Final blog post

I think the arguments presented and the evidence shown in Freakenomics ch 4 and the two moodle articles is very interesting. At first I somewhat thought this was a  weird comparison. I did not really think that access to abortion theoretically would have an effect on the crime rate. But after doing this reading it did make much more sense to me. The argument presented in Freakenomics says that basically babies that would have been aborted if abortion was allowed, but aren’t due to the laws, have a much greater chance of becoming criminals. This does hold some theoretical weight when you think about it. I can see how young women, pregnant, with low incomes and an unstable living environment having a baby could be a bad scenario. This is because the baby would grow up in a poor, broken home with a greater affinity for crime. This person may need to steal to survive, and may resort to violence to do such. Thus if this women were allowed to get an abortion, and this child never grew up in a broken home in that bad environment, then that would reduce the crime rate and reduce the violent crime rate as well. This does make sense and the first paper we read also makes much sense of this fact. The second paper I was a little confused about but it seems as if they are arguing that there is not an effect of having access to abortion on lowering the crime rate. I see how this could be the case for most women, as I cannot imagine a large percentage of women pregnancies are babies that would grow up in broken homes, and of all these babies growing up in broken homes, I cannot imagine that every single one of them will turn in to a violent criminal. I do however believe that there should be some significant results to allowing abortion and reducing crime rates. 

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Too big to fail movie review

Too big to fail was a fantastic rendition of the truly catastrophic meltdown of the financial system that was at hand in 2008. The movie really showed how close this country was to utter failure. The banks on wall street were collapsing and if something was not done to stop the bleeding, then the financial system would shut down, and the country would have been sent into a depression mirroring the great depression in magnitude. This movie showed the behind closed door discussions of the major banks that stood to bring down the entire country. With great accuracey, it showed how close we were to the brink of a major meltdown and it was really thrilling to see how it all actually panned out. I would reccommend this movie to anyone interested in learning about finance or economics.

The movie did have some great messages as well. I think the main message was greed can be a powerful enemy. The movie really showed how greed can destroy a person, a company, or even an entire country. People were taking out loans that they could in no way afford and bankers were exploiting this fact for financial gains. They became overcome with greed and kept this cycle up for many years until it all collapsed on them. The people could no longer afford the loans, and defaulted, causing the bankers securities to go bust, and putting the country on a path to destruction unless the governemnt stepped in and bailed out the banks. Greed is powerful and it can be a great enemy.

News article

In the links section you will find the link to an interesting news article talking abou the price relationships between natural gas, oil and coal. This has turned more to the focus of my paper at exploring these commodity relationships. The article argues that oil and natural gas are subsitutes and thus when the price of one falls relative to the other, demand for this good increases and thus the price increases back to equate the two. The article describes the historical 6 to 1 rule, in which oil has 6 times the heat generating capacity of natural gas, and thus if they were to be perfect subsitutes then the price of oil should be about 6 times higher than gas. It turns out historically this is true only when natural gas prices are increasing, and at other times a 10 to 1 rule is implied in which oil is ten times the price of gas. This might be interesting to look at in my paper as this implies that the prices do in fact move together. The article then talks about the relationship with coal and that this relationship has become distorted. The relationship is important because these are two primary sources of energy generation and thus when gas falls below the 5$ level then coal generation is effectively priced out of the market. This flips the market upside down as many of the historical generation players have large fleets of coal generation that sit idle when gas is below 5$. Thus this will be an interesting relationship to examine as well.

Barbarians at the Gate

This was a great movie showing the hostile nature of Wall Street in the 1980s as well as the greed that plagued the street. The central idea of the movie was what is known as a leveraged buyout. The movie depicted one of these deals going south so to say and a bidding war enacting that nearly shredded the deal. What I learned from the movie is that greed is a real source of evil that can ruin someone. In the beginning, the main character is struggling to increase the share price of his company and is going to take a beating from the board if he does not do something soon. He finds a solution to his problem when he hears of how much money he can make with a leveraged buyout. From my analysis, it seems as if he is at first consumed with getting this money and it guides him to attempt to buyout the company himself, a difficult task as he must raise over 20 billion to do so. As the deal is structured, he is granted a innumerate amount of money in the structure of the deal and tries to keep this information confidential. In the end however this is what ruins the deal for him. The information goes public that he is going to profit so heavily off of the deal and the board decides to go with another deal in which the terms are less lucrative. This was a lesson for me in greed. If you let greed consume you it can really mess you up. In this case the main character let greed consume him and it ended in him losing his job as CEO of the company and left his reputation tarnished. I learned that you must not let this be your motivation. 

