What brought you to Rutgers? I attended Rutgers University because it was the only school that accepted me for undergraduate studies. I made a conscious decision to apply to four schools. I felt that I didn’t know enough about many schools and it would not be worth my time and effort to apply to approximately 10 or so schools like everyone else in my high school class. Rutgers was my safety school and ultimately the only school that let me in. Thus, it really wasn’t a difficult decision. I attribute this to sub-par scholastic behavior as a high school student.

What was your high school self like? My high school self was angry, quiet, and bitter. I consciously made the decision to do as little work as possible in high school (see: Rutgers, only school that accepted me) as I felt there were intrinsic problems with our educational system. In my juvenile mindset, rather than use a flawed tool to achieve my own ends, I had to fight it completely rather than compromise my principles. While it seemed nice and idealistic at the time, it seems completely idiotic to me now. I would also attempt to go unnoticed and listen much more than speak. There is an old Norse tale that always stuck with me for its simplicity and its message. Odin, who was traveling around Earth in disguise, was offered food and shelter by a friendly man and his family. Impressed by this man’s hospitality, he told stories with hidden advice. The punch line of one of those stories was, to paraphrase, that people have two ears and only one mouth so that they can only say half of what they hear. I think this is more of a proverb that that says that gossip is bad, but it made me determined to listen as often as I could.

What’d you see as the flaws of the system and how do you feel about those flaws now? My take on the educational system is that for the most part it doesn’t mold students into analytically minded individuals who are able to think about issues, analyze facts, and develop conclusions on their own. Most teachers I had would rather have you repeat their opinions rather than come up with and defend your own. Obviously not all teachers are like this, and the few that I have had who broke the mold are some of my favorites. I also feel that the educational system does a lousy job of making connections between what is done in the classroom and what occurs outside the classroom. I feel the major failing of our school system is in the fields of history, politics, and civics. For the most part science and math curricula are fine (although we tolerate an incredible ignorance of math in our kids). I am not quite sure how I feel about these flaws now. I still do not like them, but I don’t have any obvious solutions. Clearly, throwing money at the problem is not effective. The best fix that I have seen is for parents, students, and teachers to take an active role in the educational process. If all three parties demand excellence from the others, that generally tends to be a recipe for success.

How’d you decide on your major(s)? When I was a sophomore in high school, I distinctly remembered becoming fascinated by politics, global events, and history. It was amazing to see human dramas that had been unfolding for centuries and were constantly evolving before my eyes. It certainly didn’t hurt that this was 2001 and the world looked very different in October than it did in August. I began to follow current events very closely and would spend a significant portion of my time reading everything I could on the internet. It soon became clear to me that the single variable with the greatest explanatory power (in terms of explaining historical and current events) was economic interest. I knew from that point on that I was interested in economics and politics.

What sort of aspirations did you have growing up and which of these, if any, are you putting the most effort into making a reality? As a kid, I was exposed to a lot of literature from an early age. Both my parents and my brother are avid readers and I would always be picking up books or magazines around the house and reading them. Whether I was reading fiction or non-fiction, there would always be some sort of dynamic character who achieved greatness in some form or another. These characters were inspirational in some sense as they motivated me to want to do something great. As cliché as it sounds, I always remember the story of how Julius Caesar came upon a statue of Alexander the Great (my namesake) and exclaimed something along the lines of, “At this age you had conquered the world! What have I done?” To me, this was a clarion call that I wanted to do something for which I would be remembered.

In a nutshell, my aspiration is to be a leader on a global scale and help shape the world into a better place. I have attempted to learn more about this by interning for my U.S. Representative, Rush Holt, in Washington D.C. There I quickly learned that politics was much dirtier and frustrating than I had initially expected. I then turned to attempting to shape public opinion through writing for the Targum and the Johnsonville Press. Now, I am in graduate school in an effort to master my understanding of economics and use this knowledge to guide public policy in the future.

I’d like to further explore what turned you off about holding an elected office. What seemed so unappealing? Part of why I decided I would never want to hold an elected office is the spotlight that is constantly shone onto politicians and celebrities. I could never live having every word I say scrutinized to a ridiculous degree by the media. While I feel that I can be very diplomatic, I do not always wish to be so. I believe I would lose a key part of myself if I had to spend every day sucking up to people who most likely need to be criticized and get a swift kick in the ass. I also think that it is nice to be able to walk down the street and not be bothered by anybody. If I were an elected official on the national level, a simple act as going to the grocery store would be unimaginable.

How would you describe your relationship with writing? I used to dislike writing as a kid. Now, I realize that this was because I was never taught to write well. When that changed, in 6th grade, I found a new love for writing that complemented my love of reading. My current relationship with writing is that it is an amazing tool for expressing my ideas that often falls short of my expectations. Unfortunately, it seems that writing is perhaps not the optimal tool to reach a mass audience in present day America. Perhaps being a talking head on TV would be better than being a columnist in a national newspaper…

Why do you think writing is not the best tool to reach people?I feel that writing is not the best tool to reach people because, in general, they are not proficient at reading or writing. There is a significant downward trend in people’s ability to use and understand the written language. I often think that I could reach a much larger audience by just screaming at the top of my lungs at a busy intersection.

How did you change over the course of your time at Rutgers? During my time at Rutgers, I learned a few things about myself. The first one was that I needed to step up and take control of my life. Rutgers was the ideal location for this realization. The fact that you are just a number to the Rutgers administration forces you to become your own advocate. There was nobody at Rutgers who was there to hold my hand throughout the process. If I wanted something done, I had to step up and do it. I also realized that math and physics were amazing. As a child I had always been good at math but constantly hated it. This was, in no small part, some form of teenage rebellion against my parents who are both physicists. I finished my math requirements for Rutgers in high school and made the decision that I would never take math again. My sophomore year at Rutgers I took a general physics class and the next year I took Calc III and got back into math. I am very glad that I took them because I feel that they have given me even more tools to understand the universe around me. Similarly, I realized that I did not want to be a politician any more. When I entered Rutgers, I was determined to be the next President of the United States (or World, really). By the time I left Rutgers, I only wanted to be the man behind the curtain whispering into the ear of a prominent politician. Fame is something I wish to avoid like the plague. However, the most transformational experience I had at Rutgers was undertaking a senior honors thesis. My advisor was, to say the least, phenomenal. He constantly challenged me and forced me to refine my ideas and writing in a way that I had never really encountered. It was revelatory to see myself held up to a higher standard and learn that in certain aspects I was lacking.

What are some things you might whisper today? I am not sure what I would whisper. Probably something like, “they’re listening to us”.

What do you think of graduate school thus far? It’s a lot of work but I really enjoy it. The best part is the other students. I feel that I learn more from the other students than I actually am from the professors. I am constantly aware that all the other students in my program are very talented and bright individuals. It makes me want to work harder in order to not seem like a complete fool. This was a situation that I very rarely experienced at Rutgers. I also really like the fact that most of the students are from abroad. They offer very different perspectives on the world and current events than you would find in an American-only group.

How did you find out about the JVP? I found out about the JVP through Alex Giannattasio and Mike Stuzynski. I knew these guys from my sophomore year in Brett Hall and became good friends with them. Mike was also responsible for me writing a twice-a-month column for the Daily Targum, entitled “Draine on Society”. They told me that there were thinking about creating some sort of magazine or periodical which would compile works from various authors and individuals. Being someone with strong opinions, I jumped at the opportunity and told them that I would love to get involved. It also helped that I frequently disagree with the two of them (one more than the other) and felt that if I could express my thoughts as cogent argument on paper, then I could change their opinions.

Have you changed any opinions thus far? Well this is such a broad question that I am sure the answer is yes. I have a much more jaded view on the value of life than I did when I got out of high school. The idealistic part of me wanted to believe that every life was precious and that each person’s viewpoint was valuable. Now I have reached the conclusion that life is incredibly cheap and most people’s opinions are not worth responding to. I am also much more pessimistic and suspicious of people than I was before coming to Rutgers. This is probably from knowing several people who have been robbed or mugged and having chance encounters with people on the Rutgers bus system.

