An Analysis on the Conclusions of Donahue-Levitt 2001

Abortion has always been a controversial issue. In my opinion, the reason why abortion is a never-ending dispute is that either the legalization or the banning of abortion takes away the rights of some people no matter what. In the former situation, the rights of the future generation are infringed upon. In the latter situation, women’s rights are encroached on. You can’t win. People cannot agree over which situation is the lesser of two evils. Furthermore, people cannot agree over abortion because the value of potential children and the value to the mother of forgoing children is immeasurable. However, in Freakonomics and the Donohue-Levitt study, the authors produce actual quantifiable evidence that abortion actually lowers the crime rate. Although this certainly deviates away from the typical abortion discussion, this newly found correlation sheds some light on the unintended benefits of abortion. Roughly 17-20 years after Roe v Wade, both property and violent crime rates significantly dropped. The theory behind this drop is that R v W allowed potential mothers access to abortion. Without Roe v Wade, these children would have been 50% more likely to be born into poverty, due to the mother’s own living conditions. These living conditions would most likely propagate these children to turn toward criminal behavior. However, since they were never born into these situations, these crimes never occur. Levitt and Dubner end the chapter by saying, “[a woman] generally does a good job of figuring out if she is in a position to raise a baby well.” Essentially, by legalizing abortion, less children will naturally be born into unfavorable conditions and grow up more likely to commit crime. I think the main takeaway should be that not only are potential mother’s rights protected by the legalization of abortion, but the rights of other people are also protected by abortion by significantly lowering the crime rate. Tangible evidence of the benefits of abortion certainly shakes the ground of the on-going debate, which has traditionally been an issue of ethics and moral responsibility.

In regards to the Foote-Goetz critique, I cannot speak much on their first issue with Donohue and Levitt’s regressions, which dealt with a “missing key set of regressors due to a computer coding error.” However, I thought their second point that putting the number of arrests in terms of “per capita” as opposed to “total” was a valid argument. In fact, I thinking taking it a step further would be even more accurate. Instead of defining crime per capita as “total crimes divided by total U.S. population”, I think “total crimes committed by people under 25 divided by U.S. population under age 25” would yield even more accurate results. If the data was available, I think this would be more relevant since we are really interested on testing for these “missing people,” and none of these people can be above a certain age, perhaps 25, for this particular time period. However, as time increases in between R v W and the present, we should beginning testing for all age groups since these missing people would be in all generations. On the other side, it is important to note that Donohue-Levitt test had an explanatory variable, theta, which controlled for age group, so perhaps the Foote-Goetz critique on the “arrests” dependent variable is not as much of an issue as they make it out to be.

Too Big to Fail

I think that there are two important concepts to take away from the film. First of all, it was mentioned in the beginning of the movie that Henry Paulson would have to work to replace the regulations he worked to strip away from the financial markets when he worked at Goldman-Sachs due to the credit crisis that unfolded. Bringing up the question of how to regulate the financial markets after the crisis is not a novel question that the movie develops, but one that has been talked about since the beginnings of the crisis. It seems that monitoring lending should be easy an easy solution. Just scrutinize the borrower more and have higher standards. There are certain measures to determine the credit worthiness of a borrower, such as their credit score, collateral and current income. However, it is difficult to objectively draw the line as to when someone is creditworthy or not for the loan they wish to receive. This is where government institutions will have difficulty developing strict regulations in order to prevent another credit crisis like in 2008 from happening again.

The second important takeaway from the film occurs in the last minutes of the movie. At the end, 8 or 9 banks are given TARP funds, or capital injections, to increase the liquidity of the financial market. This legislation is one of the factors that supposedly stopped the recession from becoming worse than the Great Depression. However, the epilogue of the movie suggests that banks continued to merge well after the TARP funds were distributed. I think it was said that 77% of all financial assets were owned by the top ten banks in America when the film was produced. If these banks were “too big to fail” back in 2008, it begs the question of what will happen in the next financial crisis if financial banks continue to grow in size and shrink in numbers. The TARP funds were able to restore an acceptable amount of confidence back into the markets, but the recession was still the 2nd worst in the history of the United States. If the trend of financial market is to become more and more like an oligopoly/monopoly, the next credit crunch could be uncontrollable.

