Monday, April 25, 2016

Spiritual Lessons from Breaking the Middle Matzah During a Seder

The Passover seder is an intricate ritual feast that has multiple steps, each of which could be analyzed separately. The fact that each phase of the seder can be analyzed in-depth shows just how much meaning the Passover seder can have. There is one part of the seder I would like to take a look at today, both because it doesn't merit a blessing (ברכה) and because it happens so quickly, and that is the breaking of the middle matzah, also known as yachatz (יחץ). The middle matzah is broken into two pieces. The smaller piece remains on the table, while the larger piece is hidden for the afikomen stage later. During Shabbat and most other holidays, there are two loaves of bread known as challah. During this time of the year, there are three pieces of matzah on the table. After saying the blessing over the bitter vegetable that is dipped in salt water (known as karpas), we uncover the matzahs and break the middle one in yachatz. This short segue leads into the maggid (מגיד), the telling of the story of Passover. What lessons can we glean from breaking the middle matzah?

  1. The poor man's bread. The traditional answer to this question comes from the Talmud (Pesachim 115b), in which the Talmud refers to matzah as "the poor man's bread" (לחם עוני). The Talmud states that "just as the poor person eats 'in pieces,' so too do we eat in pieces."  Breaking food and saving part of it for later is a sign of poverty. If part of a successful seder is reliving the experience of slavery and redemption, we need to have at least an inkling of what it is like to be poor, which is something the breaking of the middle matzah is supposed to trigger (Rashi).
  2. Gratitude and Obligation to Help Others. The idea of empathizing with the poor segues into my second point. R. Shimon Apisdorf says that "quite often, our ability to give and to share is the product of a skewed picture of reality. Many of our limitations are only perceived limitations." We are constantly bombarded with advertisements and a need to consume material goods. This is not to say that poverty is non-existent or we shouldn't be mindful of it, but rather that such a drive towards consuming more material goods skews our perception of what we do have. This is reinforced by what the Haggadah's seemingly counterintuitive statement immediately after we break the middle matzah: "Let all those are hungry come and eat!" Even if times are rough, the Passover seder teaches us that we still have an obligation to help others. If this is true in times of scarcity, how much more true it is in times of plenty! Redemption, at least in part, is being satisfied with what one [materially] has. R. Shimon Apisdorf brings up scarcity in the context of material goods, but I think it could also be applied to non-material resources, such as taking the time to help a stranger. If we take inventory of how we can [better] allocate our time, money, and other resources, we'll find that we have more than we realized at first glance.  
  3. Thinking in the long-term. When dealing with money, we ask ourselves whether we should spend our money now for immediate benefit or if we should forego spending now in order to derive some benefit in the future. A similar concept can be applied here. Part of the Passover story is freedom from Egyptian slavery. But that's not the entire story. It's about freedom to do something with your life, and in a traditionally Jewish context, as R. Shraga Simmons points out, that means "Torah and mitzvahs." R. Shimon Schwab believed that the smaller piece represents this world (העולם הזה), and the larger piece is the World to Come (העולם הבא).  Alternatively, that larger piece could symbolize messianic redemption. Even in a non-Jewish or non-religious context, there are scenarios in which we have to postpone something in order to reach a larger goal (R. Shlomo Buxbaum). Freedom to do we want provides us more latitude than we had as slaves, but to be able to exercise the freedom to not do something paradoxically expands one's options. That is what the yachatz could represent: using that freedom with a long-term goal in mind means being able to derive a long-term benefit, even if that means foregoing something in the short-term.  
  4. Not embarrassing others. The Vilna Ga'on opines that we break the matzah to pique one's curiosity. But why hide it afterwards? The Vilna Ga'on continues by saying that much like we cover up the challah in order to embarrassment, so too do we cover up the afikomen to teach in order to not "embarrass" it in front of the other pieces of matzah, thereby teaching us a lesson about not embarrassing other people.  
  5. Brokenness in our lives. This was actually a concept that was discussed at length when I attended a second-night seder last year, and it happens to be my favorite interpretation. As R. Harold Schulweis brings up, "Brokenness is a symbol of incompletion. Life is not whole. The Passover itself is not complete." The only one who could be truly whole is G-d because He is Infinite Oneness. It's not a bad thing that we cannot be completely whole because it means there is always room to grow. The other silver lining to this brokenness is that we can break out of our own versions of being enslaved in Egypt. While brokenness is part of entering the Passover seder, it's not how it ends. The ultimate message is one of redemption, of being able to transcend one's travails to reach a higher goal even when brokenness exists in our lives. We realize that the broken matzah symbolizes that there are parts of us undiscovered, and figuring out what could potentially make us feel whole is a process. The broken matzah reminds us that we don't have as much of a handle on life as we think we do, but within the greater context of the Passover narrative, we can take what we have been given in order to become greater human beings than when we started.  

