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

Costs and Benefits No Free Lunch

The Execution at California’s State inCorrectional Facility atUser Saint A vehicle drives Chamber past the Facebook Headquarters Menlo Park, California. numbers have unchanged despitethe recent scandals. Quentin. Mostremained Americans still support useprivacy of capital punishment. Image credit: Josh Edelson / AFP / Getty Images –The San Fransisco Chronicle

The Cost of Privacy

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fter the recent scandal involving Cambridge Analytica, Facebook has been under severe scrutiny for the exploitation of its users’ data. The privacy controversy regarding the unauthorized release of data to Cambridge Analytica is being analyzed after Mark Zuckerberg testified before congress. Many believe that Facebook is not regulated enough and that it currently acts as a monopoly. In order to find the answer to this question it is necessary to recognize Facebook’s history. Recent controversy over Russian political manipulation and Cambridge Analytica are not Facebook’s first run-in with privacy issues. In 2007 Facebook experienced issues with its Beacon service, which shared user information with third party sites. In 2009, Facebook changed its policy to gain authority to use customer data for any purpose whatsoever, which was immediately protested and reversed by the company. Finally in 2011 Facebook settled charges made by the FTC about sharing user information that was meant to be kept private. None of these issues, however, led to

April 17, 2018 Spring 2018: Volume 53 The Penn State University Economics Association

any discernible impact on Facebook. In 2006, Alessandro Acquisti, an economist specializing in privacy at Carnegie Mellon University, found disclosure that a privacy breach on average led to a 0.6% stock drop. Companies rarely pay the price for a privacy scandal. This is due to the fact that privacy does not have a set price. Information could be stolen from a user, but never used to commit identity theft. Users may feel uncomfortable with their information being shared with third party sites, however they cannot put a price on that feeling. Acquisti wrote, “The economic proposition is opaque. We can agree consumers are getting value back. It’s hard to estimate the cost to privacy, and how much value the companies who manage the data are getting from it.” In comparison to Facebook, many other data-sharing companies are much more heavily regulated. Equifax, a credit-reporting company, lost a third of its market value last year due to a data breach. This was due to the fact that Equifax operates under several federal laws and experienced federal, state, and foreign investigations into the breach. It also has competitors to whom its disgruntled customers can turn to. This is what separates Facebook from many other data collection companies. As it currently operates, Facebook has very little regulation and few competitors. In the future, as mentioned by Acquisti, it would be better to implement privacy protection across all companies that maintains the genuine benefits that data sharing makes possible, which will require regulation.—AR Sources: https://on.wsj.com/2Hkcksw


Equilibrium Down Under

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hen the first Dutch explorers charted the western coast of Australia in the 17th Century, it must have been difficult for them to imagine that the country that would arise on that deserted landscape would outpace their vast empire’s continued prosperity 400 years later. In June of 2017, Australia surpassed the Netherlands’ record-breaking period of uninterrupted economic growth. Australia has enjoyed 27 years without a recession. A recession is defined as two consecutive quarters of negative GDP growth. As of April 2018, the country’s economy has been growing continuously for 106 quarters. An Asian financial crisis, A global economic downturn, two international wars, seven Prime Ministers later, and Australian markets continue to show steady resilience. The Reserve Bank of Australia (RBA)

to float the Australian Dollar. The Economist recognizes that removing foreign exchange controls shielded the economy from negative outside forces. When the Asian Financial Crisis hit, nearby Australia was able to avoid the worst of its ripple effects. John Howard, Prime Minister at the time told CNBC that the RBA “held its nerve”, and while central banks around the world raised rates out of caution, the RBA maintained interest rates steady. The most affected countries such as Thailand did not import much from Australia, thus it did not cause a significant dent in exports. Only the tourism sector experienced a severe loss from southeast Asian visitors. This continued growth defied parts of the business cycle, as the accelerated levels of growth did not result in a bust. This is be

