4.09.2007

Marshall's Study Abroad Program: Quite Unappealing

A few years ago the Dean of the College of Letters, Arts & Sciences at the University of Southern California (USC) launched the College Dean’s Prize for the Enrichment of Student Academic Life. Peter Starr (see photo), Dean of the College, contends that he "has found that students are often the best originators of fresh ideas." As Dean, he values the input students offer. Therefore, he has created this opportunity to elicit proposals from USC students to enrich academic life and the educational experience. So here is mine: I propose renewing the Marshall School of Business’s study abroad program. Studying abroad gives students a unique business perspective that they would otherwise not learn from the Marshall School of Business (MSB). USC, as a whole, has four strategic initiatives intended to improve the university's status as a thriving research and learning institution: undergraduate education, interdisciplinary research and education, programs building on the resources of Southern California and Los Angeles, and internationalization. Through internationalization, USC hopes "to enhance future global opportunities for education, research, and career development;" it seems basic that offering study abroad programs contributes to USC’s goal for internationalization.

What is hindering USC from expanding on this goal is MSB's International Exchange Program (IEP), which appears lackluster and inadequate. Marshall maintains that the IEP “gives students the opportunity to widen their exposure to the business theories, practices and concerns of the international community, as well as immerse themselves within a foreign tradition. Students are absorbed into a different culture, meet people from other parts of the world, learn from new perspectives and take in exciting new surroundings.” Although true, it is also limited. The program only offers opportunities at fourteen business schools around the world in Australia, Hong Kong, Denmark, Hungary, Spain, France, South Korea, Singapore, Netherlands, Thailand, and the UK (see map), and it is literally an exchange; therefore openings to all sites are contingent upon the partner school sending students to USC, meaning that some sites may not be available during certain semesters. In order to permit more interested students into IEP, Marshall needs to significantly expand the list of participating institutions, and that list should include countries in East, Southeast, and South Asia, in Africa and the Middle East, and in Latin America.

There are still more limitations to MSB’s program. One in particular is that study abroad participants must pay the standard USC full-time student tuition flat-rate. True, financial aid packages still apply and may be adjusted according to your host program. However, "in addition to the USC flat-rate for tuition, students are responsible for all expenses including, room and board, books and supplies, meals, airfare, health insurance, application fees, passport and visa fees, and other personal and travel expenses." This increases total costs by thousands of dollars. What USC needs to do, in order to make this program more accessible, is provide funds to help defray some of the costs involved. The overseas experience ought to cost no more than a comparable period of study at USC. Even in these difficult economic times, resources can be found at least among USC’s alumni population, especially among those who had opportunities to study abroad. USC prides itself on the mystical force known as the "Trojan Network." This "network" provides students with opportunities to expand contacts and enhance their experience at USC. According to the Marshall School of Business (pictured), "the USC Marshall Alumni Association delivers the promise of the Trojan Family. The Marshall Alumni Association is specifically dedicated to the business school, with five alumni chapters and over 300 Marshall alumni volunteers who work together to deliver this promise." With over 68,000 Marshall alumni worldwide, it is a wonder why MSB is not utilizing its resources. Continually, another downfall about the MSB study abroad program is that a student is not guaranteed to be sent to the school of their choice. During the application process, candidates rank the list of schools, starting with their top choice. Due to the limited amount of spots available per school, a student can request to be sent to the UK, but will actually be sent to Singapore. Worse, if a student is not accepted into the school of their choice, there is no backing out. The contract is binding. With the tens of thousands of dollars being spent, students should go where they want.

Reasonable templates for structuring USC’s program exist. Other members of the Association of American Universities hit the bulls-eye when it comes to study abroad programs. Carnegie Mellon’s Tepper School of Business extends an array of opportunities for students wishing to study abroad, serving as a model that USC should imitate. The Tepper School currently offers admission to thirty-seven institutions in twenty different countries, including countries not currently offered by USC, such as Ecuador, South Korea, and New Zealand. Additionally, Cornell University offers unique scholarships specified to study abroad students only. Along with the general financial aid offered to students, such as government sponsored scholarships and aid, Cornell grants scholarships specifically to students planning to study abroad, greatly alleviating the financial stress that these international programs elicit. The most appealing aspect of most business schools' study abroad programs, such as the University of Iowa and the University of Maryland at College Park, is that the institutions allow students to apply to the international school of their choice, and if their application is rejected, the student is not required to attend some other international school. USC should follow the example set by these institutions in changing the binding study abroad agreement to non-binding.

Marshall should use these schools’ programs, and those of many other members of the Association of American Universities (see logo), as quintessential representatives. By simply furthering the study abroad program, USC would be a step closer in achieving its goal of internationalization. Internationalization is of growing importance and Southern California is at the hub of it, due to its relations with Mexico and Pacific and Latin America. USC could easily use its interactions with these countries to offer opportunities at these locations. Overall, USC should build on its strong base of alumni and its Southern California location to achieve its goal of internationalization and help bring its study abroad program to a level of accessibility and comprehensiveness that will put the institution at the top of the pack.