Friday, April 22, 2016

Transgender Bathroom Ban: Is It Policy That Belongs In the Toilet?

Earlier this week, an appeals court ruled that the Virginia ban on transgender individuals entering the bathroom that best aligns with their gender identity is a violation of Title IX law. This has been the latest trend of the hot-button topic on transgender individuals and public restroom bans. Last month, North Carolina passed its controversial ban saying that you have to use the bathroom that corresponds with the gender on your birth certificate (unless you change the gender on the birth certificate). The silver lining in the North Carolina bill is that a private institution still can offer accommodations, such as a single-occupancy bathroom, to transgender individuals. The question is whether the government needs to be involved in creating these public restroom bans in the first place.

The most common reason for creating such bans in the first place is the "bathroom predator" argument, which essentially is that allowing for transgender individuals to enter whichever bathroom they please is going to be a false pretense for predatory behavior. Before getting into whether such a fear is accurate or simply misplaced, let me ask something beforehand: can you imagine trying to enforce this ban? Assuming that there is one bathroom in each facility, you're talking about over 9.33 million bathrooms (BLS, Q3 2015) on a national level in the private sector. Where in the world are you going to get the manpower to enforce the ban? Even if you had that manpower, then what? Are you going to check each individual's driver's license or birth certificate? Because if you really want to be certain that the individual is going into the right restroom, you should check their genitalia. Talking about making a private matter invasive! Without such enforcement, the ban becomes as useful as posting a "gun-free zone" sign in order to stop gun crimes.

Let's mention some facts to contextualize the extent to which the "bathroom predator" argument exists. Sexual assault has dropped 35.8 percent nationwide between 1993 and 2013, and has dropped in North Carolina by 18.6 percent between 2003 and 2013 to a rate that is below the national average. According to the Rape, Abuse, and Incest National Network (RAINN), 82 percent of sexual assaults are perpetrated by people known to the victims. There is no evidence showing that transgender individuals are more likely to commit sexual assault, and prevents people looking for red flags from actual predators. Even better, how many verifiable reports of sexual assault in the United States exist as a result of transgender individuals using the bathroom of their choice? Zero! This is a policy that has zero basis in what actually happens, so it begs the question of why this is even at the forefront of politics.

As a tangent, there is another place where transgender individuals do not pose a threat: in the military. While the study has yet to be released, a study from the Rand Corporation recently concluded that transgendered individuals in the military would not diminish unit cohesion. The Palm Center released a study in 2014 that recommended allowing a more inclusive policy for the 15,500 transgender individuals that serve in the military. Military service is not the same thing as bathroom access, but at the same time, if transgendered individuals posed such an enormous threat, then it would be evident in something such as the military. Whether it is the military or bathrooms, we have to ask ourselves: Why ban something out of concern for safety if it is not even dangerous or deleterious in the first place?

And let's not forget the societal cost that these bans cause. According to a 2013 study from the UCLA's William Institute, nearly 70 percent of transgender individuals have experienced verbal assault while using the bathroom, while 10 percent have experienced sexual assault. A study released a few days ago from Georgia State University shows the adverse effects that such discrimination as bathroom bans have on transgender college students (Seelman, 2016). Transgender bathroom bans only increase the prevalence of anti-transgender behavior by reinforcing transgender individuals as "the other" and can cause health issues, particularly for transgender youth.