Chapter 7, MicroFinancing

Banerjee and Duflo begin the chapter by describing how absurd the previously available interest rates to the poor. They provide many statistics showing this fact; the main one being that in Chennai, India, the interest rate was 4.69% per day. However, this has recently changed with the advent of the concept of microfinance. Microfinance institutions allow the poorer population to buy relatively cheap capital for a reasonable loan. This allows them to bypass the previous interest rates they were subjected to. However, it is ambiguous whether two aspects of microfinancing’s structure are beneficial. The first is the community aspect of lending. The community feeling among the borrowers greatly reduces the default rate. However, the case is still that more people borrow from outside institutions that still charge extremely high interest rates. Only 1/4 families use MFI’s while 1/2 still use other means to borrow. One reason for this is that people may not like the rigid structure that the community aspect of microfinancing forces on them. Since they all have to make the payments at the same time, this restricts the flexibility for individualized needs, and therefore the effectiveness of a loan is reduced. The effectiveness of microfinancing is only marginally useful for entrepreneurial purposes because the percentage of people beginning their own business only increased from 5% to 7% when microfinance was introduced. Despite the fact that this rigidity severely limits the effectiveness of microfinancing, the restrictions on borrowers may be a necessary evil because without these restrictions, the microfinance systems may become abused, which would cause them to fail and negate the positive effects the institution has already had on India.

Aside from actual content of the chapter, this reading helped me understand how to present the evidence clearly and show what exactly the evidence means to the real world. I believe that this is the primary problem with my paper at the moment. The authors did a great job with telling the story in conjunction with the data. While writing a chapter and writing a research paper may be relatively different styles of writing, the goals remain the same. Banerjee and Duflo incorporate data best when talking about the few crises that struck some microfinance institutions. I think this skill will be important when I try to talk about the implications my own findings in my research paper.

After reading the chapter, I was left wondering why exactly the government was instigating these crises, such as the false newspaper articles on Reddy, the founder of the successful MFI Spandana, and the incorrect statistics on farmer suicides directly caused by the MFI’s. The author’s only briefly touch this question, saying that the government(s) wanted to set up their own MFI. It’s interesting that the government wish to stop this practice in the private sector in order that they can essentially perform the exact same function through their own agencies. Perhaps this is an issue that needs to be further explored, given the potential destructiveness the Indian government is currently imposing on microfinancing.

Assignment #8

Government Intervention Will Not Solve Our Obesity Problem

This article by Marlow and Abdukadirov in U.S. News talks about the failings of government intervention on the rising the obesity rates since the 1980’s. As we talked about a few days ago, I will try to incorporate behavioural economics (Mazzocchi and Traill 2010) into my paper in order to describe why we have rising obesity. I think the studies the authors reference are important because it shows what HASN’T worked so far. One study showed that in 2008, New York City’s new law for chain restaurants to clearly post calorie counts for meals, the amount of calories bought did not change after the law was instated. Another study showed how soda taxes only affect the decisions of people without weight problems, while the tax had no effect on the consumption of people with weight problems. I think this is interesting because it shows how demand for soda is more inelastic as weight increases.

It would be interesting to explore if there are any incentives that could be effective. The suggestion the authors give is that consumers should buy weight loss products and use the market to help them lose weight. I have two problems with this, because first of all, it is very difficult to find a product that will help you lose weight and secondly, the products can only help you, so if a person does not complement the product with willpower to use the product, then the effectiveness of the product will vary. Also, this would be very difficult to measure in linear regression. I think it is the short run vs. the long run problem that needs to be tackled, but I am not sure exactly how you would find ways to place incentives to lose weight without measuring desire, which again, would be difficult to do.

I would also be interested in collecting another data set of a sample of random Americans with various variables such as amount of exercise per day, smoker/nonsmoker/, healthcare insurance, and income to regress against weight, to see if what directly or indirectly causes weight gain. Clearly the sugar tax on soda and the calories counts in NYC did not work, so other incentives would need to be created if we were to truly fight this problem.

 

Assignment 7

This paper I found after I ran my regressions returned had similar results, which is that there is only a negligible effects on obesity given agricultural subsidies. The authors ran a test to see how prices would be affected if all subsidies programs were cut, and they found that prices would not react very much, except for the cane and beet category. They also ran a regression comparing the overweight population of a year to the relative price of a Big Mac, which also showed that the obesity rate is relatively inelastic given the relative price in a Big Mac.

