Last Assignment

In Chapter 4 of Freakonomics, the author goes into investigating what may have caused the decrease in crime rates during the 1990s.  It is investigated thought determinants such as number of police officers, stricter gun laws, and capital punishment.  These determinants may have an effect upon crime rates, but they find that crime rates were significantly affected through the Roe Vs. Wade.  Roe Vs. Wade legalized abortion and was responsible for the decreased crime rates in the 1990s.  The logic that is used is that mothers who are forced to have a baby they do not want will not care as much about it.  The baby will not have a safe and prosperous childhood, increasing the baby’s possibility of committing crime in the future.  Freakonomics states that a baby that was unwanted, and was not born due to an abortion, would have been 50% more likely to live in poverty and 60% more likely to growth up with a single parent.  Poverty is where crime is, increasing the probability that the child will be influenced by the crime.  With only one parent, there is less discipline, especially when that one parent did not want the child in the first place.  Through “The Impact of Legalized Abortion on Crime,” by Levitt and Donohue, they come to pretty much the same conclusions as Freakonomics did on this issue.  They come to the conclusion that crime rates fall about 18 years after abortion became legal through Roe V. Wade.  They find that the legalization of abortion is responsible of 50% of the reduction in crime.  Goetz and Foote make a critique and comment on the Levitt paper.  They say that Levitt made a coding error in the regression where they test for experiences of different ages within the same states and years.  They attempt to correct the error by using a better variable for per capita specification for the crime.  They find that this greatly decreases the significance of the results.

I find all of these studies quite interesting.  The fact the abortion legalization has an affect on crime at all is pretty astounding, but after seeing the logic behind Freakonomics chapter 4 and these of other 2 papers, it makes perfect sense.  Looking into the future, it makes sense to keep abortion legal due to these studies and we can reduce crime in the United States.

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Assignment #9

Chapter 7 in “Poor Economics” dives into the use of Micro Financing.  Micro financing is a method of lending to the poor.  Why might lending to the poor be any different from lending to the rich?  The first half of the reading addresses this question.  The truth is that the poor, who have little ability to pay back loans because of their low wealth, will be charged higher interest rates.  The logic behind this is simple, but there a several things that drive the interest rate so high for the poor.  The lenders have to watch out of defaults, thus they can ask for a down payment for collateral so if the borrower runs off with the money, they will be punished.  Rich people have more money for collateral, thus poor people cannot get very large loans unless the loans have bigger interest rates.  Also, if one is poor the lender will want to check up on them and help them in the right direction to make sure their investment wont be wasted.  This costs money to the lender raising interest rates further.  Through the multiplier effect (borrowers having higher incentive to default due to high interest rates and then lenders realizing this and raising interest rates further) we see interest rates skyrocket.  For example, on page 160, the author states that yearly interest rates are around 40 to 200 percent.  If we think about the interest rates in the United States, these numbers are unheard of and methods of micro finance can help this situation.  MFI uses a system of finance that collects loans weekly from a group of people.  This keeps costs down because the loan officers does not have to keep track of several different people and therefore does not have to be too educated.  Lower costs means lower interest rates.  Also, the weekly payments in groups puts pressure on people to re-pay and not have to deal with other people knowing about their debts.  Also, if someone cannot pay, a fellow group member may be more inclined to help him or her out.

 I found that every time the government stepped in and questioned the micro finance systems, it made things a lot worse.  On page 176, the authors highlight a scandal that accused Spandana and Share of being the reason that several farmers commited suicide.  It was deemed illegal to pay off any more loans to these companies and there was massive damage to them.  When default rates are high, the social norm will be to default and these companies that are helping the poor with opportunity are running into issues.  I think these companies are doing good and providing fair and real opportunity to those who are not provided it at birth, thus I believe state regulations upon them should be minimal in order to further opportunity.

