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By Paige Williams and Katie Martin

This graph show the Consumer Price Index and the federal minimum wage. In general, the minimum wage has appeared to move up with prices. This is notable because it suggests that since minimum wage was enacted the real purchasing power of those who receive it has not changed significantly.

How are minimum wage and CPI related?

This graph shows real GDP from 1970 to 2017. Is there a correlation between the relationship of minimum wage and CPI and GDP? Are there any specific years that insinuate this correlation?

Real GDP means that it is adjusted for inflation. Our economy is growing over this time yet the minimum wage is only tracking with inflation. This means that in macro terms, those who receive minimum wage have a smaller portion of the income in our economy now than in 1970. Accounting for inflation, should the federal government raise minimum wage? What are the possible short term and long term affects, especially as it relates to the labor market?


Tommy Mottur & Mac Pitts

The Great Depression and two world wars in the beginning of the 20th century served as stabilizers for the United States economy.  In the early 1900's, the bottom 90% of earners only received 50% of total income, whereas the top 1% earned almost 25% (Emmanuel Saez, UC Berkeley).  This inequality was rapidly diminished through the 1930's and 40's, leading to a middle of the century period of relative economic equality.  However, today the top 1% of earners in the US economy again earn >20% of total income, with the bottom 90% only receiving 49%.  So what happened?

This was brought on by a variety of factors.  Increased globalization and technological advancement has given large corporations an alternative to simply hiring high-wage demanding Americans.  Additionally, tax rates for the top income recipients have declined since the 40's, allowing them to accumulate more wealth.  However, another factor that shapes this trend is the decreased unionization membership since this time of relative equality.

Here is a graph showing the share of the labor force that are members of a workers union as well as the share of income going to the top 10%.  We can see a sharp increase in unionization followed by a slow decline that is mirrored in opposite by the share of income received by the top 10%.

Then conversely, we have this graph:

This could be presented as a converse point, seeing as if our point (That the decrease in unionization is an underrepresented trend that is hurting American workers) holds true, then we should see other negative effects brought on by the decrease in unionization.  However, here we have a negative correlation, with the decreased unionization occurring simultaneously with increased minimum wage rates.  Is this caused by economic factors, or is it brought on by social and ideological progress?

  • Why were the lines so similar in the 1940’s? What caused them to diverge?
  • How has the minimum wage graph affected Union Membership over the years?
  • What are some economic policies that can be implemented to close the gap between the union membership and share of income going to the top 10%?

The correlation here is clear, and with income inequality being a heated and well debated topic, why is this trend not getting more attention?


By Abby Yu and Ruinan Liu

As we make energy consumption more efficient, would we use more or less energy? Logic would say that higher efficiency results in less wasted energy consumption. Large cities are especially concerned with their energy consumption and ability to save on future costs. However, according to the Khazzoom-Brookes postulate, increased energy efficiency only causes higher energy demand and therefore more consumption. This argument is based on household demand and the perception that gains from energy efficiency are decreases in price. Gains in efficiency will also create gains for labor or other capital from saved revenue; however, this means more energy is consumed from saving on using human or machine capital.  

The graph below shows the steady rise in energy consumption with coal being the one to drop the most. As for energy efficiency, the EPA said in 2016 that the average mpg for new vehicles increased to a record 24.8. However, we do not see fuel efficiency and consumption moving together.

In the macroeconomy, as efficiency improves, prices will fall and consumer demand will increase. According to the New Yorker, energy production increased by 66 percent from 1984 to 2005 despite better energy efficiency. This resulted from both population growth and more consumption per capita. Another example from the article was fuel oil; the average driver gets more out of a gallon of gas than a driver from 1920. However, the population as a whole now consumes more energy.

Do you think we should go so far as to produce inefficient forms of energy production (slower cars)  to decrease consumption? What are the ways we can actually reduce energy consumption? What would it take to disprove this postulate?


Why do expectations matter so much? Because predicting the future has to be really precise to serve as a reliable basis for building a new plant or otherwise undertaking "I" investment. The following is from an online discussion forum in which someone claims to have "the" value for a company, or rather the publicly traded shares in it.