Transgender bathroom bans are superfluous, to say the least. Conservatives who are proponents of these laws are trying to make a mountain out of a very tiny mole hill. If I were to be cynical, I would say that now that ripping on gay and lesbian individuals is no longer a part of polite society, these individuals have to go onto making the lives of another group a living hell. Much like we have learned with the civil rights movement, the women's rights movement, and the gay rights movement, granting equality to individuals does not harm society. This only comes off as another scare tactic from certain individuals on the Right. In the public policy world, the burden of proof falls on those looking to enact the policy. There has to be evidence that such an issue exists. Much like I pointed up while discussing same-sex couples adopting children, if the burden of proof were on naysayers, then we would have to approve many ridiculous policies, including the invasion of Mozambique, traveling to Jupiter, or preparing for an alien invasion. There are no verifiable cases of the issue even existing. Even if there were, then one would have to prove that transgender individuals were such a disproportionate threat to society. Barring that improbability, the hypothetical of increased sexual assault rates (which hasn't been the case for at least two decades) would be best handled by better enforcement of harassment laws.

It is beyond the scope of this blog entry, but aside from improved enforcement of harassment laws, gender-neutral bathrooms would be one way to solve the issue. Not only have restrooms historically been gender-neutral, but what gets in the way of making them gender-neutral once more is state and local building codes based on antiquated norms surrounding gender binary. Another way would be single-occupancy restrooms, although there would be transition costs for businesses, many of whom are on the smaller end. There are much ways of dealing with the fact that transgender people exist, like getting to know them and realize that much like everyone else, they are human beings. Like every other human beings, transgender individuals have to go to the bathroom. And like the vast majority of human beings, transgender people do not go into a bathroom with the intent of checking out others' genitalia: they are there to urinate and/or defecate, like just about everyone else. It is not simply that America is facing more pressing issues than who goes to the bathroom where. It is a matter of treating transgender like human beings that deserve respect and dignity. I thought it was a lesson we have learned in the past, but apparently, another civil rights movement is in order because such laws deny reality about gender identity. I hope that the learning curve on this movement is steeper than past civil rights movements, but considering that transgender bathroom bans without a basis in research or empirical evidence are becoming increasingly popular among conservative politicians, I will retain my skepticism about such progress taking place.

Tuesday, April 19, 2016

Why Mandatory Nutrition Labeling for Restaurants Doesn't Work

Obesity has become a rampant issue in the United States, and it is one I have commented on during more than one occasion (see here, here, and here). While I don't disagree something should be done to mitigate the issue, I still have to wonder what that something would entail. Some have proposed a tax on unhealthy food and drink, but that wouldn't work so well. The Affordable Care Act, better known as Obamacare, was originally meant to have mandatory calorie counts for chain restaurants with more than 20 employees, but they have been delayed until December 2016. What about mandating that restaurants post the number of calories contained in each of their dishes?

Johns Hopkins University found that restaurants that have voluntarily put calorie counts on their menus offer more lower calorie items. Although that might sound like a slam dunk for proponents, it goes back to that adage of "you can bring a horse to the water, but you can't make it drink." While the mandatory labeling provides more information to the consumer, it does not automatically change consumer behavior.

The Cato Institute released a study last week showing that mandatory nutrition labeling for restaurants does not have a real effect on obesity (Yelowitz, 2016). Yelowitz used 300,000 respondents from the Behavioral Risk Factor Surveillance System from 30 large cities between 2003 and 2012, which is significant both for the number of responses and the longitudinal nature of the study. He found that within four years, the negligible effect that existed disappeared completely. Another primary finding was that calorie count was not a huge factor. Those who are calorie conscientious are motivated enough to find the information. Customers mostly care about price, taste, and convenience. A secondary finding was the cost of this mandate. Costs include updating the menus, determining the calorie count of the food (this is more important for restaurants that don't already know the caloric count), potential litigation for incorrect information, longer ordering processes, and the reduced utility of eating a healthier meal.

