CI Economy Unit Guide
What are the current trends towards student loan debt?
$1.7 trillion in student loans Increase of 12.5% from last year Fastest growing debt 2nd biggest debt in America
What are the arguments against raising the minimum wage?
- cost of all workers would have to increase - job loss/reduced hours (automation/outsourcing) - young population wouldn't get entry level jobs - prices will increase - business's could close - hurt economy/buying power of Americans - poorest - in support of feee market principles
What are the current trends with regards to healthcare costs in the U.S.?
20% nation's GDP goes towards it $300 billion annually spent on prescription drugs 75% healthcare costs spend on preventable disease 15% Americans without it More Americans pay more for healthcare/insurance Less take home pay Some put off treatment
What are the current trends with regards to housing costs in the U.S.?
- costs of rent/home ownership rising - H.3.6430 needed to be addressed - US costs: $291,700, CT: 318,400 - high cost of down payment - increasing values = more taxes - Fair market rent: family of 4 in Hartford county need to earn ave 93,807 - markets can be hard for first time buyers - lack affordable housing - COVID/evictions
What are the arguments for raising the minimum wage?
- wages have not kept up with inflation - living costs are going up - help recruit more experienced workforce, lower turnover - reduce government/welfare spending - would create more jobs - reduce gender/economic inequality - workers spend their increased pay instead of saving it - stimulates economy
What is the nature of United States debt?
2020: $22 trillion, Now: $31.4 trillion! We pay income taxes, which fund government programs (social security, Medicare, etc.), but when government runs out of money, it has to borrow from foreign governments, banks, corporations, etc. This is dangerous because by 2050, all the money we take in wouod be used to pay off our debt (interest), so nothing would be left for programs/services Infra government debt (borrow from other parts of government): $6.1 trillion Public debt (borrow from outside government: financial institutions/banks/foreign governments): $22.3 trillion More than half of our spending is on entitlements (Social security 14%, Medicare 19%, etc.)
What is the current state of employment in the U.S.?
3.5% employed 3-4% unemployed
Extra: basic model of gig economy
Freelancers: independent workers make agreements with on demand companies to provide services Providers: app-based start-ups provide infrastructure for workers to perform services (ex: Uber) Clients: request services thru app, allowing to search for providers for specific jobs
Extra: types of employment
Frictional unemployment - common, between jobs, transitional Cyclical - lack of jobs due to the business cycle Structural - non existence of jobs for unemployed or lack of necessary skills (most get retrained) (automation, manufacturing, outsourcing, most concerning type)
Extra: McCarthy and the debt ceiling
McCarthy had to make concessions to become speaker of the house: one was "limits on the debt ceiling"
Why is it important to be financially literate?
No notes for this, but the definition is "the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing"
Extra: president policies
Obama: pay as you earn: caps payments at 10% your income Trump: borrowers who make payments of 12.5% they earn, for 15 years, will have remainder forgiven Biden: extended deferments of payments, proposing debt forgiveness: $20,000 Pell grants 10,000 federal grants
How is President Biden's economic policy addressing the current economic realities and challenges?
$1.9 trillion pandemic rescue package (2021) Infrastructure Bill (2021) and Jobs Act Significance: these laws will drive $3.5 trillion in public/private investment over into U.S. economy in next decade Is planning to do: -student debt relief plan (currently held up by courts) - shifting Nation away from fossil fuels - universal prekindergarten/tuition - free community colleges
What are the current trends with regards to childcare costs in the U.S.?
$750/month school year, $834/month summer Ave spent Ct: $18,376 2 kids, $27,563 3 kids Americans spending more on kids Limited availability Impacts ability to save (long term) Difficult on low wage earners
Extra: economic challenge 2: potential gridlock in Capitol
A split between Republican controlled house ans democratic senate means neither parry will have the votes to enact major legislation (acts) Republicans want less government: deep spending cuts, accused Biden for funneling too much money into economy, leading to inflation Democrats want more government: reliance on government spending to address issues such as high speed internet access to all, building nationwide network of EV charging stations
What is a living wage?
A wage that allows a safe, decent standard of living that allows one to provide for their necessities and live above the poverty line Food, housing, childcare/education, healthcare, some savings Hourly wage needed for rent is above minimum wage figures in most states
Extra: business/professional tasks
Apps focus on skilled professional business positions Extra staffing Graphic designs Business freelancing Finance/consulting Continuing education Scientists AI
Extra: home/personal labor
Apps focus on skilled/unskilled labor force for companies Tasks: rides, housework, babysitting, dog walking, delivery, moving/tech, food
Extra: benefits of gig
Benefits of gig: - provides increased independence/flexibility - offers greater autonomy/control - offers variety of tasks - quick cash during recession/additional income
Extra: Economic challenge 1: semiconductors and EV batteries: how it affects industries negatively
Benefits to globalization: efficiency (low prices) As the logic of efficiency/comparative advantage gives way to a focus on security/economic nationalism, investments will be duplicated and costs will rise. The result will be higher bills for taxpayers and consumers snd diminished prosperity Big idea: will government's attempt to have nation's own supply chain eventually lead to higher prices/damaged trade alliances?