... Always be skeptical! ...

A wise man once said: In theory, there's no difference between theory and practice; in practice, there is.
It's true, the fair value of a company is based on how much cash it can generate over its lifetime. But it's impossible to even roughly estimate this cash generation. The discount rate is also difficult to estimate, and somewhat subjective.
If you're off by even 1% on any of your assumptions, your fair value estimate can be off by as much as 50+%, depending on how far out your estimate is.
My advice: Beware of delusional Tesla bulls bearing discounted cash flow models.

09 Nov 2017, 11:59 AM
Boris Marjanovic, [Seeking Alpha] Marketplace Contributor

The bottom line: you can use formal spreadsheet analysis to highlight assumptions, but in the end the yes/go is based on the expectations of senior management for which scenario is likely, and which (money-losing) scenarios are unlikely. Because such managers read the same publications and interact with each other and give interviews, investment "I" in our macroeconomic sense (and investment in the little "i" stock market sense) reflects social behavior and correlates across firms and individuals. Always be skeptical!


As Congress works on a package of tax cuts, it's important to think about whether our current deficit is sustainable. Now Japan is fast approaching a point where debt issues will overwhelm their financial system.Note The US is not Japan: we have a growing population, less debt, and smaller deficits. Nevertheless at some point we too will need to put our fiscal house in order.

...we don't need to run a surplus, but the current deficit isn't sustainable...

What follows uses a simple (but standard) arithmetic framework to clarify what matters. As long as debt to GDP is stable, we should be OK, because the demand for financial assets grows with the economy. In general institutional investors such as pension funds hold government bonds for good reasons, and that a particular bond has matured doesn't change that. So they want to buy new bonds to replace the old. In other words, at today's level of debt, the Treasury can "roll over" debt, issuing new bonds to replace old. There's not only no need to repay our debt, financial markets would be hard-pressed to find alternative assets if we did so. Indeed, 20 years ago, when the Clinton administration was running budget surpluses, Federal debt was declining rapidly. Tax cut proponents found Wall Street figures to wring their hands about how markets couldn't function debt was repaid.

Our economy is also growing. So even if the absolute amount of debt continues to rise, potentially debt to GDP will not. Indeed, that's what happened following WWII. By the end of the war debt surpassed GDP, but fell to just over 20% by 1974. This didn't happen because we ran budget surpluses. Quite the contrary, on average we ran small deficits after 1948. But we did grow, enough to outgrow our debt. But today we're running significant deficits and not growing.

Interest rates matter. In the 1950s and 1960s they were relatively low, so the interest the Treasury paid on our debt didn't offset growth. Today we again have low interest rates, but we also have low growth. So we need to ask whether that changes the situation.

Again, what we want to look at is whether debt is stable relative to GDP. That is, if B is the stock of bonds and Y is GDP, is B/Y growing? On its own – assuming bonds are rolled over – the stock grows with accumulated interest: Bt+1 = Bt(1 + r), where Bt is the stock of bonds at time t and r is the nominal interest rate. Similarly, GDP grows at Yt+1 = Yt(1 + g) where Y is nominal GDP and g is the nominal growth rate. Hence debt to GDP will grow at:


To put this to use, we need three pieces of information: what is the level of debt, B/Y; what is the growth rate g;, and what is interest rate i. That will give us an indication of whether debt is sustainable, and if not, what level of surplus is needed to keep it within bounds.

The first is easy: Federal debt is approximately 100% of GDP, that is, debt to GDP ratio is 1.0 – convenient for arithmetic, as multiplying by 1 is easy. We then need to know the ratio (1 + r)/(1 + g). When r and g are single digits in percentage terms, as in the US, that ratio is approximately 1 + r - g. In other words, with our debt ratio of 1, B/Y will shrink as long as (1 + r - g) is less than 1. The critical issue then is the value of (r - g). If r > g then our debt level will rise, unless we run surpluses. If r < g then we can run (small) deficits indefinitely, as happened during 1949-1974, yet not see our debt level rise.