4.01.2007

Carly Fiorina: Role Model for Everyone

The purpose of the honorary degrees program at the University of Southern California is to recognize individuals who have distinguished themselves and made a significant impact in their profession. Along with these professional achievements, the candidate must possess qualities worthy of emulation and respect, possessing a framework of high personal integrity and concern for the good of the public. The candidate’s achievement and distinction in activity should be consonant with the mission of the University of Southern California: advancement and enrichment, while possessing the five attributes (pictured) of an ideal Trojan: faithfulness, scholarliness, skillfulness, courage, and ambition. One of the most deserving people for this award is Carly Fiorina.

At the age of twenty-three, Carly Fiorina was a law school drop-out without a clue as to what her future held. Twenty-two years later, Fortune magazine named her “The Most Powerful Woman in Business” for the sixth consecutive year. Fiorina, or simply “Carly,” as many liked to call her when she was head of Hewlett-Packard (HP)—an 88 year-old $94 billion high-tech company and one of the most admired corporations in the world—was blazing new trails for business professionals everywhere. Then, the unthinkable happened: she lost her job in a very public board battle. Her five-year tenure was marked with bold, sweeping initiatives, including the acquisition of Compaq Computer that nearly doubled the company’s size. There is no doubt she is a strong-willed person, and she believed strongly in her vision for the company. Although this takeover appeared to hinder HP at first, Carly’s vision turned out to be rewarding, especially in the eyes of Wall Street. Today, HP (logo pictured) is on a roll, and has not veered from Carly’s original position that “bigger is better.” Now that the company has finally “digested” the mammoth Compaq acquisition, its financial performance has righted itself and the company has regained its momentum. A strong case can be made that Carly was prematurely ousted; and, in fact, she laid the groundwork for one of the most remarkable corporate makeovers in the history of business.

Today, Carly Fiorina has assumed a role as a controversial but world-class leader, writing books and giving speeches about her leadership. In a bit of vindication, HP recently endured a board scandal that raised new questions about how fairly Carly may have been treated. Her story provides rich discussion for women and men everywhere trying to break through a glass ceiling. She was chairman and chief executive officer of Hewlett-Packard from 1999 to 2005, becoming the first woman to serve as CEO of a company included in the Dow Jones Industrial Average. As chairman, Carly had a mandate to “shake things up” with HP, and that is exactly what she did. Carly used her incredible skill-set to reinvent HP, and today the company is stronger than ever.

She earned her bachelor’s degree in medieval history and philosophy from Stanford University; Carly continued her schooling and earned her MBA from Robert H. Smith School of Business at the University of Maryland and a Master of Science degree from MIT’s Sloan School of Management. Carly once mentioned that the job market for “knowledge of Copernicus or 12th Century European monks” was not very strong; hence, her sudden change towards business rather than her original philosophy plan.

Prior to joining HP, Carly spent nearly twenty years at AT&T and Lucent Technologies, where she held a number of senior leadership positions and directed Lucent’s initial public offering and subsequent spin-off from AT&T. She was named an Honorary Fellow of the London Business School in July 2001; she was also honored with the 2002 Appeal of Conscience Award and the 2003 Concern Worldwide “Seeds of Hope” Award in recognition of her worldwide efforts to make “global citizenship” a priority for business. Moreover, the Private Sector Council honored Carly with its 2004 Leadership Award for her contributions to improving the business of government. And if those awards were not enough, the White House appointed her to the U.S. Space Commission to assist in advising in the nation’s space science agenda and helping contribute a broad range of high-tech expertise.

Since leaving HP in 2005, Carly continues to make her mark on American business issues. She currently sits on the New York Stock Exchange’s executive board and serves on the board of the World Economic Foundation, which is committed to building partnerships to promote sustainable economic and social development.

Carly Fiorina’s story opens a door of possibility for people everywhere: people do not need to be limited by stereotypes. Instead, they should feel emboldened to be driven by their own sense of possibility and accomplishment. Carly (pictured) once stated in the North Carolina A&T commencement address that people everywhere “should be motivated by what they believe they can become.” The people who focus on possibilities achieve much more in life than the people who focus on limitations and restraints. If asked about her job loss at HP, Carly will respond that she has no regrets; she learned an exuberant amount of knowledge from her mistakes. If she had to do it all over again, she would not change a thing.

In short, Carly has character. She embodies a set of principles based on courage, determination, and vision. These qualities are most illustrated in the advice she offered to the graduating class of 2005 of the North Carolina A&T students: “When people have stereotypes of what you cannot do, show them what you can do. When they have stereotypes of what you will not do, show them what you will do. Every time you pass these tests, you learn more about yourself. Every time you resist someone else’s smaller notion of who you really are, you test your courage and your endurance. Each time you endure, and stay true to yourself, you become stronger and better.” Carly Fiorina has taught Americans that the glass ceiling still exists; but, it is people like Carly have raised it considerably, and, someday, it will be broken once and for all. Anyone can do whatever they set their mind to, and in a nutshell, that is what Carly Fiorina represents, and why she is so deserving of the University of Southern California’s honorary degree for a doctoral in science. She possesses all qualities inscribed on the University of Southern California’s forsaken “Tommy Trojan” and her achievements possess an ongoing and significant importance today. She is an inspiration to aspiring leaders, both male and female, interested in either business or art history. Her impact pervades across all fields and delves into the minds of everyone with the desire to succeed.