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Assignment 8

The article that I found, cited below with its link, pertained very closely with my research topic.  It was a very interesting short read because it not only helped to explain why people in the recession were saving so much, but it also gave reasons for the savings rate being so low before the recession.  The article’s main point is that after the recession we may be beginning to fall back into the hole of spending more that we have, which yields very low savings rates (about 2-3%).  During the recession, the personal savings rate was up around 8% at some points.  This article points acknowledges the fact that this low savings rate could mean great growth and decreased unemployment in the future or it could mean disaster once again.  There are two sides to this.  The country needs people to invest and consume, but investing and consuming too much will lead to large debts not being able to be paid off due to a possible high unemployment.  These are issues and forecasts that I plan on pursuing more as I develop my paper.  Specifically, I plan to create an idea of where the savings rate may go in the future.


As far as helping me with variables in my model, this article has not helped much.  This is partly because I already have very solid group of variables and also the article does not talk much about the specific determinants of saving.  However, this article will help me a lot in my quest to create a credible and hopefully accurate forecast of the savings rate.  I plan on researching further to find scholarly articles pertaining to possible forecasts of the personal savings rate.


Gongloff, Mark. “Personal Saving Rate Plunges As Americans Get Back To Spending

More Than They Earn.” The Huffington Post. N.p., 30 Mar. 2012. Web. 01 Nov. 2012. <;.

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Assignment 7

This paper explains and educates on the rise of the personal savings rate during the great recession.  This paper extends other studies, focusing on new determinants of the personal savings rate.  They find an inverse relationship between the personal savings rate and the return to home equity.  They find an inverse relationship between return to household investment and the savings rate.  Then they use their findings to create a forecast for the savings rate up to 2020.

This paper shows me that economists have actually done some work regarding my topic.  It may not be the same question, but it is quite similar.  This paper will greatly help me when explaining my data and the theory surrounding my results. The authors find that prices of real estate has an inverse relationship in these recession years on the personal savings rate.  I did not cover this specific variable in my model, but I believe I have a good proxy for it because my r squared value is at 95%.  Other determinants, such as return to household investment and return to home equity are not in my model, but again I think my variables proxy quite well for these determinants.  After running my ovtest on my data, it still says I am missing variables, so it may help to include a proxy for one of these variables.  I will probably opt out of doing that because I already have so many variables in my model. It might help to replace some.

Walden, Michael L. “Will Households Change Their Saving Behaviour After The ‘Great Recession’? The Role Of Human Capital.” Journal Of Consumer Policy 35.2 (2012): 237-254. EconLit. Web. 1 Nov. 2012.


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Will CampbellIn…

Will Campbell

  1. Introduction

Over the past decade, the world has seen a dramatic sequence of events involving the economy.  From the dot com bubble to the housing bubble, we seen considerable effects on macroeconomic indicators but we will investigate one in particular.  The personal saving rate is a unique macroeconomic indicator for the reason that it does not have the most predictable future.  Taking a quick look at figure 1, we can see erratic fluctuations in the personal saving rate and specifically we see different trends in multiple recessions, which is what this paper is directed to expose.  This paper will investigate the affect that recessions have on the personal saving rate, but specifically, will examine the Great Recession and its effect on the personal saving rate.  There have been endless studies done on the economics of the Great Recession because it has been such a bear on the economy.  More specifically for example, Mody, Ohnsorge, and Sandri, similarly investigate the high savings that the Great Recession seemed to portray in their paper, Precautionary Savings in the Great Recession.  It is important to analyze and test, through regressionary analysis, the determinants of the personal saving rate and how it was effected by the Great Recession because it will further our knowledge going into the future.  It may allow us to be more educated while applying public policies to further economic growth.  It may even help individuals to make better decisions with their respective saving  rates.  In this paper and in the regressions, determinants of the savings rate will include Real GDP, credit card interest rates, interest rates, income per capita, government total expenditure, personal consumption expenditure, and the unemployment rate.  It is quite evident that there are several more determinants for the savings rate, but they cannot all be included, thus they will be represented by the error term (u) in the regression.  The first section will investigate literature that pertains to the personal saving rate and this topic, the second section will include my data, the third section will introduce the regression model, and the fourth section will interpret the evidence found from the model.

Literature Review

  1. Literature Review
    1. Precautionary Savings in the Great Recession, by Mody, Ohnsorge, and Sandri.

                                                              i.      This article is quite similar to my topic.  Precautionary savings refer to an individual predicting that he/she will not have income in the future, so they save.  This article finds that greater income uncertainty will positively affects household savings. The independent variables in this paper’s model include the unemployment rate, lead of disposable income growth, real short term deposit rate, GDP volatility, and stock market volatility.

