Wednesday, June 20, 2018

Family Separation: Another Unfortunate Piece of Trump's Fear-Mongering Immigration Policy

In April 2018, President Trump added a new aspect to his immigration policy: family separation. The Trump administration's practice of family separation starts with apprehending anyone who is crossing the U.S.-Mexican border illegally, and that includes those seeking asylum. This "zero tolerance" policy reaches the point of separating children from the parents, guardians, or other adult figures who accompanied the child crossing the border, hence the family separation. Between April 19 and May 31, the Border Patrol apprehended 2,000 children.

The Trump Administration is claiming that family separation is a continuation of Obama-era policy. This is false. Neither Bush Jr. nor Obama had policy with the effect of widespread family separation like Trump. Yes, the Obama administration detained families of undocumented individuals, but at least the families were kept together. There is not a Federal law stipulating or mandating that children be separated at the border. Family separation is a new policy under the Trump administration. 

It doesn't surprise me that this is so heavily protested. Children are being kept in cages, and some parents are being deported without their children. It is interesting how the cliché "think of the children" has been used on the Right against same-sex adoption or transgender individuals entering the bathroom that best fits their gender expression, although neither claim has a basis in reality.

Study after study shows that separating children from their primary care-giver causes major adverse effects on their mental and physical well-being, including developmental delays, trouble sleeping and eating, and anxiety. This is all the more so the case when separating children from their parents at the border, much like we see now (MacKenzie et al., 2017). It's no wonder that American College of Physicians, American Psychiatric Association, and American Academy of Pediatrics are all against separating children from their parents at the border. This letter from the Physicians for Human Rights also cites literature on the effects. Former director of Immigration and Customs Enforcement (ICE) John Sandweg warns that this policy could create thousands of orphans. These findings and outcry from pertinent professionals on the effects this has on children only serves to support the moral outcry (see my Jewish religious argument on how to treat immigrants here).

The increase in these border crossings is caused by high murder rates and gang violence in Central America (see Clemens, 2017). These families crossing the border and risking harm, deportation, or death are doing so because they are fleeing from something horrible, something those of us in more developed countries could not begin to imagine.

What worries me is that Trump's stance on family separation is a continuation of his anti-immigrant policy (see tweet above). Trump lambasted the MS-13 for acting like animals. Yes, such gang activity is morally reprehensible. But it's also morally problematic to refer to human beings fleeing from inhumane conditions as "infesting our country," as if they are akin to a rodent or cockroach problem. Here are some fun facts about undocumented immigrants to better contextualize: they are less likely to commit crimes, they are not causing a fiscal drain, and they pay taxes. In this case, many of those crossing the border are asylum seekers. More to the point, the refugees and asylum seekers, such as the ones that Trump is attempting to deter with family separation, are such a non-threat that you are about 21,000 times more likely to get struck by lightning than get killed by a refugee! 

You could argue that the problem is with illegal immigration only. If you think that Trump's problems with immigration are limited to illegal immigration, you would be wrong. In his first term as President, Trump has already taken issue with multiple forms of legal immigration, whether it is chain migrationTemporary Protected StatusDACAlow-skilled immigrants, or H1-B visas

Even if you argue that they are breaking the law (91 percent were charged with misdemeanors, which further illustrates how disproportionate Trump's response is), it does not justify putting these people through such trauma. Family separation adds to the problems of an already-problematic immigration system in the United States. The red tape and wait for green cards and visas is so ridiculously long that telling asylum seekers to go through the system legally borders on farcical. Family separation adds to the problems of an already-problematic immigration system in the United States, a list of problems that Trump erroneously thinks could be solved with a border wall and more border patrol agents. Family separation is both a humanitarian calamity and another example of how Trump does not understand the cost that anti-immigration imposes. If any conservative truly cares about the children or family values, they will call on the Trump administration to stop with the family separation. 

