• Everyday economics and sovereign debt

    When to Worry About Sovereign Debt

    Jul 1 • Developing Economies, Economic Debates, Economic History, Financial Markets, fiscal policy, Government, Macroeconomic Measurement • 134 Views

    Assume that someone has a $10 million mortgage. Then you learn that the net worth of the individual is one of the following:

    • $2 million
    • $20 million
    • $200 million
    • $2 billion

    Net worth can determine how you perceive a loan. The smaller the debt to net worth ratio, the more conservative the financial behavior. Similarly we can look at debt to GDP ratios to judge whether countries and other municipalities have borrowed beyond their means.

    Where are we going? To deciding when a debt is too large.

    Puerto Rico and Greece: Debt to GDP Ratios

    As a U.S. commonwealth, the Puerto Rican debt to GDP ratio of 70% can be compared to U.S. states.

    Sovereign debt is excessive when debt to GDP ratio is high

    From: WSJ

    Meanwhile, at 174%, Greece’s debt to GDP ratio is even more problematic.

    Debt to GDP Ratios for Selected Eurozone Nations

    Sovereign debt eurozone


    Our Bottom Line: Sovereign Debt

    When deciding how much sovereign debt is too much, we should look at debt to GDP ratios. That however is only the beginning. Next we need to ask if the country is developed or developing. Predictably, a developed nation can accommodate a higher ratio. Rather astoundingly though, at 237%, Japan’s debt to GDP ratio is gargantuan and yet our concern for Puerto Rico, at 70% is far greater. Then, we can also check to see if the country has a history of defaulting (like Greece) and whether its political institutions are strong enough to endure austerity.


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  • Everyday economics and the cost of developing a child's human capital costs families more than money.

    Why Children Are More Expensive Than We Think

    Jun 30 • Behavioral Economics, Education, Gender Issues, Government, Health Care, Households, Labor, Lifestyle, Money and Monetary Policy, Thinking Economically, Uncategorized • 142 Views

    When we think about the cost of children, the dollar first comes to mind. However the total is much higher when we quantify the stress.

    Where are we going? To what it costs a family to develop a child’s human capital.

    The Dollar Cost of a Child

    For 2013, the most recent cost figures from the U.S. Department of Agriculture indicate we spend an average of $245,340 per child. (The infographics are from the USDA.)

    What we spend depends on the age of a child:

    Cost of developing human capital of children

    Also, based on where you live, costs vary.

    Regional cost differences for developing a family's human capital.

    As for the specifics, you can see housing occupies the biggest slice of the spending pie.

    Specific spending pie slices for raising children

    However, if we add in college, the totals can skyrocket.

    Human capital cost of college for families


    Keeping in mind that an economic definition of cost is sacrifice, we better add the cost of stress when we tally what we “pay” for our children..

    The Cost of Stress

    According to “The Stress Cost of Children” (May 2015), the hours that parents allocate to children create stress. The data researchers used came from surveys in Australia and Germany with questions that asked, for example, “How often do you feel rushed or pressed for time.” The answer could have been “almost always,” “often,” “sometimes,” “rarely” and “never”.

    In the following graphs from the paper, you can see time stress soar especially for women after a child is born and then decline when that child leaves the household.

    Australia: After the birth:

    The cost of stress for family human capital development


    Australia: After child’s departure:

    Stress cost of a femily's human capital development of children

    For Germany the results are similar.

    Our Bottom Line: Human Capital

    What it costs a family to develop a child’s human capital includes money and stress — and as we saw in this econlife post, women’s sacrificed career opportunities.

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  • Everyday economics and Temporarily closing Greek banks means the loss of financial intermediaries that pump money around the economy.

    What To Do When Greek ATMs Run Dry

    Jun 29 • Businesses, Demand, Supply, and Markets, Economic History, Financial Markets, Government, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 154 Views

    Recent cash withdrawals from Greek banks have been called a bank jog. But now, with debt talks stalled and a Sunday referendum on the bailout, that jog has become a bank run.

    Because ATMs are emptying and cash withdrawals are accelerating, the Greek government has ordered banks to close their doors for six days or perhaps longer. Only tourists with foreign based credit cards can execute financial transactions. Domestically, ATMs can be used for a max of €60 (if they have any cash).

    Expressing his distress, one 67 year old retiree said, “I want Tsipras to tell me how I am going to make it through the week with €10 in my bag with rent coming up…”

    Where are we going? To why banks are important.

