Economics of Refugees – The Numbers That May Benefit America?

President Trump was elected into office a little over 10 months ago. At which time, his political platform differed vastly from the rest of the conservative candidates, for he was the only one to call for a radical, even extreme, stance against immigration and refugees. The reason for this, in his words, was to “bring jobs back to America”, a phrase that hints at the competition immigrant and refugee workers bring with them. However, a recent New York Times article respectfully disagrees, at least partially to the entire idea of that incoming workers may hurt the country’s economy.

The truth is, studies have shown that refugees do have a positive side to their hosting country. The article notes that, while the Trump Administration rejects this finding, the refugees will be “paying more in taxes than they consume in public benefits, and filling jobs in service industries that others will not.” In other words, the refugees may not create such a burden as widely imagined by the Americans upon the American economy, and will likely not cause tension within the already competitive industries.

Still, the rejection of this finding does not come as surprising, as anti-immigration is a core pillar supporting the Trump political platform. It is not uncommon for politicians to “selectively accept” findings that are convenient to them and deny the rest. The climate change debate that has been going on within the American politics for years, which has long become a laughingstock of the United States in other countries, only showcases this further.

Disregarding the debate of terrorism associated with refugees and looking at the matter purely from an economic perspective, the economic gain of cheap labor combined with a solidifying of the working force demographics could only benefit the United States. The States, like Canada, are both immigration countries whose very foundations were made up by immigrants from the 17th and 18th centuries. Unlike China and India, the United States never had a substantial domestic population to support its economy, and to turn away from immigration is to undoubtedly a move away from the foundation of this fine nation.

Perhaps, if President Trump truly intended to “Make America Great Again”, he should reconsider the basis of some of his policies.

Naw, this Evan kid is just fake news. Don’t listen to him. We’re good. We’re great. America’s great. America’s gonna be great.

 

Equifax Doesn’t Ring a Bell? Well it Should Because It Probably Affects You

Equifax Inc., one of three major U.S. credit reporting agencies, or in other words, a company who has access to your most personal information from social security number, driver’s license, to credit cards.

The company receives all of this personal data most likely from your bank provider, and their “data breach it discovered on July 29” (Wired), is one of the most high-profile security breaches in its’ history. In fact, Equifax stated that 143 million customers—almost half of America—were affected by this breach, and from that number, 209,000 of the U.S. consumers had their credit card numbers exposed.

So why does all this matter? Equifax has most likely put your personal information at risk of being available online. And this data “packaged together sells for upwards of $30 per identity on online black markets, according to Mark Nunnikhoven, head of cloud research for cybersecurity firm Trend Micro.” He adds, “it’s enough to allow cyberthieves to take over you online” (qtd. in CNN).

If this isn’t still clear to you, it means you probably won’t pass a credit check, thus, making it impossible for you to take out any loans. And on top of that, for example, “[if] someone gets a driver’s license in your name and runs a red light or gets a speeding ticket, you’re on the hook,” according to CNN. CNN adds, that “[recovering] from identity theft isn’t easy,” to say the least, and “you could have to provide months or years of information to clear your name.”

The potential for economic disaster is detrimental. So if you’re poor, you’re basically screwed. The worst part is, since “Equifax still hasn’t given reliable information on who exactly was affected,” according to Quartz, that means everyone has to play victim and take responsibility on minimizing potential damages—damages, again, ranging from “thieves using stolen identities to file taxes, obtain drivers’ licenses, run up medical bills or commit crimes” (Quartz)—this not only takes up time, but money.

In a 2016 survey by the Identity theft Resource Center, out of 300 participants who were victims of identity theft, “52% earned household incomes below $50,000 per year, and 33% earned less than $25,000,” as well as an average of “$1,343 in stolen assets” for the average victim for identity theft costs—and on top of that, “31% lost their home” (Quartz).

Now imagine if half the United States was affected, which is what Equifax put us in risk of. Sounds like another depression just waiting to happen. Basically, this Equifax breach can affect you in the most difficult of ways messing up your life in so many countless ways.