Do you try to reconcile the idealistic part of you with the part of you that thinks life is cheap and most people’s opinions are not worth responding to? Not really. I feel that expending such effort probably isn’t worth it. We all have limited time and energy and I would rather devote said time and energy to something that either makes me happy or is self-improving.

What makes life cheap? I’m not exactly sure what “makes” life cheap. It just seems to be a reality in which we live. I tend to view the world through a statistically-tinted lens. The fact that we, as individuals, are alive is just a statistical coincidence. There is nothing inherently special about us. In fact, I bet I could purchase a living human being for a relatively small sum in most parts of the world. The fact that the same might not be possible in the United States says nothing about the worth of a human life, only an American life. We are all just another link in a long, unbroken chain from our much more primate ancestors. To think that our particular link is something special represents some form of hubris.??Why do you think other people’s opinions aren’t worth responding to?I feel that most opinions are not worth responding to because most people don’t formulate them based on logic or facts. While some individuals do, and it is always a pleasure to debate with, the majority of people I have encountered based their opinions on dogma and ideology and refuse to let facts get in the way. There is simply no point in responding to such an opinion when the person will not be swayed no matter what you say. Only a fool will believe on Wednesday what they believed on Monday, independent of what occurs on Tuesday.

Have you been contemplating solutions to the problems that you identify and what do these problems make you feel/think about the present and future? I am always trying to think of solutions to problems I see. However, this is more easily said than done. The reason most of these issues are still problems is that there isn’t a particularly optimal solution. There are always trade-offs; most policies that make one group better off typically come at the expense of another group. It is not so much the problems that define how I think about the present or the future. History is filled with problems. I am more dismayed by our approach to these problems than the issues themselves. Our current political climate is one of pandering to extremes, denigrating knowledge, and appealing to emotions rather than reason. When you have significant camps within major political parties steadfastly refusing to acknowledge facts, then there is a major problem. I think much of this has to do with a general ignorance about science and quantitative analysis. The attempt to paint everything as black and white does a great disservice to our society as we effectively constrict our set of policy options.

We seem to be at a crossroads in the United States. Attending a prestigious university almost seems to be a liability rather than an asset in the public sphere. There is a deep distrust of experts. There is a general perception that the most basic answer is the correct one. In my mind, these are dangerous trends that act to undermine the security and prosperity of our society. If we are able to reverse this trend, and value learning, reward genius, and appreciate nuance then I think the future will be a brighter place.

Recently, several pieces of legislation crafted by Congress have come under fire from politicians for their effect on the national debt.  Typically these critics have been dubbed “deficit hawks” due to their conservative, or hawkish, viewpoints on the subject.  But this type of behavior is not limited to one side of the political aisle.  Indeed, all sound-minded and forward-looking individuals ought to agree that we must ultimately reduce the size of the national debt.  Thus, a closer look into the nature of debt and deficits is warranted.

When a household or firm is considering spending decisions, it must always do so within the confines of a budget.  The budget represents their net ability to spend; in economics jargon, we refer to this as the “budget constraint”.  This is the core of constrained optimization which is at the heart of modern Macroeconomics.

Yet strictly speaking, households and firms are not truly constrained by their current income; they can spend more than they earn by taking on and accumulating debt.  Debt is a financial obligation from the borrower to the lender.  There are several key features of debt that characterize any form of loan or bond.

The first characteristic is the principal.  This is the amount that is borrowed and the amount that is to be paid back upon maturity of the bond.  The maturity of the bond is the length of time until the principal is expected to be paid back in full.  Treasury bonds, loans from private individuals to the government, have maturities ranging from 3 months to 30 years.  The final characteristic of a bond is perhaps the one we are most familiar with – the interest rate.

The interest rate takes on many roles and can be considered in many ways.  One way to describe an interest rate is that it is the price of borrowing money.  In this sense, economists are looking at money not simply as a medium of exchange but as a good in and of itself.  Thus as there are markets for goods, labor, and capital, there is also a corresponding market for money.  Here the supply of and demand for money dictate the price of money – the interest rate.

A second way of looking at interest rates is as a form of risk compensation for the lender.  The borrower always knows more about their activities and motives than the lender does.  This is referred to as “information asymmetry”.  Since through the act of lending the lender is taking on some risk of not being repaid, he or she demands additional compensation in the form of interest rates.

Now that we understand what debt is, we can address the issue of households, firms, and even governments taking on debt.

All debt is not created equal.  When taking on debt, one must carefully consider what the money is going to be used for and what are the potential benefits of such an investment.  That is to say, some debt is beneficial while other debt is harmful.

Let’s take a look at two kinds of debt that are applicable to the household and thus should be familiar to most people.  Assume a household takes out a loan and has a choice of how to spend that money.  If the household spent that money on purchasing a brand new HDTV complete with sound system, then that is not a productive use of that money.  Unless you play video games for a living and feel that this will grant you a competitive edge, this is a form of bad debt.  On the other hand, taking out a loan to pay for a college education is a good form of debt.  The key difference between them is that the college education will increase your human capital and earning ability over the long run while purchasing a new TV will not.  Thus, when considering debt, one must always examine the potential for growth that this debt might allow.

The same is true for firms and governments.  A firm might take on debt through the sale of bonds in order to raise capital for a new manufacturing plant.  This capital expansion increases the total productivity of the firm allowing them to earn more profits and thus be in a better position to pay back their debt.

What are some good and bad examples of government debt?  Sticking to the metric outlined above, anything that will serve to promote economic growth can be considered good debt (if the return is high enough, of course), while deficit spending that does little to stimulate growth is bad debt.

Investment in education, infrastructure, and other forms of human and physical capital are always a good form of debt.  These forms of spending increase the economic potential of the nation and through increased economic output, the future revenues of the government itself.  Thus these forms of debt will often be able to pay themselves back over time.

Tangentially, some have suggested that tax cuts also represent a viable government economic policy option. To the contrary, it has been shown that tax cuts are wasteful forms of debt from an economic perspective.  The returns from tax cuts are significantly less than the returns from government spending in terms of stimulating economic activity.  Of course, one might make a political argument about the nature of liberty; this article focuses on economic arguments and will sidestep that issue completely.

So now that we understand what debt is and the merits of different uses of debt, we can now address the question of how much debt is the right amount?  The first condition to be laid down is very straightforward and should come as no surprise to anyone.  A household, firm, or government should not accumulate debt that exceeds its lifetime ability to pay back said debt.  This is commonly referred to as the “No Ponzi-Game Condition”, though perhaps we could relabel it the “No Madoff-Scheme Condition” in light of recent history.

We can also look at the volume of debt in two distinct ways that will have different implications.  The first is to look at the absolute level of debt.  Consider two hypothetical individuals, Fred and Molly, both of whom have accumulated debt over the years.  Ignoring where the debt came from, let us suppose that Fred owes creditors a sum of $100,000 while Molly owes her creditors a sum of $200,000.  In absolute terms Molly owes twice as much as Fred which makes her level of debt seem much worse.

Now let us consider these levels of debt in relative terms – not relative to each other but relative to the earning power of each individual.  Suppose Fred earns a salary of $100,00 per year while Molly has a much higher salary of $500,000 per year.  In absolute terms, Molly still owes twice as much as Fred.  But when considering their levels of debt relative to their earning power, Fred’s debt amounts to 100% of his annual salary while Molly’s debt amounts to only 40% of her annual salary.  When considering each individual’s debt in this light, it seems that Molly’s level of debt is much more manageable than Fred’s, even though she owes twice as much.

This relative level of debt is how we must consider government debt.  Any amount of government debt is likely to be on such a massive scale that it seems enormous in comparison to an individual salary and a household’s budget.  But when these values are calculated in terms of percentage of GDP, one is able to truly get a good picture of how much debt it really is.