The Cato Institute isn't the only one to find the ineffectiveness in mandating calorie counts. A 2013 study from researchers at Carnegie Mellon and Cornell Universities show that posting caloric benchmarks have no direct impact (Downs et al., 2013). The New York University Langone Medical Center has shown that the New York City mandate had no effect on obesity. A literature review from the National Institutes of Health concludes that calorie labeling does not have the desired effect of reducing obesity (Kiszko et al., 2014). One Belgian study found that menu labels for college cafeterias made no difference in meal choices (Hoefkens et al., 2011).

Aside from the fact that restaurants have already started to voluntarily post nutrition information, if customers wanted such information, they would seek it for themselves and demand it from restaurants. It is bad enough that the government is presumptuous to assume what is nutritional for each individual, or that the government forces the view that caloric intake is the only acceptable factor in food consumption. However, to push an idea with evident costs and a lack of research to back up the policy is like shooting fish in a barrel.

Monday, April 11, 2016

Breaking Up the Big Banks Would Presumably Be a Big Disaster

Bernie Sanders had quite the interview with New York Daily News a few days back. Part of the interview entailed his plan to break up the big banks, the ones that are labeled "too big to fail".  Essentially, the "too big to fail" theory postulates that certain [financial] institutions are so large that the failure of one or two large banks will bring down the whole system. To mitigate this contagion effect, Sanders would like to chop up the larger banks into smaller, less connected institutions to minimize the effect of institutional failure of a certain financial institution. Only a couple months ago did the President of the Minnesota Federal Reserve Neel Kashkari announce that he was going to create a plan by the end of this year to break up banks that are "too big to fail" (TBTF), so at least this time, there is some independent support of a Sanders platform policy. The question here is whether breaking up big banks would work or if it is another one of Sanders' overly simplistic idea to solve something as complex as financial market failures. Let's bring up some of the finer points of the problems faced with breaking up the bigger points. While I will use hyperlinks to various sites for citation purposes (also read Clearinghouse presentation for more information on big banks), an October 2014 policy report from the Bipartisan Policy Center [BPC] (also on the Brookings Institution website) on breaking up big banks (which is well worth the read if you're particularly interested in the topic) will provide a sizable amount of content:

