• The ROI From College

    College Matters

    Nov 23 • Demand, Supply, and Markets, Economic Debates, Households, Labor, Macroeconomic Measurement, Thinking Economically • 612 Views

    Assume you are an 18 year-old high school graduate with $102,000 to use for a lifelong investment.

    These are your choices:

    • triple-A rated bonds
    • housing
    • common stock
    • Bachelor’s Degree (4 year college)
    • Associate’s Degree
    • gold
    • long term treasuries

    The results? The Associate’s Degree gives the largest return and housing the smallest. Specifically, Brookings hypothesizes that the average annual return for 60 years would be: Associate’s Degree: 20%; Bachelor’s Degree: 15.2%; stock market: 6.8%; AAA corporate bonds: 2.9%; gold: 2.3%; long-term treasuries: 2.2%; housing: .4%.

    However, the WSJ reminds us that there might be other differences between college grads and those who did not continue with higher education. At the high school level, college grads had higher grades, were more affluent, and fared better on standardized tests. Asked for a number, though, researchers estimate the lifelong income boost from college at $300,000-$600,000.

    The Economic Lesson

    Defined as sacrifice, the cost of every investment is more than the dollars it directly required. Cost includes alternative uses of the money as well as less tangible benefits.

    An Economic Question: We could say that the benefit of college has a “spill over effect” as a positive externality. That is, individuals benefit but society gets even more. How would you assess the broader impact?

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  • Medicare Payments

    Nov 23 • Demand, Supply, and Markets, Economic Debates, Government, Households, Macroeconomic Measurement, Regulation, Thinking Economically • 457 Views

    http://economix.blogs.nytimes.com/2011/11/11/equalizing-payments-for-medical-care/

    For each procedure, you have a provider and a recipient. Same procedure. Different “reimbursement” D

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  • 16764_apples..11.22.11_000010813466XSmall

    An Apple’s Patent

    Nov 22 • Businesses, Demand, Supply, and Markets, Government, Innovation, Thinking Economically • 564 Views

    This apple has bites rather than bytes but like its namesake it was patented and took years to develop. When its U.S. patent expired in 2008, it had generated close to $6 million for the University of Minnesota and is still producing royalties in Europe.  With Google, the nicotine patch and the V-chip, it was even named one of 25 innovations that transformed the world.

    The name of this apple? The Honeycrisp.

    And now, the Honeycrisp has become a mother. You might enjoy reading about its offspring, the SweeTango in this PBS report and a New Yorker video and article by John Seabrook.

    The Economic Lesson

    Just like a new drug or chemical process, an apple undergoes R & D, gets intellectual property protection, generates royalties, and creates competition and knock-off concerns when its patent expires.

    Having taken 31 years to develop, the Honeycrisp’s royalty revenue stream is divided among its inventors, a fund for further research, and the department/college where the faculty developers worked.

    An Economic Question: Citing the Honeycrisp, explain why you agree or disagree with Edwin Mansfield (1930-1997) a University of Pennsylvania economist who said that seemingly small innovations can have a massive impact.

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  • Female Longevity

    Nov 22 • Gender Issues, Government, Households, Labor, Thinking Economically • 518 Views

    Reading that 90 year old women outnumber 90 year old men, I wondered about the policy implications.

    Women get more social security. No wonder Alan Simpson (gray “tigers” lady against simpson)

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  • The US is again hitting its debt ceiling.

    If You Were the Supercommittee…

    Nov 21 • Behavioral Economics, Economic Debates, Government, Macroeconomic Measurement, Thinking Economically • 506 Views

    This simulation from Pew is a great way to understand what the supercommittee is trying to do. Called “the Pew Budget Challenge,” it presents close to 100 revenue and expenditure alternatives for bringing the debt down to 60% of GDP by 2021. You make the decisions and see where the debt goes.

    If you want more of an academic approach, this Congressional Budget Office (CBO) report explains budget controlling alternatives. I’ve noted below the CBO’s candidates for cuts and revenue boosts. Within each category, items are listed in descending size order.

    SPENDING CUTS

    Mandatory:

    • Social Security
    • Medicare
    • Other
    • Medicaid and other Health Programs
    • Unemployment Compensation

    Defense Discretionary:

    • Operation and Maintenance
    • Military Personnel
    • Procurement
    • Other

    Nondefense Discretionary:

    • Other
    • Education, Training, Employment, Social Services
    • Transportation
    • Income Security
    • Health
    • Veterans
    • Justice
    • International Affairs

    REVENUE BOOSTS

    (The CBO cites 35 ways to raise revenue in their report.)

    • Individual Income Taxes (42%)
    • Social Insurance Taxes (40%)
    • Other Revenue Sources (10%)
    • Corporate Income Taxes (9%)

    Called “Fiscal Commission Deja Vu,” this past econlife post looks at proposals from presidential budget commissions. The 2 commissions had similar proposals but the Congress and President never proceeded. And now, we await the supercommittee.

    The Economic Lesson

    Specifically defined, federal fiscal policy refers to taxing, spending, and borrowing. It involves the federal deficit which is the shortfall between annual spending and revenue. The federal debt is the total amount that the U.S. government owes.

    An Economic Question: In the Pew simulation, how much could you cut the growth of the debt?

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