Poor Economics Chapter 7

In chapter 7 of Poor Economics the authors main focus is on how when most poor micro businesses ask banks for loans they typically do not receive them and when they actually are given a loan, the banks charge them at high interest rates.  But the author also focuses on how Micro Finance Institutions, through the use of microcredit, give the poor loans without charging them with absurdly high interest rates.  This idea of microcredit does present some problems such as if the loans are not repaid the Micro Finance Institutions cannot continue to run.

The authors give an important statistic on page 158 when they translate how much a fruit and vegetable seller in India has to pay back to a wholesaler in terms of American dollars.  They say if you borrow 100 rupees ($5.10 USD PPP) with an interest rate of 4.69%, after a year you would have to pay back 1,842,459,409 rupees ($93.5 million USD PPP).  This was quite mind blowing to me that they charge the poor at such a high interest rate and one would think that this is why so much poverty persists in the world.  To provide a counter to these high numbers the authors use the Micro Finance Institutions by saying how they allow buyers to purchase with cash instead of credit, which allows them to save a significant amount of money. 

I learned a great deal from this chapter of Poor Economics.  They presented many ideas that opened my eyes to why individuals are so poor and also as to why they are forced to pay such high interest rates.  I also learned how the use of micro institutions can help the poor by giving them lower interest rates but at the same time cause many problems.

One question that came to mind after reading this chapter was how can the micro institutions create a plan that allows them to lower interest rates but at the same time make sure they are compensated for their loans?

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Regression Results

For my regression analysis project to analyze factors that affect under graduate graduation rates at universities in the United States.  I selected 78 colleges and universities and chose independent variables of: Mean SAT score, tuition, undergraduate class size, percent of males and females, and student to faculty ratio.  I ran the regression in stata: reg GradRate MeanSAT StudFacRatio. I chose this as my first regression because I felt these two variables would have the best fit for graduation rates.  The R-suared term was significantly high (.7361) meaning that both variables fit the regression.  I still need to expand my data set in order to provide me with better results.  I have a solid data base that will allow me to include other factors.

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Assignment 7: Poor Economics Chapter 4

            Chapter four of Poor Economics evaluates education in developing countries throughout the world and discusses the most efficient ways to institute functional school systems.  The author’s state that schools in developing countries tend to offer very little; where teachers and students are frequently absent and the level of learning is subpar.  They offer two models to explain why this happening.  The first is a supply model that proclaims the government needs to provide children with better school and better necessities to succeed.  The second is a demand model where parents contest for better education only if there are monetary benefits for sending their children to school.  This chapter also brings forth systems for education that rely on motivation to make parents and teachers focus on providing the children with a sufficient education.  Finally chapter four discusses the implications that economic background, social expectations, and parental influence, have on the quality of education a child receives.

            The central theme of chapter four in Poor Economics pertained to extremely poor, developing nations.  In these developing nations exists a substantial educational gap between children and this gap is influenced by factors such as income and parental manipulation.  While looking for an article that relates to this chapter of Poor Economics, I came across and article from the Wall Street Journal titled “Arthur Levine: The Suburban Education Gap”, that discusses how even an affluent country like the United States faces a education gap not only amongst its’ rich and poor but also between its’ rich and other prosperous international nations.

            In both Poor Economics and the “Arthur Levine: The Suburban Education Gap” article, the writers declare a major reason as to why these education gap subsist is because of parental influence.  In poor countries, parents choose how much they want to invest their children.  This level of investment decides the quality of education the child will obtain and how much both their parents and teachers support them in their academic endeavors.  For the case in America, Arthur Levine attests that parents need to discover what superiority education is and how it is attained.  Even for student attending the most prosperous institutions, Americans have developed an acceptance for mediocrity.  Levine states that parents need to use every possible resource at their disposal such as demanding changes in schools to give their children the necessary needs for a better education. 

