Down We Go

Just recently, the first quarter US GDP was released.  The GDP, or Gross Domestic Product, basically represents the income of the country as a whole.  This number determines how much the government can spend and in many ways, the power and prestige of the country.

This quarter, the GDP was $3.0306 trillion, almost the exact same number as four years ago.  This doesn't seem like a cause for concern, but adjusted for inflation, it is 6.5% lower than 2009.  The chart to the right indicates the GDP adjusted for inflation since 1955.  This shows how the current GDP is significantly lower than in the past.  Much of this can be attributed to the recession but also the struggling economy of the US.

Unfortunately, it is not very easy to fix the economy.  Citizens must spend in the economy and the government must reduce spending in order to decrease federal debt.  This will take time but unless it is addressed soon, there will be nothing preventing the GDP from decreasing continually.  If America wants to retain its label as a superpower, we must get our act together and fix this mess.

What do you think would be the best remedy for tour economic problems?  Has America's reputation been tarnished because of our economic issues?  Please comment below.

The Age of Technology

I was browsing through the New York Times today and found a very interesting article about a recurring theme of Excel coding errors.  This may not seem important, but these errors tend to be on major projects and research that affect the whole country.  Here is the article.

A few examples of these errors are as follows:  "In this age of information, math errors can lead to disaster. NASA’s Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase’s 'London Whale' venture went bad in part because modelers divided by a sum instead of an average."

These are significant errors that lead to disaster and losses of millions of dollars.  Yes, technology has certainly improved many different areas, but we must be cognizant of the possibility of errors.  For example, there was a study done by two economists at Harvard.  This research was determining if there was a correlation between debt and economic growth.  The conclusion of this study was that once debt reaches 90% of the GDP, economic growth slows significantly.

This study came out a few weeks before the Greek crisis, which seemed to follow suit with the study.  As a result, almost everyone took the 90% threshold as fact, not theory.  News stations were referencing the 90% rule when advocating government spending cuts.  These cuts would lower debt, but also get rid of benefits for the unemployed.  And why was the reason this idea arose?  The Harvard study.

When researchers at U Mass looked over the data, they found an Excel coding error.  When corrected, there was absolutely no correlation between 90% of the GDP in debt and economic growth slowing.  What is to be learned?  In an age of technology, people are relying too heavily on electronic devices and programs that may have mistakes.  The 90% fiasco was a huge deal and could have seriously affected millions of Americans even though it wasn't a proven theory. Americans jump to conclusions when they hear an idea.  This can lead to problems.  Technology is beneficial, but we cannot rely too much on it.

Do you think Americans rely too heavily on technology?  Why or why not?  And what can we do to prevent these errors and misconceptions?  Please leave comments below.

You're a Winner! Or are you?

I was watching the news today when the lottery pickings came on so I wanted to follow up on my earlier post.  This post talks about how the lottery is a tax on people that are bad at math, but so are slot machines.  Here is a website that explains how slot machines work and some good strategies to use for slot players.

So to simplify things, slot machines are rigged.  The casino controls how much each player wins per spin and have it set up in a recurring cycle so they are profitable after programing the machine once.  However, they cannot give the player no chance of winning because then no one would use the machine.  As a result, they entice players by giving them a profitable return so they feel like they have a chance, only to let them go another 10 turns without making money.  Then they'll win again, but will not win enough money to offset the amount they lost previously.  This tactic works very well because it toys with the mind and makes a player think they can win.

But once again, why would anyone play?  I would say that more people are aware of the lottery odds than the odds of winning at slots, but most people still know it's a ripoff.  Some do it for entertainment, some to pass time, but anyone that thinks that they will make money off slot machines is kidding themselves.  The casino generally rigs it so they have a 6.58% profit margin, which is pretty damn good for a machine that sits in a casino day in and day out. 

Why do you think people play slot machines if the odds are against them?  And do you think it is unfair for casinos to prey on unintelligent bettors?  Why or why not?  Please comment below.

The Truth Behind Student Loans

As I was working on my Junior Theme, I came across an article explaining how high student loans are getting.  My Junior Theme topic is consumer debt, and one of my sections focuses on how student loans are a big catalyst to in increase in consumer debt.  I always knew the cost of college was very expensive; however, I did not realize how much people go into debt, evidenced by this article.

Amazingly enough, "the total loans outstanding exceed $1-trillion now, which is far greater than either credit-card or car-loan debt".  This number really pops out to me because millions upon millions of people use their credit cards every day to make purchases.  Furthermore, credit cards get the majority of attention when people talk about sectors that cause the most debt.  But to think that the cost of education is so steep that the majority of student must go into debt is sickening.

"Students finish college with an average debt of more than $25,000.  Some students owe more than $100,000".  $25,000 is a lot of money for someone coming directly out of college, especially when they are not guaranteed a job with good income.  Additionally, that loan is going to have an interest rate, making that $25,000 much higher.

It is understandable that colleges want money for providing an education, but really?  Does it have to be $40,000 a year?  Yes, many colleges offer scholarships and/or financial aid, but those discounts only account for part of the tuition.  There is also room and board, books, food etc., which can really add up.

Do we really want college students to experience this rate of indebtedness?  Colleges are not setting a good example of how to lead a successful life.  They are teaching students that debt is normal and it is nothing to worry about.  Then the students receive a bill saying how much interest they have to pay and then they truly understand how much of a scam debt is.  It is normal to incur debt when buying a house or making a big investment, but not when it isn't necessary.

How do you think colleges should approach putting their students in debt?  And do you think debt is a fundamental problem in this country? Why or why not?   Feel free to comment below.