3.20.2007

This I Believe: Growth and Prosperity

The This I Believe website is a national media project engaging millions of Americans in writing, sharing, and discussing the core values, philosophies, and beliefs that guide their daily lives. Founders Jay Allison and Dan Gediman say “their goal is not to persuade Americans to agree on the same beliefs. Rather, they hope to encourage people to begin the much more difficult task of developing respect for beliefs different from their own.” This project has inspired me to write about my own beliefs, especially within my field of study, and how they were shaped.

I believe in growth and prosperity. As a child, I would frequently visit my Grandpa Max in the small town of Redding, California (see map). Looking back, one of the favorite memories I have of visiting my grandpa was the endless number of stories he yearned to share. Using his experiences of growing up during the Great Depression in the 1930s, a time when jobs, and the money that went with them, were extremely scarce, Grandpa Max used to tell me about how he and his family could barely make ends meet, and the amount of effort it took simply to put food on the table. When the Great Depression ended, my grandfather entered World War II and was in active duty until its end in 1945. After World War II, the United States saw a sharp rise in the economic wealth that lasted throughout the fifties and well into the sixties. I heard many tales from this time of his life too, but these sagas were very different than his hardship stories: these were excitedly told with a child-like giddiness.

For my grandfather, the 1950s and 1960s served as a respite from his previous worries, a time that definitely lived up to clich├ęs like “affluent society” and “American as apple pie.” As Henry David Thoreau once said, “wealth is the ability to fully experience life.” At the end of World War II, that is exactly what my grandfather, and maybe most of his generation, did. He moved from Oregon to California in the early fifties with my grandmother and started his family. Grandpa Max, for the first time in his life, was able to purchase a home, and easily find a job that could support his entire family. I can vividly remember him rambling for hours about the new gadgets that came out during this high time and how, on his income, he was able to purchase them when they were first released into the market. He babbled aimlessly about his new color TV and how CBS’s “Gunsmoke” was perhaps the best TV show to hit primetime; moreover, he would frequently bring out the first rotary phone (pictured) that he owned from the dusty boxes in the garage and allow me to use it as my “play phone” when I visited. As I played telephone, he marveled at how the invention of instant coffee was his “savior” in the mornings when he would awaken for work at 5:00 AM. With his instant coffee, Grandpa Max would joke that he would get up every morning and look through the Forbes list of the richest people in America, and if he was not there, he would go to work!

Economic growth and prosperity are at the very crux of a country’s well-being, and more importantly, they are the vehicle for the satisfaction of its citizens. Growth means prosperity, and, conversely, in the minds of most, no growth means stagnation, recession, and a decline in the standard of living. In that way, economics is not the accumulation of abstract statistics, but rather the reflection of the hopes and dreams of sequential generations. I have taken it upon myself to write in my blog about the economic situations that affect growth and prosperity, for example, a trade deficit. One of my favorite quotations is from American physicist Richard Feynman, “There are 10^11 stars in the galaxy. That used to be a huge number. But it is only a hundred billion. It is less than the national trade deficit! We use to call them astronomical numbers. Now we should call them economical numbers.” No matter how unbelievable these numbers appear, the statement holds a very strong truth. The higher the trade deficit, the less ideal economic growth becomes. I touched on this current issue in my post entitled “Trade Deficit: Record High”.

In essence, I owe my keen interest in economics to my grandfather (pictured) and his endless engrossing stories of the “happy days,” fueled by the growing economy and prosperity he experienced. It is from his stories that my strong belief in growth and prosperity sprang. I was able to see how a healthy economy sets the stage for a life that is happy and rewarding. And that definitely captures my attention.

3.04.2007

China Plummets: Theory Almost Proven

In my January 29th post titled “China’s Economy: A Ticking Time Bomb,” I had come to believe that, with China’s incredible growth, its economy will eventually spiral out of control. Well, in the wee hours of Tuesday, February 27, 2007, the Chinese stock market plummeted by nearly 9% (see photo of investor in front of the dismal electronic board in a Shanghai stock trading hall), shaking up other stock markets from New York to London, and reaching literally around the world by the end of the next day. ABC News reported that “the Shanghai Composite Index (the major index in China) tumbled 8.8% to close at 2.771.79, its largest decline since it fell 8.9% on February 18, 1997, at the time of the death of Communist Party elder Deng Xiaoping.” Considering the Shanghai market was up 130% last year, what caused this substantial drop? Was it just a temporary “adjustment,” or was it a sign of a much larger economic failure looming ahead?

Many factors provoked the fall of the Chinese market, but two stand out as major contributors. First, investors feared that the Chinese government would soon crack down on speculation that has driven stock prices to record highs. Government officials hinted that a special tax on capital gains may be introduced, thus wreaking panic onto investors as they quickly unloaded Chinese shares as a way to lock in profits before tax changes. Secondly, investors were being proactive; that is, they thought it was simply time for some profit-taking. As Peng Yunliang, senior analyst at the Shanghai Stock Exchange, put it, “People viewed 3,000 as a psychological benchmark. It is understandable they might want to pull back after the market hit that peak after such a long run.” China's Shanghai Index had gained 1.4% on Monday, the day before the plunge, and opened at 3,040.60 (40.60 above the so-called psychological peak). After the fall, it closed at 2.771.79.

