Tuesday, August 25, 2015

Does College Pay?

There has been a great deal made out about the increase in the cost of going to college, just like the cost of gasoline.  So is it worth it?  Not in terms of things that I think are also important - such as developing critical thinking skills and develop the ability to ask and find solutions to solve current and new problems or the knowledge that can be gained by being exposed to new ideas and alternative points of view.  No, here we are just thinking about the return of a college degree in terms of future income.  Suffice it to say the general answer is yes, but not always.  Two interesting articles have looked at exactly this and concluded that college is beneficial financially on average, with some degrees such as engineering having a better return than other degrees like education.  Additionally, even within majors future earnings are highly variable.

Economics majors in the 90th quantile earn about 3 times as much as economics majors in the 10th quantile.  The other study uses payscale.com data and finds similar results.  Using the payscale.com data in-state on campus economics majors without financial aid have the highest annual ROI in the US (tied with Wisconsin).  In-state on campus economics majors with financial aid are 6th among all colleges in the nation with an annual ROI of 14.3%.

For more details here is an interactive chart on costs and returns to college.  Note the the University of Iowa has a 10.9% annual return overall and economic majors with a higher ROI of 14.3% (with financial aid or 11.7% without financial aid).

Tuesday, August 4, 2015

Chinese Milk Market

The Wall Street Journal has a good article on how changes in demand and supply have been impacting the import prices of milk over the last few years.  As you can see in the article increases in demand lead to higher milk import prices and then lead to an increase in the supply of milk by domestic and foreign producers - such as in New Zealand.  As supply increased the amount of milk imported into China fell dramatically - as did milk import prices.  With Russia banning European food products prices decreased again.  As a result domestic milk producers are culling dairy cows in order to reduce losses from the lower prices.  Additionally, notice that domestic producers are also trying to diversify their cattle for meat as opposed to only for milk.

Monday, June 22, 2015

Capital Mobility

When looking at exchange rate policies (fixed vs. flexible exchange rates) one of the factors that is considered in the IS/LM/BP model is the degree of capital mobility within the domestic economy.  Typically four versions are modeled:  perfectly flexible, relatively flexible, relatively inflexible and perfectly inflexible - where relatively flexible or inflexible is in comparison to the domestic money market.  While this is a theoretic concept, examples of changes in capital mobility are rare.  Here is an exception - Saudi Arabia is opening up its stock market to foreign investors, meaning that the movement of capital in (and out) of the Kingdom is increasing.  Theoretically, this would be an increase in capital mobility.

Thursday, June 18, 2015

China's Managed Float of the Yuan

The Wall Street Journal reports that China is evaluating whether to allow the yuan to depreciate due to market forces.  In my Global Economics and Business class, we talk about countries that have a managed float system for exchange rates and that in the short-run monetary policy is used to maintain the rate at which the nations domestic currency is traded for a foreign currency, but in the long-run market forces determine the exchange rate.  This is a good example of the long-run case, where an appreciation of the US dollar and declining growth rates in China are putting downward pressure on the yuan (renminbi).

Thursday, June 11, 2015

Expected Interest Rates and Exchange Rates

In Global Economics and Business we take a look at a variety of variables that impact the value of a nations (regions) currency.  One of those variables is expected interest rates.  As expectations about interest rates change, so will the value of that nations currency.  Here is an example of exactly that.  In 2014, The Wall Street Journal reports that the expectation was that the Bank of England (central bank) would raise interest rates and that lead to an increase in the value of the British pound.