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Lunch Specials (2001) Richard Estes © Oil on Canvas

Editor: Nicolas Guerrero Contributors: Patrick Reilly, Avery Ryan, Peter Scharf optimalbundle.org

Close to NAIRU

The low unemployment rate has not yet led to an increase in the general price of goods and services.

Market Harmony

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t seems that the Spring 2018 class at Penn State will have the random fortune of graduating into a tight labor market. The United States Bureau of Labor Statistics January 2018 report was recently released and gave evidence for a tight labor market and the unemployment rate running at or close to NAIRU. The current graduating class was just entering high school when the Great Recession was in its peak and unemployment had spiked to 10%. Since then it has slowly fallen and the future is rather bright. However, not everyone will feel the effects of this wonderful labor market. Most of the gains have gone to high skill workers and left people with no skills and no degree behind. According to analysis from the Georgetown University Center on Education and the Workforce, the job gains from the recovery have gone primarily to those with college degrees.

February 20, 2018 Spring 2018: Volume 49 The Penn State University Economics Association

They estimate that 11.5 million of the 11.6 million jobs gained since the recovery went to workers with more than a high school education. Of those that completed a bachelor’s degree, the share is 8.6 million of the 11.5 million. The effects of the Great Recession were the final to push to move low skill manufacturing positions overseas and allowed the United States to further develop a high skilled service economy. The sectors that had the highest gains in employment consist of business consulting, business services, and healthcare added the most jobs, and these industries usually require a college degree. The lower skill workers in the economy have had to make due with what little positions are available to them. Lonnie Golden, professor of labor economics at Penn State Abington Campus, described that is still falling short on hours and pay that part time jobs have replaced many of the former full-time positions since the Recession. Golden’s study for the progressive Economic Policy Institute points that this underemployment is not a cyclical effect of the Great Recession but rather a solidified structural issue. Retail, food services, and hospitality industries have been the primary driver of these low skill part time positions with uncertain hours. Today’s labor market is difficult to navigate for a worker who has low skills and no college degree. While a huge investment of time and money, the returns on a college degree show themselves in better labor market performance, higher pay, and better jobs.—PS Sources: http://bit.ly/2iy34Rx; https://fred.stlouisfed.org/ series/UNRATE; http://bit.ly/29c4e3M; http://bit.ly/2gPhS0u


Intentions of Infrastructure

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n Monday, February 12, President Trump released a budget for the 2018 Infrastructure Initiative. The plan is titled Building a Stronger America:

President Donald J. Trump’s American Infrastructure Initiative. The released budget fact sheet shows that $200 billion will be spent on this initiative. President Trump has a goal of reaching $1 trillion in total infrastructure spending. In addition to the original proposed amount of spending, the initiative also aims to reevaluate air traffic control, increase flexibility of infrastructure at the Department of Veterans’ Affairs, and reform the laws governing the Inland Waterway Trust Fund. This investment in infrastructure is not the first of its kind. Many leaders, when trying to stimulate the economy, will use infrastructure investment to do so. Bridging Gaps The new eastbound span of the Goethals Bridge connecting

the New Jersey Turnpike with Staten Island opens to traffic in June 2017. The new bridges replace the 89-year old bridge (far right) at a cost of $1.5 billion. Photo Credit: J.C. Rice/The New York Post

David Alan Aschauer of the Chicago Fed writes in his paper Infrastructure and the Economy, “Economists and policymakers who are concerned with declining private sector productivity typically focus on the role of private investment in plant and equipment. The standard argument is that increases in the quantity and quality of private capital goods generate more output per worker.” This has proven itself to be true in many different cases. According to Brookings Institute, “Infrastructure investment is vital to growth in the United States, but making a lasting impact will depend not on “how much” but ‘how well”. This evaluation of infrastructure investment shows that it is necessary to take a close look into the spending that the President plans on doing with this new initiative. The tentative plan includes $100 billion that will be made available to states and municipalities in the form of matching funds for infrastructure projects.