Michael Roberts, author of the enticing article “World Stock Markets in Turmoil,” wrote that the “chaos theory applies in the anarchy of world capitalism: when the Beijing butterfly flaps its wings, the snow falls on New York.” The Chinese stock market plunge did not just stay within China; as indicated above, it spread quickly worldwide, causing the stock markets around the world to fall by 3-4% within a matter of hours after the drop in the Shanghai Composite Index. For instance, in Hong Kong, the benchmark Hang Seng Index dropped 1.8% (see photo), while Singapore’s Straits Times Index sank 2%. This "butterfly effect" then reached around the continent to European countries, where major indices dropped similarly: the United Kingdom’s FTSE-100 plunged 2.31%; France’s CAC 40 dropped 3.02%; and Germany’s DAX slid by 2.96%. But, it got worse: the U.S. Dow Jones Industrial Average plummeted with a loss of 200 points in one minute around 3:00 p.m. (see graph); the Dow continued to fall, reaching a loss of 416 points, or 3.3%, serving as the worst one-day drop in the U.S. since September 2001. And, to complete the world picture, Latin American countries were also affected by China’s recent drop. In Brazil, Sao Paulo’s Bovespa Index was off 4.1%, Mexico City’s IPC Index shed 3.4%, the IPSA Index in Santiago was down 3.8%, while in Buenos Aires, the Merval Index dropped 5%.

What is it that makes China’s “butterfly effect” so influential? China is not the only fast growing economy, but it seems to be the one with the most impact: “its contribution to global GDP growth since 2000 has been almost twice as large as that of the next three biggest emerging economies, India, Brazil and Russia, combined.” Jim Jubak, senior markets editor for MSN Money, elaborates on China’s global economic influence in terms everyone can understand: “If every person in China consumed one more tablespoon of soybean oil annually, world trade in soybean oil would double.” China grew on average over 9% in the last 25 years, but trade grew even more, with an unprecedented 12% over the same period. If recent trends continue, China will emerge as the largest economy somewhere between 2030 and 2040, and it will be the largest trading nation before 2020. China serves as a locomotive for the world economy. When China grows, other countries benefit from lower priced goods. Just look at how fast flat-panel TVs are going down in price. However, if growth slows or stops, the people of other countries will feel the pain through higher prices goods, leaving less money for other spending.

Now, back to the original question: was the Chinese stock market drop simply a normal “adjustment” (albeit a strong one), or was it a sign of something more sinister? It is true that as the government denied rumors of such “special tax” measures the day after the plummet, Chinese shares did rebound by nearly 4%. But Barclays Stockbrokers analyst Henk Potts of London confirmed that “there continues to be a lot of nervousness around the stock market.” As a result, world-wide stocks are still closing at low rates as this wave of anxiety (see inset) spreads to investors. In my opinion, Potts is on the right track and there is still much more to come; February 27th was just a small wave hitting the shores of every continent in advance of a huge global tsunami. With the Asian markets still down and the plunging U.S. economy, an emergence of a world crisis will happen. Many people believe that markets will recover. But, the current stock market fall is just an indicator of the future deterioration that will unfold over the next couple of years.

2.25.2007

Trade Deficit: Record High

America has a big problem: it imports far more than it exports. As a result, the United States is suffering from a massive and growing trade deficit (see graph). Last year, 2006, marked the fifth consecutive year that the trade deficit hit a new high, amounting to an incredible $764 billion. Even scarier is that, according to a statement by AFL-CIO (American Federation of Labor-Congress of Industrial Unions) Secretary-Treasurer Richard Trumka on the Release of the Annual Trade Deficit figures, “the imbalance between our imports and our exports is so enormous now that our exports would need to grow at least 53% faster than our imports just to keep the trade deficit from growing.” A trade deficit in general is not a bad thing. Most countries run a deficit; however a gap as large as the United States calls for special attention. Over the long run, the United States will have to repay its debts (with interest) and is likely to suffer a significant net wealth drain.

Because the trade deficit hit a historical high, the media has been investigating this issue quite heavily. And, it is an easily misunderstood issue. (I know this because there are so many opposing points-of-view). But, instead of reading more about how economists weigh in about this issue, I wanted to find out what average American citizens had to say; thus, I turned to the blogosphere. One blog that captured my attention reminded us that resorting to protectionism to fix the issue was not the solution; the other mulled over how the trade deficit was directly causing incredible job losses in the United States. My comments on both blogs can be found below.

Comment on Blog 1 on protectionism:

Mark, you make a very interesting point in your blog: restrictions on trade are restrictions on people. It is obviously true that we all contribute to the growing trade deficit in the United States by being so willing to buy goods made in other countries. I am personally a big supporter of textile imports: I buy clothes brands from other countries, and I buy from U.S. companies that outsource their labor in other geographies, such as Nike (pictured), to name one well-publicized example.