On top of its affect on us, who matters, Equifax’s “shares [dropped] more than 8 percent in after-hours trading,” according to Bloomberg. And following the massive security breach, Equifax executives sold “nearly $2 million in shares of credit bureau Equifax Inc,” actions compared to “insider trading,” said Reuters. These stock sales are currently being investigates by the U.S. Department of Justice, the Securities and Exchange Commission, as well as the Federal Trade Commission.

On September 15th of 2017, the Equifax released a statement on their site, announcing the retirement of their CIO and CSO, as well as offering “free credit monitoring and identity theft protection to all U.S. consumers.” If you haven’t already, it’s time to start taking some precautions.

Social Tech: Intangible Product and Unimaginable Scale

One of the most amazing concepts about social media is that as a business, it operates at an unimaginable scale with what is essentially an intangible product. By “intangible product” I mean that a company like Snapchat, Twitter, Instagram or Facebook doesn’t actually have a product that uses traditional distribution methods since it’s online, and you can’t physically touch what arises from it (contrary to Amazon).

Thus, the use of servers end up becoming the company’s main cost if the product successfully scales to thousands, or in the best case, millions. 

One of the best examples of the one-of-a-kind scaling nature of social media is the rise of Instagram. It launched in October 2010, and within three months, had 1 million users. In February 2011, the company received $7 million in Series A funding from Benchmark Capital. About a year later in April 2012, Instagram was valued at $500 million after securing an even bigger round of funding, $50 million, from Sequoia Capital.

All Instagram allowed you to do was share photographs with your friends and other people you know. It doesn’t sound like anything revolutionary, but when it exists within a instantaneous medium, it ultimately changes how people communicate. So at first, even if the idea doesn’t seem world altering, its value is actually greater than one would expect. Similar to how the telephone and telegram revolutionized mass communication, new age companies like Instagram, Twitter and Facebook have certainly restyled the way in which people interact.

The real issue for these businesses is making legitimate revenue. Since their product isn’t actually built to sell, the main way they make money is through striking advertising deals. So in the early stages when these companies don’t have ads running, investors bet massive sums of money based on user growth. The logic is, once ads sell to a huge user base, the company will then be worth all those dollar bills.

According to TechCrunch, Snap Inc. was projected to amass near $1 billion in revenue in 2017, but through Q1, it notched only $149.6 million, and at the Q2 close, it hit $181.6 million. These numbers have steadily increased over the years, as you can see from the graph below of the 2015 quarterly revenues. From $4 million of revenue in Q1 to $33 million in Q4, the growth of revenue was obvious in 2015 because the user growth was still flying high.

Since user growth has slowed in 2017 for Snap, the revenues haven’t been going up at such quick of a rate. With this trend happening, it appears Snap is trying its best to convince advertisers to use the app, releasing an Ad Manager platform in June that helps to optimize ads for appearance on the app.

Fifty years ago, most of what I’m talking about in relation to technology didn’t exist. And people would’ve thought building a billion dollar company, while making little to no revenue, was impossible. But now, the ever increasing use of mobile technology has opened up a market for intangible products, whether or not the actual money being earned measures up to the product’s hype.

What the Market Telling Us about the Korean Peninsula Conflict

A rogue state testing hydrogen bomb sent a missile over the territory of a neighboring country. The American president promised “fire and fury” if threats continue. Sounds a lot like the plot of a Hollywood thriller, right? Tthe Market, however, doesn’t seem to think the world is heading for to conflict and chaos. International investors are relaxed about the potential crisis on the Korean peninsula, and the market stays undisturbed. According to the recent data collected by the Economist, economic indicators including the yield on Treasury bonds and the MSCI World equity index fell, while the Gold price rose in the recent month. However, these movements are not big. In fact, the South Korean stock market, which should be most sensitive to the risk war, is doing better in comparison to the start of the year.