$50 billion will be used for rural infrastructure projects. $20 billion will go to expanding current loan programs for public-private partnerships. One point that Brookings Institute stresses is that for the spending to cause economic growth, it must help to fix what isn’t working, rather than just trying to get money out the door. These cracks that exist in the country’s infrastructure system are the roads and the bridges. So, in order for his spending to be successful, the first thing the government’s money should go towards is this project. In a different report by Brookings Institute, the successful job opportunities that come from increased infrastructure spending are illustrated. The research shows that the increase in spending in infrastructure causes an increase in job opportunities. The 2013 data showed that nearly 14.5 million workers have infrastructure jobs. While all of the facts check out, there are many concerns about this upcoming initiative. One worry regards funding. The initiative released by President Trump did not specify where this extra $200 billion was coming from. Brookings recorded a few ideas about where this funding could come from. One potential source would come from an increase in the gasoline tax. Another idea is to get funding from proceeds of repatriated corporate profits held overseas. The second option is more viable due to the fact that both Republicans and Democrats agreed on this issue at one point. President Trump’s ambitious vision on infrastructure will have to be closely monitored in order to determine whether or not his administration’s choices help or hinder economic growth. Externalities not included in the GDP growth that ought to result from this infrastructure plan include the streamlined permit process that aims to simplify bureaucratic hurdles regarding environmental protections. Furthermore, it will be important to see where President Trump plans on getting the funds for his initiative. Hopefully, the cost will be worth the added infrastructure and all of the benefits that come alongside it.—AR Sources: http://brook.gs/2aseCBF; http://brook.gs/2ooFb3J http://bit.ly/2smUb7j http://bit.ly/2ERj4wW


Olympic Utility

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uring the Peloponnesian War, three runners, known as spondophoroi were sent from Olympia to citystates across Greece every four years to announce the beginning of a truce. Sparta and Athens ceased all aggression and legal disputes between them. Yet the ancient Olympic games were not apolitical. It was a crucial platform where embattled city-states would declare alliances and showcase their superiority. In 2001, the Games of XXIX Olympiad were awarded to Beijing. For the next eight years, the People’s Republic of China invested $40 billion in preparations for a two-week event that aimed to show China crossing the threshold into a role of global geopolitical and economic dominance before an audience of 4.5 billion viewers worldwide through an event that was unparalleled in its execution. The recordbraking investment was synonymous with the historic levels of economic growth experienced by China throughout the first decade of the new millennium. While Athletic events have been a stage for political statements since the Berlin Olympics in 1936, the emphasis for outperforming rivals as competitors and hosts has increased since Beijing 2008. More often than not, authoritarian governments find utility in showcasing their regional or global prowess through lavish opening ceremonies and glitzy stadiums. It is significantly easier for regimes that lack an adequate legislative process to go unchallenged when using public funds to put on such events. The 2008 Olympics was Beijing's message introducing its regional hegemony to its already intimidated neighbors masqueraded as an event for global athletic cooperation. Athletic events are useful for regimes of questionable transparency to gain legitimacy. The first European Games were held in Baku, capital of Azerbaijan three years ago with encouragement fo the European Olympic Committee (EOC). They are intended to be for Europe what the Pan-American Games are for our hemisphere and give Azerbaijan a chance to be more closely associated with the west. Despite such attempts, reports of human rights violations quickly rose to the surface. The next European Games are set to be in Minsk, Belarus, the last surviving dictatorship in Europe. It is not so strange that the European Games are neither scheduled nor encouraged by the great European capitals. Taxpayers across Western and Central Europe are growing weary of the effectiveness of hosting such lavish athletic events at their expense.

Constituencies within democratic governments may not find as much utility in spending small chunks of GDP to build an Olympic village that will be used for less than a month. Thus legislators are hesitant to bear such costs, both monetary and political. The democratic governments that get a chance to host a major athletic events must carefully weigh cost and benefits, then they must try to not overestimate the prestige that comes with hosting such event. When Brazil won the bid to host the FIFA World Cup, it seemed to be a dream come true for a country in which soccer is tantamount to its devout Catholicism. Yet the decision to build a massive $240 million stadium in an isolated city of the Amazon Basin where just four matches were played proves that event planners of the government likely acted though impulse.