Wednesday, June 13, 2018

Gay Pride Month 2018: A Look at LGBT Rights in the United States

When the Founding Fathers founded this country, they envisioned that everyone have the right to life, liberty, and pursuit of happiness. Although it is a wonderful ideal, this country has had its share of imperfections putting it into practice. This country has been through a Civil War, Jim Crow laws, and a Civil Rights movement, and still, we are working on judging a person not by the color of their skin, but by the content of their character. Women did not have the right to vote until 1920, and even afterwards, there was a fight for political and economic equality of the sexes. There is another group of people in this country that have been treated unfairly: the lesbian, gay, bisexual, and transgender (LGBT) community. The Stonewall riots of 1969 started the modern-day gay rights movement, but it took a lot to get where we are today. It is in that spirit that I want to take a brief look at where the LGBT community has made strides and where there can still be improvement.

As a libertarian, it should be no secret that I am all for LGBT rights and further LGBT inclusion in society. An expansion of civil liberties and economic freedom, especially for a class of people that has been marginalized, is a wonderful thing. That is why the first metric I would like to look at is same-sex marriage. In 2015, Supreme Court ruled in Obergefell v. Hodges that same-sex marriage is a constitutional right covered under the Fourteenth Amendment. Prior to this case, 36 states and DC already allowed for same-sex marriage. It was a slow fight from when Massachusetts allowed for same-sex marriage in 2004, but we live in a society where same-sex couples are legally the same way as opposite-sex couples. According to Gallup, two out of three Americans support same-sex marriage. Just two decades ago, more than two out of three Americans opposed same-sex marriage.

This increased support of LGBT rights is solidified not by government fiat, but by people coming out of the closet. Homosexuality transcends race, religion, gender, political affiliation, and socio-economic status. As LGBT people came out and told their story, there was a realization for more and more heterosexuals: that they know someone who is gay, whether it is their child, their sibling, their friend, their get the idea. Short of some crazy, ultra-right, theocratic force taking over the government, I only see support for LGBT rights becoming stronger, not weaker.

This victory is not just in straight allies supporting the LGBT community or the legal recognition of same-sex marriages. Obergefell v. Hodges was also a victory for same-sex adoption. By June 2017, same-sex adoption became legal in all 50 states, which is a good thing, least of all because same-sex couples can parent just as well as opposite-sex couples. The FDA changed its blood donation policy for gay men from a lifetime ban to a one-year deferral, which is an improvement. "Don't Ask, Don't Tell" was repealed in 2011, which means gay and lesbian individuals can serve openly in the military.  82 percent of Fortune 500 companies have LGBT-inclusive policies, which is a significant improvement from the 3 percent in 2002.

These have been major policy victories that show society's increased acceptance of LGBT individuals, to be sure. However, as much as I can rejoice in the progress made for the LGBT community, there is still work to be done. Anywhere from 20 to 40 percent of the homeless youth population is LGBT, primarily due to family rejection. Only 13 states protect children from the awful practice known as conversion "therapy." A 2017 report from RTI International shows with 20 years worth of data that LGBT individuals are still more likely to be victims of violence, bullying, sexual assault, and hate crimes than their heterosexual counterparts. The RTI report goes as far as saying that bullying of LGBT has not improved since the 1990s, which is sad. In 2016, the Center for American Progress (CAP) found that 1 in 4 LGBT individuals experienced discrimination. CAP's findings also include LGBT individuals needing alter their lives, whether they have to mention their romantic relationship in vague terms, avoid certain social situations, make decisions about whether to work or live, change the way they dress and talk, move to a different area, and cut out important people from their lives. Furthermore, President Trump has not exactly been pro-LGBT like he promised on the campaign trail, which rightfully has the LGBT community worried, especially after all the progress that has been made.

Gay pride month has been as much about protest and activism as it has been about celebrating victories and celebrating one's true self. In spite of who sits in the White House, I still have optimism that LGBT rights and the direction of LGBT equality will grow over time.

Friday, June 8, 2018

Parsha Shelach: Challah--The Greatest Mitzvah Since Sliced Bread

For many cultures over time, bread has been a simple, cheap, and versatile food: pita, baguettes, naan, tortillas, sourdough, ciabatta. Bread also plays a role in Jewish culture and religion, most notably in the form of challah (חלה). Challah is a braided egg bread that is eaten on Shabbat and Jewish holidays. Challah plays such an important role that it is actually a mitzvah in this week's Torah portion:

ראשית ערסתכם חלה, תרימו כתרומת גרן כן תרימו אתה.
-Of the first fo your dough, you shall separate a part as a gift, as that which is set apart from the threshing-floor, so you shall set it apart. -Leviticus 15:20

Yes, challah in today's vernacular refers to a loaf of bread. However, when you look at the entire passage about the challah (Leviticus 15:18-21) in the Torah, it refers to that set-aside portion of bread that is tithed at the Temple. We no longer have a Temple, so what significance does this challah have for us today?