Let us consider the terrible possibility of a conflict on the Korean Peninsula. In addition to the tragic humanitarian loss, the global economy will also suffer. Capital Economics points out that South Korea produces 40% of the world’s liquid-crystal displays and 17% of its semiconductors. If Japan was the target of missile strikes from North Korea, as it might be, the disruption would be even greater for that Japan is the world’s third largest economy.

So how can we justify the market’s insensitivity to this delicate political situation? Some propose that the market is simply not very good at assessing political risk. A recent example would be when the European market failed to foresee the result of Brexit. The vast majority of polls and markets had “remain” with a solid lead. It was only when the polls shifted towards “leave” in early June 2016 did the market moved in the same direction. Still, never once did “leave” come close to taking the lead.

Another explanation is that investors have learned in recent decades that geopolitical events tend to have only very short-term impacts on the markets. In comparison to political risks (e.g. the result of a presidential election), economic growth and corporate profits are far more important factors to consider for the investors. The reality is, no one can run enough analysis to properly assess and predict the situation with North Korea based on polls or past data.  Nevertheless, the market has made a decision that for now, they do not believe a serious incident will happen on the Korean peninsula. So let us all hope that the “wisdom of crowds” wins this time.

 

Big companies have Brazil addicted to junk food and its a problem

A recent investigative report by the New York Times highlighted Brazil’s addiction to junk food and the problem it has created. Companies like Nestlé and Coca-Cola among others have seen decreased profits in wealthy countries have since moved to poorer countries spread out in Latin America, Asia, and Africa. More so, these companies have brought their products directly to consumers by hiring local workers to take and deliver orders by foot. In doing so Brazil is now facing an obesity problem and much larger problems in productivity and job security as a result.

Employees of companies such as Nestlé travel across the country taking and delivering over 800 products. Customers have until the end of the month to pay for their purchase and often find themselves overindulging as a result. While the company does highlight its many healthy products the Times article did note that many end up resorting to foods high in fats and processed ingredients while offering little to no health value despite being advertised otherwise.

The report highlighted the drastic change In the health of the Brazilian people. In 1980, 7% of Brazil was considered obese. That number has since doubled to over 18%. This is directly attributed to the availability of packaged foods. From 2011 to 2016, packaged food sales grew by 25 percent worldwide compared to only 10 in the U.S. Even scarier is the sales of soft drinks which in Latin America have doubled and have since overtaken the North American region in sales.

The problem is much larger than just obesity. Companies such as Nestlé have provided thousands of men and women with jobs that pay very well. What the Brazilian government could not do, Nestlé has. The Times article chronicled a woman who with this job was able to purchase a refrigerator, television, and stove with her earnings and has since elected to save money for a new home.

With so many people becoming obese and being diagnosed with concurrent ailments such as diabetes it doesn’t help that the Brazilian healthcare system is ‘broken.’

In a report by Al Jazeera just before the onset of the Rio Olympics it was reported that federal government experienced a budget shortfall. Hospitals in the area were literally turning people away because they could not service any more patients. Some hospitals lacked basic medical supplies such as saline. Public funds were also misappropriated with $12 million USD going to a social organization contracted to support local hospitals.

Not only are hospitals suffering, but so are farmers. Fields once strewn with vegetables and fruit that comprise a healthy diet have since been replaced by soybeans, corn, and sugar. These ingredients make up the bulk of ingredients that make up processed foods.

The website WITS tracks trade statistics for countries. In 2010, soy beans were the third most exported good by Brazil. Raw cane sugar followed suit in fourth place. Both exports had a U.S. value of $11 and $9 million respectively.

Flash forward to 2015 and soy beans in particular have overtaken the top spot as the most exported product in Brazil. In five years time what was once an $11 million dollar industry has since ballooned to nearly $21 million. Cane sugar stayed in the same spot with a loss of around $3 million.

The country of Brazil is in a very tough spot. While such large corporations have certainly hurt the health of its people as well as the productivity of the country, thousands are benefiting in ways they could not previously. It will be interesting to see where Brazil goes from here.

