The Fate of the U.S Trade Embargo on Cuba

November 7, 2016 by katherine Leave a Comment

Since 1960, our trade relationship with Cuba has been severely limited. The effort to isolate Cuba by preventing trade and travel has backfired and has not lead to the implementation of Democracy or improved human rights violations. The Cold War mentality that Cuba must be forced to change its communist ways has been unsuccessful. Therefore, if the embargo is not helping anyone, the U.S. should fully lift this trade blockade on a country that has more than paid the price.

In 2013, Cuba urged the U.S. to end the embargo during a U.N. General Assembly. According to Cuban Foreign Minister Bruno Rodriguez, the economic damages due to the embargo amounts to $1.126 trillion. This includes decreases in tourism, costs of exports into the U.S., and loss of exports from the U.S. Instead of punishing the corrupt regime which existed during the 1960’s, the people of Cuba as a whole suffered.

Since President Obama’s election in 2009, he has actively discussed the goal to have better relations with Cuba. In 2009, the Council on Foreign Relations reports that the Obama Administration reversed limitations on travel and telecommunications. However, it has taken the administration not one but two terms to finally make moves towards lifting the embargo entirely, mostly due to conflicts within Congress.

In October 2016, the strict limits on Cuban cigars and rum were lifted. The previous $100 limit on alcohol and tobacco no longer stands, along with open collaboration to research and sell pharmaceutical products in the U.S. These are all great steps forward, but the U.S (aka congress) still remains hesitant to lift the embargo.

Another dramatic change this October was the U.S. abstaining from the U.N. vote to lift the Cuba embargo. After 50 years of strict sanctions, the U.S is slowly moving towards full engagement with Cuba. Hopefully, this could go into full effect by the end of 2016.

Although the embargo negatively affected Cuba the most, there is evidence of positive trade impacts we have missed out on if the reversing of the embargo occurs. According to a study by the George Washington University, “Economic and Strategic Impacts of U.S Sanctions in Cuba,” the estimated trade impacts in agricultural exports could be anywhere from $400 million to $1 billion annually. In medical exports, $20 million to $600 million annually. If all restrictions are lifted, we could earn $1.6 billion in aggregate exports and create up to 20,000 jobs. The U.S is number one in agriculture production, and yet we are no longer the main supplier of meat, dairy, and grains to Cuba. This means that not only have we isolated Cuba, we have isolated ourselves due to the embargo.

Overall, allowing more Cuban imports and open trade with Cuba could bring many benefits to our economy. We must proceed with caution, for the concerns regarding human right violation in Cuba is valid. However, we might as well not be the country that worsens their economic situation and fight to help them. If we feel the need to overly involve ourselves in every other country (the countries that don’t even want our help,) what is stopping us from moving forward with Cuba?

The Student Debt Crisis: How Your Degree is Causing Economic Unease

November 7, 2016 by katherine Leave a Comment

The Problem

Pursuing a degree in higher education is often romanticized. Education is revered as the investment of a lifetime, and a staple of the American dream. However, the price tag associated with this dream has either left millions in anxiety-inducing debt or deterred people from pursuing a degree at all.

In 2016, The White House released a study that evaluated the benefits and challenges of student debt. According to the study, “the average full-time worker over age 25 with a bachelor’s degree earns nearly $1 million more than those with a high school diploma.” Therefore, those with more debt due to pursuing a master’s degree, M.D., or J.D. will have greater ability to pay off their debt over time. This should make us feel better; it is statistically proven we will not be in debt forever. Despite this, it might as well be forever as paying off student loans can take decades. Additionally, the benefits of a degree still do not justify the rise in student debt, as there are many issues within the Federal system of student loans.

According to the “Student Loan Servicing” report by the Consumer Financial Protection Bureau (CFPB), student loan debt is up to $1.2 trillion (a decade ago it was $300 billion,) spread among 40 million borrowers, with an average debt of $30,000 per borrower. The annual report “Trends in Student Aid” by the College Board, revealed a 48% increase in loan borrowing from 2000-01 and 2005-06 (in inflation-adjusted dollars.) This increased to 65% by 2010-11. Although loan borrowing decreased by 23% from 2011-12 to 2015-16 student debt has only continued to increase.