Now while it might seem that we ought to be able to earn better than the growth rate, this is fundamentally an empirical question. Thanks to the Great Inflation of the 1970s and 1980s nominal interest rates and nominal growth varied wildly. But real growth and real interest rates stay within fairly narrow bounds, except at the depths of our recent Great Recession. The graph below sets forth those data. Excluding the peak around 2009 we find that the average level of (i - g) is about -0.6%. If we include the peak, the average is roughly 0. Now as the graph below indicates, real long term bond yields fell over the past 15 years and are now on the order of 0.8%. Investors, rightly or wrongly, have not built strong growth into bond prices. So to date there's no evidence that the Fed's ongoing normalization of interest rates will raise real interest rates relative to growth. If so, we can run deficits of 0.6% of GDP forever.

To reiterate, we don't need to run a surplus. However, we do need to bring the budget close to balance. Unfortunately, our current deficit is about 3% of GDP. Now that's a vast improvement over the -10% of GDP level at the trough of the Great Recession. Employment growth and profit growth led to stronger income tax receipts, while the improved employment situation led to a drop in "safety net" expenditures. That combination lowered the deficit by a full 7% of GDP. Unfortunately we can't expect further gains, as profits are now high and (un)employment low. There is however downside potential. So we ought to count on the deficit averaging out at -3.5% of GDP, not -3.0%.

...that means we need to "enhance revenue" by 4% of GDP, not cut taxes...

That does not factor in the aging of the baby boomers, who haven't fully retired and whose healthcare expenses will continue to rise until offset by rising boomer mortality. Such retirement-related expenses will likely come to at least 1% of GDP. Hence we need a fiscal adjustment on the order of 4.0%-4.5% of GDP. Congress needs to "enhance revenue," not cut taxes.

Note: Hoshi, Takeo, and Takatoshi Ito. 2014. “Defying Gravity: Can Japanese Sovereign Debt Continue to Increase without a Crisis?” Economic Policy 29(77): 5–44.


In current news, we are often subject to warnings or rebuttals against the implications of climate change. Rather than analyzing climate change as a whole, we decided to focus on the effects of pollution on productivity. Even though pollution seems like an inevitable externality of our current economy, the losses from pollution affect everyone both through aesthetic and out-of-pocket costs. No longer are we focused mainly on environmental effects such as destruction to nature, but we also consider losses to income and companies in terms of productivity. Living with low air quality means having to spend money on health costs or even air masks in parts of the world. Worsened health means absence from work and can even lower incomes according to the World Bank. They found that deaths from air pollution cost the global economy around $225 billion in 2013 due to loss of labor and economic development.

The Organization for Economic Co-operation and Development (OECD) has also projected the effects of pollution on three key areas: agriculture, health expenditures, and labor productivity. The graph below shows the impacts relative to GDP; they use the red line to highlight the global annual market cost due to air pollution.

Although the economic effects are spread out globally, individual countries are affected disproportionately due to differences in population growth and economic development. Certain developing countries emit more pollution to catch up to developed countries. This creates negative environmental effects that need to be paid for later on.

The Environmental Kuznets Curve

The Environmental Kuznets Curve (EKC) is a graph that shows the level of environmental degradation with respect to GDP growth. The Environmental Kuznets Curve is a graph showing that an initial economic development will lead to a deterioration in the environment, but when GDP reaches a certain level, society begins to improve its relationship with the environment and the level of environmental degradation decreases. This means that developing countries tend to ignore environmental health in favor of economic gain and they tend to care less about pollutions until they reached a certain level of economic development. The graph below shows how pollution affects GDP through a variety of costs.

Do you think the EKC is valid in that we should worry about the effects of pollution later? Would you agree that a country has to experience a period of high pollution before becoming a strong economy? How can countries successfully combat the effects of pollution without hurting economic growth?