  1. What Drives Private Saving Across The World, by Loayza, Schmidt-Hebbel, and Serven

                                                              i.      This article portrays the policy and non-policy determinants of the saving rate throughout several countries in the world. This article gave a good basis for picking the right variables in the model that will be used in this paper.  It also shows the many different effects on the saving rate throughout different countries all over the world. My paper will narrow the variables down to just a single recession in a single country.

  1. The Great Crash on the Onset of the Great Depression, by Romer

                                                              i.      This article shows that the question in my paper has relevance.  This paper deals the uncertainty in the Great Depression and how it reduced consumer spending on durables and semi-durables. A question arising for future research would be whether the saving rate in the Depression decreased, but we are concerned with the Great Recession. Uncertainty, according to economic theory, drives the saving rate up.

  1. Data
    1. Ideal data for this model would include hundreds of independent variables because there are just so many things that effect the saving rate. The importance of an economic model is to find the main determinants of a single dependent variable and I believe I have done so below.
    2. My data includes the below:

                                                              i.      Personal Saving Rate: This is the dependent variable

                                                            ii.      Real GDP: Independent variable. GDP is the measurement I will be using to show that a recession exists.

                                                          iii.      Credit card interest rate: when the interest rate rises, people should save more because having a credit card is less appealing.

                                                          iv.      30 year mortgage rate: when this rises people will save more because getting a mortgage is less appealing.

                                                            v.      Income per capita: It could go either way. Will rely on regression and data

                                                          vi.      Total government expenditure: This variable will represent the uses of fiscal policy and its effect on the saving rate. It is important to include this given Obama’s massive stimulus package, which should have a considerable effect on the saving rate.

                                                        vii.      Personal consumption expenditure: Personal consumption is in direct relation to the saving rate because whatever is not saved, is consumed.

                                                      viii.      Unemployment rate: Judging by a quick glance at the data, a higher unemployment rate should increase savings because there if someone is worried about their future income levels, they will save with that anticipation.

  1. Modeling
    1. Hypothesis: My hypothesis is that the Great Recession will significantly affect the personal saving rate in a positive manner because in the Great Recession, money was more scarce and people want to save in order to look out for their future.
    2. Model:

                                                              i.      PSAV=β1+β2Ccardintrate+β330yrmortrate+β4incpercap+β5govtotexp+


  1. The above is my regression model for all dependent variables.

                                                            ii.      I will run multiple regressions which include single and multi-variable regressions.

                                                          iii.      By analyzing the coefficients, intercept, F-values, t-values, P-values, R-squared, etc. I will be able to come to a statistical conclusion about each and every variable

                                                          iv.      Each beta will be tested at a 95 percent confidence interval. If 0 falls between the interval the variable is not significant.

  1. Evidence
    1. My evidence and findings will be presented and explained.
  2. Conclusions
    1. Include the big highlights and major findings in the paper and present what the models did to explain why the saving rate did what it did and how the independent variables affected it.

                                                              i.      Affirm of decline hypothesis: explain the results

  1. End with asking new questions about what should be researched next after such findings and explain how this is relevant and helpful to the world of economics.


  1. References


“Amid Recession, U.S. Savings Rate Hits Highest Mark Since 1993.” PBS. PBS, 26 June 2009.

Web. 04 Oct. 2012. <;.

Bosworth, Barry, and Aaron Flaaen. “Financial Crisis American Style.” Asian Economic Papers

8.3 (2009): 146-170. EconLit. Web. 4 Oct. 2012.

“Federal Reserve Economic Data.” FRED. N.p., n.d. Web. 04 Oct. 2012.


Howard, David H. “Personal Saving Behavior And The Rate Of Inflation.” Review Of Economics

And Statistics 6.4 (1978): 547-554. EconLit. Web. 4 Oct. 2012.

Loayza, Norman, Luis Serven, and Klaus Schmidt-Hebbel. “What Drives Private Saving Around

The World?.” (1999): EconLit. Web. 4 Oct. 2012.