Sources:

http://wits.worldbank.org/CountryProfile/en/Country/BRA/Year/2010/Summarytext

http://wits.worldbank.org/CountrySnapshot/en/BRA/textview

http://www.aljazeera.com/indepth/features/2016/02/brazil-broken-healthcare-system-160204075525812.html

How Big Business Got Brazil Hooked on Junk Food – The New York …

 

 

 

 

 

The U.S. household income increased, but there is still much to do.

The data released by the Census Bureau in the income, poverty, and health insurance report on September 12 seem to portray a healthier U.S. economy.

In fact, the annual report shows that the median household income rose by 3.2% from $57,200 in 2015 to $59,039 in 2016, and that the percentage of people living in poverty decreased in 2016 by 0.8% from the rate registered in 2015. Additionally, the data reveal a drop in the percentage of people without health insurance coverage: the value registered in 2016 was 8.8%, 0.3% less than the value registered in 2015 (Reuters).

Overall the quality of life in the United States seems to be improving and this means that the growth that the country has seen since the recession in things like the stock market, is at least to a certain extent also starting to show in households (Marketplace). Yet, skepticism lingers over the data shown in the report.

Considering other measures could help to better understand why the U.S. still has much to do to repair its economy.

The report by the Census Bureau reveals that the income inequality rate is not decreasing: there are still huge divisions in incomes because of people’s gender, race and age. Moreover, inequality between Americans is growing (The New York Times).

In addition to income inequality, there is another measure that we should take into account: supplementary poverty. As pointed out by Forbes, unlike the poverty rate, supplementary poverty considers many of the government programs designed to assist low income families and individuals that are not included in the official poverty measure. Therefore, it shows that there are many families above the official poverty level that are actually receiving government aids.

This is one of the aspects that shows there are still many open questions about how economists should measure the poverty level and what values to take into account. Despite a rise in median household income, there are a lot of people who still feel «economic frustration», because there are different factors that influence people’s wages and economic opportunities, like for example the place where they live (Marketplace).

Beside these measures, also the number of health insurance coverages raises skepticism among the experts.

Even though the percentage of householders having insurance coverage increased, a breakdown of these data could reveal a different story.

If we look at people with income at or below the poverty level, we can see that 16.3% of them lack insurance coverage: «these are people who can least afford to take on medical debt» (Forbes). This percentage is quite remarkable when compared with the 4.6% of householders above the poverty level living without insurance coverage.

Despite these issues, it seems that the U.S. economy is improving overall. This element matters a lot, since President Donald Trump has announced that he wants to reform the current tax system and cut government spending. Democrats, considering the economic improvements shown in the Census Bureau’s report, «now have more ammunition to argue that the changes Mr. Trump seeks would mess with the success » (The New York Times).

The Federal Reserve is also paying close attention to the data released by the Census Bureau and to the current status of the U.S. economy. In fact, Janet L. Yellen, the Federal Reserve chairwoman, is expected to end the Fed’s lenient monetary policy in a meeting scheduled this week; the changes that will be following could affect the current improving U.S. economy.

Yet, whatever effect the new monetary policy will have on the economy, the increase in household income and the drop in the poverty rate is a reflection of the higher number of people back in the work force and of the 2.2 million of jobs added over the past year. The growth in the number of working people is «a vivid illustration of the old maxim that a job is the best antipoverty program » (The New York Times).

 

 

Why are states required to have balanced budgets?

With over $20 trillion in amassed debt, the United States federal government is no stranger to running budget deficits. It’s essentially common and expected practice now. For college students my age, the knowledge that there used to be a balanced budget in the US comes as a surprise that almost doesn’t seem real.

But for most state and local governments across the country, balanced budgets aren’t just the norm, but the rule. According to the National Conference of State Legislatures, 43 states require their governor to propose a balanced budget, 39 require the legislature to pass one, and 37 require the budget to continue to be balanced at the end of the fiscal year. In California, the constitution requires the governor to propose a balanced budget and prohibits the passage of a budget in which General Fund expenditures from exceeding General Fund revenues. In cases like California’s, it’s hard for states to even attempt to carry a deficit because their constitutions prevent them from selling bonds to pay for it.