It is also clear that our imports and exports need to be more balanced than they are today in order to avoid an economic disaster in the future. The gap just cannot grow forever. But heavy-handed trade restrictions are not logical either. Is there a way to manage the trade gap and still avoid the consequences of protectionism and unrestricted free trade?

The devil is in the details, but only after the trade gap is significantly reduced. In the short-term, the United States needs to impose strong restrictions on trade because it needs to get itself out of the huge deficit hole that it has created and stop the momentum. That calls for protectionist policies. No one will be happy: trade partners will cry foul, and Americans will be hit with higher prices on a wide range of personal items, considerably reducing discretionary spending and potentially slowing our economy as a whole. But trade restrictions are required to right the ship and quickly close some of the trade gap. Ultimately, in the long-run, the United States’ deficit demands more attention and a delicate hand, similar to the way the Fed handles interest rates to mange inflation: a little adjustment here, a little there, and nothing gets too far out of whack.

Comment on Blog 2 on job loss:

Yes, the “trade deficit numbers may not be sexy.” However, your notion that the trade deficit directly causes job loss sends the wrong message, because it is easy for critics to cite evidence that we, as a country, easily live with a high deficit and low unemployment. Paul J. Samuelson of the Washington Post states that “from 1980 to 2006, the trade deficit jumped from $19 billion to an estimated $786 billion, or from less than 1 percent of gross domestic product to about 6 percent. Still, employment in the same period rose from 99 million to 145 million.” In a similar fashion, the monthly report from the U.S. Labor Department showed that the January unemployment rate dropped to a 4½-year low of 4.7% from 4.9%. The last time the rate was lower was in July 2001 when it was at 4.6 (see graph). During a time when the United States is suffering from the highest trade deficit in history, it is also operating with a historically low unemployment rate.

That is not to say that the trade deficit is a good thing for the economy, but there are many other reasons that can explain job loss: new domestic competition, new technologies, changing consumer tastes, and so forth. It is true that certain industries are affecting job loss in the United States due to the trade deficit and lower-wage competition abroad, for instance, every three months, 7 million to 8 million U.S. jobs disappear; but, roughly an equal or greater number of jobs are created in more technologically advanced industries. Trade is a relatively minor factor in job loss; it is just an easy scapegoat for critics.

2.19.2007

U.S. Immigration: Do Not Lose Sight of the Benefits

A highly-controversial issue that has surfaced in America, especially California and other Mexico-bordering states, is the one of immigration. There are plenty of critics of current immigration policies as they relate to national security, and rightly so. But when critics direct their attention at citizens of Mexico, the discussion takes on a nasty, personal tone. There is general worry that terrorists can easily cross into the U.S. through Mexico. That critique is justifiable. However, Americans are increasingly seeing Mexicans as freeloaders cashing in on the generosity of America, and then sending their new wealth back to their native country. Many Americans claim that Mexican immigrants who live here drag down their quality of life, and point to overcrowded neighborhoods and communities where the only language spoken is Spanish (apparently proof enough to natives that Mexicans have no intention of integrating into the American way of life).

The government is responding to the national security issue by going after undocumented workers. Fear has recently riveted immigrant families across the country as federal agents (pictured) forayed through neighborhoods, work sites, and jails in a nationwide crackdown on illegal immigration, mostly from the south. Nationwide, federal officials have launched a full-blown offensive to find and deport illegal immigrants. “It is part of a two-pronged approach,” stated Virginia Kice (pictured), spokeswoman for U.S. Immigration and Customs Enforcement: “secure the nation’s borders while stepping up enforcement within.” By focusing on national security, the federal government has found a convenient way to also address emotionally-charged concerns by U.S. voters that Mexican immigrants are not paying their fair share. Two separate issues, that of national security and that of keeping immigrants from unfairly sapping our economy, have certainly been fused together.

Kice recently stated that immigration “makes a mockery of the system and sends the wrong message to those who follow orders.” In a recent Time Magazine poll, three-fourths of American citizens stated that the United States is not doing enough along its borders to keep illegal immigrants out (see picture). Americans believe that immigration is harmful to the U.S. economy, and firmly believe that all immigration should be restricted and call for tighter border control to keep all immigrants from entering. But, is it true? Is immigration really harmful to our economy? Or are there benefits to economic growth that we should be very concerned about tampering with?

The side effects of immigration can be both positive and negative. But in my opinion, the negative effects of immigration can easily be outweighed by the positives. In Douglas Bower’s article, “American Economy Benefits from Mexican Immigrants,” he proves that immigrants venture to the “land of opportunity” with an insatiable thirst for work and a desire for a better life, and to not just “freeload” off the economy. When immigrants come to the United States, they immediately increase the demand for U.S. goods and services. They shop for food in local grocery stores, and they move into apartments or homes in the area. Many times, immigrants are the ones that occupy apartments that are shabby and dilapidated—ones that other groups (i.e. natives) are not interested in. The hundreds of thousands of units rented to immigrant families put upward pressure on all real estate prices. But immigrants also bring down prices in other areas, such as food. Restaurant prices are kept lower by illegal labor in the kitchen; fruit and vegetable prices are kept lower by illegal field hands willing to work for less than their American counterparts. Immigrants put money into the economy and also serve as a hedge against inflation.

