Comments on economics, mystery fiction, drama, and art.

Monday, November 24, 2014

Don't believe everything you read on the internet

One of the things I've now seen several times on people's Facebook posts is this:

(Click to enlarge.)
I've tried to ignore it, but I have finally snapped.

Let's assume we have a standard student loan in which interest is deferred, so we begin with a balance of $26,400.  Let's suppose we plan to pay that loan off in 23 years with total payments of $32,700--or about $119 per month.  For that to work, the interest rate on the loan would have to be less than 2% per year.  (Almost any loan calculator will let you figure this out.)

Or, suppose the payment is $119 a month for 23 years.  What interest rate would it take to have an outstanding balance of $45 K after making every payment on time and in full?  About 7% per year.  The initial monthly interest charge would be about  $150 per month.  So the unpaid balance would increase each month.

The thing is--you would know this, because it would be a part of the federally required disclosures.  So for this to happen, you would have to have agreed to it when you took out the loan. 

The other thing is--who would even want to offer you such a loan?

Finally, what monthly payment would actually pay the loan off in 23 years, with a 7% APR?


UPDATE:   I thought I'd say a word or two about how I think Higher ed should be financed.
And the answer is *NOT* student debt.
Across the US, state support for public higher education has declined precipitously in the last 25-30 years. Both for private higher ed and for public, tuition has gone up enormously (community colleges, not so much). At the publics, the tuition has essentially substituted for declining public support. At the privates, it has paid for a lot of things I personally find superfluous to their function. (To pick on my undergrad institution, it has recently spent a huge amount of money rebuilding its athletic facilities and is currently building a dining hall which, in the drawings that have been published reminds me of nothing so much as the hall at Hogwarts.)
A number of people who write about this point out that, on average, people who complete a 4-year degree earn a lot more than do people who do not. That's true. It's also true that the primary reason for that is not (particularly) rising earnings for college grads, but falling earnings for the others.
So what do I think we should do? (I'm about to say *WHAT* we should do, not *HOW* it can be accomplished.)
1. For the publics, reverse the trend toward lower public support.
2. For all higher ed, increase federal grants--not loans--especially needs-based grants.
3. We have already seen experiments with debt forgiveness (in public health, for example) for people who work in certain types of jobs upon graduation. So expand that, and guarantee that there will be jobs available.
4. Improve opportunities for people who do not want to attend college:
.....a. Expand apprenticeship opportunities, with federal funding if necessary.
.....b, Expand skills training outside employment, and fund it.
That's a start. An end to debt-based financing of post-secondary education should be something to push for.

Saturday, November 15, 2014

What do people know--or think--about what's happening in the economy?

We've been having a conversation about a recent survey (reported here) which finds an average response to this question:

What do you think the current unemployment rate is?  (The unemployment rate is the percentage of people who are unemployed and are actively seeking work.)
Apparently, the average of the responses was 32%, at a time when the actual unemployment rate (as reported by the Bureau of Labor Statistics) was 6.1%.  (Unfortunately, I can't find a time-series of responses to that survey, or t a similar one). 

Made me think, though.  What about something else?  What about inflation expectations?  As it happens, the OECD has done a survey since January 1978 asking people what they expect the rate of inflation to be for the next year.  And, of course, for most of that period, we can calculate the actual rate of inflation for the 12 months following each monthly period.  How'd people do?

(Click to enlarge.)

I must say I think that's actually a pretty good result.  While people who responded to the survey fairly consistently expect inflation to be faster than it actually has been, expectations forecast actual inflation quite well.  The correlation between expectations and actual over this period is 0.80, which is quite strong.

So maybe there's something special about unemployment that throws people off...or maybe respondents would do better if he survey were conducted regularly...

Tuesday, November 11, 2014

November 11

I have generally avoided saying anything about Veterans' Day, not because I don't recognize what people who have served in the military have done, but because I believe, generally, that most wars represent a failure of the political leadership of the nations involved.  And because of the very real human cost of those wars.  We tend to remember the cost to people in our own countries, but to forget--or ignore--the costs--deaths, injuries, destruction--suffered by people in other countries.  Even other countries that were on the wrong side of the war (Germany in World War II).  Here's the casualty data for America's largest wars; note that the Indian wars are not included, and we have no estimates of native American deaths/casualties in those.

War           Deaths   Wounded  Deaths per      100,000 Population Casualties    per 100,000 population
American Revolutionary War25,00025,0001,0002,000
War of 181215,0004,500188244
Mexican–American War13,2834,2006282
American Civil War625,000500,0001,9883,578
Philippine–American War4,1962,900610
World War I116,516204,000113310
World War II405,399671,000304807
Korean War36,51692,0002485
Vietnam War58,209153,00032118
War on Terror6,71751,000220

In many ways, the US has been fortunate, in that there has not been a war fought here in 150 years (and, yes, I am aware of what some people think about the "war" on "terror"). 

And, when I think about this, I always think of Phil Ochs' song "I Ain't Marching Anymore":

'It's always the old who lead us to the wars,
Always the young to fall.
Now look at all we've won with the sabre and the gun
Tell me was it worth it all..."

Mostly, it has not been.