California’s constitution was ratified in 1879. That’s 138 years (ideally) of balanced budgets. So why can’t the federal government do the same?

Spending only as much money as you get is definitely sound fiscal policy to ensure the solvency of the state government, but it does limit what legislatures can do in times of crisis. States and local governments are reliant on taxes on sales, income, and property — revenues that fall in economic recession when people lose their jobs, lose their property, and/or don’t buy as much. At the same time, reliance on safety net welfare programs increases, putting the state in a budget crunch.

Just as in the federal government, a great deal of state spending essentially runs on autopilot and is difficult to control. States take in — and then spend — a lot of money from federal grants or reimbursements, and the way that money is spent is typically determined by the federal government. Other revenues are specifically earmarked by law, such as money from lottery sales or gas taxes. And in other cases, like Proposition 98 in California, the state is required to spend a certain amount of money on specific departments. (Proposition 98 requires California to spend increasing amounts on education based on economic and enrollment growth).

A lack of flexibility can lead to desperate actions when the economy falters. Governments freeze hiring, stop maintaining buildings, cut back services, furlough employees, or renegotiate pension agreements. In 2009, Arizona was so desperate to balance its budget that it sold public buildings as a way to get money fast — including the Capitol, the state fairgrounds, and some prisons. These cuts can have further impacts on what we typically perceive as economic recovery, since state and local government spending makes up about 12 percent of GDP.

Whether this is good or bad depends in many ways on ideology. If state and local governments were allowed to follow the Keynesian model and spend their way out of an economic downturn, that would allow for even more powerful economic recovery efforts. But followers of Friedrich Hayek’s thinking would say that cutting state budgets in times of crisis keeps us rooted in the reality of the services our government gives us — and what they’re worth.

How is the Economy Weathering the Storm?     

It is not surprising that the devastation in the wake of Hurricane Irma and Hurricane Harvey is significant. Not only did the consecutive hurricanes demolish everything in their paths, they could also have a significant impact on the GDP as a whole. Goldman Sachs “sees GDP expanding by 2% during the period, down 0.8 percentage points from its previous forecast” after the destruction took place in Texas, Florida and Louisiana. Hurricane Irma has racked up more expenses and impacted more people than Hurricane Harvey, which hit just a month prior, and Hurricane Katrina back in 2014. Even if the hurricanes weakened before it hit land and resulted in minimal to no damage, the preparation, evacuation and complete halt to a segment of the economy is significant and that does not include the damage in the aftermath. As for direct impacts to the GDP, accrued loss to oil and energy will have an impact on the GDP growth. Not only do the hurricanes ruin working infrastructure, but it displaces the people responsible for consumption and production. Depending on how quickly everything can be reconstructed, that displacement could last a while. Another aspect of the measurement of damage is that the real accumulation of destruction cannot be determined until the water is cleared, a majority of the city is cleaned up and the economy moves forward. It just takes time to measure the breadth of the storms in the aftermath. With that being said, these are all predictions for how the economy will be ultimately impacted at this time. Like we have mentioned in class, confidence is a key factor as a leading indicator for the economy. So, if people think that the damage is a lot worse than it is, the market will reflect that with people pulling out of investments from the areas and businesses affected by the storms.

Not only are the economic environments in the states where the hurricanes hit affected, but the entire country could feel the ripple effect of those record-breaking storms. According to JLT Re, a global reinsurance brokerage and consulting firm, “the estimated U.S. insured losses, excluding any National Flood Insurance Program claims, are $20 billion to $25 billion from Harvey and $40 billion to $60 billion from Irma.” Keep in mind, it is still too early to tell the exact effects of the hurricanes and if it causes a significant impact on Americans who live outside of the areas hit. The government will be responsible for a big chunk of the cost due flood insurance, which is not included in home owner’s insurance and is the government’s responsibility. Both hurricanes have the potential to be two of the most expensive, not only from an economic perspective, but a human one, which does not look promising for the commercial property insurance market.