Looking at those who received their degree from a public four-year, the average debt level went from $11,300 in 1999-00 to $15,900 in 2014-15, a 40% increase overall. For a private four-year, the average debt went from 15,000 in 1999-00 to 19,900 in 2015-16, a 32% increase overall. Those who did not complete college had even higher debt averages.

To some, it is too soon to call the student loan debt issue a crisis. The White House study acknowledges there are changes to be made, but public concern should be low. Additionally, economists such as Joel Elvery from the Federal Reserve Bank of Cleveland agree with this. According to the CFPB, the average monthly payment for those in the 20 to 30-year-old range is $351. Despite statistics like this, Elvery believes that post-grad earnings and repayment options offset these charges.

So how did we get here? Why has this happened? I will do my best to answer these pressing questions. However, the most important question is why should you care? If everyone eventually pays back his or her student loans, how does this affect the economy?

The Economy

If you take a step back and look at the big picture student loan debt affects everything in one way or another. Consumer spending and the housing market are the main concerns. Barbara O’Neill, a specialist in financial resource management for Rutgers University, believes student loan debt has slowed down the economy. As student loan payments become a priority, major life decisions (aka the ones that cost you the most) such as purchasing a car, and buying a home are put off for longer spans of time. Living to witness the entire U.S. financial system collapse does not help one’s views on financial well-being. If people doubt their financial ability, it is only logical that frugality will be the result.

The Census Bureau revealed that the housing market has dramatically shifted from owner-occupied to renter-occupied, which is mostly thanks to millennial’s (the most recent college graduates.)

When looking at homeownership trends, the Federal Reserve found that fewer 30-year-olds have bought homes since the recession. Millennial’s join the work-force, wages rise, but purchases of single-family homes were down 6.0% in May according to the Commerce Department. Although this rose in September by 3.2%, the combination of high housing demand and low supply (you can only build so many homes) has increased housing prices.

One of the largest investments Americans will make in their lifetime is the mortgage. Mortgages are an important part of our GDP, and if purchasing of mortgages continues to decrease, there are consequences. For example, those who are currently trying to sell their homes are forced to sell below value, or worse off, not sell at all. We can’t blame millennial’s and their student debt entirely for issues in the housing market. Nonetheless, there is no denying that millennials are the future of our economy, and their halt in spending will have long-term negative effects.

Another concern is the fact that not everyone pays back student loans. In 2015, The Federal Reserve Bank of New York performed an analysis on repayment. They found that only 37% of borrowers were actively making payments, and 17% were delinquent. From the pool of borrowers that were struggling, 70% were from lower income zip codes. However, 35% of people from higher income zip codes also struggled with repayment. Higher delinquency rates are associated with not finishing school, but default rates still exist for those who did complete school. The highest percent of people who default (35%) have loans for $5,000 or less. This just goes to show that everyone is struggling with student loan debt in some shape, way, or form. It’s not fair to blame the borrowers entirely when all they wanted was the opportunity to get an education. Allowing more access to student loans was a good idea overall, but it is time we face the reality that the government may have been too generous.

The Screwed Up System

The main problem with student loan debt is that as tuition prices rise, a number of loans distributed must rise too. It is a continuous, vicious cycle. Private universities who have strong financial aid programs claim the right to have high tuition prices to make up for the deficit of those covered by aid. The problem is no better in public universities. Back in the 1970’s, public four-year institutions were the cheapest alternative. Although they are still cheaper than private universities, it is unknown how long it can stay this way. According to the College Board’s “Trends in College Pricing” from 1986-87 to 1996-97 there was a 3.9% average annual increase in tuition; from 1996-97 to 2006-07 there was a 4.2% increase, and by 2016-17 a 3.5% increase. As you can see, this is a pretty steady increase per year. Today, tuition plus room and board at a public four-year costs around $20,000, when it was closer to $10,000 in 1996.

