Friday, May 4, 2012

Donohue and Levitt, Foote and Goetz


            I first read Donahue and Levitt’s article, which relates to argument that was presented in the chapter we read in Freakonomics last week. The begin by stating popular reasons that may have been responsible for crime rates in the 1990’s to decrease a noticeable amount. Then they say that it was the legal battle between Roe v. Wade and the courts decision to legalize abortion throughout the country. Unlike the chapter in Freakonomics, Donohue and Levitt offer a model that includes data they gathered over time, and they focus on abortion numbers as the main explanatory variable. What they concluded was that abortion is responsible for nearly 50% of the decrease in crime rate during the period they collected data during. Basically, Donohue and Levitt provided statistics and analyzed them to provide support for the chapter we read in Freakonomics.
            In Foote and Goetz’s article, they are responding and criticizing Donohue and Levitt’s article written about the relationship about abortion and crime rate. They criticize the model they use along with many other factors that they say skewed the results of Donohue and Levitt. Basically, Foote and Goetz make their own model and find that there is no statistical significance between abortion and crime rate.
            So we can conclude that depending on the model one uses it will give you two completely different results for something that is comparing the relationship between two of the same variables. It is interesting how different results one can compute by measuring them slightly different. Looking at these two articles gives us the impression that there are always two sides to the story.

Tuesday, May 1, 2012

Where Have All the Criminals Gone?


In chapter 4 of Freakonomics, “Where Have All the Criminals Gone?” Levitt and Dubner discuss the relationship between increased crime rates and legalizing abortion amongst different states. They explain that without the option to get an abortion it will result in “undesired” births. These “undesired” births are resulting in higher crimes rates because they believe that these children are more violent because of who their parents may be. When different states began legalizing abortion these states also saw criminal activity diminish, thus implying that these “undesired” children were violent.

This chapter was one of the more interesting chapters we have read this semester. I think this relationship is very interesting, although I do believe legalizing abortion would contribute to a decrease in crime rates, I think many other factors can contribute to decrease in crime rates. Depending on your political views and your stance on the legalization of abortion, you may or may not consider abortion an illegal crime. If you do consider abortion an illegal crime then the crime rate never went down.

So I really believe this chapter should be more focused on how some may view the legalization of abortion, and then dive into the relationship between crime rates and abortion.

Wednesday, April 11, 2012

Elevator Conversation


           The topic of skyrocketing gasoline prices seems to be making headlines all over the news these past few months. I am very interested in what or who is causing these record highs and recently I have been collecting empirical data pertaining to the factors that effect the direction of crude oil.
            Although most of the price of crude is due to speculation and futures markets, there are still other factors that contribute to price fluctuations. A few of these factors include the following: OPEC production levels, non-OPEC production levels and whether wars are being fought. The data I have collected obtains the production levels of OPEC and non-OPEC countries the last forty years as well as the historical nominal prices, prices adjusted to inflation and the GDP deflator measurement.
            What I am looking for is if the levels of production of non-OPEC compared to the levels of OPEC have a statistically significant effect on the price of crude oil. The results I have found are not surprising, I found that when non-OPEC production levels exceed a certain amount the price of oil has decreased.
            I’ve found this topic to be very interesting and I know there is a lot more I can do to get even better regression results.

Thursday, March 29, 2012

Pak Sudarno's Big Family


In chapter 5 of Poor Economics, the idea of population policy was brought forth. Basically, Banerjee and Duflo analyzed what factors determine desired or non-desired family size some developing countries such as, India, Columbia, China, Ethiopia, etc. All of these countries, at some point in time, have attempted to implement a population policy whether it is China’s draconian one-child policy, or India’s mandatory sterilization system in the late 1970’s.

As Banerjee and Duflo dive into the determinants of how many children poor families decide to have, it becomes apparent that contraception may not have as much of a role as one would think in determining family size.

It was clear there was much more than contraception, aspects such as social norms, family dynamics, religious values, and economic status. All of these aspects play a major role, not only in determining family size but also how they will treat each child.

The statistic that I would like to look into more and see how it affects maternal deaths each year would be how well an affect modern contraceptive has on saving mothers lives. I would assume if couples are using modern contraceptives then mothers are at a less risk of dying. The regression would look like this:

Maternal Deaths = a + b1 (Family Income) + b2 (# of Children) + b3 (Education of Mother) + b4 (Use Contraceptives) + e

The dummy variable would be whether or not the couple uses modern contraceptives, I would give an answer “yes=1 and no=0.” I would then analyze the t-statistic and coefficient corresponding to this dummy variable and make a conclusion about how much of an affect modern contraceptives actually have on preventing maternal deaths.

Friday, March 9, 2012

Does OPEC Matter?