The opening ceremony of the XXIX Olympiad in Beijing’s National Stadium. Construction of the six main venues for the Beijing Olympics cost $2.1 billion.

While the Winter Olympics in Pyeongchang has served to unveil a ceremonial act of inter-Korean friendship as teams form both sides of the 38th parallel compete under a unified flag, it is clear that states find utility in globally broadcasted athletic events to make statements regarding their intentions, positions, and ambitions. With their respective political systems being variable, nation-states will continue to either invest in these events when legislatively viable, and/or participate in them when intervals of time call for them to do so. Unlike strictly political international organizations, these events have the unique capacity to disguise calculated international ambitions as goodwill.—NG


BRIEFINGS 

PERSPECTIVES

Olympic Views According to the International Olympic Committee, broadcasters have streamed fourteen percent more hours of Olympic programming for the ongoing Winter Games in Pyeongchang, South Korea, than in Sochi, Russia four years ago. NBC’s right to broadcast the Summer and Winter Olympiads is the IOC’s largest source of revenue and has paid the organization $7.75 billion for such right until 2035.

Gun Stocks on the Up In the days following the shooting that resulted in the death of 17 people at a Florida high school, shares of American Outdoor Brands, a Massachusetts-based gun manufacturer rose between 1.2 and 4.8 percent. Analysis conducted by CNBC’s Kensho Statistics show that gun stocks usually rise after a mass shooting due to the fear on the consumer side of potentially tighter gun regulations, incentivizing individuals to stockpile weapons.

Indecisive Market Even after the stock market rallied last week following a ten percent drop, global equity markets once again felt instability as the U.S. Dollar strengthens implying pressure for currencies across emerging markets, and interest rates for 10-year U.S. Treasury Bonds increase to a three-year high. The financial district of Levent in Istanbul. The Turkish Lira felt pressure following the U.S. Dollar’s recovery.

Sources: CNBC and Thomson Reuters ®

Give us your perspective.

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Department of Economics Seminar

Microeconomics Theory: Jonathan Weinstein—Washington University of St. Louis—February 23 at 2:15PM in 102 Kern

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Book Review: War By Other Means Within the numerous topics that encompass the literature related to analyzing the postCold War order, an examination of geo-economics is rare. The focus on American-East Asian relations is predictably the motivation behind the relatively obscure field, yet that focus is also a bridge that connects the intricacies stemming from traditional geopolitics outlined throughout the book. The emphasis on economic perspectives give a lens by which actions taken by previous bipartisan United States administrations can be used as a tool that magnifies the challenges relating to trade, emerging markets, and the rising hegemons of the east. Robert Blackwill, a former U.S. Ambassador to India and Jennifer Harris, an academic focusing on economics, provide a carefully crafted description of the institutional changes and reactive effects characterizing international politics in the modern era. The context under which the book was published coincides with the Western retreat from integration and animosity toward trade. Although not mentioned explicitly, the arguments are fitting reminders of the American efforts to pivot to Asia. For example, the co-authors outlined the intentions and history behind the Trans-Pacific Partnership, its strategic mechanisms and more generally, the connection to the United States’ overarching pivot to Asia. To understand the rarely used terminology of geo-economics, or the intentions muddled behind previous interpretations a straightforward, textbook-like definition of the field is described in page 20, serving as a backbone to keep in in mind for the remainder of the book. Blackwill and Haris define geo-economics as the use of economic instruments to produce and defend national economic interests, and to produce beneficial economic results, and the effects of other nation’s economic actions on a country’s geopolitical goals. —NG

The Optimal Bundle Vol. 49  

The Optimal Bundle is a student publication run by the Penn State Economics Association’s Print Education Committee. In this edition, our co...

The Optimal Bundle Vol. 49  

The Optimal Bundle is a student publication run by the Penn State Economics Association’s Print Education Committee. In this edition, our co...

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