Opponents may argue that immigrants do not contribute as much to the economy as proponents would like us to believe, due to the fact that they send at least half their earnings back to their country of origin. However, thanks to research by the Economic Roundtable, a research think-tank in Los Angeles, CA, that claim does not seem to carry much weight: 400,000 illegal workers in L.A. County spend, on average, $5.7 billion annually on food, rent, transportation and other necessities.

There is another claim that immigrants are creating rising unemployment issues by taking jobs from American citizens. A U.S. Department of Labor study noted that the perception that immigrants take jobs away from American workers is “the most persistent fallacy about immigration in popular thought” because it is based on the mistaken assumption that there are only a fixed number of jobs in the economy. Unemployment in California, which accounts for 24% of the country’s (illegal) immigrants, has tracked the low national rate. And as any economist knows, a lower unemployment rate is a key to a happy and healthy economy.

In response to the “freeloading” issue, Stephen Moore conducted a study, titled “A Fiscal Portrait of the Newest Americans”, where he demonstrates how immigrants benefit America: immigrants contribute $10 billion to the U.S. economy each year; immigrant households pay more than $90 billion in annual direct taxes to the U.S. federal, state and local governments, while only receiving $5 billion in welfare. Without their contributions, the economy would suffer enormous loss; immigrants and their families pay $80,000 more in taxes than they use in any services, over the course of their lifetime. This is more than the average native-born American.

As I see it, it is a waste of time to get carried away with the immigration issue. Yes, national security is extremely important. But many of the people who will get caught up in a policy designed to secure our borders are also collectively bringing real long-term economic benefits to the United States as a whole. American fears of the harmful economic consequences of immigration are not justified and it is unfortunate that no one is speaking more convincingly for the other side.

2.11.2007

Income Inequality: The Rich and the Rest

President Bush has not commented on income inequality much during his two terms. It was never an issue during the candidate debates. But it is a very real and important issue, and finally he brought up the subject in his speech on January 31, 2007 on Wall Street: “The fact is that income inequality is real-it's been rising for more than 25 years. The reason is clear: We have an economy that increasingly rewards education and skills because of that education.” For a long time, income inequality—the gap between the rich and everyone else-- has been growing steadily in the United States. Bush’s speech as drawn some much-needed attention to this topic, but much more needs to be done. Democrats have repined over this issue for years, but the fact that the leader of the Republican Party now acknowledges it has finally stimulated the media into action. And this is not just a U.S. issue. The Wall Street Journal has been writing about the paralleling issue in Asia, specifically China: “China's economic miracle has lifted hundreds of millions of people out of poverty, but the country is showing signs that its poorest citizens are falling further behind.”
Due to the elevated media attention to these issues, I decided to probe the blogosphere and see what others have to say about this topic. I found two very interesting blogs, one dealing with the United States’ current situation and the other with Asia’s. Both comments can be found below.

Comment on Blog 1 about the United States' current situation:

The idea of implementing a progressive income tax (especially when it essentially already exists in the United States) is simply not best means to solve the issue of income inequality. As fellow blogger Kurt9 had mentioned, income inequality itself is not a problem. The main issue lies in unequal opportunities. America has an obligation to ensure that there is not a lack of equal opportunity for all Americans to achieve wealth. And, in that regard, it is higher education that is the main enabler of economic success in this country. However, over the past twenty-five years, the wages of the skilled and educated workers have grown faster than the wages of the less educated. For instance, in 2003, according to the U.S. Census Bureau, four-year college graduates in America earned an average paycheck nearly double that of high school graduates; moreover, holders of doctoral and professional degrees earned three to four times that of a high school graduate (see chart).

Federal Reserve Chairman Ben Bernanke (pictured) said “disparities in education and training are likely the single greatest source of the long-term increase in inequality.” Thus, “policies that boost our national investment in education and training can help reduce inequality while expanding economic opportunity,” he said. The key to income “fairness” is to make sure that the tools necessary for wealth (i.e., higher education) are available to all equally. Don’t look to tax the rich more for what they have earned. Instead, the poor should raise hell about a government-run school system that does an appalling job in educating children, and the high cost of university-level education. Bush has attempted to solve this issue by putting forth two distinctive programs, No Child Left Behind and American Competitiveness Initiative, which serve as vital steps into helping create equal opportunity among Americans. But it is not enough. Dramatic changes in education are needed, and fast. Or the income gap will just widen.

Comment on Blog 2 about Asia's current situation:

Asia’s economy as a whole (including that of China and India) has been growing very fast. With that comes the issue you discuss in your blog about the income inequality. You say that a widening income gap (see chart) is not a large issue to be concerned with. However, the true strength of a country comes from a strong middle class that can carry the load of commercialism. Rising inequality threatens economic growth, especially since it has meant declining or stagnant income growth for lower- and middle-income families. If the vast middle-class families do not see relative income gains (it is not enough “just to be doing better”), they cannot afford to purchase the goods and services that keep the economy moving. Their discretionary income will not be able to keep up with the rising inflation. Asian countries will soon become nations of haves and have-nots. It is good that everyone is “doing better,” and that is something to celebrate. But for long-term economic growth and heath, the income gap needs to be kept in check.