  • Breaking up big banks is no guarantee of preventing financial crisis. While TBTF is a plausible theory, the underlying rationale for determined whether a bank is TBTF has never been demonstrated as true. Looking back at the Great Recession, financial institutions, whether large or small, would have collectively had the same incentives to operate with too little capital or liquidity (BPC, p. 35). Paul Krugman brought this up in an article last week lambasting Sanders for his naïveté on the issue. As Krugman pointed out, predatory lending was carried out by smaller, non-Wall Street institutions such as Countrywide Financial, and the crisis itself was centered on Lehman Bros., a small "shadow bank." Bear Sterns, Washington Mutual, and Wachovia were also smaller financial institutions that were central to the financial crisis, and "breaking them up" would not have stopped the overindulgence in risky mortgages. Other institutions, such as AIG, Freddie Mac, and Fannie Mae were not banks, but greatly contributed to the Great Recession. We also have to recall that the Great Depression was not caused by big banks, but a flurry of small bank failures. 
  • Size matters. It might be politically expedient to malign "evil corporations" or billionaires, but the truth is that there are advantages that come with larger banks. Large banks come with economies of scale, which is the cost of unit per output decreases with scale since fixed costs are more spread out with each unit of output. Economies of scale is helpful for platform creation and developing human capital. A larger scale means being able to underwrite a large bond, loan out larger sums of money, and expand customer base. Globalization has also meant that being able to contend with international regulatory compliance and develop a more nuanced information-technology infrastructure (BPC, p. 19). Banks can also provide a wider range of [complementary] services, including financing, foreign exchange, risk management products (e.g. derivatives, and other operational services (BPC, p. 20). As another example, the widespread usage of the ATM machine was made possible because of large banks (BPC, p. 22). Larger banks also help the customer since the costs of infrastructure, technology, and capital expenses are spread out over a larger customer base. All of these benefits are either easier to come by with larger banks, or can only come into fruition with larger banks.    
  • How big is "too big?" There is no objective way to determine what is "too big" in terms of asset size. Until we can measure the costs and benefits of breaking up banks more effectively, there is no way to determine what is "too big (BPC, p. 35)." And while we're on the topic of size, if we compare banking to other markets, banking is relatively not concentrated, especially when you compare it to pharmaceuticals, automobiles, and computers. Also, when comparing American banking to that of its foreign counterparts, the United States' banking market is far less top-heavy. When looking at the assets of the United States' five largest banks, it is less concentrated than any of the other G-7 nations, and is less concentrated the the G-20 average (BPC, p. 31). The banking assets to GDP ratio in this country is also lower than the U.S.' foreign counterparts. 
  • Transition costs. For one, there would be a loss of customer focus. Transitioning would be all about internal reorganization. Customer relations would also be interrupted. How would you untangle the network of assets and liabilities interwoven throughout the global economy? You would have to renegotiate millions of contracts, not to mention the litigation caused by the decisions made during the transition (BPC, p. 37). Another point to be made: We don't put a profit cap on other companies such as Google, Apple or Wal-Mart and declare them "too big to fail." Much like any other company, if you tell a company they can only make so much profit, I can tell you right now that is going to perversely affect how banks act. Given the desire to make up for the loss in market share, more would venture in the world of "shadow banks (BPC, p. 38)," or better yet, increase the cost of doing business or cutting jobs. And remember that when talking about job loss, we wouldn't be just talking about big-whig financiers, but working-class tellers, loan officers, secretaries, administrators, security guards, and janitors. We're talking about a financial sector with over 5.7 million people, so while some upper management would lose jobs, a lot of cuts in pay and pink slips would hit the working class for which Sanders purports to advocate.
  • Domestic assets only? Even if you have determined what is "too big," there is another question: will this regulation cover international assets? If it covers both domestic and international assets, then you are encouraging a more insular market. If it covers just domestic assets, you are encouraging capital flight (BPC, p. 36). Neither are conducive for the financial sector.
Dodd-Frank, with its hundreds of pages of financial regulation, make it difficult for banks to become too big. The U.S. Government Accountability Office (GAO) published a report in December 2015 showing how Dodd-Frank adversely affects community banks and credit unions because compliance is so difficult. One can argue that such high level of compliance actually has made big banks bigger than ever. It can also be argued that during the Great Recession, the larger banks had the economies of scale to acquire the smaller, failing banks that helped make sure that a recession didn't turn into a depression. Both theories are plausible and not mutually exclusive, that's for sure.

We can discuss whether capital rules should be more stringent, whether we should create incentives to shift the cost to investors so that bad doesn't turn into worse, how we can contain liquidation processes, or whether the bigger banks should have less tax exemptions. However, one thing is clear: breaking up big banks would not do the United States economy any favors. Breaking up big banks would impose costs on banks, which would be passed down to U.S. companies and consumers. Less available credit that would cost more to access and a larger trade deficit would be but two major costs imposed upon the United States economy. Also, financial regulators are a long way away from figuring out what causes systemic risk. Capriciously dismantling the financial sector to fulfill some populist whims is something the global economy can ill-afford.

Friday, April 8, 2016

Is Anti-Zionism Simply a Modern-Day Form of Anti-Semitism?

Semantics can be a very riveting topic, especially when talking about politics. While definitions can confine, they can also describe something. There was a recent article by Sir Rabbi Jonathan Sacks and the New York Times debate on the topic of anti-Zionism versus anti-Semitism. Reading these articles led me to thinking about semantics and definitions. Are anti-Zionism and anti-Semitism still two different entities? If so, do they still maintain their distinctions, or have the two ideas reached enough overlap where it is hard to tell the difference between the two?