This paper is important because the results also confirm that my hypothesis was incorrect. The research paper seems to also have different techniques than simple linear regression analysis. The authors conclude that there is little effect on obesity because the impact of subsidies on prices is negligible, and therefore has very little influence on dietary patterns that are at least dictated or restricted by financial concerns of the consumer. I think this paper shows me where my logic was flawed in my thesis.

This paper does not suggest that there will be any issues specifically with my regression as far as i can tell. Although the paper has a lot statistics incorporated in it, there is not a methods section that explicitly tells me anything that is wrong with their data or their regression. However, they used different variables than i did, such as the price of a big mac, as opposed to using the amount of subsidies distributed by the U.S. government. I think their independent variables had a more direct effect on the obesity rate than mine did, which makes me realize i may need to reconsider my variables in my own regression.

http://www.idei.fr/doc/conf/inra/papers_2008/alston.pdf

Alston, Julian M., Daniel A. Sumner, and Stephen A. Vosti. “Farm Subsidies And Obesity In The United States: National Evidence And International Comparisons.” Food Policy 33.6 (2008): 470-479. EconLit. Web. 26 Oct. 2012.

Barbarians at the Gate

I think that Barbarians at the Gate is a prime example of the “greed is good” mentality that Hollywood likes to depict in movies dealing with Wall Street. The movie raises the question, “To what extent is greed good?” Hypothetically if someone had absolutely no greed, they would not work for anything, and in the most extreme example, would die in a matter of days from a lack of greed for basic human needs. Clearly absolutely no greed would be detrimental to society. However, the opposite side of the spectrum would be unlimited greed. Someone fueled by limitless greed would clearly reduce the freedom or quality of life of other people around them, such as the potential for massive layoffs that were briefly mentioned during the negotiations of the buyout in the movie. One could make the argument that there is a sweet spot between the two extremes of the spectrum in which a certain amount of greed is indeed good for society.

I think this movie shows that there was a gray area over whether the amount of greed in the deal was appropriate or not. On the one hand, the shareholders of RJR Nabisco would all benefit from the buyout by receiving a price of 109 (I think) for each share, which was much higher than the market price of the share, which was floating around 40 dollars per share. Also, Ross Johnson was under pressure from the board of directors of RJR Nabisco, due to the failing new product, Premier. Since his job as CEO was possibly at stake, he felt that buying out the company could alleviate these problems. This could be one view in which the amount of greed present at the deal was acceptable. One the other hand, he stood to make a personal fortune from the deal, which was ultimately why he lost, despite having the higher bid. As mentioned above, there were also company jobs that could be cut through the buyout. I don’t think they ever mentioned if the company had to have significant layoffs as a result of the buyout, but both of these reasons would support the argument that there was an unacceptable amount of greed present during the deal.

My opinion is that at the end of the day, there was an unacceptable amount of greed at the buyout, despite the fact that greed is important to the growth of our economy and the development of society. Although I forget the numbers, Ross Johnson did not have to take so much personal ownership of the company as he did. This movie is a real-world example of greed going too far in Wall Street in the 1980s.

Outline

I.            Intro

  1. Are there unintended negative social externalities caused by the overhaul of U.S. agricultural Policy that were instituted mostly in the 1970’s?
  2. This question is interesting to economics because all fiscal policies, let alone  agricultural policies, can have unforeseen consequences that could be hurting the common good. If possible, I would like to relate this back to my intermediate micro theory on taxes and subsidies to truly test the dollar value of the externality, but I am still not sure that I am able to given what we learned in class so far. If possible, this idea will be expanded upon in my thesis. But for now, I am testing if the effects of agricultural policies, which have greatly expanded our food supply, can be linked to certain health issues our country is currently facing. This is interesting to the greater good because our agricultural policy may be negatively hurting society, which is not something at first thought would seem to be an issue.
  3. Again, I hope to be able to estimate the externality the subsidy has on the market. Short references to the main articles I cite will be mentioned.
  4. I will then briefly talk about the order of my paper, and concretely show how I will answer the question that I presented given what I believe are influential variables on various negative social externalities from agricultural subsidies.