Outline and Introduction

The Economic Drivers of Natural Gas Prices

Outline

Introduction:

                For decades now the field of energy economics has been greatly intrigued with energy commodities and their prices. Some believe that the prices of the various energy commodities are correlated quite well and move together in what is called commodities cycles. Others believe that there are many drivers affecting the prices of these energy commodities and that the correlation effect is only a part of the picture. I aim to discover what in fact are the main drivers of natural gas prices in the United States. This question is a valid one for economic study because if one were to be able to model natural gas prices and understand the drivers behind them, then one could make valuable market forecast that could help make difficult investing decisions around the energy sector. This research question comes from a summer internship I completed at PPL EnergyPlus where I was exposed greatly to the current energy market conditions. Currently, with natural gas prices so low, the primary source of energy generation has moved away from coal. Coal plants are sitting idle as natural gas plants are cheaper to run, and thus it makes economic sense to run the natural gas plants to full capacity. This is a problem however, because if you were to talk to an energy generation firm back 5-6 years ago, they would have laughed at you if you told them that natural gas prices were to fall so low that they would price out coal. Nobody believed this could happen and thus now we have a substantial amount of money invested into coal plants that are currently sitting idle. A model for natural gas prices could give us a forecast of market conditions that could avoid wasted capital if prices were to turn. I will begin by delving a bit into the literature on the matter. There has been a lot of recent study pertaining to the cointegration of natural gas and oil prices so I will discuss Ramberg, David J. and Parsons, John E’s The Weak Tie between Natural Gas and Oil Prices which focuses on the long and short term correlation between natural gas and oil prices and argues that there is a correlation but the confidence in the relationship is not very large. I will then delve into Mohammadi, Hassan’s Long-Run Relations and Short-Run Dynamics among Coal, Natural Gas and Oil Prices which will argue that Oil prices are set globally and Natural Gas prices are set regionally. I will finally delve into Brown, Stephen P. A.; Yucel, Mine K’s What Drives Natural Gas Prices? Here the argument is that Natural gas and oil were correlated but this relationship as seen to break apart in the short run. The Authors describe possible drivers in the short run. After explaining the literature on the matter I will then present my own interpretation. I will use data of Henry Hub natural gas prices against oil prices, Net Exports, and Production of natural gas. I will regress these variables to see their individual effect on the prices of natural gas. I will hope to see the correlation between Oil and Natural Gas as well as some other possible drivers of prices in Natural Gas markets.

 

Literature Review:

Ramberg, David J. and Parsons, John E’s “The Weak Tie between Natural Gas and Oil Prices”

                In this paper the authors attempt to understand the behavior of natural gas and oil prices. They present the two conflicting arguments, one that the prices are highly correlated and the second that in the last two years the relationship has seemed to decouple. Their findings are that natural gas prices have a large amount unexplained short term volatility that is not explained in oil prices.

Mohammadi, Hassan’s Long-Run Relations and Short-Run Dynamics among Coal, Natural Gas and Oil Prices

                In this paper the author examines the relationship between coal, natural gas, and oil prices. The author attempts to discover the relationship between the prices to see if they do in fact move together as the theory suggests. The authors find that these prices are separate in nature, and that Oil prices are set globally, Natural gas prices are set regionally (exposed to volatility), and Coal prices are set by long term contracts.

Brown, Stephen P. A.; Yucel, Mine K’s What Drives Natural Gas Prices?

                In this paper the authors try to figure out what is driving natural gas prices. They reference the theory of cointegration in which natural gas and oil prices are said to move together as one. They find that there are in fact other drivers that play a role in the volatility of natural gas prices. They reference storage and temperature mainly, but argue that the lion’s share of the price movements in natural gas markets are due to changes in Oil prices.

I intend to use these papers as a guide but will try to move beyond their findings. All of these papers suggest that Natural Gas and Oil prices do not in fact move together as the cointegration theory suggests, and that there are other short term or regional variables that are driving short term prices. I intend to use their findings as a base for my research in which I will attempt to discover the effect of these possible drivers.