One argument is that during the biblical era, the priests (Kohanim) did not receive a salary, and the rest of the Jewish people provided the Kohanim with food. We could certainly apply this sense of communal responsibility to the twenty-first century. However, I think there is more going on here.

Something I noticed about the text is that the mitzvah of challah is next to the admonishment for committing idolatry. Juxtaposition is, after all, a standard hermeneutical tool in Jewish interpretation. Rashi used it to explain the mitzvah of the nazarite. The Mishnaic rabbis used it to derive the 39 acts of work one does not perform on Shabbat. What is the connection between challah and idolatry?

The etymology of the word חלה is debated. One theory is that the word חלה is related to the word חל, which means "ordinary" or "mundane" (as opposed to "holy"). In his book "Meaning in Mitzvot," R. Asher Meir explains that when we first encounter the mitzvah of challah in the Torah, there is no mention of it being given away to the Kohanim. That comes later [in Leviticus 18:12]. R. Meir points out that "the first, primary part of our daily bread should be separated and elevated to G-d." R. Meir continues to say that the mitzvah is intended for us because we need to remind ourselves that "everything has a connection to holiness, some aspect which can transcend our mundane needs and be devoted to G-d." What does this have to do with idolatry?

Idolatry is more than mere prostration in front of a statue. As I have explained before, idolatry is when we take G-d out of the equation and worship something else, whether it is money, work, our desires, or our ego. By worshipping something else, it takes us away from our spiritual purpose: to elevate the mundane into something holy.

This can give use elucidation as to why is bread the highest blessing (bracha) on the Jewish food blessing hierarchy. Here are alternative explanations as to why G-d decided to make bread a mitzvah:

  • We see a very similar lesson with the tithing of the first fruits (Deuteronomy 26) as we do with challah: the motif of gratitude. Jews are literally a people of blessing. One of the Hebrew words for "Jew" (יהודי) has the same root as the Hebrew verb "to thank" (להודות). Multiple steps within the supply chain symbolize the multiple opportunities we thank those who made the bread production possible. 
  • Bread is also not an expensive product, which symbolizes the fact that G-d and spirituality are accessible to everyone, regardless of socio-economic status.
  • Most importantly, it puts time into perspective. Looking in the past, Midrash (Breishit Rabbah 1) says that G-d created the world in merit of three things, and one of things was challah. As already established, challah can bring us to the present. Challah can also be linked to the future because some rabbis argue that the bracha over bread refers to the fact that G-d will bring forth those grains in the future. Plus, Jewish tradition connects Shabbat with the Messianic era. 

Based on these interpretations, we see that G-d gives us the power to be more than mere animals: He gave us the ability to elevate the mundane to the holy. G-d also gave us a way to experience a food that could connect us to the past, present, and future at same time. Let us use that power to experience challah the way the good Lord intended!

Monday, June 4, 2018

What Causes High U.S. College Dropout Rates?: Implications for Higher Education Reform

Education is the single largest important factor for an individual's economic well-being. Certainly in the context of the United States, it is important enough where it has become a societal expectation to acquire a four-year college degree. It is ingrained that a four-year college is the key to success because more education generally means more productivity and higher wages. As I discussed in November 2014, those who earn a college degree generally fare better than those who do not attend college. This key to economic success assumes completion of college. What is seldom mentioned is the sheer number of those who do not complete college and are subsequently straddled with debt while having nothing to show for it. Also, that time they spent in college could have been used developing workforce experience, but not that time is foregone.

In conjunction with Third Way, the American Enterprise Institute released a report last week illustrating the prevalence of the dropout rate. How bad is it? In 2016, 49.1 percent of full-time, first-time students completed their degree program within six years. That is about the same probability as flipping a coin. For two-year institutions, the figure is an even lower 39.8 percent, and is still low even when factoring those who transfer from a two-year institution and graduate at a four-year institution. Given how expensive tuition has increased in recent years (see below), it is no wonder that this outcome creates economic hardship for millions of Americans. With that in mind, I would like to answer two questions today. One, why is it that the college completion rate is so low? Two, what could be done to increase those rates?