II.            Literature Review

  1. Alston,Vosti,  Julian- This paper talks about the effects of agricultural policies on strictly obesity rates in the united states. It also delves into the topics such as worker productivity that could be potentially effected by obesity. It then talks at the end on agricultural policy reform and stricter marketing restrictions
  2. Just, Lichtenberg, Zilberman-This paper talks about the effects of agricultural policies specifically related to tobacco use. I like this paper because it is analyzing the same topic as me only with the tobacco plant only and the different health effects associated with tobacco use. I think this is an excellent paper to model my paper after due to the similarities between my paper and his
  3. Healy, Mathevet- This paper is written on just pure theory for multiple fiscal policies, including subsidies. How I would incorporate this article into my paper is to use the results found in my regressions to test if it is possible to achieve a STABLE equilibrium if the subsidies were removed or significantly reduced. However, I feel a bit in over my head incorporating this paper’s ideas, let alone the just simple subsidy theory, into my paper.
  4. Wolcott, Johnson, Long- This paper again analyses the externalities of agricultural policies, however, these guys are analyzing the effects on the quality of water. Due to the increased food supply, there is more run-off from farms that negatively affect our water supply. This paper is important to show that there are indirect effects on human health from agricultural policies, not just the externalities that come directly from the consumption of increased food.

III.            Modelling

  1. I will restate my thesis and show how I will use a regression to test my thesis. I will mostly like run multiple regressions, testing for certain correlations. While I still haven’t decided on what these extra regressions will be, I know one will definitely be in my paper:
  2. Obesity(%ofUS.pop)i=B1+B2totalcaloriesi+ B3priceperbusheli+Ui

Given the data, I think this should be a pretty standard regression to run. Perhaps one or even two more variables could be added to the regression, but this regression would give me an basic overall idea of whether my thesis is correct or not.

I would hypothesize that B2 is a positive number and B3 is a negative number.

Clearly, I will use t tests for individual variables and test for the collective sets of variables with T-tests. I will also test for other problems with my dataset that could conflict with “The 10 Assumptions” such as multicollinearity and other problems that could be present in my dataset.

IV.            Data

I have data ranging from 1970-2009 on the following variables:

Year

Calories for each subgroup(may not be necessary: meatseggsnuts dairy fruit vegetables flourandcerealproducts addedfatsandoilsanddairyfats caloricsweeteners totalcalories

Farm statistics: totaloutput totalinput productivity bushelsofcornmillions loanratedollarsperbushel weightedaveragepriceperbushel

Health: obesity rates in the US, number of strokes in US per year per capita, cases of Diabetes Type II in the US per year per capita

V.            Evidence

  1. There is not much to say here for now, other than once I test the regressions that I follow the outline given in class to model my evidence section after. I hope that my evidence section will accurately show all of the pertinent data

VI.            Conclusions

  1. Same as situation as evidence. Perhaps I will touch on possibilities to alleviate the negative externalities. I would make sure to touch on the ideas from the third paper in the literature review to see if it is feasible to slowly reduce the subsidies and still maintain a healthy equilibrium, which would be tough to due given the already high volatility of food prices over the years.

VII.            References

  1. Alston, Julian M., Daniel A. Sumner, and Stephen A. Vosti. “Are Agricultural Policies Making Us Fat? Likely Links Between Agricultural Policies And Human Nutrition And Obesity, And Their Policy Implications.” Review Of Agricultural Economics 28.3 (2006): 313-322. EconLit. Web. 4 Oct. 2012.
  2. Just, Richard E., Erik Lichtenberg, and David Zilberman. “The Interaction Of Agricultural Policies And Health Regulation: The Case Of Tobacco.” Commodity and resource policies in agricultural systems. 328-348. n.p.: Agricultural Management and Economics series, 1991. EconLit. Web. 4 Oct. 2012.
  3. Healy, Paul and Laurant Mathevet. “Designing stable mechanisms for economic environments” Theoretical economics journal (2012):609-661 EconTheory.org. Web. 4 Oct. 2012.
  4. Wolcott, R. M., Stanley R. Johnson, and C. M. Long. “Effects Of U.S. Agricultural Policies On Water Quality And Human Health (The): Opportunities To Improve The Targeting Of Current Policies.” (1991): EconLit. Web. 4 Oct. 2012.