I don't think I could have picked a better first article to read pertaining to my thesis other than Robert Kaufmann's "Does OPEC Matter? An Econometric Analysis of Oil Prices." Kaufmann uses the application of ordinary least squares (OLS) to test his hypothesis which is quite similar to mine: An econometric analysis indicates that there is a statistically significant relationship among real oil prices and OPEC production methods.
In this article, Kaufmann sets up an estimation model using a dependent variable, Price, and outcome variables which represent market conditions, such as capacity utilization by OPEC, quotas relating to OPEC production, OECD stocks of crude oil and an interesting variable labeled cheat. The cheat variable represents the amount of production by a particular OPEC member that exceeds there quota set by OPEC. Although Kaufmann's main focus in the article related to OPEC and the power they hold when determining oil prices, he did briefly elaborate on how non-OPEC members had an effect on the price of oil.
Before reading this article, I was uncertain if I would actually be able to find a substantial amount of research relating to my thesis. It seems as if most analysts and economists that conduct research on oil markets tend to focus on OPEC's tendencies rather than non-OPEC members. I believe this could affect my thesis because I may not find enough research relating to non-OPEC members.
Some aspects of this article I had not thought of before were comparing single countries of OPEC to the OPEC organization as a whole excluding the country I choose to use as the dependent variable. This could should possible dominance countries may have within the OPEC organization.
After reading this article and gaining much more knowledge in regards to my thesis, I am looking forward to reading more articles. It was exciting to come across an article that had so much relevancy to my research topic.

Kaufmann, Robert. 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices." The Energy Journal, Vol. 25, No. 4.

Thursday, March 1, 2012

Opec Levels Reach New Highs

The article in today's Wall Street Journal, "OPEC Feb Output Reaches New Highs" has much relevancy to my final paper topic. My paper is going to analyze the oil production levels of the 12 OPEC members and the non-OPEC oil producers and how their respective oil production levels affect the price of oil. The article explains how the 12 OPEC members in February produced a record high level of oil production since 2008, a little above 32 billion barrels a day. The reason for this massive increase in production is because of the current sanctions that have been imposed on Iran. Not only have sanctions been put in place but Iran has decided to cut supplies to France and the U.K. and threatens the rest of the European Union. Thankfully, the OPEC members, particularly in the Persian Gulf region aside from Iran, have pledged to make up any missing barrels OPEC may owe to those countries mentioned above.

So there is a reason why OPEC has increased oil production so significantly which may or may not play a role in oil prices. It will be interesting to see how the uncertainty with Iran's oil exportation will affect the oil markets.

In terms of my paper, I will have to take into account such variables as sanctions, oil embargoes, and supply cuts because these all affect oil production and oil prices. For example, during the Saudi oil embargo in the 1970's prices sky rocketed and the U.S. implemented certain days when people could fuel their cars depending on what letters and numbers their license plates ended with. There are plenty of different factors that I will need to respect when analyzing oil prices, not just the production levels of OPEC and non-OPEC members.

Friday, February 24, 2012

Top of the Class

In chapter 4 of Poor Economics, Banerjee and Duflo bring up the problem of increasing absentee numbers in schools among poverty stricken areas in the developing countries. There are two sides of the problem though, the demand side (where parents decide whether their children will attend school) and the supply side (the role governments play to provide a promising and efficient educational system). In terms of the demand side of attending school, the parents of children have the final say whether their children will attend, most parents don't see value in education and they would rather have their children at home working for them bringing in income. On the other side of the spectrum, the supply side is controlled by the governments of these respective countries, these educational systems rely on many different factors such as providing teachers that actually "want" to teach, resources (books and informational technology). Although, Banerjee and Duflo have seen improvements in attendance through certain practices involving the supply and demand sides of the educational systems, there is still a lot more that governments and families can do to make sure all children are receiving a proper education.

I googled "poverty and education" and came a across an article in the New York Times titled "Class Matters. Why Don't We Admit It?" There were many similarities between this article and the chapter we read in Poor Economics. Basically, the article brings up that children in the United States from lower level income families do substantially worse in school compared to their high level income counterparts. Also, policy makers are trying to fix this by implementing George W. Bush's No Child Left Behind, which strives to make schools more efficient by analyzing the performance of teachers through test scores their students receive.

Although there are many similarities between the article and the chapter, Banerjee and Duflo analyze many more different aspects of poverty stricken educational systems. They believe that parents have a big decision of whether or not their children go to school, while the article does not take into effect the component of attendance and parental supervision. A similarity was the government intervention that is occurring in both developing countries and the United States to make education systems more efficient. At least the leaders of this country sense there is a problem here... Something I found interesting that the article brought forth was the nutrition and health of students and how it may affect their performance in the classroom.