Returning to the lead of this article, we are now able to evaluate government deficit spending, which is of course a form of debt accumulation.  When in an economic recession the government should pursue a policy of deficit spending.  This is especially true if monetary policy is made impotent, such as when interest rates are already at the zero lower bound (one cannot effectively push interest rates negative).  Deficit spending, while accumulating debt, is a very effective form of stimulus that will raise output and employment back up towards their full-employment levels.  The economic costs of not doing so can be quite tremendous.  As a quick back of the envelope calculation, consider the following scenario.  Suppose a full-employment economy (a misnomer) involves an unemployment rate of 4%.  Consider the case when the national unemployment rate is 10% (which also hides the true cost of under-employment).  Thus, the economy is losing (.06)/(.96) of its potential output – the so-called “output gap”.  Assuming a national GDP of $10 trillion (slightly low for the United States), this amounts to approximately $625 billion worth of lost output annually.  Note that this calculation is intended to be a low-ball estimate as it does not include the trust costs of under-employment, those who have stopped seeking work, and the self-perpetuating effects of mass unemployment.

The cost of massive unemployment is enshrined in the idea of the “Paradox of Thrift”.  The “Paradox of Thrift” is a phrase coined by Keynes and attempts to explain why recessions can spiral out of control.  The basic idea is that when a large number of people are laid off, they can no longer spend and consume at previous levels since they no longer have a steady income.  This lowers demand and firms will then lower output so as not to overproduce.  This will either directly lead to other workers being laid off or will do so indirectly through the Paradox of Thrift.  As workers speculate that they might be the next to lose their job, they make a rational calculation that they should spend less in order to have larger accumulated savings if they become unemployed. Yet when everyone does this, it leads to even less spending and demand, and thus more workers are fired as firms scale back to produce less.  This in turn becomes a self-reinforcing spiral of unemployment.  It takes a large boost in demand to combat the economic and psychological forces that are driving this collapse in demand and unemployment.  Typically only the government is large enough, or willing enough to take on debt, to deliver the sort of shock which is necessary to jump-start the economy.

However, this policy of deficit spending in bad times must be accompanied by a policy of fiscal and financial responsibility during the good times.  While it is acceptable, and even desirable to increase the deficit during times of recession, we must be willing to rein in this spending and increase taxes to pay for our spending when prosperity returns.  Much of our current financial situation comes not from unsound economics but rather from a collective willingness to forget the pain as soon as the pleasure returns.  There is no rational economic argument against deficit spending that seeks to reduce unemployment or ameliorate the pain of unemployment during times of recession.

Ultimately, we cannot be afraid of debt.  Debt is simply a financial tool that can be used properly and improperly.  In order to use debt in beneficial methods, we must first understand what it is, and how it can be used for gain.  We must be critical of deficit spending, but only in the same sense that we must be critical of everything.  Debt must be used to pick up the slack during the bad times, and funds put aside to pay for that debt in the good times in order to promote economic stability.

The global warming debate has become infantile in practice as both sides stick to their approved platitudes and mantras and each side accuses the other of lies, manipulation, and conspiracy.  The truth, as usual, is more complicated than either side makes it out to be, but not so complicated that the average individual cannot get a good understanding of it.

The first thing that needs to be addressed, in my opinion, is the choice of words.  The catchphrase “global warming” is now used to frame the totality of the environmental debate.  The truth is, global warming is just one effect of human and natural activity.  I believe, and will argue, that the debate should be defined in terms of “environmental change” which is much more broad and encompassing and does more justice to what humans and nature are actually doing to the ecosystem in which we live.

Let us begin with the basics and work our way up from there.  There are two major forces that act upon global climate.  The first is natural forces, which include solar activity, the rotation of the Earth, etc.  These forces have been the cause of Ice Ages in the past, and many people have attempted to explain current climate change as a result of purely natural forces.

The second force that impacts global climate is human activity.  Since the Industrial Revolution, human activity has become associated with pollution of many sorts.  This includes, but is not limited to, air pollution, water pollution, and the acidification of the environment.  Much of this stems from our heavy dependence upon fossil fuels for energy, but some of it simply arises because of our high standards of living which require the harvesting of natural resources and the production of manufactured goods.

Global warming is one result of both natural and human activity.  However, the natural activity is periodic and, in the past, has resulted in both periods of global warming and periods of global cooling.  The human activity is more straight-forward and here is the basic science behind it.  The vast majority of activity in developed countries uses electricity which is created by burning some form of fossil fuel.  The exhaust from this combustion is emitted into the atmosphere where the gases accumulate.

Sunlight is absorbed by the Earth, and then re-emitted in the form of infrared radiation.  The so-called “greenhouse gases” are gases that are highly absorbent in the infrared region of the electromagnetic spectrum and less-so in the visible light part of the spectrum.  In other words, they let most of the sunlight through to the Earth but then block the escape of the infrared radiation, resulting in increasing temperatures.  However, this is not to suggest that all contamination of the atmosphere will result in global warming; historically many large volcanic eruptions have cast so much ash and smoke into the atmosphere that they blocked incoming sunlight causing global temperatures to fall.

The global warming issue has become contentious for a number of reasons.  The first is that the ongoing debate over whether the widely-observed rise in global temperatures is anthropogenic or natural in origin.  Some claim that there have been variations in global temperatures in the past and that such changes as we are experiencing now can fall under that category.  Others stress that the currently observed changes are not large in scale and can thus be ignored.  I believe that both of these lines of argument are incorrect.  While there are certainly natural variations that are occurring, there is indisputable evidence of anthropogenic global warming via emissions of methane, carbon dioixde, and water vapor.  Even though there may be short-term up-and-down fluctuations, the long-term view shows an upward trend in temperatures.

Furthermore, just because the current increases in temperature are not drastic does not imply that future increases will not be.  Global warming appears to be a self-reinforcing cycle.  As global temperatures rise, more liquid water will evaporate and find itself in the atmosphere as water vapor, which is a potent greenhouse gas.  More ice and tundra will melt.  The melting ice will lower the albedo, or reflectivity, of the Earth as a whole which means more sunlight hitting the Earth will be absorbed and converted to heat.  The melting tundra and permafrost will exhume large volumes of methane, another greenhouse gas, which will cause the impact of global warming to grow over time.

Another point of contention in the global warming, or environmental change, debate has been the emergence of various emails from climatology researchers at the Climate Research Unit (CRU) at the University of East Anglia in England.  The emails, made public by an anonymous hacker, are claimed by some to show indisputable proof that global warming is a hoax and a conspiracy.  The truth seems less clear.  The researchers in question did indeed cross some lines regarding their duties as scientists.  Data, which should always be preserved, was deleted.  In addition, some questionable methodology was used to frame their results.  However, their actions do not refute the independent works of thousands of other scientists of different fields and nationalities on the issue.

The CRU used dendrochronology to measure global warming; that is, they used data from trees and their rings to measure global temperatures over a hundred year period.  This was done because one hundred years ago there were not sophisticated instruments available for use in measuring average surface temperatures or average water temperatures.  Data from approximately 1900-1960 shows an increasing trend-line in global temperatures.  However, from 1960 to the present, the data does not seem to show such a trend.  Again, this does not imply that the trend does not exist, as a slew of other measurements using a variety of different instruments do indeed observe this trend.  The researchers at CRU wished to have their data conform to the widely-observed data and appear to have manipulated the data as a result.  This is unethical and should not be condoned by anyone.  However, all that the CRU emails and study shows is that dendrochronology is neither an effective nor precise method to measure global temperature over a period of time and that these scientists were human beings.

The impact of global warming is uncertain, which brings me to the point I am intending to make.  There is much uncertainty surrounding global warming and climate change in general.  Let us suppose that the global temperature increased by 10 degrees Kelvin.  Would we be better or worse off?  I believe that the answer is both; certain areas of the world would be winners and certain areas would be losers.  The tropics would tend to be worse off while parts of the global North and global South would be made better off.  Certain habitable areas may become inhabitable, while the opposite may occur in different regions of the world.  We currently do not possess complex enough models or enough computing power to quickly and accurately predict the future evolution of a system as complicated as the global climate.

