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Speak Knowledgeably

The Federal Reserve and ¨What is money?¨

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Unless You Are Spock, Irrelevant Things Matter in Economic Behavior

People are not as rational as economists would like to believe, but there are ways to nudge people into doing what’s best for them.

Making Connections

Are you a vulcan? No? Then you probably can’t control your emotions as well as you think you can. Your emotions probably cloud your mind when trying to make a logical decision. Don’t worry you are not alone in this fault. Nearly all people suffer from this problem (except vulcans and economists of course). This is why there is a form of economics which accounts for these illogical decisions, behavioral economics.

Behavioral economics explains why students were upset with getting a 72 out of 100 and not upset when getting a 96 out of 137 when in fact the 96 is a worse grade. Most tests given to students are out of 100 points. So it is natural for students to automatically identify any grade in the 90’s as a good grade. However, they do not take into consideration that this professor ranked his tests out of 137 points instead of the normal 100. Behavioral economics basically states that people will not always make decisions that make sense and it accounts of these decisions in the economic market.

This irrationality of behavior and decisions also affects supply and demand. Because people make decisions based off of irrelevant facts we tend to buy more, eat more, and spend more on things we, logically, don't need to.

At the end of the article the writer brought up the concept of money. If allowing a tax cut to stimulate spending should the government provide the additional money to a person all at once or in multiple smaller installments? He claimed it was better to provide the money in small installments because if they were given it in a large amount they would use it to pay off debts or save it. This contrasts with the view of other economists who claim that people don’t buy large new items because they do not have the money or are scared of using their savings in case something happens and they need that money. However, if given a large sum of additional money they would finally buy that big ticket item because they don’t have to worry about missing that money later since it is something they would not normally have.

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Advocate/Persuade

Our U.S. military personnel risk their lives defending our country. They sacrifice so much to protect our rights and freedom. And some give the ultimate sacrifice. It would seem a sensible thing that our soldiers would get paid a fair wage in compensation for their service right? The average U.S. soldier, a corporal, with 6 years of experience makes about $28,000 a year. The average NFL football player on the other hand makes about $1.9 million a year. That doesn’t seem quite right to me.

These amounts of course largely vary based off of skill, experience, demand and many other influences. However, the large wage gap between the two careers is still clear. Since when has our entertainment become more highly valued than our protection? I love football as much as the next girl but I would rather pay to have our country protected than watch grown men fight over a ball.

I do not think that soldiers or football players should be paid millions of dollars, no one should. That is way more than any single person needs to make annually in order to survive and live well.That wealth could and should be more evenly distributed. If it was, it would put an end to poverty and inequality.

A certain degree of the variation of wages is necessary. Inequality will always exist, I’m not saying inequality is bad or unjust. It is a necessary facet of society. It provides an incentive to work harder and achieve more. However, the gap between the rich and the poor is growing wider and wider every year. The middle class is disappearing and if we keep going along this path there will be no one left to keep the economy running.

The American dream used to be to be a working class (middle class) American who makes enough money to support themselves and their family comfortably. This included the option of sending kids to college, take a vacation every year or two, and owning a house. However, because of this growing inequality and wage gap these dreams are no longer possible for many working class Americans. These standards are now only attainable for the upper class. We need to better regulate our yearly earnings and make wages more fair for everyone, not equal but fair. The sustainability of our society depends upon it, without the fair and just treatment of all workers our economy will become amazingly unbalanced and will eventually crash. Inequality must be adequately managed and controlled in order to maintain a continuous market economy.

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Deepening Understanding

When learning about the economic fallacies I understood them all except for the sunk-cost fallacy. However, now it seems relatively simple. Society has the misconception that the decisions that we make are always based off of good, sound reasoning. Sunk cost is what occurs when a person puts more money into an investment because they feel like they would be “wasting” previous money or time that was already invested. They know that the investment is bad but feel committed to continue it in order to not lose what was already put into it.

Traditional microeconomics assumes that every person acts rationally and logically all the time. Fallacies like the sunk cost fallacy were created because the average human mind does not see things rationally 100% of the time,even if we think we do. We have certain behaviors that we are predisposed to follow, such as the sunk cost fallacy way of thinking. Behavioral economics allows and even counts on that irrationality to some of our decisions, especially the ones involving money. This cuts down on the amount of error that traditional economics may offer.