The Kangaroo Momentum The Port Jackson waterfront in Central Sydney. James Cook was the first European to map the eastern coastlines in 1770. He named the territories New South Wales, and claimed them as a Crown Colony for Britain. Today, Sydney is the financial powerhouse of Australia.

has kept interest rates at 1.5%—a record low. The record growth aligns with the longest interval of time for which rates have not been increased in the history of the RBA. Several structural reforms contributed directly to creating a foundation for this historic economic momentum. By the late 1980’s, Prime Minister Bob Hawke’s government liberalized trade significantly. His government dismantled tariffs and ended subsidies for industries operating at a loss. In other words, he discouraged protectionism. Despite much opposition from his left-of -center Labour Party, Hawke finished the privatization process of state-owned firms. These included Optus, the country’s largest telecommunications company, the Commonwealth Bank of Australia, and even Qantas— Australia’s beloved flagship carrier. In an action that received opposition from the right-of-center Liberal Party, the Hawke government introduced sweeping revenue reforms, which included a capital gains tax. Perhaps one of the more consequential actions was the decision

cause the RBA adopted policies that counterbalanced negative growth in certain Australian states. For example, when the resource-rich regions of Western Australia and Queensland experienced a lack of investment and increased levels of unemployment, the RBC lowered interest rates to their 1.5% level. This allows for the economies of more diversified states like Victoria and New South Wales to grow. By having the regions where the financial powerhouses of Melbourne and Sydney are located catalyze investment, the country’s output stabilizes. It is important to keep in mind that such monetary policy is tailored for the unique characteristics of the Australian geography, population and industrial sectors. In the United States for example, states have significantly more determination over their individual revenue systems and fiscal policies. In Australia, the central government in Canberra exerts more power.


The growth has complemented low inflation ranging between 2-3% and low government deficits. The responsible policies paid off when the Global Financial Crisis rattled markets on every continent. While the Australia Securities Exchange in Sydney lost 59%, it recovered 30 points by July of 2009. Other than ephemeral hits in employment, the Australian economy was the only one in the developed world to avoid a recession during the Crisis. By October of 2009, the RBA had increased its benchmark by 0.25 basis points, indicating a quick recovery. Part of the reason of why it weathered the crisis while most of Europe, Japan and the U.S. felt its effects acutely lies on Australia's export partners. As China’s economy grew throughout the first decade of the 21st Century, Australia shifted its focus on trade from the United States and Japan to China’s growing share of demand for natural resources. By the time the Financial Crisis hit, China was Australia's second largest trading partner. When Beijing introduced a stimulus to revive momentum, Australian exports increased by 15% to $24 billion. As an island, population flows are relatively fixed, but according to economist Saul Eslake immigration helped expand the economy even though per-capita output fell for four quarters. These effects offset each other, allowing for stabilization. The resulting 2.1% hike in population increased demand for housing, thus Australia not

The Australian economy was the only one in the developed world to avoid a recession during the 2008 Global Financial Crisis. only avoided the Global Recession, but also a housing crisis. In the years since the crisis, the Australian economy has continued to grow. The RBA plans to increase interest rates slightly in 2019, signaling that the economy is projected to further improve. All this is not to say that Australia is free of potential bumps. Like in the U.S., wages have grown slowly or stagnated, and household debt has expanded. Additionally, Australia's success story provides some hints for effective economic management at the macro scale, but its conditions are not easily transferrable to other countries.—NG Sources: https://econ.st/2f3Mz0o; https://bit.ly/2HI5gnC