What Is Driving the Dropout Rate?
It should not surprise us that there are multiple factors into what contributes to the dropout rate. After all, the individual's college story is unique and variable. Nevertheless, we can narrow down to the few primary contributors.

Affordability and Work-School-Life Balance. Working while in college has become the new norm. According to the National Center for Education Statistics, 43 percent of full-time undergraduate students and 78 percent of part-time undergraduate students are employed. A 2015 study from Georgetown University went as far as saying that over the past 30 years, about 70 to 80 percent of [undergraduate and graduate] students have taken at least some time from their college schedule to work. 25 percent of full-time students are also working full-time, not to mention that 19 percent of full-time students have children. The Georgetown study also points out that while it is better to work in college while going straight to work after high school, it is nigh impossible to "work your way through college" (i.e., income doesn't cover costs like it did in the past) or afford college without taking out considerable loans.

As mentioned above, the cost of college has increased at a faster rate than overall inflation. A 2017 survey from Financial Advisor cited finances as a major reason to drop out. It found that 51 percent of women and 41 percent of men drop out because of financial reasons. A 2015 Ohio State University study also found that 70 percent of college students are stressed about finances.

Cost is not just about tuition, but housing, books, materials, and transportation. Even if some of these costs could be avoided by taking out loans, many college students work. A 2018 LEND EDU study found that only 45 percent of students could finance their education on their own. If these students' income cannot cover these non-tuition costs, the financial pressure causes them to drop out.

Academic Preparation in High School. In his May 2018 report on the topic, Urban Institute education expert Matthew Chingos found such a high correlation between high school grades and college degree attainment that he called high school academic preparation one of the strongest indicators of college completion. Research from the American Institutes for Research (AIR) comes to similar conclusions regarding academic preparation in high school (Velez, 2014). This finding makes intuitive sense. If you developed the soft skills of showing up to class, turning in homework on time, and studying for exams, there is a good chance that those skills will stay through college. Having these skills are important because college is typically the first moment of independence from parents, which means that parents are probably not there nagging about completing homework or going to class. If those soft skills were not there in high school or they were there with considerable reinforcement from parents, it is no surprise that research shows that it is difficult for lackluster students to remain focus in college.

Inferior Quality of Education. Believing that the quality of higher institutions of learning was inferior in the United States was initially hard for me to believe because many U.S. colleges are ranked on lists of top colleges in the world (see here, here, here). However, Third Way has some interesting analysis on college quality (see here and here). If colleges were regulated the same way high schools are, 85 percent of four-year public colleges would be flagged as dropout factories and would be mandated to improve their completion rates. It is not simply the dropout rates that are perturbing in the Third Way analysis. It is the subpar wage outcomes, lack of correlation between price and quality, and difficulty paying loans back because the lack of job skill development at these colleges.

What to Do?
Between skyrocketing college costs, lack of academic preparation, and college quality issues, it is no wonder that the college dropout rate is as high as it is. There are multiple solutions, depending on which symptom that one would like to target. One common solution is to provide more subsidies towards college tuition. The problem is that federal college subsidies are the single largest contributor to why college tuition has increased in the past thirty years. Doing more of the same would only exacerbate the situation.

Along with the report mentioned at the beginning about the prevalence of the dropout rate, the American Enterprise Institute and Third Way released additional reports on solutions to the issue (see here and here; also see 2010 Third Way report here). The solutions range from federal accountability to expanding dual enrollment, a college tuition tax credit, and better financial, academic, and mental health support. I would like to add a push for changing the societal norm that everyone should go to a four-year college. These dropout rates show that four-year college is not for everyone. Unlike other developed countries, the United States does not have an established alternative to the four-year college, largely due to this societal expectation. As the AIR research suggests (Velez, 2014), students who started off at a two-year college had a better chance of succeeding overall.

Considering how adversely impactful dropping out is towards an increasingly large number of Americans, finding solutions to this problem becomes more paramount. However, the American people as a society has to recognize the problem before delving into solutions. I hope that this recognition takes place before the problem gets much worse.