Anti-Semitism is hostility, prejudice, or a hatred towards Jews. Anti-Zionism, on the other hand, is an opposition to Zionism. Zionism is best defined as a political and nationalistic movement of Jews and Jewish culture that aims for the goal of re-establishing a Jewish homeland in the historic land of Israel. The idea behind Zionism was, and still is, that Jews, like any other group of people, are entitled to a homeland. Theodor Herzl is considered the founder of the modern-day Zionist movement, and hoped to build a Jewish homeland in the twentieth century. Interestingly enough, there was Jewish opposition to building such a homeland. Secular Jews wanted to assimilate and cast away their Jewish identities. There were also a sizable number of religious Jews who thought it was heretical since they were operating under the idea that only with the coming of the Messiah can there be a Jewish homeland in Israel once more. However, the Holocaust changed all of that, and Zionism became much more popular among Jews post-WWII, which is most notably illustrated by the creation of the Jewish State in 1947. With that, anti-Zionism is the opposition of a Jewish homeland, although some have attempted to inaccurately narrow the definition to mean "having a problem with Israel's policies."



Anti-semitism before the creation of the State of Israel was much easier to point out. During the Middle Ages, Jews had to contend with anti-semitism of Christian and Islamic varieties. Christians tormented Jews through segregation via ghettos, pogroms, expulsions, and executions. Muslims relegated Jews to a second-class status known as dhimmi (ذمي). In the 19th and 20th centuries, the hatred towards Jews was racial. The question here is whether anti-Semitism simply evolved on a global level through the guise of anti-Zionism.

The problem with equating anti-Zionism with anti-Semitism is that one can, at least theoretically (if not more so), have a problem with the creation of the State of Israel and still be a philo-Semite. There are some ultra-Orthodox Jews (e.g., Neturei Katra) and liberal Jews who have a problem with Zionism without necessarily succumbing to Judeophobia. There are also some who believe that Zion was meant to be more of an idea than it was meant to be a nation-state. While there is both a theoretical distinction, as well as at least some differentiation in practice, the sad truth is that the confluence between anti-Zionism and anti-Semitism is so considerable that trying to differentiate between the two these days is like trying to split a hair with a knife.      

Although Zionism is about the existence of a Jewish state in the historic land of Israel, some like to contort the definition into meaning "critical of Israel." For argument's sake, let's briefly assume that that definition is correct (and I'm sure self-labeling anti-Zionists prefer this definition because it's more palatable). Criticizing Israel is not anti-Semitic unto itself. Israel, like any other government, is run by fallible human beings. There are bound to be mistakes made in crafting and executing public policy. Criticizing the Israeli government is practically a national pastime among Israelis. Three Jews, five opinions, am I right? But in all sincerity, how do we distinguish between legitimate criticism of the state of Israel versus anti-Zionism merely acting as a front for anti-Semitic behavior?

If a critic consistently singles out Israel while ignoring far worse crimes against humanity, that is anti-Semitism. If someone likens Israel to Nazi Germany or invokes traditionally anti-Jewish stereotypes or depictions (see here), you're dealing with an anti-Semite. If one is attacking the merits of Israel's right to exist instead of merely criticizing the Israeli government's policies, odds are that you're dealing with an anti-Semite. Whether we like it or not, many criticisms of Israel has morphed into something well beyond legitimate concerns with how the Israeli government behaves.

Look at how the United Nations puts disproportionate emphasis on the Israeli government while ignoring or downplaying much greater atrocities against human rights. Look at how hateful the BDS movement is in its attempts to cripple Israel. Look at the slanderous claims of apartheid being made against Israel, whether we're talking about what goes on in Israel proper or in the West Bank.  Look at how anti-Semitism (especially in Europehasn't reached such high levels since right before WWII, and how much of that anti-Semitism is linked to anti-Zionistic sentiments. Look at this recent Washington Post article from Larry Summers as but another piece of evidence of how virulent anti-Semitism (much of it conflated with sentiments regarding Israel) is on American college campuses, even in spite of the hypersensitivity towards racial prejudice and other politically correct causes célèbres. Anti-Zionism has devolved into being more blatantly anti-Semitic, and it is tantamount to saying that Jews have to live beneath, between, or among other people, that they don't have a right to be their own nation, that they should remain subordinate as minorities. Sadly enough, hating on Israel is probably one of the only things that the far Left, the far Right, and militant Muslims can all agree on.