A Global Outlier

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his past week Amnesty International released its 2017 analysis on capital punishment. Their annual Death Sentences and Executions Report attempts to put a number on the people that have been executed or are awaiting a death sentence. In 2017 worldwide 993 people were put to death, however, China’s figures are excluded because their death sentence numbers are a “state secret.” Amnesty International suspects China puts more people to death than any other state in the world and guesses the number to be in the 1000s. Of the 993 executions, 84% of them occurred in the Middle Eastern countries of Saudi Arabia, Iran, Iraq, and Pakistan. Only 23 states, including the U.S., carried out executions in the past year and Amnesty International claims there are nearly 22,000 people on death row awaiting execution (this includes countries that have sentenced people to death but will likely never carry out the execution). Amnesty’s regional analysis revealed some otherwise optimistic news about a dark topic, executions are on the downfall. Without including China’s mystery numbers, executions across the whole world are down both on an international and a regional level. The Middle East/North Africa and Asia, which account for most of the world’s tallied executions, have had a decrease in both people sentenced to death and executions carried out. In Europe, only Belarus carried out the execution of two people. Belarus is the only European country that has anyone awaiting execution. In the Americas no executions were carried out outside the United States. Currently in the Western Hemisphere, only the United States, Guyana, and Trinidad and Tobago will impose a capital sentence. The United States carried out 23 executions in 2017 and remained the only country in NATO to do so. The United States continues to behave like an outlier on the world scale. While developed and western nations have long abolished the death penalty, 8 U.S. states carried out executions in 2017. While the economy and government system of the U.S. resembles that, and likely is the basis for, many democracies in the Americas and Europe, the U.S. continues the policy of totalitarian states like China, Saudi Arabia, and Iran.—PS Sources: https://www.amnesty.org/download/Documents/ ACT5079552018ENGLISH.PDF


BRIEFINGS 

PERSPECTIVES

FOMC Minutes The Federal Reserve came out with the minutes from their meeting on March 21st. The Federal Reserve was very clear in planning on raising rates at this meeting and they followed through with a 25 basis points increase. An interesting part of the report is that the Fed expects two more 25 basis points rate increases this year then 2 or 3 next year.

Allies Strike Syria On April 14, armed forces from the United States, France and the UK fired missiles to destroy what they say are chemical weapon factories in Syria. The air strikes came after a reported chemical attack. The Syrian government and their ally Russia states that the chemical attack is a “fabrication” and did not happen.

Comey Speaks Former director of the FBI James Comey has written a book pertaining to his time dealing with the Trump administration. Unsurprisingly he is very critical of President Donald Trump and talks about a culture of lies and ‘loyalty to a person rather than to morality or the truth’.

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The Future of Television Over the last fifty or so years cable television has played a part in most Americans lives. However, since 2000 the number of cable tv subscribers in the United States has been on the decline. With the popularity of streaming services such as Netflix and Hulu consumers finally have other options. There are still nearly 50 million US households who pay for cable and one of the main attractions of cable is the ability to watch live sports. Streaming services can’t provide live sporting events, for now. Recently Disney came out with ESPN+ an addition to their ESPN app. Users can pay $5 a month for premium sports content. This is not a replacement for paying for cable and getting the ESPN channel. ESPN+ will include a free NHL and MLB game per day, live events for niche sports like Major League soccer and cricket, archive selection from ESPN original shows like E:60 and 30 for 30 among other similar things. So currently the app won’t show live football or basketball games but I believe this is just step one. If more people refuse to subscribe to cable but still want to watch their favorite team ESPN could offer a service allowing consumers to just pay for games they want to watch. Similarly, the NBA has been testing a radical, brilliant idea. They have posted ads on social media that say “watch the final five minutes of this close NBA game for $.99”. If the NBA and other sports run with the model of paying a small amount for individual games or even just parts of games, that could be a huge source of revenue for them. It would also be a blow to cable television, people can watch various shows on Netflix or Hulu or anywhere but sports are currently only on cable. Cable television providers such as Comcast and DIRECTV should be terrified of losing their biggest competitive advantage. If you could pay for individual games and subscribe to streaming services then what is the point of paying for a hundred channels you don’t watch? There are plenty of households who would gladly stop paying for cable if they can watch live sports elsewhere. I predict the number of cable subscribers will continue to fall and sport leagues will find other avenues to sell their product.—PR The ideas expressed in this column do not necessarily reflect those of The Optimal Bundle or PSUEA.

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Optimal Bundle Vol. 53  

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

Optimal Bundle Vol. 53  

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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