Tuesday, May 29, 2018

Dodd-Frank Reform a Huge Dud: Why We Need to Repeal Dodd-Frank

The Great Recession was the worst financial crisis since the Great Depression. It hit millions of people across the globe as jobs and wealth disappeared. In response to this catastrophe, the United States government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). This bill was the most significant financial reform to take place in the United States since the Glass-Steaggal Act (see my analysis on that Act here). The purpose of Dodd-Frank, according to the Act itself, was to "promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and other purposes." What I would like to do today is see if Dodd-Frank accomplished its primary goals (Congressional Research Service primer on Dodd-Frank here), whether there were unintended consequences, analyze the Dodd-Frank reform bill that passed last week (S.2155, also known as the Economic Growth, Regulatory Relief, and Consumer Protection Act), and subsequently determine whether this reform bill was the best course of action.

There have been some good things to come out of Dodd-Frank. The Minnesota Federal Reserve Bank found that Dodd-Frank reduced the probability of a bailout in the next 100 years from 84 percent to 67 percent. The Wharton School of Business points out that Dodd-Frank provided oversight over payday lending, includes measures to protect retirement money savers from abuse, and has disclosure requirements on derivatives and for oil companies on their payments to foreign government. For another, the Left-leaning Center for American Progress calculated that for every dollar of funding provided to the Consumer Financial Protection Bureau (CFPB), it has returned $5 dollars to victims of financial wrongdoing (or $12 billion in total). If you want a better view of CFPB, here is my literature review of CPFB from two-and-a-half years ago.

Nevertheless, there are multiple issues to take with Dodd-Frank, as are pointed out in detailed criticisms from the Heritage Foundation and Mercatus Center (also see Brookings Institution analysis here for a mix of praise and criticism). Here are but a few I found while conducting research on the topic:

  • Effects on community banks and credit unions. In December 2015, the Government Accountability Office (GAO) found that community banks and credit unions are disproportionately hurt by Dodd-Frank because they do not have the same capacity that larger banks do to handle compliance. As a result, these smaller financial institutions have reduced the availability of credit to their customers. A working paper (Lux and Greene, 2015) from Harvard University confirms the GAO findings. This paper calculated that commercial banks' assets declined at a rate more than double than that between 2006 and 2010. The authors contributed this decline to Dodd-Frank. 
  • Cost of borrowing for small businesses. Evidence suggests that borrowing for small businesses became more expensive since 2010, which hampers job creation and investment (Chen et al, 2017). Another study from the National Bureau of Economic Research confirms that commercial and industrial loans dropped nine percent since Dodd-Frank, and was due to said regulations (Bordo and Duca, 2018).
  • Price tag of regulatory compliance. According to the American Action Forum, eight years of Dodd-Frank has cost $38.9 billion and 82.9 million man-hours. That exceeds the $12 billion recovered by CFPB. 
  • Cost to Consumers. The American Action Forum also found that Dodd-Frank is responsible for cutting revolving credit by 14.5 percent. This is important for consumers because as the World Bank discovered, there is a strong correlation between financial inclusion and economic growth or employment (Cull et al., 2014).
    • Middle-Class and Mortgages. Another cost is squeezing the middle class out of the housing market. According to a study from the University of Maryland (D'Acunto and Rossi, 2016), the combination of a 3 percent cap on mortgage-related service fees and a more costly process for verifying customer's income. This change in underwriting incentivized banks to slash the number of loans at the median income and target wealthier individuals.
  • Less competition in the banking sector. There is a study that took a look at Dodd-Frank's effects on bank acquisition behavior (Bindal et al., 2017). This study is important because it shows unintended consequences of Dodd-Frank creating more regulations for banks with more than $50 billion in assets. On the one hand, very small banks are more likely to partake in acquisitions. On the other hand, they make sure to stay below the $50 billion mark so that they do not get hit with Dodd-Frank regulations. This is significant because it creates a barrier to entry in the mega-bank submarket, which solidifies market share and overall power for the already-existing mega-banks. It is another example of how regulations squash the smaller business owner, protect big business owners, and artificially encourage business consolidation, thereby perpetuating the cycle.  
  • Big banks are not safer. A study from Lawrence Summers, a major supporter of Dodd-Frank, concluded that big banks are not safer, even in spite of decreased leverage (Summers and Sarin, 2016).
  • Financial sector not healthier. A study from the National Bureau of Economic Research suggests that it was post-crisis regulations that are strangling financial sector growth (Chousakos and Gorton, 2017).
Dodd-Frank Reform Bill and Conclusion
If you look at the reform bill, there was not much that was reformed relative to what was initially enacted in 2010. Yes, the bill is going to ease up on supervision, which is one of the major contributors to Dodd-Frank's regulatory costs (see above). It is also exempts smaller banks [with $10B or less in assets] through the community bank leverage ratio. The SIFI (Significantly Important Financial Institution) threshold increased from $50B in assets to $250B, although there are multiple caveats attached in the Senate bill. There will also be some deregulation on stress testing, i.e., companies only have to perform two stress tests instead of three. In short, the bill primarily provides targeted relief for smaller banks.

