T HE P ENNSYLVANIA S TATE U NIVERSITY E CONOMICS A SSOCIATION P RESENTS :

T HE O PTIMAL B UNDLE
S PRING 2014:
WEEK OF

A PRIL 3 RD

E DITOR : C OLE LENNON P RINT EDUCATION COORDINATOR C ONTRIBUTORS : L EAH G ALAMBA , J OE K EARNS , C OLE L ENNON , R YAN S OSNADER , E LEANOR T SAI

Upcoming Events: General Body Meeting: 4/3

Jobs Report: 4/4

Psuea.org EA Homepage Psuea.org/blog Education Blog

AFFORDABLE HOUSING AND SUBSIDIES

There has been a nationwide push for more affordable housing, now that the U.S. economy is recovering from the 2008 recession and mortgage giants Freddie Mac and Fannie Mae are once again profitable. Examples of this call for affordable housing can be seen in both New York City and Washington D.C. NYC Mayor Bill de Blasio recently promised to ensure 200,000 units of affordable housing to New Yorkers over the next 10 years, and President Obama has proposed to send $1 billion to the U.S. Department of Housing and Urban Developments National Housing Trust Fund. A concerning aspect of the overall push for more affordable housing came in January. 33 senators urged Mel Watt, director of the Federal Housing Finance Agency, to have Freddie Mac and Fannie Mae begin funding affordable housing subsidies. The plan costs $30 billion over 10 years to fund housing subsidies. The senators argue that the funds would alleviate a national housing shortage and that Freddie Mac and Fannie Mae are now profitable enough to pay up. These senators, however, are overlooking the plans negative effects. They include the inability of Fannie and Freddie to fund the program, housing price increases, and the dangers of overleveraging the housing sector. Not moving forward with their proposal would save taxpayer money, prevent a rise in prices, and also discourage excessive leveraging of the housing sector that would contribute to another financial crisis. Fannie Mae and Freddie Mac have made $15.4 billion in profits, but the cost of the program is $30 billion over 10 years. The current shortfall of funds will mean that taxpayers will need to fund this program, but not moving forward with it will save money. Plus, it is likely that these subsidies would actually raise the cost of housing. Economist Veronique de Rugy cites research on student loans in saying that subsidies often favor producers, giving them additional power to raise prices now that consumers can afford more with subsidies. Further evidence suggests that housing could also be overleveraged with these subsidies. Certainly, many factors contributed to the financial crisis of 2008, but preventing overleveraged housing will help ensure that the next crisis is averted. Mr. Watt should advocate a different way forward to address housing affordability. RS
CHECK OUT THE ARTICLES:
BIT . LY /1 I TN D YZ

ABCN . WS /1 LY OI J 0

REUT . RS /1 P GF Y 15

ON . WSJ . COM /1 LJ 9UGU

D ESPERATE B ANKS , D ESPERATE M EASURES

The Peoples Bank of China has been responding to fears of a bank run through desperate tactics. Chinese officials stacked cash behind teller windows, kept branches open all day to permit withdrawals, and detained a person who allegedly claimed a bank turned down a request for a withdrawal. While branches claim their deposits are backed by the government, this misleadingly suggests that the Chinese government is required to do so. China is the worlds leading international trader, with $4.2 trillion in combined imports and exports. This means the global economy could be dramatically affected if a Chinese bank run comes to fruition. JK
Check out the article: onforb.es/1dG0ndc

This tower, at least, looks pretty stable.

B LACKBERRY : S INK OR S WIM

On Friday, BlackBerry reported just $976 million in revenue for the fourth quartera 64% drop and a net loss, compared to its profits one year earlier. Shares continue to trade low, and investors are wondering whether the company can make a comeback. Since November, CEO John Chen attempted to reassure them and minimize losses by significantly reducing operating expenses. He remains confident about returning to profitability in 2015, emphasizing the companys transition from the smartphone market to software and mobile services. Should the turnaround succeed, BlackBerry will demonstrate the importance of flexibility for businesses in a highly-differentiated economy.ET
Check out the Articles: on.wsj.com/1liWwCQ ; reut.rs/1pGyFwN ; bit.ly/1rZRyij

Many hope that Blackberry will not sink, especially like this.

O LD M ONEY , N EW E RA
French economist Thomas Pikettys new book, Capital in the TwentyFirst Century, advances a new thesis on inequality. It concerns how return on capital outstrips overall growth. If worldwide capital gains exceed the worlds growth of output, inequality increases. This is due to capital income growing faster than the wage income that most people earn. The mid-20th century saw overall growth exceeding returns on capital and decreasing inequality. He predicts that during this century, return on capital will exceed overall growth instead, meaning that inequality will worsen. Itll also develop a world increasingly dominated by inherited wealth, meaning that less well-off families will struggle for better prospects.CL
Mr. Piketty, depicted here, is certainly pessimistic.

Check out the Article: nyr.kr/1jLbcJc