Overall, the message that is being presented is that children who's families are of the lower class or in poverty are either not performing well in school or they are not attending school, and there are many reasons for why this is true. Do you think that attendance in the United States among children who in live in poverty is as low as the attendance of children in developing countries?

Thursday, February 9, 2012

Drub Dealers Living With Their Moms

In chapter 3, Levitt and Dubner delve into the surprising economical features of a particular Chicago crack selling gang. It was Sudhir Venkatesh's bravery and commitment to his field of study that made it possible to analyze the shocking methods of this particular Chicago based gang. What made this analyzation possible for Levitt and Venkatesh was a notebook of the accounting records that the Black Disciples kept. Levitt and Dubner argue that there is a common misconception that all drug dealers make a ton of money when in reality this is not the case.

A graduate student at Chicago University, Sudhir Venkatesh decides to do some research on poor black people but as he experiences his first interaction with these gangsters rolling dice in a stairwell, he realizes there is a hidden world among gangs. Venkatesh enters a hidden world that no one would have ever thought existed when it came to business practices that these crack dealers follow. Venkatesh receives a special notebook from a gangster who is living his last days and as Venkatesh begins to analyze the notebook he realizes that a lot of economics is involved with crack dealing.

The notebook reveals the profits generated by the selling of crack as well as each ranks salary. What they came across that was surprising is that the lowest ranks make such little money and the highest ranks make a killing. The business of crack dealing has high reward if you're willing to risk your life but when you start out making the equivalent of $3.30 per hour is it really worth it?

The first statistic is introduced on page 96 stating, "J.T. paid the board of directors nearly 20 percent of his revenues for the right to sell crack in a designated twelve-square-block area." The next statistic appears on the next page, 97 and it explains how J.T.'s gang's revenue nearly quadrupled from the first year to the last year. The third statistic elaborates on the salaries among gang ranks, the lowest rank, foot soldiers, earned a pathetic $3.30 an hour. The last statistic I believe to be important describes the risk involved with being a foot soldier and explains how they have a 1 in 4 chance of being killed. I believe all of these chosen statistics are important to this chapter and the order of which they are introduced is exactly how I would present the statistics as well. It makes perfect sense.

If you start out with the first statistic, it basically tells how much revenue these board of directors (who aren't risking their lives) are receiving from every gang leader, nearly 20 percent! This statistic then leads in to how quick the crack industry can grow and how the profits can amount so quickly. Since the revenues quadrupled it means that the board of directors were making four times the amount of which they were making at the beginning. Then we notice how poor the salary of a foot soldier is, a measly $3.30 an hour which does not do pay for the risk that these foot soldiers are vulnerable to every day. These statistics expose the undesirable characteristics of becoming a crack dealer. There is such a small chance that you may end up being a "board of director" when in reality you are more likely to be killed before you ever even sniff at the opportunity of becoming a "board director."

Levitt and Dubner reveal the economics that are involved with crack dealing. It extremely surprising that these uneducated gangsters could follow a business model and generate such a profitable business. Levitt and Dubner expose the common misconceptions and back their opinions with legitimate facts. Why do you think so many young kids choose to be in gangs? Why don't they seek a job elsewhere? Or do you think that peer pressure is a common factor among these kids' decisions?

Friday, February 3, 2012

Low-Hanging Fruit for Better (Global) Health?

Currently, there are astonishing statistics related to deaths caused by malaria and diarrhea in developing countries, especially the 9 million deaths of children ages 5 and under per year. It is surprising that these numbers are so high when there are many inexpensive alternatives to reduce the chances of contracting an illness or even totally prevent these illnesses. Banerjee and Duflo question why people in these developing countries are not choosing to utilize these inexpensive ways to protect themselves and their families from illness. Instead, people are contracting these illnesses and then must seek an expensive route to either cure the ailment or temporarily stop the symptoms. Banerjee and Duflo suggest that if these alternative ways of preventing disease were utilized it would increase the income of many because they would not spend nearly as much time being sick and not being able to work.

Chapter three introduces startling statistics of how many people could make wiser and more economical decisions to prevent contracting deadly illnesses. Banerjee and Duflo explain that not nearly enough people in developing countries are taking the right steps to stay healthy and keep their families healthy. If these people were eager to stay health, they would choose the inexpensive alternatives which include: ORS packs, bed nets, chlorine for purifying water, immunizations, better sanitation and the addition of plumbing. But why are people not choosing these methods?