A part of fighting this fallacy in our own lives is by being aware of our emotions and not allowing them to influence our actions and decisions. When we allow our emotions to control us we are blinded to the real value or cost of things. We must look at matters rationally,without emotion, and decide from there what the best course of action is. This may mean learning to let go of bad investments, no matter how much time and money we've put into them, after all those are simply sunk costs.

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Keynes vs Hayek

Keynes believes in intervention in the market by the government. He believes the government should spend money to boost our economy because it will not succeed if left to regulate itself. His concept is only well working is people do not save. However, saving is a natural part of the economy. If people feel uncertain about the future they save more which leads to less money being put into the circular flow. For Keynes theory to work the circular flow must continue with no slowing which means occasional government intervention. Deficit spending is good. The multiplier will allow that money to eventually be paid back many times over. The economy needs to be regulated by the government. This model leads to fast relief. Hayek believes in a free market. He thinks capital structure is the best decision for a stable market. Free money given out by the government leads to bad investments which lead to catastrophic events such as the housing market crash. Government stimulus makes matters worse. There is no multiplier. We must trust in the system and wait for the economy to stable itself.

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Don’t lead a long, dull, comfortable life!

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April 22nd, Earth Day. Earth Day has been become bigger and more sensationalized every year. People, passionate about the environment and its preservation, have created a global scare about the environment. This can be a good and a bad thing. They have infiltrated our everyday lives. We now have “nature friendly” biodegradable bags, and clothing. Huge companies now spend millions of dollars producing and inventing new and better eco-friendly cars. Environmentalists have created a mindset of “saving the earth” so now some people shell out the money to buy something that is better for the earth. This has created a large economic benefit to be in the eco-friendly business. 

Edward Abbey lived in solitude. He lived away from society in order to more fully understand life and nature. We may think that that was a waste of time and of life but he understood the point of life more than nearly every one of us. Not every one of is would be able to live in the middle of no where. If we did the economy would no longer exist. Without people, economics is without meaning. However, we don’t have to live in solitude in order to get an understanding of life. We just have to slow down and learn to “think like a mountain”. 

Environmentalists have forced companies to be more environmentally friendly, which can be very costly. On this earth day, don’t focus on “saving the earth” focus on learning about and from it and seeing your place in the grand scheme of things. Take a deep breath and think like a mountain. 

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Raul Castro was a truly inspiring man. He was born in Mexico into a very poor family with 12 brothers and sisters. The likelihood of him going to college, becoming a lawyer, being elected governor, and being a U.S. Ambassador was a one in a billion chance. The time was just right. But it wasn't simply luck or chance that allowed Castro to be so successful. It was also his strength and personality. Although his friends and family supported him and knew he would do great things not even they believed he could become the first governor of Arizona to be of Hispanic origin. Although he came from a disadvantaged family who migrated here when he was 10 people seemed to see something in him.

It seemed like Castro’s entire life was leading to him being the governor. The governor went to him town to give a speech when he was a child and said even he could be governor one day, he was inspired by supportive teachers, he graduated college, and he became an Ambassador. All of these events lead him to the road of being elected.

Although Castro accomplished a lot he also went through tough times as well. After graduating from college, which is an amazing feat within itself, he was discriminated against and could not find a job. Giving up all hope, he traveled from place to place as a hobo, working where ever he could find a job. Once you get into a slump like that it is really hard to come back from that and pull yourself back up.

We are told there is no more discrimination today. That in the past there was discrimination but since then we have grown and become more accepting. In many ways this is true. There are now scholarship opportunities for minority students, job opportunities for legal immigrants, and little separation of races.