Extra: why are Americans not good at saving
Consumer culture/advertising Social media (envy) and algorithms (targeting you) Easy financing on everything (BNPL)
How does inflation affect U.S. businesses and consumers?
Consumers/businesses get "less bang for their Buck" Decreases consumer's and businesses' purchasing power Consumers and businesses expectation of rising prices, will want to buy more This will add to the trend of rising prices
What are common mistakes people make regarding personal finance decisions?
Credit card debt: only charge what you can afford to pay off each month BNPL (buy now pay later): DON'T Instant gratification (desire to have pleasure or fulfillment without delay) vs. delayed gratification (ability to resist temptation for short term reward/wait for better long term reward) Building wealth DOESN'T mean getting a paycheck, it means ownership Jobs not designed to build wealth for workers: employers focus on "cost of labor", not "cost of living" Stocks: only invest what you can afford to lose Don't speculate market, don't buy low/sell high, beware of "bubbles"
Extra vocab: de industrialization and outsourcing
De industrialization: process of transitioning economy away from manufacturing into service section Outsourcing: replacing domestic labor with much cheaper foreign personnel/infrastructure
What is the recent history of the U.S. economy?
Downturn starts 2006 Near economic collapse 2008 (Fed bailout of huge companies) (recession) Stimulus package 2009 Slow recovery 2008-2019 Near economic collapse 2020 (COVID) GDP big drop and unemployment rate 15%
Extra: Employment key vocab
Employed - have/had paying job in past 4 weeks Unemployed - no job but actively looking Labor force participation- total number employed/unemployed Long term unemployment- no job over 26 weeks Underemployed - not enough paid work/not doing work that makes full use of skills/abilities Discouraged workers - not looking for work because believe no jobs are available for them
How might the gig economy affect you?
Estimate 36%/59 million Americans Gig expand 3x faster total US workforce Over 50% workforce work in gig by 2027 18-24 year olds more likely to work in gig $204 billion in gross volume
What is the job market outlook in the U.S.?
Fastest growing jobs in us: clean energy/healthcare In CT: tech/healthcare Look at benefits, not just salary
What is the minimum wage?
Federal minimum wage = $7.25/hour since 2009 (x 40 hrs x 52 wks = $15,080/year)
Extra: benefits to companies
Flexible hiring as needed Avoid expense of full time employees No benefits paid (health insurance, days off, retirement) Less office space
What are the current trends with regards to income distribution and wealth in the U.S.?
Gap between upper and middle/lower incomes rising (share held by middle income falling) Top earners gain far outpace other groups (bottom 20%/middle 60% same rate increase growth, top 0.01%/next 0.09% way higher) Actual vs perceived share of income is not accurate (perceived: 10% more than 1 million, Actual: >0.1%) COVID accelerated trend of inequality around the world There is a racial wealth gap in the U.S. (white gets way more than black/Latino)
What have been the effects of international trade agreements?
Globalization: - remove tariffs/trade barriers - unite international markets - goal: cheaper cost of production/more profit Benefits: - profits - access to consumer goods in west - countries lifted from poverty - interconnectedness - accessibility Concerns: - loss of domestic careers - closing of American industry - reliance on other nations - global workers rights issues
What is globalization and automation?
Globalization: when businesses develop international influence or start operating on an international scale Automation: replacing human labor with machine labor/internet/AI
What financial goals should you consider in order to increase your economic opportunities?
Goal setting: what's the ONE BIG THING you want? Goals that reflect your personal values help you Plan/say no to lesser things Avoid impulsive spending Must make choices in face of scarcity (you don't have infinite recourses, time, money)
Extra: good debt vs bad debt
Good: Increase credentials - access to certain jobs, increased salary Bad: if degree not earned, if you overextend yourself, if credentials don't fit career/salary needed
Extra: causes of high inflation 2021-2022
Higher wages: to lure/retain workers - costs passed along to consumers (wages not keeping up) Supply chain disruption The nation's federal reserve bank "loose monetary policies" - oversees all other U.S. banks, promotes economic growth by encouraging businesses and consumers to spend, by lowering interest rates Big idea: this bank and COVID relief plan over-stimulated the economy
How do these challenges affect Americans' economic opportunity ("Realization of personal potential")?