    Paying the Bills During the 1933 U.S. Bank Holiday

    On March 6,1933, only 36 hours after becoming President, Franklin Roosevelt said that no American could access any banks or banking services at least through March 9 when Congress would meet to write emergency legislation. He called it a bank holiday. Resembling Greece, a bad banking problem had gotten worse very quickly and the President had to act.

    Imagine getting your paycheck but not being able to cash it. One Minnesota store told customers, “Caught Short of Cash in the Bank Holiday? Your Charge Account Will Tide You Over.” Railroads let people know they would not leave any traveler stranded. In El Paso, Texas, the First Baptist Church asked for I.O.U.’s in its collection plates. Faced with traffic violations in a Bronx, NY court, 28 people opted for a night in jail rather than handing over cash for a fine. And, the makers of Pebeco Toothpaste said in an ad, “To back our faith in the current emergency program, we stand ready to keep millions of American families supplied with toothpaste…Get three tubes. Take three months to pay.”

    Only the IRS said it would still accept checks.

    Our Bottom Line: Financial Intermediaries

    Like the U.S. in 1933, during their bank “holiday” people in Greece will have cash problems that relate to everyday food and clothing purchases, public transportation, church collection plates, court fines and tax collection. Add to that list all business to business transactions and we still would only have begun to display the crucial role of banks as financial intermediaries.

    Think though of the journey of a paycheck. From a business to a bank to you. Then, to a retailer to a dividend check to a bank deposit to a loan to a business. We could just say that the banking system acts like the human heart, pumping life to our economy.

    In Greece, except for tourists, that heartbeat has stopped.

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  • Everyday Economics: and garbage recycling regulation

    Why Recycling is More Expensive

    Jun 28 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Environment, fiscal policy, Government, International Trade and Finance, Labor, Lifestyle, Regulation, Thinking Economically • 152 Views

    In 2013, 75,000 Washington D.C. sites got new trash receptacles. Hoping to increase recycling volume, the new bins held 32, 48 and 64 gallons. The 96-gallon size is called the supercan.

    Social norm to recycle with more in the supercans

    From Washington Post

    The supercan did not work out as they expected.

    Where are we going? To the cost of recycling.

    Recycling Expenses

    In 2011, Washington D.C. received $389,000 for its recyclables. Now it is paying $1.2 million to have them removed.  Waste Management (a large recycler) tells us that 2000 municipalities are in the same predicament.

    One problem is sorting. Hoping to encourage recycling, municipalities like Washington D.C. have minimized sorting rules. The downside is what winds up in the supercans. Everything gets tossed in–the Amazon box is okay but not necessarily all of the inside foam and plastic waste. And beyond that, our clothes hangers, shoes and garden hoses now fit too. One D.C. official said residue was up by a ton because of the supercan.

    And that residue has to be removed before recycled materials are sold. So, from the curb, the contents of those blue bins are trucked to a Material Recovery Facility (an MRF) where the contents are sorted. Using a clever sounding spinning device with magnets and conveyor belts, the machines at the MRF send the light stuff like cardboard upwards and the heavier glass and plastic and metal in the opposite direction.

    But because the cans are thinner, the plastic lighter and we read fewer newspapers, the sorters make more mistakes. And they also have a glass problem. Easily shattered, one third of all glass winds up in a landfill.

    Then, compounding our recycling woes, China is demanding less. To make it even worse, she has become pickier. Seeing some plastic bottles in a paper bale, the Chinese inspectors typically say no. That bale then has to return to an MRF to re-recycle it. The result is less recycling from our waste stream.

    Our Bottom Line: Social Norm

    Thirty years ago when a garbage-filled ship called the Mobro left Islip, New York in search of a landfill that would buy her load of refuse, she traveled for 6,000 miles down the east coast to the Caribbean. After rejections from several states and countries, the Mobro returned to Islip with a full load and became a symbol of the need to recycle.

    Since then recycling has become what behavioral economists call a social norm. But the norm is broad and therein lies the problem. It does not differentiate between good and bad recycling behavior. Most of us believe recycling is desirable. For its opportunity cost to be minimized, that norm needs to become more specific.

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  • rainbow hacker honest positive

    Honest Hackers

    Jun 27 • Perspectives • 123 Views

    By Astha Puri

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