In its analysis, the Congressional Budget Office (CBO) finds that the bill will slightly increase probability of financial crisis, although it fails to qualify that further. Former Congressman Barney Frank, who was a co-author of the bill, thinks that the reform will not make a big dent into the impact of Dodd-Frank. From Frank's standpoint, that's probably a good thing. The good news is that it doesn't like the bill is going to cause catastrophe to the U.S. financial system.

I will say that although the bill goes in the right direction, it is still inadequate. Being an 849-page bill with over 27,000 regulations, Dodd-Frank still has a stranglehold on the financial markets. Even the GAO admitted that Dodd-Frank did nothing to simplify oversight over the financial sector (see below). I know that this compromise bill was passed because they could not get votes for downright repeal. However, I still contend that even in spite of certain advantages to Dodd-Frank, repeal is still a desirable goal.

For more on financial regulation reform, see analyses from Manhattan Institute and Heritage Foundation

Wednesday, May 23, 2018

Peso Depreciation, Inflation, and Interest Rate Hike: Is Argentina Looking at a 2018 Recession?

Panic is a word that one could use to describe the Argentinian economy right now. The Wall Street Journal recently referred to it as a death spiral. The value of the Argentinian peso (ARS) fell 6.6 percent relative to the U.S. dollar on May 3. This devaluation has been occurring for quite some time, although this decline was the largest. In order to stop further depreciation, the Argentinian central bank (Banco Central de la República de Argentina) raised the interest rate to 40 percent a little over a week ago. For context: less than a month ago, the interest rate was 27.5 percent. It is bad enough where the Argentinian government asked the International Monetary Fund (IMF) for a bailout loan. I thought the IMF would not have given Argentina money considering that Argentina defaulted on an IMF loan in 2003. However, an agreement for a $30 billion loan of emergency aid is underway. What I have to wonder is what is the magnitude of the problem here.

Positive Economic Indicators
  • Inflation fell from 40 percent in 2016 to 24 percent in 2018. 
  • Argentina has recovered from its 2015 recession, although at a slower rate than the last two recessions (IMF, p. 4).
  • Argentina is in a better position to accept an IMF adjustment program since it no longer has its peso pegged like it did in the 1990s.
  • The public sector is projected to reach its deficit target of 3.2 percent (BBVA).
  • Argentina's economic volatility is balanced by high per-capita income, a large and diversified economy, and improved governance scores (Fitch).
  • The GDP is expected to grow considerably and inflation is expected to slow down (IMF, p. 9).

Negative Economic Indicators
  • Argentina will experience forex (foreign exchange) pressure from an unsustainable current account, lack of central bank credibility, and worsening external financial conditions (BNP Paribas). 
  • Currency risk for companies based in Argentina is going to be high through mid-2019, according to Moody's.
  • "The removal of foreign exchange controls...resolution of the dispute with bond holders, and realignment of utility tariffs have corrected Argentina's most urgent macroeconomic balances (IMF, p. 4)."
  • A combination of a high interest rate and currency depreciation will make further capital outflows costly. 
  • Argentina has a budget deficit of 6 percent. Without new budget measures, the budget will increase precipitously. 
  • Because of the increase of foreign financing and low global risk premier, there has been an upward pressure on the real exchange range. This has left the Argentinian peso overvalued by 10 to 25 percent, thereby exacerbating external imbalances (IMF, p. 9). 
  • The low percent of exports will make it more difficult for Argentina to recover from its external debt (Council on Foreign Relations; IMF, p. 7).
  • 30 percent of Argentina's foreign exchange reserves are non-transferable letters of credit (letras intransferibles). This means it will be more difficult for Argentina to pay off its liabilities or withstand a currency crisis (American Institute for Economic Research).