However, at the same time we have also become more discriminatory as a society. These factors prevent something like the election of another Mexican-American from holding or even running for the office of governor. The U.S. used to be a melting pot of different races. People were welcomed into our country. They may not have been given the same opportunities but they were still welcomed here. In society today Mexicans are considered lazy, law breakers, cartel members, and a burden on society not because of their actions but because of their nationality. Even in Arizona were the majority of people are of Hispanic descent there is this racism. The popular perception of Mexicans makes it close to impossible for someone of Hispanic descent, let alone someone born in Mexico, to be elected as any position in power. Back then the voting population must have been more informed and willing to vote for a candidate that was not in their identifying party. Today citizens do not educate themselves on a candidate’s past or beliefs, instead they blindly follow their party. Another huge factor in breeding the same type of situation is the cost of education. Every year the cost of education goes up. This discourages many minority students from attending school in the first place. Of the ones that do attend college less than half graduate. This has to do both with money and the individual. They get discouraged and simply give up. The last matter with having someone of similar situation be elected is the impossible standards we hold candidates to. Castro was born in Mexico, came from a poor family, and was a hobo for awhile. All of those factors would prevent him from even being a candidate for office in this day and age. We say we are not racist but our actions don’t show that.

http://www.azcentral.com/story/news/local/arizona/2015/04/10/raul-castro-dead/25573955/

[brendafromecon]

TED Talk 2

How is the country doing? Well, according to the GDP graph demonstrated in the TED talk delivered by Michael Green, the United States progression is not the worst. There are some places where the country should place some focus like the social well being and the happiness of it’s citizens. People assume that the country is doing bad without any facts to back it up. We must ask ourselves, what really contributes to our society? Throughout the past GDP or gross domestic product has been “the benchmark of success in the global economy”. But we must take the future into consideration. Things change every day in our everyday lives and the economy.

How do we compare to different countries? You can assume we aren’t doing very well when compared to other countries due to having little knowledge of whats really going on. We compare each other with the best, the top of the list but what we should really be observing are the countries not doing so well because obviously we are doing better. We must compare and contrast our decisions in the economy to better ourselves and see what we are doing wrong. 

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We can't simply look at the countries doing better or worse than us. We have to look at both because both will show us what to do and what not to do. You are right. As a country we are not doing bad, but we aren't doing great either. We are on the higher part of "in the middle". The world is constantly changing and we must adapt to it. By seeing the big picture we can see where we are lacking and try to improve.

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TED reflection

As a country we are doing mediocre. In terms of GDP we are doing great. We are producing a lot. However, in terms of happiness and social progress we aren’t doing as well. We are doing okay but considering the fact our country is a world leader we should be a lot higher of the chart. We think the more we produce and the wealthier we are the more happy we are. But the TED talks proved that that is not the case. We produce so much and we destroy so much of the world but for what? There is not a direct correlation between these factors and our happiness. In fact, countries that produce more or have less money than we do are shown to be happier and have a more positive social progress. We seem to have lost track of what is important in life. We must find ways to reduce our negative impact on the environment and increase our happiness and social progress. Education is the best way to accomplish this. We must see how we rank among other countries and how we can improve ourselves. We must change our perception. The world is constantly changing and we need to too.

[brendafromecon]

I agree with your commentary on loosing track of what really matters in life. We need to focus on the social well being and happiness of this country’s citizens and use that information as a base. And true, education is a main factor in reducing our negative impact but there are other elements that can contribute to this case. Such as comparing our strength and weaknesses to those who aren’t doing so well and learn for them. This will not only educate us but it will allow us to better ourselves. And yeah over production of materialistic things harm not only the country but the world. The most happy people happen to be the most humble and/or aren’t doing so well in the economy. Things need to change to see progress and succeed.

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I agree that education is not the only factor. By comparing our success/failure to other countries we can learn a lot. If we work together we can change for the better our economy and impact.

[brendafromecon]

Not a good time to graduate.

Nobody knows what occurrences may happen tomorrow, or the next day.  But timing IS everything according to the article “ Bad News For The Class Of 2008″. Joe Moser graduated from the University of Iowa’s law school in 2008 with a degree that promises a well paying career and a perhaps stable future, money wise.  But that wasn’t his case. It wasn’t the case for any of his fellow peers. He faced many obstacles to maintain himself economically stable due to a variation of ups and down in the economy. It’s hard to tell whether there will be job opportunity’s after graduation. Joe Moser and Richard Palmerwere faced a financial crisis and The Great Recession which had a huge negative impact on the U.S. workforce. Because of the crisis they weren’t able to get their “dream jobs”, instead they got whatever they could get. Obviously, those didn’t pay well. And to top that all off, they were overwhelmed with student loans. A quick summary here: college degrees, bad timing, low paying jobs, and student loans. They were just simply unlucky. Student loans have interest which increase throughout time which adds more weight on your back.  The more time passes the more you own. You have to focus on paying the loans therefore putting to the side a house, a car, and other essentials. 