But the threat we are facing comes from more than just rising or falling temperatures.  One of the biggest threats we face is the degradation of the global water supply.  Industrial pollution and farm runoff inject impurities, poisons, and excrement into our water.  Such actions greatly increase the safety and health risks associated with drinking water that has not been properly treated with chemicals.  Imagine the economic costs associated with filtering heavy metals and toxins out of our domestic water supply.  Further, such pollution and acidification of the water supply will spell disaster for marine life and the wildlife that feeds upon it.  We are already beginning to more frequently encounter “dead zones” in our oceans – areas of hundreds of square miles where marine life does not exist due to low levels of oxygen.  Although dead zones can occur naturally, it is believed that the extensive use of agricultural fertilizer promotes their formation.

Given the uncertainty surrounding climate change, it would seem prudent to err on the side of caution.  Given the possibility of catastrophic consequences, this is an urgent matter that requires the concerted attention of the United States in particular and developing and industrial nations more generally.  If we continue to dither and avoid decisive action, future generations may curse our memory for not tackling problems when they were manageable.

On Tuesday December 1st, 2009, President Barack Obama made public his intention to send an additional 30,000 American soldiers to the combat theater of Afghanistan.  Though expected, this move was drastic and raised questions about the intentions of his administration regarding the ongoing wars in both Iraq and Afghanistan.  The decision to add 30,000 troops to Afghanistan is reminiscent of the decision of the Bush administration to bolster the troop levels in Iraq by approximately 25,000.

The obvious parallel to President Obama’s recent decision is the surge in Iraq.  Conventional wisdom holds that the surge has been a great success.  When looking at the numbers, one can see that since 2006, when the surge was implemented, conditions on the ground in Iraq have improved.  These conditions are measured in terms of American lives lost, Iraqi civilian lives lost, output of oil, and access to electricity.  It must still be noted that these measures are still worse than pre-war conditions in Iraq.

Yet, this conventional wisdom begs greater scrutiny.  What the surge has achieved is something commonsense.  With more boots on the ground, coalition forces have a greater ability to project their influence and secure the civilian population.  In my mind, however, the true test of whether the surge has been a success is whether or not such conditions will persist after the approximately 25,000 troops have been withdrawn from operations in Iraq.

By adopting such a metric, we do not yet know whether or not the surge has truly been successful.  The provinces which have seen the greatest improvements in security have been the provinces which are dominated by Sunnis.  This may appear like a great victory.  After all, the Sunni population had been the major force behind the insurgency following the fall of Saddam Hussein and the Ba’ath Party.  However, the real reason for the improvement in security conditions in these regions has been the fact that the Sunni minority has needed a protective ally to shield them from the vindictive Shi’a majority.  Many Sunni sheikhs and tribes decided to band with the Americans in exchange for protection and weaponry.  A similar narrative has been occurring with the Kurdish population in Northern Iraq, although there is a longer history of cooperation between the Kurds and the United States.

The parts of Iraq that we find ourselves unable to control or secure are the Shi’a areas.  The Shi’a majority, finding themselves in a position of power, have been exercising that power in a vengeful manner against their former Sunni oppressors.  Large-scale pogroms have taken place in cities and towns across Iraq; much of the drop in violence over the past few years is due to the fact that many neighborhoods have been effectively purged at this point.  There is no need to protect Sunni families in some neighborhoods; they have all been killed or driven out already

The United States has been buying the security and cooperation of the Kurds, Sunni, and Shi’a through firepower.  This is especially true of the Kurds and Sunni who feel threatened by a newly empowered Shi’a majority.  The role of the U.S. Armed Forces in Iraq has been to serve as a buffer between the groups to prevent full-fledged warfare.  A real outbreak of fighting between any two groups would likely escalate into a complete Civil War between the three Iraqi factions.

Despite the many successes enjoyed by the United States Army and Marines in adopting true counter-insurgency tactics and strategy, we ultimately find ourselves at a fork in the road.  The insurgency, as it has been traditionally defined, has been effectively marginalized.  Much of the domestic insurgency has shifted their alignment to the quasi-legitimate Sunni faction.  The foreign insurgency will always remain a problem but one that should be dealt with at the borders.  The vacuum of power left by Saddam Hussein has been filled by three parties, each of which seeks to exert its influence over national affairs.  The government of Prime Minister Nouri Al-Maliki has shown itself unwilling to effectively incorporate Sunnis or Kurds into the governing coalition.  At this point, it seems like there is little role for large-scale ground operations in Iraq except to prevent a full-blown Civil War.  Thus, the question becomes how long are we willing to keep our soldiers in Iraq to prevent a political and military implosion?

I do not think there is a clear answer to that question.  I believe that we cannot stay in Iraq indefinitely, but that we should also not allow Iraq to fall into a disastrous Civil War as a consequence of our reckless invasion.  Ultimately, I feel the best scenario would be to abandon the idea of Iraq itself; rather, the country should be partitioned into three sovereign entities.  This would be similar in practice to the partitioning of a Muslim Pakistan from a Hindu India.  We could facilitate the creation of a Sunni state, a Shi’a state, and a Kurdish state.  Such a decision would have to emanate from within the Iraqi population.  A significant obstacle to this partition is the negotiation of oil rights.  The Sunni population occupies land that is lacking in oil resources; the Shi’a would want more extensive oil rights as well as political power over the Kurds and Sunnis.  Any partition would have to strike a delicate balance between the royalties each group would receive from oil profits.  Although this would not ameliorate all the tensions and problems that will arise, it would swap a Civil War for minor border skirmishes and political rivalry.

All this brings us back to Afghanistan.  Although there are notable differences between Afghanistan and Iraq, such as a different ethnic composition, more mountainous terrain and less oil, we still find ourselves confronting many of the same questions.

When we send 30,000 additional troops to Afghanistan, what is our ultimate goal?  Is the goal to create a vibrant democracy which will act like a beacon to the Middle East and Central Asian Steppes?  Or is it simply to provide measurable increases in security, drops in violence, and then declare victory and pack up?  What do we understand the long-term ramifications of such actions to be?  Without such goals, any military operation is doomed to fail.

We must also ask ourselves what is truly feasible.  To create a secular democracy that fully supports human rights in Afghanistan would be a noble goal, but an unrealistic one.  To eradicate the poppy industry in Afghanistan would also be a worthwhile goal that could help thwart the heroin trade, but is also unattainable unless we can offer a substitute crop or industry.  We can secure the cities, but it is not feasible to secure every mountain pass that connects them.

The best feasible goal that I have heard suggested is to dramatically improve the condition of women in Afghanistan by means of education.  There is currently a dissatisfied fraction of the Afghani population that wishes to send their daughters to school – something opposed by the Fundamentalist Taliban.  The Taliban, and other Fundamentalist organizations, have attempted to dissuade families and young girls by means of terror and acid attacks.  By making the protection of these schools and young women a priority, the United States can truly better the lives of these women, their families, and their communities.  Educated and empowered women will be better able to stand up for their own rights and the rights of others.  As mothers, they will instill the value of education upon their own children and we may hope to see progressive ideology begin to spread throughout Afghanistan.  Furthermore, such a goal would be just and virtuous in the stage of world opinion; we are not seeking to exploit a natural resource, but instead to protect and promote self-improvement of the local community.  Such protection would also inspire more local confidence in the abilities of the United States and the government of Hamid Karzai to protect them against the Taliban.  Experiences in both Iraq and Afghanistan have shown that people are only willing to oppose Fundamentalist groups once they feel that they and their families are safe from retribution.  Such protection would allow a domestic counter-Taliban movement to foster and effect change from within.  Any other change, such as those imposed externally, would ultimately not be seen as legitimate.

As I have stated before, there is no clear answer to any of these questions.  These question are murky and often require detailed knowledge of the situation that is not made available to a civilian.  That being said, I will now outline my proposal of how to move forward in Iraq and Afghanistan.

In Iraq, the United States must begin implementing an exit strategy as we cannot become stuck in the sand indefinitely.  If a partition is feasible and supported by the Iraqi population, then that is how we should proceed.  Each separate state would then have the option of having American forces based there.  An election would determine whether or not we should stay or leave.  However, if the partition is not feasible or popular, then we should hold provincial elections asking the Iraqi people whether or not they want coalition forces to remain.  Different provinces will return different answers; it is likely that Shi’a provinces will want American forces to leave and Sunni and Kurdish provinces will want them to stay.  By doing this, we can leave the areas where we are unwanted and stay behind in the areas where our presence is sorely needed.