What Will Happen?
It might be fun to prognosticate, but at the end of the day, this is still speculation based on economic analysis. Nevertheless, I'll give it a go. I know that these economic shifts will both undermine Macri's economic policy of gradualism and diminish his odds of re-election. With the Argentinian central bank depleting its foreign reserves, there is little it can do to stop the capital outflow, which is worrisome. The silver linings are that Argentina is not anywhere near defaulting, and that the private sector-denominated debt is low. Even so, there are a few ways that Argentina can proceed. BNP Parnibas suggests that because of the trap of fiscal dominance, either fiscal adjustment (lowering the budget deficit) or further depreciation of the peso are the main options. Another option is currency reserve management and making sure Argentina buys enough local currency. Years of populist and protectionist policy will make any adjustment painful. What will make this more painful is that this is the canary in the emerging market coal mine. I don't think there will necessarily be a recession by the end of the year, but I anticipate a tough road ahead for the Argentinian economy. 

For more reading, read the main sources here:
- IMF's 2017 Article IV Consultation for Argentina
- Banco Central de la República Argentina [BCRA] (Report of Financial Stability, First Half of 2018)
- BBVA Research
- Heritage Foundation Economic Freedom Index

Thursday, May 17, 2018

Contextualizing the 2018 Gaza Border Protests: How About Blaming Hamas?

Palestinian protestors (or as I prefer to call them, rioters) on the Gazan-Israeli border have been making quite the fuss lately. When the U.S. embassy in Jerusalem formally opened on Monday, things escalated. These protests resulted in 60 deaths on Monday, which is the highest death toll in the Israeli-Palestinian conflict since 2014. You might think that the protests have something to do with this embassy opening and recognizing Jerusalem as the capital of the Jewish state (which it is), but these protests have been going on since March 30. The other two main grievances of these protestors are the blockade of the Gaza Strip and the "right to return." If you look at such news outlets as CNN and BBC, you would think it is "Big Bad Israel" trampling the "helpless Palestinians," as if Hamas is not to blame.