One of the reasons for this is the decrease in state funding. According to the Center on Budget and Policy Priorities, the average state is spending 18% less per student post-recession. The worst part is that these tuition spikes only make up for the deficit due to less state funding. The opportunities for students are not as plentiful as they could be when faculty must be fired to make a tight budget work.

A more obvious reason for tuition increase is economics 101: supply and demand. As more people enroll in college, the demand goes up. Despite there being plenty of colleges for every American, the supply or availability of spots at high ranking universities decreases. Colleges love to see how much they can charge before demand goes down. So far, we have all given into this experiment and paid the price. Additionally, the promise of a wonderful education from an affordable state school creates even more demand, but at some point, there must be cut-offs.

Finally, the main concern is the system itself. According to U.S. Department of Education, undergraduate students are allowed to defer loans if they have half-time enrollment in school, graduate school, face economic hardship, or a period of unemployment. Deferment is available for up to three years in most cases. Although this is a way to help students, some students use it as a way to put off loan payment for long periods of time. The current interest rate for direct loans is 3.76%. However, if the average borrower has $30,000 in undergraduate loans, $40,000+ in graduate loans, and interest, this can lead to repayment issues. Perhaps not default in every case, but it only takes a few late payments to hurt your credit score. If your credit score drops, eligibility for other loans such as for cars and mortgages are negatively affected.

Thankfully, there are precautionary measures that exist. The Obama Student Loan Forgiveness program provides many solutions for loan repayment. This includes income-based payments and interest rate reductions. Better yet, loans can be forgiven after 20 years if enrolled in the corresponding payment plan Pay As You Earn. Even with options of Pay As You Earn, the people in lower income regions are the ones who are still struggling with repayment. All these preventative measures will likely help, but it will take years to see the results. If tuition continues to rise at a steady rate, the need for student loans will increase ten-fold, and only so many steps can be taken to aid students in repayment.

There is no perfect solution, but ideally, putting tighter restrictions on loan availability and deferment could lower student loan debt. In addition, many borrowers are not fully aware of the binding loan contracts they are signing. If our high schools prioritized loan counseling as a part of college advisement, students may feel less inclined to borrow or make the effort to attend a more affordable university. Student loan debt is something that will most likely haunt us for decades to come, but hopefully, a decrease in student loan debt over time will jumpstart the economy. The economy may be doing well now, but the reality is the student loan debt crisis is a bubble waiting to burst. If we can decrease student loan debt, then the spending habits of young adults will also change and therefore increase long-term economic stability.

The Gang Behind Your Guac: How the Bloody Avocado Trade Impacts Prices in America

November 7, 2016 by joyce Leave a Comment

Paying a little extra for avocados is an affordable luxury for most Americans. Many are willing to pay an extra dollar to incorporate avocados in their favorite tacos, soups, salads, wraps, and burrito bowls. Following the avocado’s newfound status as a staple food, increased consumption and difficulty harvesting in the United States has led avocado trade to become a lucrative crop for Mexico. Most Americans currently enjoy the nutty fruit blind to how the avocado’s gang-stricken trade impacts could continue to raise prices.

Image Source: https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/

In the United States, avocados are obtained from three main sources: Mexico, California, and Florida (The Plate). High worker wages, lack of rainfall, and an avocado-tree pathogen have greatly impacted production and profitability of avocado trees in the United States. Thus, the United States has increasingly relied on Mexico to satisfy its avocado needs, importing over 40 percent of its avocados from its neighbor (The Plate).

Avocado imports from Mexico began in 1997, after Congress lifted an eighty year ban on trading the fruit (NPR). The ban was lifted shortly after the introduction of the North American Free Trade Agreement (NAFTA), which ended most tariffs between Canada, Mexico, and the United States. American avocado producers were initially fearful of the risk of oversupply and exposure to pathogens that the influx of Mexican avocados could supply. Since 1997, a large number of American avocado producers have turned to facilitating avocado trade between the United States and Mexico as a profitable source of income. In 2014 alone, Avocados from Mexico, a not-for-profit marketing association, reported that the United States imported over 1,763,593,888 pounds of avocados (Avocados from Mexico).

