The Student Loan Bubble

Source : Wall Street Journal

   Today, I will explore the economic principle that institutions are the "rules of the game" that influence choices. In the article "America's Student Loan Debt Crisis is About to Get Much Worse" by Bloomberg, the author shines light on the drastically growing rate of student loan debt in the United States and how nearly all college students are starting their working lives in five figure debt. 

According to the article, "Student loans have seen almost 157 percent in cumulative growth over the past 11 years". This is astounding when noted that credit card and mortgage debt has fallen 1% over the time. This is relevant information because it shows that student loans have gotten out of control in the country, and many graduates are left with six figure debt to pay off as soon as they leave school. When compared to mortgage and credit card debt, the fact that student loan debt has skyrocketed spells trouble for other debt rates, because if people can't pay off their student loans then they for sure will not be able to pay off other debts. 

When people don't pay their student loans, they face delinquency on them. This is an issue that will affect banks also, because if people can't find jobs that pay enough of their loan off, they will just not pay the balance. If enough people do this, banks that gave these loans will face issues as they will not be getting the money that they originally gave away. While people who won't pay their loans will face bad credit scores and diminished purchasing power, the bank will also face financial crisis. Both these events would cause a severe economic downturn, and it would prevent future generations from having positive financial situations in their adult life. 

Wealth Disparity in the United States

Source : Forbes

The article "Wealth Inequality Is Way Worse Than You Think, And Tax Havens Play A Big Role", by Pedro Nicolaci da Costa demonstrates the economic principle that institutions are the “rules of the game” that influence choices. In it, the author explains how drastically the wealth disparity in the U.S has grown over the past years, and shines light on loopholes the wealthy use in order to grow their riches.

In the article, the author mentions that wealth is now more concentrated than it was in the "Roaring" 1920's, as "The richest 1% of Americans currently own a whopping 40$ of total household wealth." Another quote mentions how "No country (apart from Russia) for which estimates of wealth inequality are available has similarly high recorded levels of wealth inequality." Considering the oligopolistic manner of Russia's economy, this is a surprising quote to read. This inequality may not affect our everyday lives right now, but it plays a big role in the also decreasing social mobility in the United States. As more and more money is going to the top 1%, it is not trickling down to the other 99% of Americans. If incomes remain the same, consumer buying power will decrease as they will have to pay a higher percentage of their income for the same goods.

The idea of sending your money to foreign banks with law tax laws has always been a good idea for those who wish to avoid paying taxes, and it has become an increasingly popular option for the world's rich recently. Mentioned in the article is that "Statistics recently released by the central banks of a number of prominent tax havens suggest that the equivalent of 10% of world GDP is held in tax havens globally." The fact that the true number of wealth that the 1% holds may still be underrepresented is goes to show how economically unequal the world is becoming. 

Some may say that there is no way to stop this, as low-skill workers will continue to be exploited for cheap labor and magnates will continue to profit off their work because that's how the market works. While this may be true, a step to solve the disparity would be for the U.S government to implement stricter tax codes and make it harder to take advantage of the loopholes that allow billionaires to pay less taxes than a middle-class family. While it may be the inevitable result of a capitalistic society, the government should always fight for fairness and equality.

In my next blog post, I will cover student loan debt.

Decline of the Middle Class

Source: Reuters

The economic principle I’m exploring is Institutions are the "rules of the game" that influence choices

My research question to help me study the economic principle is "How socially mobile is America
today?"The article published in The Atlantic titled “Poor at 20, Poor for Life” demonstrates this
economic principle by showing that people aren’t moving up form where they started, the middle class is becoming stagnant, and the top is becoming very lonely.

Millennials today have a lower chance of moving up the social ladder than previous generations.
According to the article, “the probability of ending where you start has gone up, and the probability of moving up from where you start has gone down." This lack of progress shows me that the U.S has failed to give millennials the same opportunities afforded to previous generations, who benefited from low tax rates and low college tuitions. With inflation of goods and services, people now have to spend more on the same products. This makes it hard to save money, and thus prolongs the time it takes to put a down payment on a house or go on vacations every year.

The article also showed that the American Dream is fading for many. The article stated, “if you’re in the middle, you’re stuck in the middle, which means there’s less space for others to move into the middle". This article talked about the shrinking of the middle class, which has squeezed itself into being hard to enter and hard to escape. It is being shown that college degrees aren't helping much either, as the bachelor degree is losing value to employers and thus are offering lower wages for entry-level jobs. After reading this article, I recognize that the "American dream" is slowly fading and I will look into what economic factors are causing this, and whether or not they can be solved.

In my next blog post I will research the question: How much wealth disparity there is in the U.S.

How Socially Mobile is the Lower Income Class in America?

The Hechinger Report

• The economic principle Links to an external site.I will explore is  Institutions are the “rules of the game” that influence choices.
• The overall question I will research to help explore the economic principle is (the question should contain 1-2 keywords from the economic principle): How socially mobile is the lower income class of America? 
• 3-4 subquestions that will help me answer my overall research question are: 
  •  How many people born in poverty stay there there whole life?
  •   Are those born into higher income families more able to stay in that position?
  •   How much does public school funding affect the success of children?
  • Is the system "rigged: against the poor?
• Links to 3-4 reliable resources that can help answer the research question:
  • Business Insider 
  • The Economist
  • The Atlantic
  •