Singling out Jewish self-determination for condemnation is, by definition, discriminatory and bigoted, although don't tell anti-Zionists that they are racist because they will simply double down in their animus. Given how much the State of Israel has played into Jewish identity politics, it should be no surprise that the line between anti-Zionism and anti-Semitism has become thinner and thinner since the creation of the State of Israel. Israel has become a nation-state that has thrived in spite of animosity from its neighbors in the Middle East. As Israel becomes more successful and build more relations with other nations (e.g., India, Russia, China), I can only expect anti-Zionism to become more anti-Semitic, at least until these anti-Semites can see the error of their ways.

Tuesday, April 5, 2016

A $15 Minimum Wage for New York and California Will Most Probably Fail

The states of New York and California made history yesterday by raising their statewide minimum wages to $15 per hour. These new minimum wages are considerably higher than the current federal minimum wage of $7.25 per hour. Given the unprecedentedly high nature of these new minimum wages, it makes wonder just how it will turn out. When the Congressional Budget Office (CBO) did its 2014 analysis of a $10 per hour federal minimum wage, it found that a $10 hourly minimum wage would increase unemployment by 500,000 individuals, poorly target poverty, and pass the cost onto consumers. While we're not dealing with a federal minimum wage increase, New York and California are among the largest states in the Union with cumulative populations of 58.94 million citizens, or 18.3 percent of the the overall population. These states have overall higher costs of living than the national average, but it doesn't automatically mean that there won't be consequences to this policy change, even though we're dealing with more gradual minimum wage hikes. 

Aside from the aforementioned CBO study, I have blogged on other ill-effects of the minimum wage, such as causing the Great Recession to last longer, making it more difficult for unskilled labor to find work, ineffectively targeting poverty, and having businesses adversely affect its operations, whether in the form of cutting employee hours and/or benefits, raising consumer prices, letting people go, or increasing automation. Consider that it would have been this bad with more modest increases in the minimum wage. What happens when it is more pronounced like a $15 minimum wage?

Left-leaning economists who are proponents of the minimum wage, such as Alan Krueger and Arindrajit Dube, think that such a minimum wage hike is risky because we'd be charting into unknown territory and is "far outside of our evidence base." Any past $15 minimum wages (e.g., Seattle, Los Angeles) that have been enacted have done so as larger cities, and even then, we're still waiting on results. As Dube put it, "if you're risk-averse, this would not be the scale at which to try things." Given how more modest minimum wage hikes adversely affect people and the economy, I can hardly blame such a sentiment.

Former CBO Director Douglas Holtz-Eakin ran a model in 2015, which was the same model used in the CBO's 2014 analysis, simulating the $15 hourly federal minimum wage, and found that it would reduce employment by 6.6 million (although it could be as high as 16.8 million). Given that New York and California make up approximately a sixth of the nation's population, this would mean an estimated 1.1 million jobs lost under this model. Even though this model predicts increased wages, only 6.8 percent of the wage earners who would benefit would be in poverty, which is to say that this ineffectively targets poverty. The centrist Brookings Institution also has expressed its doubts, and postulates that such a huge increase would harm America's poorest workers. Also, this minimum wage is going to put it at 75 percent of the national median, which is higher than any of the other OECD countries. Going off that fact, the New York Times wonders just how badly this will affect non-urban areas in California. None of this even considers how much this will increase the cost of running government, particularly with unfunded pension liabilities.

California and New York already have some of the worst fiscal conditions, according to the Mercatus Center's ranking. Chief Executive Magazine ranks New York and California as the worst states to do business in, and that was before the minimum wage hikes. The Tax Foundation has similar rankings for New York and California's business climate. With California's weaker U6-unemployment (more debatable for New York), we cannot afford to weaken large labor markets such as these. For California, we're talking about increasing the minimum wage by 50 percent, which is going to be the equivalent of a $10,000 tax on each minimum wage employer.