In Afghanistan we must concede that it is impossible to conquer and hold the entire country.  It has not earned the moniker “the graveyard of empires” for no reason.  We must focus our efforts on the cities and major transportation routes.  In addition, we must also make the security and education of women a top priority as such an approach represents one of our best options to successfully transforming Afghanistan.  This must also be coupled with an aggressive micro-lending operation that is given protection by the United States Armed Forces.  The infusion of education and capital, coupled with effective security against the Taliban or other Fundamentalist groups, should set the stage for a metamorphosis of Afghani society that erodes support for groups that wield terror as a weapon.

Draine on Society

A “recession” is defined as two consecutive quarters of negative GDP growth. Thus, by the time a contraction is officially labeled a recession, it may seem painfully obvious to informed observers. A “recovery” is defined as positive growth beginning from the trough of a recession and lasting until the next recession. The overall expansion and contraction pattern is known as the business cycle, and in true cyclical nature manifests itself over and over again.

Gross Domestic Product (GDP) is roughly defined as either the sum of all incomes or the sum of all expenditures in a national economy. As one person’s expenditure is another person’s income, these two definitions should provide the same overall value of economic activity. The simple macroeconomic equation states that GDP is the sum of private consumption, investment, government expenditures, and net exports. In our current economic climate, private consumption has fallen as households face uncertainty about future revenues, investment has fallen as investors fled from stocks in favor of bonds, but government expenditures have increased to pick up some of the slack.

The latest economic indicators have been remarkably positive. Durable goods orders have surged, apparently due to new orders for airplanes and appliances, and existing housing sales have also increased. It is unclear whether these trends will last as inventories had become depleted and the rise in home sales is likely due to foreclosures and tax credits for new buyers. While it is too early to get official 3rd quarter reports (the 3rd quarter will end in September), it seems likely that the rate of GDP growth will be zero or even positive. To put things in perspective, the first quarter GDP growth rate was negative 6.4 percent and the 2nd quarter growth rate was negative one percent. Today, many economic forecasts are optimistic enough to predict positive growth rates for the third quarter.

By standard economic definitions, this would mean that we have entered the recovery phase of the business cycle. As soon as we hit the trough, GDP begins to grow and we are no longer in a recession. So if we are in a recovery, why doesn’t it feel that way to most Americans? While financial firms have returned to their fast-pace world of asset trading, the national unemployment rate hovers at just below 10%. Some parts of the country find themselves with unemployment rates of almost 15%! While Wall Street celebrates the recovery, Main Street is still struggling through the aftermath of the recession. This is due partly to the fact that, while additional trading of financial assets generates profit and is considered economic activity, it does little to boost employment.

It should also be noted that the official unemployment rates understate the extent of the problem. It does not include those who are underemployed (that is working part-time but seeking full-time employment) or those who have simply given up the prospect of looking for work.

The unemployment rate is commonly referred to as a “lagging indicator”—generally, it will continue to rise or stay constant for some period of time after the economy has bottomed out. This is because as demand picks up, it takes time before businesses start hiring additional workers to keep pace with demand. In contrast, the stock market tends to hit its trough before the overall economy, and for this reason is considered a ‘leading indicator’.

However, the past few recessions have been what are called “L-shaped recoveries” or simply “jobless recoveries”. That means that, while the economy—as measured by GDP—grows, the employment rate remains close to its trough for an extended period of time. There does not seem to be a clear consensus as to why this has been true for the past few business cycles, but it seems likely that it is due to the shifting nature of our economy.

Our economy has increasingly become more centered on services than manufacturing, especially so in the financial sector. Massive amounts of high-speed trading generate economic profit during expansionary periods (they also tend to crash during recessions, but that is another argument). In such times, there is little extra demand for consumer goods that would require business and industry to hire more workers; but GDP is growing. It is worth noting that the parts of the country suffering from the highest unemployment rates are almost all traditionally centers of manufacturing and construction. As these industries have either flooded the market with a deluge of existing homes or have shifted to other countries, it is unlikely that they will be incorporated back into the labor force.

Even though our economy has shifted from manufacturing to services, it is still largely driven by consumer spending. Businesses that find their inventories piling up will not put in new orders for additional products until there is a surge in consumer spending. This highlights one of the flaws of using GDP as a barometer of economic welfare. Simon Kuznets, who helped standardize measurements of GDP, reported to Congress in 1934 that “the welfare of a nation [can] scarcely be inferred from a measure of national income”.

While GDP measures total economic activity, it does not measure the distribution of such economic activity. Economists use another instrument to measure income distribution, the Gini Coefficient. The Gini Coefficient ranges from 0 (which indicates perfect income equality) to 1 (which indicates perfect income inequality). In 2000, the Gini Coefficient for the United States was 0.408. In 2007, the Gini Coefficient for the United States was 0.463. This measure is important because at a fundamental level, it is necessary to know who has money that they are willing and able to spend.

In an economy based on consumer spending, it is necessary that consumers have disposable income to keep the economy running. A failure to meet that condition would result in a massive drop in consumption which would in turn lead to large numbers of layoffs and rising unemployment. No matter how many incentives you give to business to produce goods, it will not matter if the average consumer cannot afford to purchase them. One of the reasons why Henry Ford was so successful was that he paid his employees enough so that they could purchase their own automobiles (never mind the fact that the bill was simply deducted from their wages….and not really their choice).

One way to ameliorate the massive decline in consumer spending would be to institute an effective social safety net. The decisions of consumers to curtail their spending are rationally based on the fear of not having any available income in the future to meet their basic needs. If some minimal level of income were assured to private citizens, then they would be more inclined to spend. This could come either in the form of universal healthcare or transfer payments, such as Social Security.

This discussion of economic health also makes the point clearly for the usefulness of government stimulus. When the federal interest rate approaches zero, the Federal Reserve cannot stimulate the economy by lowering it even further. Therefore, additional government spending is necessary to pick up the slack left by private consumption, and thereby avoid a reinforcing spiral of layoffs. It is even better if these government expenditures were used to create something beneficial to society, such as improved transportation infrastructure, or universal health coverage. All the workers needed to implement such programs, along the lines of the Works Progress Administration under Pres. Franklin Delano Roosevelt, are given employment and disposable income. Their expenditures become another person’s income and so forth, generating economic activity.

From this, one can infer that measuring the wellbeing of an economy by GDP alone is not necessarily a good indicator. There are other, more tangible measures that reflect the welfare and attitude of the economy as whole, without the skewed results that come from having a small fraction of the population representing a large fraction of the economy. It might be useful for economists to focus instead on alternative measures. One such measure is the Human Development Index (HDI), which includes GDP as an input but also includes factors such as life expectancy and education levels. Another alternative is the Genuine Progress Indicator (GPI) which also includes GDP as a factor but attempts to measure whether overall economic growth results in improved welfare for the population. It does this by including environmental factors such as pollution and loss of land, as well as attempting to include the social costs of crime and unemployment.

The national discussion on health care reform has recently taken a dangerous turn. What should have been a meaningful discussion on goals and feasibility has been transformed into a campaign of deliberate misinformation. The goal of this campaign is not to enact any meaningful reform whatsoever, but to foster an atmosphere of fear and misunderstanding that will threaten any attempt to change the status quo. This campaign has been portrayed by its founders as an organic grassroots campaign; however, the validity of this claim is suspect. Several journalists and reporters have uncovered evidence that massive corporations with a stake in the health care industry have been major donors to the so-called grassroots campaign.

Let’s consider some of the claims that have been propagated regarding President Obama’s and the Congressional Democrats health care reform bill.