            It was very fascinating but at the same time demoralizing to see how differences in educational success can exist not only in poor developing countries but also in the wealthiest country in the world.  It seems that equality in education may never come to be unless factors such as economic status, social status, and parental influence can be taken out of the equation.


Article Link: http://online.wsj.com/article/SB10000872396390444223104578041181255713360.html

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Assignment 6: Intro and Bibliography


In a society that is driven by competition, an individual’s level of income plays a prominent role on their social and economic status.  To judge whether or not someone is successful in the United States, it is customary to examine what he or she does for a living but more importantly how high his or her level of income is.  With that being said as more people strive to become wealthy, the gap between the rich and poor continues to increase and thus raise the income inequality in the United States.  Income inequality is a critically imperative concern in the subject matter of economic development.  When looking at nations across the globe where political corruption and unequal land distribution exist, it is easy to see how a country can develop such a large difference between its’ rich and poor.   As for the United States where all citizens are given an equal opportunity to succeed, we need to look for other factors that result in such a discrepancy of income.  In this paper I will specifically analyze how much of an effect an individual’s level of educational attainment has on their income level and ultimately tie this aspect of education into the income inequality problem that the United States faces today.  In the next section of this paper I will use other academic material that relate to my issue at hand.  By incorporating other scholar’s work into mine I will be able to truly answer my purposed question.  The third section of my paper will describe the data I will be using to test my hypothesis.  Next I will create a model that incorporates my data and allows for me to test my hypothesis.  The fourth section will encompass my results from my model and provide evidence to explain my findings and to accept or reject my hypothesis.  Finally, I will conclude my paper by talking about how one’s level of educational attainment affects their level of income and use this as a factor to explaining the income inequality that persists in the United States.



Abdullah, Abdul J., Hristos Doucouliagos, and Elizabeth Manning. “Education and Income Inequality: A Meta-Regression Analysis.” Deakin University (n.d.): n. pag. Web. <http://www.hendrix.edu/&gt;.


Cheeseman, Jennifer D., and Eric C. Newburger. “The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings.” Current Population Reports (2002): n. pag. U.S. Census Bureau. Web. <http://www.census.gov/prod/2002pubs/p23-210.pdf&gt;.


Gitelson, Alan R., Robert L. Dudley, and Melvin J. Dubnick. American Government. Australia: Wadsworth Cengage Learning, 2012. Print.


Gregorio, Jose D., and Jong-Wha Lee. “Education and Income Inequality: New Evidence From Cross-Country Data.” Review of Income and Wealth (n.d.): n. pag. Web. <http://onlinelibrary.wiley.com/&gt;.


United States of America. Bureau of Labor Statistics. USUAL WEEKLY EARNINGS OF WAGE AND SALARY WORKERS FOURTH QUARTER 2012. N.p.: n.p., n.d. BLS. Web. Feb. 2013. <http://www.bls.gov/news.release/pdf/wkyeng.pdf&gt;.


United States of America. United States Census Bureau. Department of Commerce. , Current Population Survey, 2012 Annual Social and Economic Supplement. N.p.: n.p., n.d. Web. Feb. 2013. <http://www.census.gov/&gt;.

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Assignment 5: Freakonomics Chapter 3

            Chapter three of Freakonomics offers a well-examined economic analysis of a crack-cocaine dealing street gang located in the south side of Chicago.  The authors use the research of University of Chicago graduate student Sudhir Venkatesh to answer their seemingly amateurish question of why drug dealers still live with their mothers.  Venkatesh spent several years following Black Gangster Disciple Nation and obtained a vital collection of financial records that were used by the authors of Freakonomics to make sense of why a profession like drug dealing, where they’re portrayed as individuals with an endless supply of money, driving numerous expensive cars; are in reality extremely poor. 