Instead people are choosing to visit unqualified private doctors to help them with their illness. Its surprising these people are not utilizing the free services their governments provide to keep them healthy. Banerjee and Duflo suggest that their is a level of mistrust towards government provided clinics because of their unreliable hours of operation and the minimal care they provide. But the minimal care that these clinics provide is enough to help cure these illnesses, the population just feels that since these services are so inexpensive they think that they must not be able to do the trick. If these people would trust the sometimes subsidized and inexpensive methods they would not need to shell out the expensive funds to a private "doctor."They need to utilize the resources that are so readily available to them this would not only keep them healthier but also increase their income.

A statistic that surprised me the most involved the use of bed nets to reduce the prevalence of malaria in Kenya. The statistic provides information stating that if a child slept under a bed net then they would have a 30 percent less risk of being infected by malaria between birth and the age of two. The introduction of this particular statistic provides evidence suggesting that using bed nets could potentially produce high returns. The minimal use of bed nets and the statistic provided implies that if these simple things were utilized it would greatly improve the lives of many. I believe this statistic is very realistic, if it said something like, "a bed net would provide a child a 90 percent less risk" then I would says its very unrealistic. The only thing I question is if so few people are utilizing these bed nets then how do we know this statistic is accurate, wouldn't we need a bigger sample size?

Overall, the people struggling in these developing countries need to be better educated about illness prevention. It would improve not only their health but their quality of life. I truly believe that some people do not trust these inexpensive methods and more times than not overlook them. I also think these people would rather take the easy way out and visit a "doctor" rather than having to assemble a bed net or adding chlorine to the water they drink everyday. Adding this effort of taking the initiative adds more work to their already poor quality life so I think they choose to visit the doctor so they can have someone else provide them with what they need. These simple resources need to be utilized because if they continue we will see even more startling statistics.

Friday, January 27, 2012

A Billion Hungry People?

At the beginning of chapter 2 in "Poor Economics" the authors state that in June 2009 the Food and Agriculture Administration reported that there were one billion people suffering from hunger. What most believe to be one of the root causes of the poor not being able to provide themselves with enough to eat is the poverty trap. The poverty trap suggests that when people are unemployed or not earning enough to make ends meet, they can not afford to buy enough calories which as a result they become less productive. The people that get stuck in these "traps" usually have a very hard time getting employed because they do not acquire the strength desired to perform the tasks they would need to. The reason for the lack of strength is because these people can not earn enough money to properly feed themselves. As the chapter progresses another problem is presented, the poor people are not spending as much as they should on food which is why they are hungry. They are making poor decisions and spending money on things such as extravagancies, entertainment and festivals when they should really be spending that money on more food. Additionally, the poor choose to buy more expensive calories when they should really be buying. What these people do not understand is that they should be purchasing inexpensive food that will provide them with the amount of calories they require daily then there is no opportunity for them to be caught in the supposed poverty trap. If people are not buying the required calories that their bodies need then they are not receiving the micronutrients that their bodies need and if this persists then yes, the world will continue to obtain one billion hungry people. But what happens to children who's parents are too poor to afford food or are not properly providing their children with enough food? Banerjee and Duflo explain how many children in Southeast Asia and Sub-Sahara Africa are either malnourished or undernourished. Banerjee and Duflo elaborate and explain how children who receive the essential nutrients end up doing better in life than children who receive insufficient nutrients. There was an experiment done in where two groups of children were given deworming pills, one group received the pills for one year and the other group received the pills for two years. The results explained that the longer children receive proper care and ample nutrients then they will do better than children who do not receive enough. The group that received the deworming pills longer did better on tests, were taller, and have a better chance of reaching their productivity potential in the future. This example proves how important receiving the proper nutrients is in the early stages of childhood development. But is there really a poverty trap that actually exists? If people have the means of being able to provide themselves with the right amount of calories but are choosing to spend their money differently and making poor decisions with their personal finances then I do not believe in the poverty trap. On the contrary the poverty trap may exist but to not as many people as we actually think.

The poverty trap is an idea that is defined in the following way: When an extremely poor person is either unemployed or receiving very little income that prevents them from being able to buy themselves the essential calories they need to be as productive as they can at work. The trap comes into play when the person can not find employment because they have been eating so few calories that they become an unattractive candidate to the employer because they do not have the amount of strength to perform in a work setting. But people in India reported last year that they did have enough food to eat, so does the poverty trap really exist? I believe that the poverty trap exists to some extent, I do think that there are people in the world that have the burning desire to work and want to earn enough money to provide themselves with the required calories. But on the other hand I think there is a larger group of people that  are believed to be caught in this poverty trap but in reality they are making poor financial decisions. For example, saving for weddings, funerals, buying appliances used purely for entertainment or buying more expensive foods. If everyone was frugal with their money and made the smart investment choices then there would not be one billion starving people. It comes down to quantity not quality. Why do people make these poor decisions? Is it because they want to indulge and treat themselves?