Recently, Senator Charles Grassley (R-IA) attempted to illustrate the evils of government health care. His example was his fellow Senator Ted Kennedy (D-MA). Sen. Grassley claimed that Sen. Kennedy would have been denied treatment for brain cancer had he been covered by a government insurance program, like those in Europe. His implicit claim was that private American insurance covered Kennedy’s treatment while government European insurance would have let him die. This argument is easily torn down when you realize that Sen. Kennedy is covered by government insurance. As a federal employee, Sen. Kennedy is covered under the Federal Employees Health Benefits (FEHB) program. While it is true that Sen. Kennedy is probably receiving above-standard treatment due to his wealth and status as a Senator, he is covered by an insurance program run by the Federal Government.

This methodology has carried over to discussions on Medicare. At countless town hall meetings and interviews, protesters and even U.S. Senators and Representatives have decried the socialistic power grab of the U.S. Government to expand its control over Medicare. Even Art Laffer, the economist known for the Laffer Curve which measures the relationship between tax revenue and tax rates, has rhetorically asked, “What will happen when Government runs Medicare?”. It is very hard to believe that these individuals do not know that Medicare is an example of an incredibly successful government-run program. Medicare has been wildly popular amongst those it covers. Citizens aged 65 and over who are covered by Medicare have been very resistant to any proposed changes. That doesn’t exactly seem like the type of behavior of people who are being screwed over by government bureaucrats.

Much of the senior citizen discontent has been fomented by outright falsehoods. The wild claim is that Obama’s health care plan would force mandatory euthanasia on elderly citizens. This is a preposterous argument that is being disseminated by those who know that it is false; the Obama health care plan would advocate end-of-life counseling for those who are diagnosed with terminal illnesses. This would merely advise patients who are considered by the medical profession to be in the end-stages of their lives what options are available to them.

The claim that government-run insurance would ration health care is not blatantly false, but is certainly disingenuous. This is also tied to the claim that Medicare is terrible because not all doctors or hospitals will accept it. The simple refutation to these arguments against health care reform or a single-payer system is that these occur already in the private insurance industry. Ask any individual with private insurance if they have been denied coverage for a condition or procedure. A large number of Americans would answer in the positive; this is rationing. Health care is also further rationed by income; those who cannot afford health care generally do not receive it. Also, many individuals who do have private insurance are told by doctors and hospitals that they do not accept that carrier, and all costs must be paid out of pocket. To imply that an inherent problem with the health care industry will only occur with government-run insurance is misleading and dishonest.

It is clear to all rational observers that something must be done to reform our failing health care system. We spend more per capita than other industrialized nations and yet rank more poorly than those nations when it comes to objective measurements of health, such as infant mortality rates and life expectancy. As a nation we must do something to control spiraling health care costs and the dreadful lack of insurance which plagues some 40 or 50 million Americans. However, to do this we must be willing to look at the situation as it really is. This can only be done by reaching a common ground on what the facts are; it will not be solved by misleading fear-mongering, scare tactics, and outright lies.

Hydrocarbon consumption is the American way of life. Every facet of our society is supported by the generation of energy through combustion of hydrocarbons, otherwise known as fossil fuels. The explosive use of fossil fuels has allowed us to make a giant break from the dire population predictions of Thomas Malthus. Mechanized production caused workers’ productivity to soar and outpace population growth, which would have otherwise eaten up all material gains in standards of living. However, this party may be coming to an end, or we may at least be presented with a bill for our time.

The greatest concern with fossil fuels is that the costs of externalities have been largely hidden from the consumer. The chemical reactions that oxidize hydrocarbon chains emit many gaseous byproducts, some of which are more harmful than others. These gasses, especially the heavier ones, accumulate in the atmosphere where they act as “greenhouse gasses”.

A greenhouse gas is a gas that absorbs and traps energy emissions from the Earth. This energy is then contained within the global environmental system, much in the way that a greenhouse traps heat. The scientific principle behind this is fairly simple; every object absorbs and radiates energy depending on its temperature and specific characteristics, such as pigmentation. Objects like the Earth tend to radiate energy in infrared portion of the electromagnetic spectrum as the Earth is not very hot. The sun, by contrast, is much hotter and radiates much of its energy as visible light. This energy is radiated in the form of photons – particles of light with wave-like properties. Everything is able to absorb energy, although certain elements and molecules have peak absorption bands at certain wavelengths. That is, a molecule like CO2 will absorb energy, but will be much more efficient at absorbing infrared radiation than visible light. As we increase the volume of greenhouse gasses in the atmosphere, the rate at which radiated energy will be trapped within the system will increase, with consequences that are not fully understood.

A bill on climate change and environmental issues, known as the American Clean Energy and Security Act of 2009 or “Waxman-Markey” after its main sponsors, passed the House of Representatives last week. This bill would seek to re-structure the way energy is priced in the United States, lower emissions levels within the United States, as well as lay groundwork for new energy industries to develop.

The most visible component of the bill would be a “cap-and-trade” system of pollution credits. Under such a system, there would be a fixed ‘cap’ of pollution that could be emitted annually by the United States economy. The total volume of pollution credits would be set to decrease with time in order to meet target emission levels. Credits could be allocated either by auction or appropriation. Industries which either received or purchased these credits could then trade them in a marketplace to other businesses. In this manner, energy efficient industries could sell and trade their credits, thus creating a financial incentive to operate in a carbon-neutral manner. Big polluters would be forced to purchase additional credits to compensate for the externalities caused by their emissions. This new market, regulated by the Environmental Protection Agency, would use economic incentives to encourage companies to operate in more environmentally friendly ways. The knowledge of who bought how many pollution credits would be of worth to modern investors who wish to invest in the companies of the future, rather than the aging behemoths of the past.

There is no free lunch and there is a cost associated with cap-and-trade measures. By including the cost of externalities in energy production, the price of energy will rise. This is neither good nor bad, but rather necessary. The price of energy has been kept artificially low in the United States through a combination of economic and militaristic dominance, as well as willful ignorance of the environmental impact of pollution. It is ludicrous that a gallon of gasoline, refined from petroleum that is found in finite supplies, is cheaper than a gallon of milk, which can be produced as long as we have cows. Increased energy prices will mean increased prices for producers and ultimately consumers. This cannot be denied. However, the newly increased price would embody the true cost of fossil fuel energy. In turn, the increased price of hydrocarbons relative to renewable energy sources such as biomass, solar, wave, or even nuclear will make these alternative energy sources more economically competitive and viable in the marketplace. Nuclear power is especially promising; there is enough fissile material to power our economy for a long time and there is an effectively infinite supply of material for fusion if we can develop that technology. As investment pours into these nascent industries, the cost of generating and distributing that energy will decrease and these savings will eventually be passed on to the consumers. Whether the increase in the price of hydrocarbons comes as a result of an instituted policy of taxation or cap-and-trade, the price increase will occur – it is inevitable.

We appear to have already passed peak global oil production – supply will be going downhill from here on. Since we have essentially already hit maximum oil production, supply will begin to diminish as less oil is available to be refined and transported to market. On the other side of the classic economic equation, demand is set to sky-rocket as newly industrialized nations such as China and India are set to claim their place on the world stage. The price of oil is set to soar; the low gasoline prices of the recession are already starting to climb and will shortly reach $3 per gallon in New Jersey, which boasts some of the cheapest gasoline in the nation.

Thus, there are also political and military aspects to implementing energy changes now. Given that demand for fossil fuels is far outpacing supply, alternative energy sources are necessary for future growth. The United States is presented with an opportunity to take a large lead in the development of the production and infrastructure needed to exploit new energy sources. By taking the lead, the United States would be able to capture a large share of the new market as well as reap financial rewards that would accumulate from patents, copyrights, and other intellectual property rights. The first nation to truly develop effective alternative energy sources and motor engines would be able to retool their entire domestic workforce and military to run off renewable energy. This would give that nation a head-start relative to other nations. At some point in time, the question will not be “How many destroyers, tanks, and jet fighters does each nation have?” but rather “How many destroyers, tanks, and jet fighters can each nation fuel?”.