            Through their analysis, the data showed that few members of the gang were actually wealthy and they normally were high leaders of the gang.  They use the comparison of the gang to a typical American corporation such as McDonalds.  The leaders of the gang are similar to the few executives who run McDonalds while the other members of the gang, known as street dealers, were compared to the minimum wage workers of McDonalds, with the addition of taking the risk of being shot or arrested for everyday’s work.  The ultimate reason as to why young African-Americans in Chicago turn to the gang lifestyle was that they didn’t really know any better.  They were brought up in low-income household usually with a poor educational background and the glory that was depicted in becoming a gang member was seen as opportunity to abandon this lifestyle.

            The authors provide ample statistics in this chapter to support their thesis. I’ve provided four that I thought were applicable:

–       Page 99, “At $8,500 per month, J.T.’s annual salary was about $100,000—tax free…” 

–       Page 100, “His three officers, meanwhile, each took home $700 a month, which works out to about $7 an hour.  And the foot soldiers earned just $3.30 an hour, less than the minimum wage”

–       Page 102, “Fifty-six percent of the neighborhood’s children lived below the poverty line (compared to a national average of 18 percent)”

–       Page 102, “Seventy-eight percent came from single-parent homes.  Fewer than 5 percent of the neighborhood’s adults had a college degree”

            I choose the two-presented statistics on pages 99 and 100 to show how the authors supported their idea of how most drug dealers are poor even when society portrays them as being rich.  I thought these were very believable and relevant statistics to the authors’ thesis.  As for the second two statistics I chose, I felt they both gave a reasonable explanation as to why young African-Americans still tended to chose the path of a drug dealer.  Overall I was very impressed with this chapter of Freakonomics and felt the authors presented a valid assumption and supported it with suitable data and statistics. 

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Assignment 4: Research Topic

My topic for the research project is the effect that a person’s level of education has on their chance of being employed and the level of starting income they receive upon employment.  I know that the unanimous answer to this topic is that the higher level of education one has will result in a better chance of being employed and having a higher starting salary.  Though this may be the case I am interested in seeing exactly how much income levels and employment rates change as one pursues a higher degree in education. Considering graduate school is something that I am thinking about and probably many students at Gettysburg College are too, I feel this is a very relevant and important topic to be examined.   I hope to also include things such as race, gender, geographic location, competiveness of the different types of schools, etc. to see how they factor into an individuals chances of being hired and their starting income.  I found some government supported websites that offered reliable data but some of it seemed to be limited in the sense they just gave averages.  So ultimately I am looking for data that offers me a large sample of people who have received degrees from several different levels of educations.  I think it will be very interesting and informative to see the precise effect that higher levels of education have on job placement and starting salaries. 

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Assignment 3: Slate Article

            The Slate article about the new research done by Sendil Mullainathan and Edlar Sharfir provided ample information that can be compared and contrasted to the idea of the poverty trap presented in Poor Economics.   The essential idea given by these two academics was that the poor aren’t inevitably poor due to bad financial decisions but it is the stress of potentially falling into poverty that leads to poor financial decisions in the first place.  They also touch on the fact that people who have little time tend to fall even further into the poverty trap because their decision making process tends to focus on short-term goals instead of long-term goals.

            I feel this idea of having poor time management skills can be related to the poverty trap discussed in Poor Economics.  In Poor Economics, they feel the poor become poorer because they don’t spend their money on the right things, which causes them to fall further into the poverty trap.  If people have poor time management skills and don’t focus on their long term goals they start to worry about current issues and loose sight of the big picture causing them to fall even further into the poverty trap.  So like idea of poor decision making with regard to purchasing the necessities to develop fully in Poor Economics, the idea of focusing on the right decisions with regard to timing can greatly impact whether one becomes caught in the poverty trap.

            I still believe that the idea behind the poverty trap in somewhat up in the air.  After reading this Slate article it seems that there can be several reasons as why people fall into poverty and that there is no right answer.  Speaking specifically about the Slate article, I feel if they would have given more statistical evidence their argument could have been stronger.  With this being said I enjoyed reading this article and feel it provided another way to look at and analyze the poverty trap. 

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