Mody, Ashoka, Franziska Ohnsorge, and Damiano Sandri. “Precautionary Savings In The Great

Recession.” (2012): 37 pages. EconLit. Web. 4 Oct. 2012.

Romer, Christina D. “The Great Crash And The Onset Of The Great Depression.” Quarterly

Journal Of Economics 105.3 (1990): 597-624. EconLit. Web. 4 Oct. 2012.


Figure 1

Sorry for the messy layout.  It formated in a different way when I pasted it into the text box

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Ch.4 Poor Econ

In this reading I immediately became interested in the discussion about private schools and public schools in India.  Obviously education in India is much different and I was surprised to learn about the real facts.  In Chapter 4, Banerjee and Duflo discuss the how bad the schooling systems in India actually are.  On page 83, they talk about how the government is not doing its job with the regulation of their public schools.  The authors talk about how citizens are turning to private schools, which emerge in villages that have bad public schools.  It intrigued me that most private schools only consist of a few teachers in a small household.  The World Absenteeism Survey found that private school teachers were 8% more likely to show up to class than public school teachers.  They also found that children that go to private schools perform better than those who attend public schools.  The ASER say, “47 percent of government-school students in the fifth grade could not read at the second-grade level, compared to to 30 percent of private-school students.”  Also, according to the LEAPS survey, “by third grade, children in private schools were 1.5 years ahead in English and 2.5 years in math relative to children in public schools.”  These private schools were cheap also, some as low as $1.50 per month.

I found and interesting article on the New York Times, which talked about this exact issue in India.  It addressed the same facts that the Indian government is not providing its youth with sufficient education.  They focused on the Right to Education Act, which promised every child from age 6-14 education in public schools.  The worry is that this Act will close private schools by the masses.  It is hard to know exactly how many private schools there are and the government does not exactly know, thus how can they accommodate such an influx of new children.  For example, the article says, “In a recent survey of the eastern city of Patna, Mr. Tooley found 1,224 private schools, even though government records listed only about 40.”  If the government thinks there are only 40 private schools out of 1,224, then how are they supposed to be able to account for that in their new education system?  This is a big question in this article.


Both Poor Economics and this NY Times article suggest the same types of arguments and give seem to believe in the same thing, which is that the school system in India is in complete disarray.  With this said, I would like to know how India is doing currently and if any more action has been taken by the government fix the problem.

I could not leave a comment on the original article (there was no comment section).


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Freakonomics CH:3

In this chapter of Freakonomics, Levitt and Dubner explain the importance of finding a question, which is both interesting and unanswered.  Also, asking multiple questions, no matter how strange, will possibly give us some good insight.  Levitt and Dubner approach this chapter through addressing the economics to crack cocaine-dealing gangs.  He first asks the question, “if drug dealers make so much money, why are they still living with their mothers?”  Basically, the common thought that drug dealers make tons of money does not make sense when most if not all are living on the streets in poor areas. This quote explains this question:

“J. T.’s hourly wage was $66. His three officers, meanwhile, each took home $700 a month, which works out to about $7 an hour. And the foot soldiers earned just $3.30 an hour, less than the minimum wage.”

J.T. runs the division of a gang, so he is a top officer and he makes a very good wage, but as you can see, people below him make horrible wages.  “The top 120 men in the Black Disciples gang represented just 2.2 percent of the full-fledged gang membership but took home well more than half the money.”  So the answer to this question basically says that some drug dealers make a killing, but most make much less than minimum wage.  To add to this horrible pay, when in the gang, the amount of times you will be arrested is 5.9 times, you number of non-fatal wounds or injuries will be 2.4, and you have a 1 in 4 chance of being killed. 

This of course surfaces another question.  Why do these people want deal drugs so badly when the pay is so horrible?  Kids growing up in these poor areas have very little opportunity to finding a well paying job.  Since they were children they dream of working their way up the gang to be an officer because they believe that is the best job they can realistically acquire.  Life as a top drug dealer, such as J.T. must have seemed like a great job, given his multiple houses and cars, but eventually he was promoted to the board of directors of the entire gang.  Soon after being shut down by a federal indictment, he was sent to jail.

            I read this book online and it had not page numbers so I could not list them.

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