Climate-science skeptics and opponents of government regulation will argue that such measures will impose massive costs on consumers and would cripple the economy to protect us against something beyond our control. While some of the measured impact on the environment is certainly due to natural variations in climate patterns, a significant part is due to human activity. Finally, the costs associated with re-structuring our economy to run on alternatives to fossil fuels are inevitable. We can put them off as long as we want, but the cost will only increase with time. By tackling such issues sooner rather than later we can grant ourselves the time necessary to complete such changes, minimize their costs, and allow ourselves a new competitive advantage relative to the rest of the world.

Research may be considered one of the critical aspects of human activity that separate us from all other known species. Through the continued study of a facet of the natural or human world, we are able to constantly expand the frontiers of human knowledge. It is true in a literal and metaphorical sense that each successive generation knows more than any preceding generation.

During my final year at Rutgers University, I was privileged to pursue academic research under the auspices of the Economics Department and under the tutelage of Prof. Joseph Seneca. I will use the remainder of this column to discuss aspects of my own research as well as my thoughts and experiences with research in general.

The topic of my research is philanthropy and public universities. The purpose of my research was to model and explain patterns of voluntary donations to public universities within the United States. Data was collected for 85 public universities over the time period 2001-2006. Several measures of giving were examined, including total giving, giving by alumni, giving by corporations, and giving by parents. Several vectors of explanatory variables were used in the model, including institutional characteristics, traits of the student body, athletic performance, tax rates, and macroeconomic conditions by state.

I chose this topic because of the discussions occurring here at Rutgers University regarding the expansion of the football stadium and the impact of athletic success on donations. I wanted to determine whether or not this was an appropriate use of University funds and whether or not the claims of the athletic department could be verified. The existing literature on donations to institutions of higher education did not reach a consensus on the effect of athletic success. Some researchers estimated a negative effect, others estimated a positive effect, and still others estimated the effect to not be statistically different from zero.

The final model of total giving used a two-stage least squares estimate procedure to estimate the effects on total giving of changes in values of the explanatory variables. The two measures of athletic performance that remained statistically significant were both measures of post-season appearance. The athletic teams with the highest profile on campus are football and men’s basketball. Whether or not either of these teams makes it to the post-season, that is a bowl game or the NCAA March Madness tournament, has a significant and large effect on total giving. A school that has a football team which makes it to a bowl game can expect the volume of total donation revenues to increase by approximately 23.6%. Similarly, if the men’s basketball team makes it to the tournament, total giving is expected to increase by 13.9%. Interestingly, if a team makes it to a BCS bowl game or the Elite Eight round of the basketball tournament, there is no additional payoff to the schools in the form of donations. The effect of athletic performance on total giving crosses a single threshold upon advancement to the post-season. Post-season success is not expected to bring any further donations to the university; going to the Rose Bowl brings in just as much in donations as the PapaJohns.com Bowl.

Another finding of interest was that, generally speaking, marginal income tax rates at the federal and state levels play a significant role in explaining and predicting donations to public universities. As tax rates increase, donations tend to increase. This is due to the fact that tax rates may be considered a measure of the price of donations. As marginal tax rates increase, the out-of-pocket cost of donating an additional dollar decreases.

The other note-worthy result is that the estimated effect of state per-capita income levels on donations to public universities within that state is negative. That is, as income rises, then donations tend to decrease, all other things being equal. This result was contrary to the hypothesized effect of income on donations. As income rises, it was expected that donations would increase; this belief was consistent with the idea that donations could be considered a normal good.

Despite the unexpected sign, there are likely interpretations of this effect. The first is that income plays an indirect role on donations in the form of state appropriations. As the income in a state rises, the tax base of that state will rise as well. With greater tax revenues, the state can dole out more in state appropriations to public universities. Since the prospective donor is already supporting these schools through their tax dollars, they may be unlikely to provide further donations. The second interpretation is that the expected positive income effect does exist, but that it is captured by private universities rather than public universities. As income increases, students are able to afford a greater selection of universities where they may pursue higher education. Wealthier students are likely to eschew public universities in favor of the more personalized and quality-oriented education they will receive at private universities.

The results of this research were both expected and unexpected. Some of the results confirmed the effects found by researchers before me; other variables were found to have entirely different effects than theory and past research would predict. The incredible aspect of my research was that it explores an area of human behavior which we do not fully understand. This is truly the greatest reward of research.

I would like to encourage anyone who ever has the chance to pursue research opportunities wherever they may be. Research is the means through which we discover new ideas and concepts which may revolutionize the world. Research is an exciting adventure; after all, who knows what you may find?

Quarterly profits are quarterly profits, right? A company simply reports the revenues and costs associated with a three-month period and the difference must be the net gains or losses accrued by the firm. In theory this is how it works; reality often paints a different picture.

Let us take a look at Goldman Sachs, which just recently announced huge and unexpected profits for the first quarter of 2009—reportedly to the tune of $1.8 billion. This announcement was coupled with the decision to issue $5 billion in stock in order to raise the funds necessary to pay back the TARP money borrowed from the Treasury. Closer inspection of the profit announcement shows that Goldman Sachs made some tactical financial maneuvers to craft these profits.

Originally, Goldman Sachs had been on an accounting year the first month of which was December. This means that in 2008, the first accounting quarter, in the books of Goldman Sachs, was from December to February. There are reasons to make the accounting quarter different from the calendar quarter. For example, December is a month that features high levels of retail sales due to the holiday shopping season. By including December in first quarter projections, a firm can mitigate the low levels of sales in January (again, associated with returns from the holiday shopping season) and project moderate levels of profits. High profits will make it easier for the company to raise capital through stock offerings and will also cause stock prices to rise, resulting in increased portfolio and stock option values for executives and investors.

This year, however, Goldman Sachs embraced a calendar year accounting schedule. This means that for 2009, the first accounting quarter consists of January, February, and March. Good bye December! Besides the obvious changes with respect to comparison (the first quarter of 2009 does not correspond to the same time period as the first quarter of 2008), it also begs the question, what happened to December? Looking at the accounting books of Goldman Sachs, it seems that December was essentially ignored. This exclusion of December from the accounting books has led some economists and accountants to label December an “orphan month”.

It should come as no surprise to anyone that December featured lots of losses and write-offs. Write-offs occur when an asset loses much of its market value, and its value to the firm, represented in the accounting books, must be adjusted downwards. According to Floyd Norris, who live-blogged the accounting issue at Goldman Sachs for the New York Times, December included $1.3 billion in pre-tax write offs. This amounts to approximately $780 million in write-offs after taxes. If December were included in 1^st quarter estimates for Goldman Sachs, it would make a large dent in their reported profits.

What this amounts to is a lack of integrity in accounting standards in the financial sector. There is absolutely no reason to believe that this behavior is unique to the quants, analysts, and executives at Goldman Sachs. If you found a way to give your company the appearance of gold, when the underlying metal was bronze, it would be irrational not to do so. The real irrationality is in the Financial Accounting and Standards Board (FASB) which allows companies this much leeway in deciding how to best misrepresent themselves to potential investors.

Companies and their accountants already have many options when deciding how to represent their earnings and profits to investors. Firms that actually sell items can decide whether or not the first or last items in inventory are those that are considered sold. These systems are known as FIFO and LIFO; that is First In First Out and Last In First Out, respectively. Depending on the rates of inflation or deflation, either LIFO or FIFO can exaggerate profits during a given time period and make the company appear more attractive to potential investors than it actually is. A more sensible approach would be to simply find the average cost of a unit of a good in inventory and apply this price to all units of that good. In the end, the numbers all add up the same and do not exaggerate profits to the detriment of investors.

Another accounting concept is known as Mark-to-Market. Mark-to-Market accounting refers to the practice of valuing assets at their current price as determined by the market. This is a good way of valuing assets whose prices can accurately be determined by the market. However, many over-the-counter derivatives, such as credit default swaps, are contractual agreements between buyer and seller and are thus not traded in regulated and organized exchanges. There are no true market forces determining the fair and appropriate price for these assets. The values are estimated using complex mathematical and financial models that sometimes appear to rely on unfounded assumptions. The Mark-to-Model prices, determined within the mathematical models, were used to assign inflated values to many assets in order to give the appearance of profits and capital gains by a firm. The Emergency Economic Stabilization Act of 2008 gave the Securities and Exchange Commission and the FASB the “authority to suspend Mark-to-Market accounting”.