 

Modeling:

Question: What are the main drivers of natural gas prices and what are their effects on natural gas prices?

Hypothesis: The main drivers of natural gas prices are natural gas production, Net natural gas exports, and oil prices. I believe that as natural gas production increases, natural gas prices fall, as net exports of natural gas increase, natural gas prices increase, and as oil prices increase, natural gas prices increase.

Evidence supporting this hypothesis would be that as the amount of natural gas production increases over the years, we observe natural gas prices decreasing. As Net Exports of natural gas increased, we should observe natural gas prices increasing. As oil prices increase over the years we should observe natural gas prices doing the same. Evidence contradicting my hypothesis would be the opposite of these relationships.

I will statistically test these relationships using a multi-variable OLS regression in STATA.

The mathematical equation I will test will be

Y= B1 + B2X2 + B3X3 + B4X4 + Ui

Where Y= Natural Gas Prices

B1= The constant

X2= Natural Gas Production

X3=Net Exports of Natural Gas

X4= Oil Prices

 

The Betas on these X values will shed some light on their variable’s relationship with Natural Gas Prices. If any of these Betas are not significant then we know that they do not have an effect on Natural Gas Prices. I plan to also look into statistics like the R^2, and the F-test to look into possible multicolinearity problems. I will explain these in detail in my results section.

 

 

Data:

The data I will use is from the EIA website or the Energy Information Administration which provides economic data for anything relating to energy.

From this website I obtained data for Natural Gas prices, Production, Exports and Imports, and Oil Prices.

The data came in over many different time ranges. Some of the data sets had data going back to 1970, while others were much more recent only dating back to 2002. Thus I had to delete out the data from 1970-2001 so that all the data would have the same time range.

I do think that this is the optimal data so to speak as this is exactly what I needed and the data came in the right format.

In the paper I will provide summary statistic tables that will give an introduction to the data, how it looks, and some basic statistics such as the Mean, Standard Deviation, Min, and Max.

 

Evidence:

Here I will present my findings from the regression analysis. I will restate the mathematical regression equation, this time with the specific values for the beta parameters. I will also delve in depth into the statistical significance of the findings jointly and individually for the variables. I will also go into depth into possible mutlicolinearity problems and endogenous data problems in my model.

Hopefully I will have significant results that I can talk about the economics meaning of my findings. IT is here that I will go from an equation to inherent meaning and describe what the parameters are actually describing.

 

Conclusions:

I will present my conclusions here from my regression results. I will take the output and put true meaning to the results. I will either reject or confirm my initial hypothesis and state why it is that I am doing so; I will then provide insight into how I could expand my research. Maybe this will be possible areas where I went wrong in my model and how I could fix those errors with further analysis. Or maybe this will just be suggestions for a reader who wants to expand on this research with something of their own. Finally I will discuss how my conclusions fit in to the economic picture as a whole. Is my model sufficient for predicting prices? If so how could someone use it to prevent the misuse of capital in future years?

 

References:

Brown, Stephen P. A., and Mine K. Yucel. “What Drives Natural Gas Prices?.” Energy Journal 29.2 (2008): 45-60. EconLit. Web. 4 Oct. 2012.

Data “U.S. Energy Information Administration – EIA – Independent Statistics and Analysis.” U.S. Energy Information Administration (EIA). N.p., n.d. Web. 04 Oct. 2012. <http://www.eia.gov/&gt;.

 

Ghouri, Salman Saif. “Forecasting Natural Gas Prices Using Cointegration Technique.” OPEC Review 30.4 (2006): 249-269. EconLit. Web. 4 Oct. 2012.

Mohammadi, Hassan. “Long-Run Relations And Short-Run Dynamics Among Coal, Natural Gas And Oil Prices.” Applied Economics 43.1-3 (2011): 129-137. EconLit. Web. 4 Oct. 2012.

Ramberg, David J., and John E. Parsons. “The Weak Tie Between Natural Gas And Oil Prices.” Energy Journal 33.2 (2012): 13-35. EconLit. Web. 4 Oct. 2012.

Schiff, Peter. “Commodities Run in Supercycles.” FINANCIAL SENSE. N.p., 10 Dec. 2011. Web. 04 Oct. 2012. <http://www.financialsense.com/contributors/peter-schiff/2011/12/20/commodities-run-in-supercycles&gt;.