Housing: home isn't only a building, it's community/education Healthcare: Largest reason for bankruptcy Poor quality health insurance/none Waiting for treatment is dangerous Childcare: Costs can limit ability to buy house Affects opportunities (both parents need to work) Give up your career?
How can the U.S. government respond to the economic realities and challenges that threaten America's promise of economic opportunity for all?
In Biden's state of union address: - "take back" supply chain -:creation of 800k manufacturing jobs, promoting products made in America - lowering prescription drug costs Big idea: president is reshaping US economy. With government's help, the U.S. is - reindustrializing itself - bolstering national security - reviving left behind places - helping blue collar workers - reducing its carbon emissions
Extra: Economic challenge 1: semiconductors and EV batteries: how it affects industries positively
Industries will benefit because these are important products to the US that are mostly made overseas and have experienced supply chain disruptions Industries have benefited already from Biden's policies - provided 52 billion of incentives to US semiconductor industry - In name of "owning" supply chain, Job creation, and national security - CHIPS for America Act, Inflation Reduction Act (400 billion to boost clean energy, and reduce dependence on China in important supply chains) - Includes a tax credit for US consumers buying EV's - amount of credit depends on where battery components are manufactured/assembled, and origins of battery's minerals
What are some of the current issues of the U.S. economy?
Inflation hits a 30 year high New vehicle prices surge to record highs Americans paying most for gas in 7 years Groceries kept getting more expensive College us more expensive than its ever been
Extra: who is in charge of managing the nation's finances?
Janey Yellen - Treasury Secretary In charge of borrowing money to finance government and managing debt, enforces tax/financial policies Warns Congress that US will hit debt limit by Thursday, start taking steps to avoid default Deng ceiling suspended until June 2023 Treasury department using "extraordinary measures" to buy time for congress to come to a solution
How has the development of remote work impacted the job market?
Job may not be based on geography -worker Large pool of candidates - business Businesses move toward automation
Extra: cons of gig
Liabilities: - lack benefits (no health insurance/retirement) - no clear career track/advancement, - form underdevelopment - contributes wage inequality - isolation and loneliness Race to bottom: where Americans must compete with lowest paid workers from around the world
What is the debt ceiling?
Limit on how much the US can incur to pay existing financial obligations (bills) Previous spending obligations, nothing new Congress muse approve
What is student loan debt?
Loan Usually by federal government (92%), Can be from private institution Student can't pay off after college. Longer it goes, more interest you must pay
What is the impact of student loan debt on the individual and the economy?
Major life choices: house, family, marriage Parents supporting kids longer Takes away spending power, new businesses, most loans backed by fed govt
How has increased competition from developing countries affected the US job market and economy?
Mr Bernard emailed be back "The main idea is that globalization makes it easier for companies to access foreign workers often times are able to work for a much lower cost than American workers. Whether it be in factory work, or more higher skilled professions, this trend is continuing."
What role does Congress play in the budget process?
Must approve any raise in debt ceiling (Constitutional obligation, Bipartisan history of this occurring) Sometimes debt ceiling used as a leverage point in negotiations The parry in power always votes to increase debt limit (supply the "yes" votes) - only bipartisan when power split between president and senate
How has outsourcing and automation affected the US job market and economy
No notes for this, but I would assume that it decreases the number of jobs available because they get replaced by machines or foreign workers
How does the supply chain impact the US economy?
No notes for this, but I would assume that the supply chain disruption causes inflation because of the limited availability of resources
What are the causes of income and wealth inequality?
Origins 1900-1980 - Gilded Age: affluence amid poverty - rise of corporations - Post WW2: economic boom benefits most - 1980's: Regan income tax cuts - from 50% to 28% (before 1981, highest income rate never below 63%) 1980's to today: - Deindustrialization and automation - Globalization/trade policies - tax policy - Great Recession (2008-2009 and beyond) - COVID
What is the current status of inflation in the U.S.?
Peaked at over 9% (4.2%: 2021, 6.2% 2022) Inflation was not an issue for past 40 years, only past 2 years Pre Covid: a steady, low increase in prices: 2% annual increase Begin COVID: Prices dropped 2021-2022: over 9% annual increase Past several months: price increases have slowed US government target is 2% Increased interest rate now at 4.5% Spending continues
What role does the government play in the U.S. economy?