No one knows what to expect after graduation. You don’t know if you will graduate in a bad economic year. The future is near, yet so far away. By then the economy will be substantially different and hopefully we won’t face the hardships of a crisis. 

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The economy is a constantly changing and evolving system. It is hard to predict how the economy will be in 4 years. So we must use the information we do have to make informed decisions about college, our degree, and our major. The economy has many consequences when it goes down. The government has to cut down on spending, resulting in students having to pay more for higher education, forcing them to take out higher loans to pay for it. This domino effect can be a huge burden on students graduating from college. Especially those who graduated at the lowest points of the recession.

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TED reflection

As a country we are doing mediocre. In terms of GDP we are doing great. We are producing a lot. However, in terms of happiness and social progress we aren't doing as well. We are doing okay but considering the fact our country is a world leader we should be a lot higher of the chart. We think the more we produce and the wealthier we are the more happy we are. But the TED talks proved that that is not the case. We produce so much and we destroy so much of the world but for what? There is not a direct correlation between these factors and our happiness. In fact, countries that produce more or have less money than we do are shown to be happier and have a more positive social progress. We seem to have lost track of what is important in life. We must find ways to reduce our negative impact on the environment and increase our happiness and social progress. Education is the best way to accomplish this. We must see how we rank among other countries and how we can improve ourselves. We must change our perception. The world is constantly changing and we need to too.

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College Graduates

It has undeniably been harder for recent graduates to find jobs. This generation that grew up during the recession has had many difficulties finding jobs and even if they find jobs their pay is still largely affected. Because of this, graduates cannot pay off their large student debt amounts and many are forced to move back in with their parents. Because of these factors people in this generation have less money to spend so they put less into the economy. They are not buying houses and even the few who do are buying cheaper houses then their predecessors. They are busy paying off their loans and debt that the money they get from working goes instead to that. When times are good, these individuals are also more likely to save their money, planning for future bad times. It's hard to plan for college. The world is constantly changing and we must change with it.

[cayroyecono-blog]

Piktochart

The Following is our Piktograph depicting the strategies we feel contributed to our success. Our group scored low in the final ranking, but ended with a positive net worth.

Source

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Marketwatch Analysis

The stock market is a complex and constantly changing and evolving institution. It is designed so that the average person cannot beat it. If everyone could beat it the market would crash within days. Some people have to lose money in order for others to gain money. In order to make money in the stock market you have to be objective. You cannot allow your emotions to guide your decisions. Every decision should be well thought out and researched before executed. That is the problem with the average person investing. Everyday people make decisions mostly based on their emotions. And if that happens during investing, smart investors make money off of the immaturity of others.

You should not invest in order to strike it rich. If you choose to invest it should be to possibly grow your money. However, this should not be your next month's rent money. It should be extra money that you have after you pay all of your bills and have some money put away in savings.

I have learned a significant amount from playing marketwatch. I wasn't previously aware how driven by our emotions we are. When we played the first time everyone would stress out about any little dip in the market. I admit that I did too. However, as it went on we tried to be more objective. This worked to an extent but we were still really wound up when something happened. Being rational in every decision proved to be more difficult than I originally thought it would be. Even with the end of the game the class has complained about losing or winning a certain amount when in reality that is an insignificant fraction of the money we started out with.

When looking at how we did we compared our results to the average market within the last month. This is to see whether we beat the market or the market beat us. Although I made a small profit in beat the market I did not do as well as the average market. The average market went up 1.61% where as I only went up .13%. In buy and hold I did worse. I had a loss of .51% instead of a gain but in neither of my games did I gain or lose a significant amount of money. It was merely small fractions of the amount I started the game out with.