2.04.2007

Increased Minimum Wage: Historically Right

Sixty-nine years ago, Franklin D. Roosevelt signed the Fair Labor Standards Act of 1938, which established the nation’s first minimum wage. Urging the passage of this legislation, Roosevelt declared “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By living wages I mean more than a bare subsistence level—I mean the wages of a decent living.” Now, nearly seventy years later, those words seem as relevant as ever. America is long overdue for an increase that puts workers at a living wage level. The minimum wage in the United States has been frozen at $5.15 an hour since 1997 and millions of American workers are falling further and further behind. At this rate, workers would have to work 11.2 hours just to fill up their gas tank. But the story gets much worse than that.

The current federal minimum wage of $5.15 is not high enough for someone even to make a decent living in the United States. See the inserted chart. It just proves that current minimum wage is well below the red poverty line, or better referred to as Roosevelt’s bare subsistence level. For someone working full time (40 hours a week, 52 weeks a year), their yearly earnings would be approximately $10,712 based on the minimum wage level, nearly 40% below the current poverty level of $16,600 for a family of three (as of 2006). So why has the federal government not raised the minimum wage level? After all, more than two dozen states in America already have minimum wages set above the federal level.

The federal government finally took steps to close this gap on Thursday February 1, 2007, when the Senate voted overwhelmingly (94-3) to boost the federal minimum wage by $2.10 to $7.25 an hour over the course of two years. The legislation would raise the minimum wage in three steps. It would grow to $5.85 an hour upon taking effect 60 days after the President signs it into law, then to $6.55 an hour a year later, and to $7.25 an hour a year after that. Senator Edward Kennedy (D-Mass.) stated that “Passing this wage hike represents a small but necessary step to help lift America’s working poor out of the ditches of poverty and onto the road toward economic prosperity.” Unfortunately, it should still be noted that even at its highest level of $7.25 per hour, the annual equivalent is $15,080–still below today’s poverty level but certainly an improvement from the status quo. Roosevelt would not be entirely happy, but might be feeling a little better.

Nothing stays the same, especially in the economy. The federal minimum wage must increase on a regular basis; if not, the working poor will only get poorer as the value of the minimum wage sinks below inflation and falls further behind the cost of living in the United States. Since the last wage rise in 1997, the purchasing power of workers earning minimum wage has been severely eroded and has decreased by more than 20%. So, why fight the extra boost? Not surprisingly, as with everything in America, there is an opposing point of view. Many critics (and there really are many) continue to raise the same tired arguments every time the thought of increasing the minimum wage level is considered: an increase will harm the economy, destroy job growth, and shut down small businesses. Close examination, however, shows that these criticisms are not really true. To see why, let us take a closer look at each one of these myths:

Negative Economic Effect: The minimum wage increase will actually boost earnings for thirteen million American workers, which constitutes for 9.8% of the workforce. This, in turn, raises the disposable income of the workers and decreases their dependence on state and federal subsidies. Living wage workers are guaranteed to spend the money they earn in their local economy. Dan Gardner, Oregon labor commissioner, comments that minimum wage work force are “not saving for a Hawaiian vacation.” Since these blue collar workers are supporting their families and cannot afford to save, the extra money earned will get pumped right back into the economy. Thus, a wage hike directly expands the economy and there is no negative economic effect.

Destroy Jobs: Another myth about the effects of an increase in the federal minimum wage is that it will destroy job growth and shut down small businesses. But the trends of the economy after the 1990-91 and 1996-97 wage jumps show no measurable negative impact on employment. In fact, between 1997 and 2003, “small business employment increased by 9.4% in higher minimum wage states, compared to 6.6% in states at a federal level.” According to the Economic Opportunity Institute, no studies have found statistically significant job loss that can be associated with these wage increases. In fact, it is just as accurate to assert job gains linked to the minimum wage increase.

Shut Down Small Businesses: This is the most popular argument against raising the minimum wage, because it seems so logical at face value: if the expenses of small businesses, many that are already marginally profitable, are increased, the business will be put over the edge. Small businesses themselves are the loudest voices in this regard. But again, take a look at history. After the wage increase of 1997, the Center for American Progress asserted that “the number of small businesses increased by 5.5% in higher minimum wage states, compared to 4.2% in states at the federal minimum wage level.” Why does this happen? According to Texan Congressman Al Green, the theory is that businesses absorb the costs incurred by the wage hike through “higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.” But whatever the rationale, the New York-based Fiscal Policy Institute (FPI) contends that the the number of small businesses actually grew in states where the minimum wage was higher.

The myths are not justified. The minimum wage does not have a negative economic effect, destroy jobs, or shut down small businesses. Roosevelt was right to fight back the critics in his day, and it is right to continue fighting today. Senator Edward Kennedy (pictured) firmly deals with opponents of this issue and asserts that “in the first four years after the last minimum wage increase in 1997, the economy had its strongest growth in thirty years. Nearly 11 million new jobs were added, an average of more than 200,000 new jobs a month.” So, why not just better the lives of millions of Americans?

