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 17 TH

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: 4/17

EA Fed Trip: 4/14 - 4/15

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

END THIS BUDGET DEFICIT NOW!

A federal budget deficit occurs when the difference between the federal governments revenue and expenses is negative. Since fiscal year 2002, the federal government has been running a budget deficit. Nobel Prize-winning economist Paul Krugman argues increases in government spending are still necessary to produce full employment, but he ignores the consequences of interest payment increases. Rising interest payments threaten to undermine U.S. lending credibility, as unsustainable debt reduces overall investment in the economy. Interest payments rise as debt grows and as the Fed raises interest rates, which Federal Reserve Chairwoman Janet Yellen said could occur in 2015. While interest rates are still at historic lows, Congress must act now to prevent excessive increases in the national debt triggered by rising annual interest payments.

Increases in interest rates signal that the cost of annual interest payments could skyrocket. In fiscal year 2013, the federal government paid $255 billion on total interest payments, while the Treasury paid 0.01% on three-month T-bills and 2.98% on ten-year notes. Those low interest rates will likely return somewhere near their historical averages of 3.3% and 5.2% respectively, once the Fed raises interest rates. According to the Committee for a Responsible Federal Budget, a nonpartisan think tank, the interest rate for 3-month treasuries is expected to rise to 4% and the interest rate for 10-year treasuries is expected to rise to 5.2% by 2018. Annual interest payments on the federal debt will soar to $505 billion under those conditions, making the national debt much harder to pay down.
President Obamas budget plans to decrease the federal budget deficit, but it will only reduce public debt to 69% of GDP in 2024. The public debt is historically high at 72% of GDP, while historic averages have been near 40% since the 1960s. His budget will not sufficiently resolve economic dangers to the economy posed by rising interest payments on the national debt. The Fed raising interest rates and increasing federal spending makes sustaining that spending undesirable. Legislation that raises revenues and reduces spending will allow the government to contain inevitable increases in annual interest rate payments and maintain healthy levels of investment in the economy.JK
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A C LOSER L OOK AT P UBLIC H EALTH

Last Wednesday, data from the federal Centers for Medicare and Medicaid Services was released. Details on services and procedures provided to Medicare patients by their doctors became available for the first time. Doctors were compensated $77 billion dollars in 2012 for treating the nation's elderly and disabled. The data also revealed the states where doctors charge the highest amount for their services were Florida and California. Additionally, the most costly treatments were for prostate cancer and hemophilia. This new data helps American taxpayers see what their money pays for in terms of public health benefits throughout the United States.LG
Check out the article: cnnmon.ie/1paTu8N

Lots of relevant data has been uncovered and released.

N OT E NOUGH I NFLATION I N T HIS N ATION

The producer-price index (PPI), which measures average price change, rose 0.5% between February and March, which exceeded most economists expectations of about 0.1%. This is good news for a U.S. economy that has consistently underperformed when it comes to inflation. The PPI is up 1.4% from March 2013, which is the highest one-year increase since August 2013. Economists will be waiting until May 1st for more information on the personal consumption expenditures price index. The Federal Reserve uses it to gauge inflation in the economy. The betterthan-expected PPI is a good start, but too-low inflation is still a major issue for the U.S. economy.RS
Check out the Article: on.wsj.com/1l3zmDN

Here in the dictionary, but not so much in the economy.

O N N EIGHBORHOOD G ROWTH
New research from the Cleveland Fed examines how many of our nations poorest neighborhoods in 1980 were still poorest in 2008, and it found that two-thirds of these neighborhoods were still poorest after these 28 years. Lower-income neighborhoods with more income mobility were also already in cities that thrived from 1980-2008. Researchers also found residential sorting in many high-growth, low-income neighborhoods. They noted net inflows of hispanic residents and net outflows of white and black residents; these neighborhoods also showed gains in educational attainment and other metrics. Narratives of growth must move beyond typical gentrification and show the more complex reality.CL
Hopefully, we see some growth here.

Check out the Article: wapo.st/1g831DV