Monday, March 22, 2010

My Two Cents

I was bored today during lunch, so I did a little economics investigation of little to no value. I’m sure you all know the phrase, “my two cents.” I figured that phrase must have been in use for decades, so I did some research. It turns out the origin of that little chestnut is not so well known, so I was not able to dig up an exact date. Regardless, I thought that “two cents” seems like an awfully tiny amount of money. It ought to be adjusted for inflation. After all, unless thoughts are less insightful or helpful these days, their real values should not have declined. I found data on the GDP deflator from 1940 till 2009 and did some calculations to figure out the updated idiom. Using a GDP deflator of .0978 for 1940 and GDP deflator of 1.1651 for 2009, you find that the real value of "my two cents" should be "my 24 cents." Somehow, I do not think this is going to catch on.

Wednesday, March 10, 2010

Bye Bye Overdrafts

Bank of America will no longer charge overdraft fees. For those of you who have never experienced the displeasure of one of these charges, it happens when one overdraws his account. So, if someone pays for his 3 dollar beer with his debit card but only has 2 dollars in his account, that beer may end up cost more like 40 dollars. The sighs from consumers and politicians are sighs of relief. Reports had emerged claiming that banks had been making billions of dollars of profit off of these fees. Naturally, the politicians jumped at the opportunity to attack banks in the name of their constituents, and consumers, obviously, were happy to see these charges go. Now that BoA has done away with them, it seems to be only a matter of time till other banks follow suite. I actually do not think the fees should be abolished. BoA is losing a lot of revenue from this and whether it is Washington yelling at them or just BoA trying to show some corporate social responsibility, I don't know. However, there was nothing shady or unfair about the overdraft fees. Everybody knows they're there, and the demand for debit cards has certainly not suffered because of them. The New York Times writes, "In the case of overdraft, 93 percent of the fees are generated by just 14 percent of the customers who exceed their balances five times or more a year, according to a 2008 study by the Federal Deposit Insurance Corporation." It seems to me like BoA is throwing away a completely legitimate source of revenue. Like I said, that 14% knows these fees exist. They're just part of the cost of holding a debit card. For a good as inelastic as debit cards, banks have no reason to apologize for getting as much money as they can out of it.

Tuesday, March 9, 2010

Here's a Little Rant

I'm on spring break now in my lovely hometown of Northampton, Massachusetts, also the home of Smith College. My mother, who is professor of economics there, informed of a speaker coming over to talk about investing, specifically asset allocation and diversification. Now, this is, to be fair, not the most accessible of topics, and I applaud the presenter for doing a fine job with it. I would like to point out that the room was practically full when I walked in at the beginning, and by the time it was over, there was only a small nucleus of interested people remaining. Did everybody else have better things to do? It's possible, doubtful, but possible. My mother tells me that this lecture hall gets packed for other presentations on subjects like history and English. It seems with material gets theoretical, and, God forbid, slightly difficult, people flee. This is but another example of a phenomenon that I have witnessed throughout my academic career. People, notably students, are afraid of theory, and more specifically, anything that has to do with numbers. There is some idea burned in the sub-conscious of this country that the best thing to learn is how to be "creative" and "be who you are." That is the stupidest educational theory I could think of, and dare I say it, but it's going to end up costing us in America dearly. I won't go into any of my habitual attacks against the humanities right now, but I will say that numbers are nothing to fear. We need to re-embrace them, because, quite frankly, analyzing Homer is not going to help solve any of the world's problems. Obviously, I'm quite biased towards economics as the one great subject. Don't get me wrong, I think it's great to be a creative, well-rounded person, but unfortunately that doesn't get anyone jobs. It doesn't explain the movement of the planets. It doesn't explain economic growth in countries. It doesn't solve any problems. So, for those of you who think the ideal education is lying in the sun reading Shakespeare, it's time to change your view. If you don't, you're going to be left behind.