Before beginning, I would like to say this first because I cannot emphasize this point enough: this conflict and this violence are nothing new. Hamas' violence predates the opening of the U.S. embassy in Jerusalem. The blockade of the Gaza Strip has been going on since 2007, and the "Right to Return" has been contentious since the Six-Day War in 1967. As I brought up when analyzing Hamas in 2014, Hamas was and still is a terrorist organization that has in its charter to wipe Israel off the map. Israel has not had military forces in Gaza since 2005. So what is really going on? I hope to answer that in the upcoming points.
  1. This riot had its fair share of violent protestors. While there were a fair number of protestors who tried to keep it peaceful, there were enough that were inciting violence. Not only were a number of protestors were carrying weapons and planting explosives, but many were hurling stones, throwing Molotov cocktails, and flying flaming kites over the border in hopes to set fields ablaze. Protestors were encouraged to storm the fences, thereby suggesting a goal to incite the Israeli Defense Forces. There were multiple failed attempts for these individuals to sneak across the border intent on killing Israeli citizens. If any other country were to respond to an angry, armed mob of hundreds of individuals amassing on their border calling for its destruction, they would have in all likelihood shown less restraint than the Israeli Defense Forces showed in recent events. However, when Israel partakes in the most basic form of self-defense, Israel ends up vilified. Ask yourself why.
    • Hamas used these protestors as human shields. This is part of Hamas' MO. Hamas placed terrorists among the civilian protestors so when civilians die among the terrorists, Israel gets blamed for the deaths. 50 of the 60 individuals killed were Hamas members, which further illustrates this point. I would hardly consider the European Parliament a friend of Israel, but even it recognized a couple months ago that it is standard Hamas tactics to use civilians as human shields.
  2. The "Right to Return" is not a valid grievance. I wrote on this three years ago, but my argument can be summarized thusly. One, larger refugee crises have already been resolved, so why would this be an issue? Two, if this were that bad, why haven't other Arab countries opened their borders to their Arab brothers and sisters? Three, a "right to return" is a nonstarter. Four, the Gazans are technically are not refugees since their ancestors were the ones that fled Israel during the War for Israeli Independence. The expectation was that after the surrounding Arab nations destroyed the fledgling Jewish state, the refugees could return. The Israeli government offered them passage with the conditionality of an oath of loyalty, but they refused to accept. The individuals protesting are Palestinian citizens living under an oppressive Palestinian terrorist organization known as Hamas in a Palestinian territory. 
  3. The blockade is Hamas' fault. Israel cannot be accused of occupying the Gaza Strip because it has not had a military presence there since 2005. According to the Israeli government, there were three stipulations that Hamas could not agree to. What were they? One, recognize the land of Israel. That one is difficult to do if your stated goal is to wipe out the Jewish inhabitants of said land. Two, disavow violent actions, which brings up an important question for pro-Palestinian individuals who have an issue with the Israeli government's recalcitrance: "How can you have compromise when one side wants the other side dead, and the other side doesn't want to die?" And three, accept the previous agreements between Israel and the Palestinian Authority. Plus, Israel helped set up Gaza with 3,000 greenhouses in 2005 to get its economy going. What did Hamas do after it won the elections? Destroy the greenhouses, as well as funnel humanitarian aid towards military operations. Clearly, Hamas does not want to take actions towards peace, but war. Israel's blockade was to minimize further bloodshed. 
  4. Israel is trying to not kill as many Palestinians as possible. If Israel wanted to inflict maximum damage, it could have (although the political fallback would be too much for Israel to risk). Israel has the military technology to take out protestors on their border, but instead, they did much more than any other nation would have done to minimize casualties. Plus, if genocide were really taking place, how is it that Gaza's population went from 63,000 in 1950 to 624,000 in 2015? The Palestinian population has been increasing substantially (World Bank), which either means claiming the absurdity that Israelis are genocidal maniacs that are lousy shots, or b) the reality that there is no genocidal intent from the Israeli government because they are trying to live in peace with their Palestinian neighbors, even in spite of their antipathy towards the Jewish state.
  5. The grievances date back further than a blockade or embassy. As previously stated, Hamas has it codified in its law to eliminate the Jewish state. What about with the more "moderate" Fatah party? Surely there is some legitimate gripe (Spoiler: the grievance about settlements being an obstacle to peace is invalid). If you listen to Abbas' speech from April 30 in which he blamed the Holocaust on "Jewish social behaviors," such as greedy banking practices, it should be a sign that the real grievance dates back to 1948 when the State of Israel came into being. As the Chicago Tribune pointed out, "The reality is that nothing will change until Palestinian leaders stop inciting violence on the ground and start telling their people the truth: Palestinians can have a state. But not until they can accept that the Israel they loathe is in the neighborhood to stay." 
Hamas could not kill Israelis with rockets or by sneaking into Israel after digging tunnels worth $90 million [as of 2014], so now it is resorting to this counterproductive action. If Hamas is going to use its own people in a cynical ploy to get them killed in order to get media coverage, then there will only be more bloodshed for the citizens of Gaza because this sort of play is going to put Israel on the defensive. But that's just it: Hamas knew what it was doing by approaching the border en masse and inciting the Israeli Defense Forces. Hamas got what they want: distracting its own citizens from its ineptitude while blaming Israel. As this wonderful New York Times op-ed concludes:

"No decent Palestinian society can emerge from the culture of victimhood, violence, and fatalism symbolized by these protests. No worthy Palestinian government can emerge if the international community continues to indulge the corrupt, anti-Semitic autocrats of the Palestinian Authority or fails to condemn and sanction the despotic killers of Hamas. And no Palestinian economy will ever flourish through repeated acts of self-harm and destructive provocation."

Maybe Hamas should focus on economic recovery, diverting its concrete on building houses for Gazans instead of building tunnels, or cutting its ties off with Iran. Or better yet, a diplomatic solution in which the Palestinian leaders can accept the existence of Israel is their best way to end the bloodshed. But let's be honest: accepting the existence of a sovereign Jewish state is too much for Hamas. This just leads me to my pessimistic conclusion of "expect more of the same, just like we have in the past."