponding to an increase in inflation YoY. Does the MoM value tell you anything about the YoY value? I used to think the MoM value described accelerating or decelerating of the YoY inflation/deflation. Can you please elaborate on the relationship between MoM and YoY values, if any? Thank you.
Answer:

The easiest way to see the connection between Month on Month Inflation and Year on Year inflation is to take a step back and recall where these numbers are coming from.

 

The inflation numbers we see reported are reflecting the...

Question:
Hi, I am studying an introduction module for Economics on a business degree course. I have recently covered the theory of Comparative Advantage within International Trade. While the theory makes perfect sense to me, and I can see why it would benefit different countries to trade together and import/export different goods to maximize profitability and production costs etc., I am struggling a little to ever find real world examples. For instance, every example I ever see for this model, shows two different countries and two different products. For example USA and China, both producing Planes and Electronics. Usually the answer works out that it would be best for USA to export the planes and import Electronics and vice versa for China etc. However, I am sure International Trade does not involve the bartering of goods. All trade is carried out with normal currency transactions right? What about if USA produces 10 million products, and China produces 30 million products. Is the Comparative Advantage now worked out between all of these products or is it still maybe one or two products compared? This seems in the examples of books really easy, but then practically impossible if all products are compared?

Also, who carries out these imports/exports or who decides it's better to import/export certain products? Is it private sector industries or is it government influenced.

So back in the previous examples of USA producing planes and China producing Electronics both with comparative advantages over each other. We know in real world examples Boeing in the USA produces planes and Huawei in China (along with many others) produces Electronics.
Does this mean Boeing should export planes to China, but what has this got to do with the Huawei company in China? They don't necessarily care about planes at all? Their business is electronics?
Does it also mean Boeing should use Chinese electronics on their planes (which I'm sure they don't)? This is where I am struggling to see the real world examples of it all, and understand WHO works out what products should be Imported/Exported from specific countries etc.?
Also who works out what country would be best to import goods from and what countries are best to export goods to?

I live in Ireland, and obviously dairy farming and beef are big exports here. But is it down to the individual farmers to understand these economics, or would the government figure a lot of this out?
Answer:

Prices will drive the system. For example Ireland has a comparative advantage in cheese and butter due to climate and a large amount of land suitable for dairy cows.  China has a comparative advantage in electronics because it has an...

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