Economics Week in Review – 10/3 to 10/7 by Charley

Definitions:

Elasticity of Demand: Elasticity of demand is the responsiveness in quantity demanded to a chance in price. Candy bars, for example, are an elastic good, as when their price goes from $1 to $4, the demand for candy bars plummets. Gas is relatively inelastic, on the other hand, as gas prices have been rising steadily, yet demand never goes down. Generally, the elasticity of a certain good is dependent upon how available substitutes for the good are.

Price Elasticity of Demand (PED): PED is the equation for determining elasticity of demand. It is calculated by dividing the percent change in quantity demanded by the percent change in price. Generally, a PED of less than one is considered an inelastic good, while a PED of greater than one is considered an elastic good.

Socially Responsible Investing (SRI): SRI is investing solely in companies that are socially ‘good.’ Socially responsible investors will invest in companies that promote environmental responsibility and human rights, but not in companies that manufacture or sell alcohol, fast food, weapons, or fossil fuels. Popular ways to invest socially responsibly include putting money into socially responsible ETFs or mutual funds.

Human Capital: Human capital is the value an individual provides to a certain society given his skills, knowledge, and education/experience. Individuals with higher human capital are more likely to be hired/promoted.

Health Care: Medical services provided to an individual to improve their health. Note the difference from health insurance, even though both are often referred to as the same.

Health Insurance: Health insurance reimburses the insured for medical and surgical expenses. Not having health insurance can be costly if an injury occurs that the injured is unable to pay for.

Health Maintenance Organization (HMO): A network of hospitals that provides health services for a fixed annual fee (serves essentially as health insurance). HMOs are considerably cheaper than PPOs because registered individuals can only receive medical services at certain hospitals.

Preferred Provider Organization (PPO): A type of health care that covers medical expenses for every hospital, not just hospitals in a certain network (see HMOs).

Deductible: How much someone has to pay in out-of-pocket expenses before insurance kicks in. Deductibles are calculated on an annual basis.

Premium: A monthly insurance payment.

Out-of-pocket max: The maximum amount an insured individual can pay in a single year.

Current Events:

https://techcrunch.com/2016/09/29/grow-launches-its-app-for-socially-responsible-investing/

This link is to an article on Tech Crunch about a startup making it easy for a novice investor to invest socially responsibly. Its platform is similar to previous investing apps such as Robin Hood and Stash, the difference being that the only investments possible on the app are in socially responsible companies. While I feel like socially responsible investing is routinely criticized, I absolutely believe it’s possible to both maintain profit while improving society (kind of the premise of capitalism, really).

            I have no statistics to back this up, but because of socially responsible investors, it would make sense for an SRI company to have a higher share price than a similar non-socially responsible company. Millennials, it has been proven, try to shop sustainably. Thus, socially responsible investing, and this app, would appeal to them. Should many millennials invest socially responsibly, in addition to those who do already, is it possible we could undergo a social responsibility bubble? Could companies share price become so inflated by their environmental or human rights policies that earnings matter less and less (until the inevitable stock market crash, of course)?

http://www.huffingtonpost.com/laura-adams/trump-or-clinton-how-our-_b_12378170.html

            In honor of the second debate, I thought a political article would be appropriate. I found this article (from Friday) on how health care would change when either Trump or Clinton is elected. Trump will repeal the ACA, doubling the number of uninsured Americans but likely decreasing the federal deficit. Trump would also replace the individual mandate with tax credits, and let insurers sell across state lines (which analysts have predicted will lower premiums by 37%). Obviously, there are many critics of this plan. The most prominent criticism is that removal of the individual mandate will vastly lower the number of people with health insurance. This is because low-income families already paying very little in taxes wouldn’t be incentivized to buy health insurance for the miniscule tax break they’ll receive.

            Clinton’s plan, on the other hand, is to revise the ACA. She wants to add a “public option” for health care, which competes with private insurance companies, eventually lowering prices. Clinton also wants to expand Medicare. Unfortunately for her, a study just came out finding that expanding Medicare would cost $6,366 a person. There are many fair criticisms of Clinton’s plan too: insurers, like UnitedHealth, are dropping out of the ACA’s state exchanges.

Takeaways:

I never realized just how tumultuous the health care industry was. There are an incredible amount of complications and ways to pay, which makes it hard to believe that such a system constitutes 20% of our annual GDP. Whatever the next President decides to do will have long-lasting implications, but because the issue is so polarized, I wonder if there will ever be bipartisan support for a single plan.

I found the SRI teach-a-class fascinating, and wanted to highlight a debate we had in that class. The recent RED movement (trying to raise money to fight AIDS) was supported by companies like Nike and Starbucks. Both corporations created products and donated money to RED. While certainly RED is a fantastic cause, I’m also certain that Nike and Starbucks received excellent press for the movement, which served to promote their brand and perhaps create a rise in their stock price. In addition, it’s possible their long-term earnings benefitted. I wonder, then, is it moral of these companies to benefit so immensely from a charitable act? Is it really moral to do something charitable for an uncharitable purpose?