Ruinan Liu and Abby Yu


Mean Family Income in Midwest Census Region Versus Mean Family Income in Northeast Census Region

The Midwest Region of the United States is the heartland of farming. Historically, it has contained mostly perfect, flat land for agriculture, good soil, and an a variety of climates, well suited for farming. Thus, a huge sector of the economy has been dedicated to manufacturing and farming. On the other hand, the Northeast Region's closer proximity to water has given way to an international trade-based economy dominated by financial corporations and business conglomerates. Until World War II, the Northeast had primarily dominated the manufacturing industry. After this period, industry moved to the Midwest because of lower costs of production. Now, the Northeast is a magnet for more skilled workers because of more developed technology, a more competitive labor market due to better pay, and a better medical market. The incentive for less-skilled workers to move to the Northeast has decreased with the creation of this financial, governmental, medical, and educational conglomerate that we now know today.

We can see on the graphs how mean family income has steadily increased in both regions since 1984, but where do the graphs differ? Are there any periods where growth has declined in one region and increased in another? What might be the reason for these differences?

In addition to this, the graphs begin at 1984, post-"Extraordinary Time". Why then has mean family income steadily increased, despite some declines in growth along the way?

Juliana Kerper and Chris Vogel


Since the introduction of NAFTA in 1994, U.S. imports of goods from Mexico have increased significantly with the only drops occurring in correlation with the Great Recession around 2008. The Trump administration has centered economic rhetoric on removing NAFTA, and instead suggests implementing a tariff to protect domestic industries at home by lowering intention for relocations.

However, removing NAFTA would produce no benefit for the average American consumer for numerous reasons. First, trade between Canada, the U.S., and Mexico would be subject to the World Trade Organization’s tariff limits. Currently these are less than 3.5% for Mexico and around 7% for the U.S. American businesses would rather pay the tariff and relocate as doing so would still be cheaper than remaining in the U.S. considering that Mexican workers are on average $20,000 cheaper than their American counterparts.

How do the tariffs effect the average American consumer? How would relocation to Mexico make sense as far as comparative advantage and production are concerned? What does the increase in Mexican imports say about the American economy? Do imports help the economy? And if they do, then why is Trump trying to minimize them? Is it fair that companies can move to Mexico for the cheap labor?

Source: Bloomberg on Mexican wages

Sofia G. Cuadra, Kiely Hartigan, Annie Lentz


In the past decade or so the Euro area has seen large dips and rises in its CPI as well as a stagnant wage growth rate for many sectors of its economy. One of the most impacted sectors is manufacturing, as many workers are becoming replaced by technological advancements. Graph 1 shows  a continuous increase in consumer prices of the OECD (Organization for Economic Co-operation and Development) Europe over the past 25 years, while Graph 2 shows a decrease in the growth rate of wages in countries where the Euro is used over the same time period.

Typically, when a rise in inflation occurs and consumer prices increase, wages rise as well. The 'Wage-Price Spiral' is a macroeconomic theory which states that rising wages increases disposable income, which therefore causes the demand for goods and consumer prices to rise as well. Rising prices will then cause greater demand for higher wages, which leads to higher production cost and more upward pressure on prices, creating a conceptual spiral. The trends shown in the graphs previously presented do not follow this theory.

What are some of possible causes to the trends seen in these graphs? Do you think that the existence of the European Union is part of the cause for stagnant wage growth? What is one way that European countries can combat the stagnation and reel in prices? Does this occurrence have more of a positive or negative impact on Europe overall?  

Extra reading: WSJ article

Pranam and Jack


Saudi Arabia is a country which specializes in oil production, and has historically exported at a significantly higher rate than it has imported goods.  The country has vast oil reserves, and has become dependent on oil for its economic prosperity.  Why has Saudi Arabia become such a specialized country, specifically in oil?  What advantages does this country have as a result of its extreme specialization in one major good, and what problems may be present as a result of having >90% of its GDP come from this particular industry?  Can you explain any of the trends in these graphs?  What effect would those particular trends have on Saudi Arabia's economy?

Lukas Campbell and Ally Thai