1.30.2007

America: In Danger to China

During our “blog shows” in class the other day, a question was brought up about the United States’ debt to China. In a follow-up, I’d like to touch on the subject.

Some people believe that it is not a good idea that most of U.S. government operations are financed by a communist country. At the end of 2005, China, with $820 billion in such assets, was the second-largest holder of U.S. debt after Japan, which held about $10 billion more. Owning such a significant amount of U.S. assets gives foreigners considerable economic influence. If China even reduces its Treasury purchases, the U.S. would run into substantial difficulties. According to the Nikkei Weekly, a Japan-based business magazine, “Beijing is holding a dagger to Washington’s throat.”

Moreover, if foreigners, specifically China and Japan, decide to stop accumulating U.S. debt and start spending it, the result would be an increase in the supply of U.S. currency in circulation. In return, this would drive the value of the dollar down, making American goods less expensive; moreover, American corporations and companies would become large targets for foreign acquisitions.

America’s indebtedness to China is very endangering, especially given China’s current state in the economy. If China decides to fix its banking system problem and start to spend rather than save, Edwin Truman (pictured), who directed the Federal Reserve System’s Division of International Finance for 20 years, warns that the United States will probably be well on its to a “catastrophic disaster on the scale of the Great Depression or worse.”

1.29.2007

China’s Economy: A Ticking Time Bomb

Rising from a backwards rural society, China is well on its way to surpassing Germany as the world’s third largest economy, behind Japan and the United States. Due to the introduction of commercialism and capitalism, large amounts of foreign currency have found its way into China’s economy, quickly boosting her annual growth rate. In fact, 2006 marked China’s fastest growth rate in a decade (since 1995), at an almost unheard of 10.7%.

Everybody seems very happy. This growth is well ahead of China’s own expectations. And her neighbors, such as Japan and South Korea, have seen their own economies jump forward as part of a “halo effect.” But all is not good news. Despite how it appears on the surface, it is possible to grow too fast, and now there are significant problems rooted underneath this progressive growth. In fact, China’s current state of high growth shows similar strain to that of Japan’s infamous bubble in the 1980s, right before it burst and caused incredible damage to the country. China, is in fact, a gigantic “ticking time bomb” and when it goes off, it won’t be contained to just China -- most other countries will suffer as well.

In the beginning, the world was in awe of China’s economic shift from a communist to a capitalist country. It was quite the obsession: individuals, companies and even countries poured hundreds of billions of dollars in to China’s economy in hopes that the current trend of economic growth would continue and they would be amply rewarded. Where did that money go? Much of it went into real estate, building houses and factories, anticipating future productivity.

Although there are many reasons as to why the economy will overheat (including issues in the areas of economic growth, foreign investment, trade, finance, banking, state ownership, unemployment, income distribution and social factors), Japan’s economic collapse was specifically related to its banking system. And in an eerie deja vu, China’s banking system appears to also be assuming the same role as hub for imminent economic collapse. China has a corrupt and practically a bankrupt banking system. Standard and Poor’s estimated in June 2002 that China’s non-performing loans exceed 50% of its total bank loans, thus counting for 43% of its GDP. The standard manageable rate for non-performing loans in other parts of the world is a mere 5%.

It’s a real mess. China’s banks have dished out money for years to companies without profits and consumers without income, therefore, never receiving repayment for the loans. The banks operate under great political pressure to lend money to failing companies owned either by the government or by any government-connected entities or individuals. For example, in China, you do not refuse a loan to a business owned by the People’s Army, no matter how poor its finances may be. The banks have always been under pressure from the government to increase lending to keep the Chinese economy expanding; now, with the economy in hypergrowth, the pressure is most intense. Incredible sums are being loaned out.

So far, it’s been working because new loans bring in money to cover bad loans. But like a giant Ponzi Scheme, that only works as long as fresh money is flowing. The problem is, many think the flow could stop very abruptly, giving the Chinese banking system (and government) little time to react. At some point, speculative investments in real estate and other assets will start selling to lock in financial gains. If there are no buyers to absorb the selling, then good investments will turn bad, and investors will default on their loans. It’ll be bad loans on top of bad loans, well beyond the government’s ability to bail out the system (remember, Japan’s banking system collapsed, and it was the second largest economy during that point in time). That will cause an economic collapse.

Charles Calomiris, a finance professor at New York’s Columbia University, remarks that “bad loans are not some little problem a good regulator can take care of; they are part of the whole way the system functions. Looking into the crystal ball, there will be a crisis in the financial sector in China in 2009-2010.” My guess? That crisis will occur sooner. Fueled by multiple bad loans, the dwindling banking system is stifling China’s future growth and emergence as a world power. Gordon Chang, author of “The Coming Collapse of China,” warned that the current state of the banking system would “almost certainly lead to a collapse of the economy.”

Now that China manufactures products for most companies around the world, even the mildest recession would have a great impact on the global economy. So what should China do? Besides cleaning up their “messy” politics, China needs to focus on reforming the banking system by curbing investment spending and bank lending until the issues are resolved. In other words, “hit the brakes.”