Some have argued that Mark-to-Market accounting does not work in a market gripped by fear and turmoil. Thus, Mark-to-Market accounting must be done away with in order to give some semblance of fiscal stability to the balance sheets of major financial institutions. This is nothing more than a gimmick; when the prices of these assets increased during a speculative bubble, there were no qualms about using Mark-to-Market accounting practices. However, when the bubble bursts and asset prices are depressed, perhaps rightfully so, it is dishonest to value these assets at prices reached at the peak of the bubble. To do so would greatly exaggerate the net value of a firm that deals in these types of securities. When the price of a gallon of gasoline dropped to approximately $1.50, companies like ExxonMobil and BP were not allowed to value gasoline at the market-high price of more than $3 per gallon. To allow financial institutions to do so would be hypocritical, dishonest, and detrimental to the individual investor.

These are just some of the recent accounting scandals that have come to light. It is very likely that there are many more yet to be uncovered. When details about Enron first emerged, it was considered the black sheep and a rogue company. When details about WorldCom and other companies also emerged, it became clear that there were systemic problems not unique to any particular firm.

When times are good, nobody wants to question the party and speculate about tomorrow. But, when times are bad and the waters recede, it becomes easy to spot, to paraphrase John Kenneth Galbraith, the garbage that lies under the water’s surface. We must make sure that we are committed to cleaning up that garbage, rather than being content to let the water cover it up again and hide it from our sight.

There are a lot of financial buzzwords floating around these days. From Washington to New York, numbers and terms are being thrown about without much thought. It has become clear that many people do not fully understand the subtle and not-so-subtle nuances of economic policy.

Many Americans’ first experience with staggering numbers and economic bailouts was the Troubled Asset Relief Program, or TARP. This piece of legislation was crafted to aid the financial sector and was put into effect on October 3^rd, 2008. The problem with the financial sector was that it found its balance sheets filled with assets of little value. The net worth of a firm is equal to the difference between its assets and its liabilities. If the liabilities are worth more than the assets, then the firm is considered insolvent; in other words it owes more than it owns. The vast majority of the “toxic” assets were mortgage-backed securities which had been repackaged and sold by commercial banks to other financial institutions. When the housing bubble collapsed, borrowers defaulted on loans worth more than their homes. This made all the mortgage-backed securities nearly worthless. Had financial institutions marked down their assets, as is custom, they would have been forced into bankruptcy. It was feared that the fall of Wall Street would have disastrous repercussions on Main Street.

TARP was designed to bail out the financial institutions by offering them a lifeline in the form of funds. The federal government pledged $700B in two stages to Wall Street to help them cope with the drastic mark-down of their assets. This money would be spent in two ways: purchasing preferred stock and either purchasing toxic assets or offering government guarantees on those assets. The acquisition of preferred stock may be the only thing that the American citizen sees out of the $350B spent so far. In theory, when stock prices rise or the companies make a profit, the government will be able to recoup some of the initial expenditure by receiving dividends or selling the stock. Contrary to what many argue, this is not nationalization of the banks as preferred stock does not confer voting privileges on the owner. The purchases and guarantees of toxic assets are much more troubling. First, there is no way to price these assets. The market has clearly stated that private investors are not willing to pay much for these assets. It is probable that we, as taxpayers, paid too dearly for these assets that may never appreciate in value. What this has amounted to is a massive subsidy for an industry that failed to see the writing on the wall. Even more disturbing is the fact that Congress seems to have no idea where any of this money is going. The firms that received taxpayer money have not been forced to make any real concessions – the $500K salary cap is merely symbolic. It would have been more appropriate to wipe out upper management at any firm that accepted taxpayer money. If they were so incompetent as to require a bailout, why should we as taxpayers allow them to stay on to gamble away our money?

The effects of TARP failed to stabilize the larger economy as weekly layoffs, quarterly losses, and declining industrial production have shown. This forced the government’s hand a second time. Typically the government acts through the Federal Reserve by manipulating interest rates through open market sales or purchases of treasury securities. Most recently the Fed has lowered the federal funds target rate to a historically low 0.25%! The effective federal funds rate is actually a little bit below this but the difference is academic. The point is the Fed cannot jolt the economy into action by lowering interest rates – we’ve hit the lower bound. This is precisely what makes this current economic downturn (I am still waiting to see whether to call it a recession or a depression) so difficult to combat.

The only remaining response the government has in its economic arsenal is creating demand through expenditures. When the government purchases something, it creates demand and jobs. The initial purchases stimulate industry and all of the feeder industries that work together. When contemplating whether or not the automobile industry needed a bailout, it was important to recognize that the rubber and steel industries were also on the line as well. In order to fill in the output gap, the difference between potential and real GDP, the government must be spending on the order of the difference. In reality, we need not spend exactly as much due to a multiplier effect on demand. When the government builds a school, the construction worker gets paid and will then spend his or her paycheck on food, rent, and clothing which will then generate demand in those industries and so on. Empirical estimates of the multiplier effect from spending generally range between one and two, with many clustered around one and a half. The Congressional Budget Office (CBO) estimates that the output gap over the next three years will be approximately $2.9 trillion. This number is derived from Okun’s law which states the relationship between unemployment and the output gap. Even if we assume a large multiplier of, say, two, we would still need to spend on the order of $1.5 trillion! And this is a very optimistic view of the situation.

Unfortunately for all of us, the current stimulus bill, as being considered in the Senate, is too small and contains insufficient spending. The stimulus bill is being viewed as a one-time thing and should therefore be on the order of the $1.5 trillion discussed above. This number also assumes that all of the money is being spent directly. Approximately 35% of the Senate version of the stimulus bill is dedicated towards tax cuts which have been widely shown to be less effective than direct spending in creating jobs and demand. When a tax cut is given, people will spend some of it but they will also save some of it. This means that a dollar of tax cuts is less effective in creating demand than a dollar of direct spending.

The problem with both the House and Senate versions of the bill is that the Democratic leadership acquiesced to Republican demands for tax cuts. Ironically, even after all the concessions in the House, not a single Republican representative voted for the bill. What is troubling is that even after this display of partisanship by the Republicans, the Senate then expanded the fraction of the bill dedicated to tax cuts, and at the same time cut some of the most vital expenditures – direct aid to states. All across the nation states are finding themselves in dire fiscal straits. States are being forced to cut basic services and lay off employees. Both of these reactions only make the situation worse. One of the most effective ways to spend stimulus money is to offer it to the states so that services such as healthcare, food stamps and education can be continued. This money would be spent immediately and would have the effect of improving or maintaining standards of living and creating or preserving jobs. Given the current economic condition, a job saved is a job earned.

The TARP program and the stimulus bill in the Senate are very different. The TARP program was not designed to create jobs, demand, or even get any bang for the taxpayer buck. A lack of Congressional oversight has made the TARP program a give-away to financial institutions whose lack of foresight helped to land us in this mess. The failure to include strings in the bailout was another failure of Congress to ensure that firms were forced to give something up in order to get something.

The stimulus package is designed for the rest of us. It will generate demand for goods and services across the board. When an industry does well it tends to spill over to other industries and the same holds true for when it does poorly. Further, the stimulus bill will actually give the American public something for its money. This is an opportunity to fix schools, bridges, highways, railroads, hospitals, police and fire departments, and so much more. The stimulus package is an investment in both the present and the future. Still, despite all the accolades the stimulus package deserves, it also deserves criticism. It is too small, with more than one third comprising tax cuts. Only two thirds of this bill can even be described as fiscal stimulus. The other third is ineffective and wasteful. Congressional Democrats offered their hand across the aisle and were slapped away. Senate Democrats have shown even less spine in pandering to the opposition and in the process have watered down a vital bill. I urge all Senators to vote for the bill as any fiscal stimulus is better than no fiscal stimulus, but would also caution them that now is not the time to low-ball and cut corners. Bold and decisive action is needed to escape the downward spiral that leads to a depression and the time for that action is quickly slipping away.