Today, Mexico is the leading global producer of avocados, producing three times the number of avocados as California and Florida combined. State Michoacan is Mexico’s avocado hub, accounting for 92 percent of the country’s production of the crop. More than 80 percent of Michoan avocados are exported to the United States (Daily Kos). With Mexican grown avocados generating $1 trillion in revenue for the country in 2014 alone, It’s no wonder that in Mexico, avocados have been dubbed the “green gold” (Vanguardia). Avocados produce more profit in Mexico than any other crop, including marijuana, making it a target for Mexican gangs who view it as a source of political and financial influence over areas like Michoacan.

The Caballeros Templarios (Knights Templar) are an example of a Mexican gang targeting the avocado industry. The Knights Templar are primarily known as a drug cartel trafficking cocaine and meth throughout the country. The knights view themselves as protectors of the Michoacan area, using a Robin Hood complex to take money from the rich to help sustain the poor. Now, the gang controls a significant portion of the Mexican avocado industry, from production to distribution (Daily Kos).

Image Source: http://mexiconewsdaily.com/news/a-thriving-industry-is-still-wary-of-cartels/

According to one Avocado trader, who changed his name to Jesus to maintain privacy from gang members, the cartel is already taking over land and avocado plants. The gang affects farmers, packers, and shopkeepers, taking a huge portion of profits under taxes and fees that they forcibly inflict. Workers are required to report the number of pounds produced per acre of land. The gang receives most of its revenue through administering taxes ranging from ten cents per pound produced to $100 per hectacre of land (Daily Kos). Lying or failing to abide by the gang’s policies often results in violent punishments, including rape, death, and destruction of homes of farmers or their loved ones. Three weeks ago, one notary in Uruapán who refused to sign the deeds to his plantations over to the cartel was severely punished: his son was kidnapped and killed a few days later.

The result of increased crime has led to instability and fears for those in the avocado industry. It has impacted the numbers of those involved in the industry, thereby decreasing supply and raising prices. Though American avocado traders have not revealed the specific financial impact the gangs have had on the prices of avocados, Jesus says that the gang inevitably racks up prices for those in the avocado business trying to stay afloat amidst their high taxes. Ultimately, these price increases make their way all the way up past the Mexican-American border and into grocery shelves across America.

Prices of avocados in the United States have been on the rise for years, but began taking a sharper turn starting in 2013. In 2014, the average price of a Hass avocado was $1.29. In 2015, it went up to $1.38 (Hass Avocado Board). However, avocado demand has remained high as ever. Avocados are continue to fly off the shelf, even if rising prices leaves Americans saying, “holy guacamole!”

Sources:

http://www.vanguardia.com.mx/lostemplariostomancontroldelnegociodelaguacate-1888691.html

http://www.12news.com/news/nation-now/holy-guacamole-avocado-shortage-causing-prices-to-soar/346400878

http://www.producenews.com/the-produce-news-today-s-headlines/19948-avocado-picking-resumes-volume-to-ramp-up-quickly

http://www.theatlantic.com/health/archive/2015/01/the-selling-of-the-avocado/385047/

https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/

http://theplate.nationalgeographic.com/2015/05/05/thanks-to-america-weve-reached-peak-avocado/

https://thinkprogress.org/chipotle-warns-it-might-stop-serving-guacamole-if-climate-change-gets-worse-d797f64a932c#.9pird9xu1

http://www.dailykos.com/story/2016/7/12/1546610/-Avocados-and-the-Mexican-Drug-Cartels

http://www.hassavocadoboard.com/retail/volume-and-price-data

http://www.npr.org/sections/thesalt/2015/02/13/385754265/how-nafta-changed-american-and-mexican-food-forever

http://avocadosfrommexico.com/about-afm/

MMM

Money Marks & Media - Spring 2014