President's popularity is always tied to the economy: majority party will focus on positives, minority on negatives Biden's plan: COVID relief - American rescue plan) Economic recovery - infrastructure bill, build back better bill, inflation reduction act Government spending to stimulate the economy
Extra: how healthcare system works
Purchase health insurance to lay for health care Healthcare: doctor's visits, emergency care, dentists, prescriptions Health insurance: used to be able to pay for healthcare. Ave cost $538/month CT Get insurance: offered by employer, purchase own (self employed), government programs (Medicare Medicaid acces health care)
What are the possible solutions to student loan debt?
Reduce tuition costs (hard with high demand) Debt forgiveness (tax payers impacted) Pay as you can (government debt) Free college (increase taxes)
Extra: congressional disagreements
Republicans: want deep spending cuts for cooperation Democrats: will not agree to these cuts/negotiations, need to happen without conditions
What is your economic philosophy?
Roosevelt (D): expanded role of government ("new deal") Hoover (R): diminished role of government ("trickle down", "laissez-faire") Biden passes social spending bill Trump signs tax cut bill
Extra: how to pay for college
Savings Scholarships Pell grant: for low income families GI Bill: for military veterans Federal or private student loan
Extra: Motives of Gig workers
Secondary (side hustle) - 55% Provides greater work life flexibility - 48% Primary income - 22% Funding retirement (over 55) - 11% Racial Justice: disproportionately proportioned
What are the short and long term effects of NOT raising the debt ceiling?
Short term: - government shutdown until agreement reached - huge job losses/spending cuts - "Default" on loans/payments (programs and federal services) Long term: - consumer fears= recession (global?) - Credit rating downgrade (from AAA to AA) - damage ability to borrow money in the future ("Catastrophe" - Yellen)
What are the short and long term effects of raising the debt ceiling?
Short term: keeps government funded/operating Long term: adds to own record high debt
What long term decisions can you begin to make now to enhance your economic opportunities?
Start Early Savings: spend less than you earn, be thrifty/cheap, be industrious (work your butt off) Entrepreneurship (start own business) Buy stocks (own shares of a corporation) because inflation eats away at your savings (need growth strategy to stay ahead). Micro investing: save small sums and invest consistently Mutual funds Don't put savings in a bank account (interest rate too low), saving accounts are safe (not risking your principal) Compound: Reinvest annual gains (interest) from original investment (principal). continue year after year, results in exponential growth
What is the current status of the minimum wage in the U.S.?
States may follow Federal minimum wage or create their own State minimum wage The higher amount prevails 23 states continually raising state minimum wages Federal minimum wage has decreased over time A family of 3 would make below poverty level (1 person level: $13,590/year, 3: 27,750) Who receives: NOT TEENS - 88% 20/older, 36% 40/older, 56% women, 28% have kids, 55% full time
How does the supply chain relate to inflation?
Supply chain disruption: - COVID 19, particularly China - Incentivized domestic production (new processes not as efficient) - plus limited supply of labor and companies carrying more inventory - added costs passed on to consumers
Extra: how has inflation eases some
Supply chain issues have eased up Consumer expectations have changed Federal reserve have raised interest rate, discouraged borrowing, slowed the economy Car prices starting to decline Gas prices eased Home prices increases slowed Rent slow down
What is the gig economy?
Temporary, freelance and contract workers who sell their work/services by the hour, day or job rather than working on a salary basis for one employer (How tech transformed economy)
Extra: debt ceiling and presidents
The debt ceiling has been raised under every president and Congress 48x under Republican presidents, 29x under Democratic presidents, 79x since 1960, 5x under Obama (+8.6 trillion in 8 years), 3x under Trump (+7.8 trillion in 4 years)
What is unemployment's impact on the national economy and its growth?
We are recovering from COVID Labor force participation rate: 62% Labor force shortage: Baby boomers retiring, COVID, immigration, teenagers, estimated 10 million jobs unfulfilled (even with 10% unemployed, 5 million jobs still unfulfilled) Low teenage workforce due to 9/11, 2008, and COVID Impact: manufacturing shortage, supply chain challenges, rise in worker's wages/benefits, increase strain on small businesses, higher prices on goods(inflation)
What may be the consequences of the continuation of the income and wealth gaps?
Wealthier earners paying less in taxes Middle/lower class paying a little more taxes Same wealthy citizens want tax reform Higher wage workers more access to healthcare and sick days Low wage workers more likely to be laid off Rising stock/housing prices benefited wealthy Wages up, but so are prices
How is unemployment measured?
Weekly surveys - 60,000 Americans Unemployed divided by labor force = unemployed rate Underemployed/discouraged workers not calculated
What is inflation?
When prices rise over time Loss purchasing power over time Primary measure is Consumer Price Index (CPI): the average change over time in prices paid by urban consumers for a marker basket of consumer goods/services