 

Stuart, Chris. “Can Natural Gas Prices Recover?” TheStreet.com. N.p., 31 May 2011. Web. 04 Oct. 2012. <http://www.thestreet.com/story/11137727/1/can-natural-gas-prices-recover.htmlhttp://www.thestreet.com/story/11137727/1/can-natural-gas-prices-recover.html&gt;.

 

 

Chapter 4

Is our education system failing us?

In the book Poor Economics the Author argues that the conventional education system is not doing its job. Students are not being given the proper education and many students are being overlooked. That is, talent is being passed over because students are not excelling in the conventional classroom. The Author gives examples such as Albert Einstein and Ramanujam whom did not make it through the educational system but were some of our leading intellects throughout the years. The author goes on to argue that the students from parents with the proper resources go on to excel while the poor students often get left behind. The author argues that especially in developing countries, school systems are failing at giving students a basic set of skills and identifying talent. This problem is going to be exacerbated as resources shrink and enrollments increase as expected. 

An article found via Google argues why students are not learning conventional classrooms and how we can supplement the learning. The author has four main points. The author suggests we should include enjoyment as a measure of success in our teaching. That is we should not teach how to read, we should teach how to read with enjoyment. This is argued to spur more effort from the students that get bored and shut down from learning. We should teach lessons that trigger a positive reaction in the brain. If there are multiple failures students tend to shutdown their brain and tell themselves they are stupid and cannot learn. The author also suggest that we should trigger learning with the brains development. Thus as the right side of the brain is growing from ages 4-6, there should be a lot of active movement and less reading and writing which uses the left side of the brain. Finally the author suggests rewarding thinking instead of finding the right answer. This is a broader measure of success that will give students confidence. 

 

The second author seems to put the focus around the feelings of the child and supporting positive learning and encouragement. I like this idea but I feel as if students that are excelling in class will be bored. I think the first author brought up a good point that summer schools seemed to work where the slower students were put together and the teachers could focus on developing them separately. If I was to choose an educational reform from the conventional system I would say that students should not be given up on because the conventional school system fails them, but I think if it is obvious that this system is not working for them there should be a supplementary system for them to learn with students like them. I do feel that there are many students like myself that prefer the conventional system and thrived learning through it. 

This is a difficult subject but I do agree that reform is needed, especially as resources shrink and enrollments increase, and especially in developing countries where these two problems are magnified a great deal. 

http://www.thecortexparent.com/why-schools-fail/

 

Freakonomics Chapter 3

This was a very interesting chapter. I believe that the argument of this chapter is that things are not always exactly as they seem. In this sense, the author is comparing the perception or idea of what a crack dealer’s life is to what it actually is. A young kid in the project sees the leader of his local gang rolling around in a fancy car with a lot of money and he aspires to be that person. He believes it is in his realistic realm to become that person, just as a young baseball player believes they can someday make it to the majors. The perception of the job is that it is glorious and that everyone makes a ton of money dealing crack cocaine. In reality though, as the author presents, this is not the case. The author argues that the life of a crack dealer is really a terrible, dangerous, and poorly compensated job and that people often overlook the true nature of a “glamor field” because they see a few people sporting the good life. 

The author sites a few supporting statistics to back this claim, which came from the books of a gang itself. 

Monthly compensation to the gang leader is $8,500 or $66 an hour. The three officers below the leader make $700 per month, or $7 an hour, and the foot soldiers make $3.3 dollars an hour. 

2.2 percent of the black disciples gang takes home more than half the money. 

For a foot soldier, in four years of work on average you are arrested 5.9 times, non fatally wounded 2.4 times, and you have a 1 in 4 chance of being killed. 

Annual salary of the leader is $100,000 and the 20 board members above him make $500,000

 

As you can see the picture of a rich crack dealer is certainly a false one, just as the picture of a rich baseball player, or actress. The author describes it as a tournament, as the field to get to the high roller status is so competitive that the jobs to work up the later are often terrible. Everyone wants to be the king pin crack dealer so there is a lot of labor supply and thus the pay is quite low and the job conditions quite poor. The author’s argument that we often see the top earners in a field and think that everyone in that industry lives that life, when in reality it is quite the opposite, as he shows with the life of a foot soldier. 

sorry I have the online version of the book which does not include page numbers.