The only minimum wage hike that has been such a high percentage of the median income was Puerto Rico, and that didn't seem to go so well. There have been many reasons to object the minimum wage, and that was only when the minimum wage hikes were low relative to the median income. This sort of minimum wage hike is quite unprecedented, and like with other regulations that affect marketplaces, there are going to be unintended consequences. I would say "unforeseeable," except there are even liberal economists who are cautious about this implementation. If I had to make an educated guess based on previous minimum wage hikes, these hikes will be an unmitigated disaster for the states of California and New York. Whatever sort of recovery that they might have made during the Great Recession is probably going to be greatly neutralized. Another educated guess is that we'll see net migration out of these states to states who have friendlier business regulations and business environment. It will be nice to have more conclusive proof of the adverse effects of the minimum wage, but I wish it wouldn't have to be at the cost of so many people.

Thursday, March 31, 2016

Russia Will Not Strike It Rich With Latest Oil Tax Proposal...Quite the Opposite

While many were paying attention to the ISIS attack in Belgium, there was one bit of foreign policy news that went relatively unnoticed last week: the Russian tax regime, specifically with regards to petroleum. While the Russian government decided to reduce its oil export duty by 9 percent in December, it looks like the Russian government is eyeing the oil industry once again. The problem is that the proposed budget for the Russian government, which is supposed to be amended in April, assumes oil prices at $50/barrel when they're still stuck at around $35/barrel. Russia's budget deficit for 2016 will be at 3 percent if oil prices remain at $40/barrel. The New York Times (NYT) actually put out a very interesting article on the topic last week, which is worth the read. But let's ask ourselves: why should the world as a whole be concerned about Russia's budgetary shortfall?

Since oil prices started to drop in 2014, Russia has been in a recession. The International Monetary Fund (IMF) predicts that Russia won't pull of the recession until 2017. While such factors as economic sanctions, stalled structural reforms, and weak investment that contributed to Russia's economic downfall, declining oil prices are particularly significant here because oil revenues account for about half of Russia's federal budget (IMF, Article IV Consultation, p. 10). Oil prices notwithstanding, the Russian economy isn't doing so well these days. Although Moody's rated Russia's Ba1 credit as stable back in December, Moody's is now looking to downgrade Russia further into junk bond territory. Fitch is presently the only major credit rating entity that keeps Russia out of junk bond territory, which doesn't bode so well for Russia.

Per the NYT article, the Russian government is looking to tax the funds that oil companies use to invest in future oil production. This source of money was once considered sacrosanct, but desperate times call for desperate measures. Russian oil companies are currently making about $3 profit on a $35 barrel of oil, which is less than 10 percent of a profit margin. The Russian Ministry of Energy leaked a study saying that Russian oil output could decrease by half of the current level by 2035. The Russian oil market is worrisome, and doesn't show immediate signs of amelioration. If the Russian government gives into temptation, it would only be shooting itself in the foot. Much of Russia's current oil deposits are running out, and Russia cannot automatically rely on an increase in oil prices since, according to the U.S. Energy Information Administration, an excess of global oil supply will remain through much of 2017. In order for Russia to continue with its oil glut, it would need to use more unconventional methods of offshoring and shale projects. The problem with that is that heavy capital investment is required for such operations to take place. If the Russian government manages to undermine its oil production with onerously high taxes, it will only accelerate Russia's financial woes.

Let this once again be a lesson that you can't tax yourself into prosperity. If anything, it looks like Russia will tax itself into financial ruin. The Left-leaning Vox plays out some of the more drastic, but nevertheless plausible scenarios: decreased military spending, cuts in social services, or even make up for the weakness by overcompensating via a more proactive military. Assuming the Russian government takes the expedient option, we will see Russia slip into an increased irrelevance in the greater world politik. The Russian people will certainly suffer as a result, but if we are to glean one thing from these trends, it's that Russia is declining into a territory that will put it far out of reach from its heyday of the Cold War era.