But, from a Keynesian perspective, there will be financial and personal suffering initially, however, in terms of the greater economy, it will not be too disastrous and probably be better for jobs and the construction business. With reconstruction and relief efforts, a lot of money will be pumped back into the economy of those respective cities which will allow the economy to somewhat bounce back. I know there does not seem to be a light at the end of the tunnel at the moment, but the economy will weather this storm and re-stabilize. It will just take time. It definitely did not ease the blow that two devastating hurricanes hit within a month of one another, there is a potential Hurricane Jose on the horizon and more, but our flexible economy will be alright, even if it is at the cost of short term anguish.

A Speculated Economic Silver Lining Brightens the Shadow of a Natural Disaster: How the U.S. Economy could benefit from Hurricane Harvey

The ruthless storm battering Houston, Texas is said to rank as one of the nation’s costliest disasters, with speculated loss of tens of billions of dollars in economic activity and property damage in an area critical to chemical, energy, and shipping industries.

 

Despite the widespread devastation and predicted losses of up to $100 billion, economists vocalized optimism that the Texas city is likely to recover quickly and may experience economic growth from rebuilding efforts.

 

Historically, the U.S. economy has rebounded following natural disasters, most easily associated with the financial resurgence following the $40 billion loss from Hurricane Katrina in 2005 and the $25 billion loss from Hurricane Ike in 2008. Dan Laufenberg, chief economist at Ameriprise Financial, stated, “the U.S. economy rebounded from Katrina, although the region hit by the storm has not, demonstrating once again how amazingly resilient our economy can be.”

 

The Houston metropolitan area, the U.S.’s fifth largest based on population, accounts for approximately 3 percent of the nation’s gross domestic product (GDP). Texas is often attributed as a center for oil production and refined products like diesel fuel, gasoline, heating oil, and other distillates.

 

In anticipation of increased demand due to the hurricane, wholesale trading prices for gasoline increased 6 cents to $1.75 per gallon on the benchmark contract set to settle next month. Ellen Zentner, chief United States economist at Morgan Stanley, suggested the lagged effects of rebuilding homes and replacing motor vehicles will outlast the anticipated neutral impact on national gross domestic product in the third quarter, providing a lift to GDP in the fourth quarter and beyond.

Californian Magic Is Real – The GDP Says So

In many aspects, California has been seen as a unique case – at times an anomaly, even – of an American state. During the Rio Olympics there were many mentions of how many medals from the American roster belonged to California, and how that number would compare to other competing countries. When it comes to GDP, one can most definitely expect the similar kind of discussion taking place, especially in the current political atmosphere where the intensely progressive and liberal California stands among an overall right-leaning U.S.A..

The above graph shows California’s annual GDP growth since 2000. As the data suggests, California’s economy has remained largely healthy throughout the way, only taking a reasonable hit upon entering the 2008 Financial Crisis. However, as Bloomberg noted, California has seen a surprisingly speedy recovery compared to the rest of the nation, which the news agency accredited to the state’s liberal cultural-political environment, even going as far as saying that California “is the chief reason America is the only developed economy to achieve record GDP growth since the financial crisis of 2008 and ensuing global recession”.

The article attributed California’s “magic” to its left-leaning policies, such as securing a strong labor force through laws favoring immigrants. At a time where the President has been very outspoken against the topic, California strives to do the exact opposite, by exercising its autonomy on a state level. From raising taxes instead of lowering to encouraging companies to globalize rather than discouraging, California is almost a “rebellious child” in the eyes of the federal government. However, this rebellion has proven successful, as California’s real GDP growth maintained an upward momentum since climbing out of the recession until 2015, where it attained 4.4% while the entire country had only seen 2.6% that year.

There is no reason to believe that California would change course from what it has been doing and what has been working under the Trump administration. In fact, the President’s orders would act as the inverse-compass for the Californian economy. Despite having seen a dip in 2016, California does not seem to concern itself with this little hiccup, and from the looks of its policies, the state is set on remaining being that “problem child” in Mr. Trump’s classroom.