Wednesday, May 25, 2016

Parsha Behar: What Is the Ultimate Form of Poverty Relief?

In the wonderful world of public policy, there is much contention around the topic of poverty. Generally speaking, liberals advocate for more welfare as a means to alleviate poverty, while conservatives advocate for job creation. There seems to be little that either side agrees on, although this report co-sponsored by the American Enterprise Institute and Brookings Institution is a nice start.   What is interesting about this week's Torah portion is that Jewish tradition weighs in on the issue:

וכי ימוך אחיך ומטה ידו עמך והחזקת בו גר ותושב וחי עמך.
If your brother becomes impoverished and his means falter in your proximity, you shall strengthen him, stranger or resident, so that he can live with you. -Leviticus 25:35

While this doesn't seemingly relate to public policy, let us take a look at Rambam's (Maimonides) eight levels of giving tzedakah ("charity") [Mishneh Torah, Mattanot Aniyim 10] in reverse order: 

8. When donations are given grudgingly
7. When one gives less than he should, but does happily
6. When one gives directly to the poor upon being asked
5. When one gives directly to the poor without being asked
4. When the recipient is aware of the donor's identity, but the donor doesn't know the identity
3. When the donor is aware of the recipient's identity, but the recipient doesn't know the identity
2. When neither donor nor recipient know the other's identity
1. Giving a substantial gift in a dignified manner, extending a large loan, or helping the poor person find employment so that his hand is fortified and he doesn't have to ask for money [alms] (Mattanot Aniyim 10:7)

For Rambam, Leviticus 25:35 is the prooftext for what constitutes the highest level of tzedakah, and it also teaches us that poverty is something we should prevent. If someone loses their job, it is our responsibility to make sure the situation doesn't go from bad to worse. That could help explain why, in the following verse of Leviticus 25:36, that we are not meant to give a loan with interest (Sforno).

Rambam gives us two options that can translate into public policy: a direct cash transfer to the poor (either in the form of a gift or loan) or finding the individual a job. Both of these options are on the top of the hierarchy from a Jewish standpoint. Nevertheless, one could still get into the debate of which is more effective. When stating the most important level of giving a donation, Rambam puts a conditional clause at the end: "so that his hand is fortified and he doesn't have to ask for money [alms]." Does this clause apply to all three forms of giving, or strictly the last one? While the text is not explicit on the matter, I would argue that the clause only applies to job creation. For one, lending a large sum of money puts considerable strain on a relationship. Plus, in the Birkat Hamazon, there is a blessing about mercy in which we ask that we never become dependent on a loan. The Rabbis in the Pirke Avot (2:2) were also astute to point out that Torah study without work leads to sin, and the Bible points out that we were meant to work for six days and rest on the seventh (Exodus 34:21). Essentially, work is the best way to keep someone from becoming idle and poor (Proverbs 10:4).

Some things here don't necessarily translate into modern-day times, such as dealing with retired people since retirement really wasn't a concept in pre-modern times. One could also argue that in-kind transfers (as opposed to direct cash transfers) such as food stamps didn't exist, therefore Rambam couldn't recommend them in his list. On the other hand, as he states in the Mishneh Torah, the whole purpose is to make sure that we don't have to ask for money more, that there isn't a dependency on loans. Another point is that the verse states twice that you should help "within your proximity" (עמך). We are meant to do what is within our sphere of influence, and also remember that we are to do what works. If the goal is to make sure people are not in poverty, we want to pull them out of that situation as long as possible. There is plenty of evidence showing that being on unemployment insurance lengthens the period that one is in financial duress. Food stamps also create a disincentive to work, thereby prolonging the time at which one is stuck in a state of seemingly perpetual government dependence. While some things do change, one thing is for certain here: the Rabbis were right back in the day in saying that having people work was a good idea, and focusing on job creation as a form of poverty relief is still a good policy idea now. 

Monday, May 23, 2016

The Brexit: Should the United Kingdom Leave the European Union?

While the success of the European Union, or the lack thereof, has been under scrutiny for quite some time, the United Kingdom is going to put that success to the test. One month from now, the British people are going to vote via referendum on what has been dubbed with the portmanteau of the "Brexit." Essentially, the referendum is going to determine whether Britain will leave or stay in the European Union. With the economic issues, political turmoil, and mass absorption of migrants into Europe, it is more than feasible that the British people could vote to make this a reality. Since Britain has entered the European Union, it has relinquished a considerable amount of power to European Union delegates in Brussels, including complete control of its borders or being able to negotiate its own trade agreements. Once a mighty empire, I can only imagine the extent to which the United Kingdom would like to more unambiguously exercise sovereignty over its land. The question I want to answer here is not whether the Brexit will happen or how each scenario would play out, but determining the pros and cons for whether it should happen.

The good news about a Brexit is that the British are not in a monetary union with the European Union. Much like I explained a couple of years ago with the Scottish referendum for independence, a monetary union complicates secession. The United Kingdom has the pound today, and regardless of outcome, it will still use the pound as its currency. The issue is that 45 percent of British exports go to countries in the European Union.

Will exchange rate fluctuations create inflation issues for Great Britain? What is worrisome is the political uncertainty that the referendum will cause. If there is anything businesses cannot stand more than regulations, it is uncertainty. A country that has a largest, post-WWII current account deficit and seems to be on shaky terms can make investors think twice before purchasing British assets. Plus, consider that there is going to be an eighteen-month negotiation process. And why shouldn't investors be worried? If the United Kingdom leaves the EU, odds are that the EU is not going to give favorable terms because they don't want to encourage other countries to leave. Creating financial instability are not just a concern from me, but also comes from the Bank of England itself. On the other hand, this argument assumes that the European Union is some beacon of economic, political, and regulatory stability, which it isn't.  This line of thinking also assumes that European Union member countries would cease or greatly reduce trade with the United Kingdom, which is not necessarily the case. Plus, given the large trade deficit the United Kingdom has with the EU, wouldn't it be in the EU's interest to keep trading with the UK?

What does the research have to say on the issue? There are many economists that think that the Brexit would be a bad idea. Oxford Economics ran economic scenarios, and they do not view the economic outcome favorable. Their worst-case scenario was a GDP that was 3.9 percent smaller by 2030 with a Brexit versus without, while their best-case scenario was a 0.1 percent loss of GDP by 2030. The Organization for Economic Cooperation and Development (OECD) is even more pessimistic in its estimates, saying that the British economy will be 5 percent smaller in 2030 without the European Union than it would be with the European Union.  The April 2016 HM Treasury Report from the British government adversely reports that annual loss of GDP per household would range from £2,600 to £5,200 (≈$3,700-$7,500USD), depending on the type of trade agreement settled upon by the UK and the EU. The London School of Economics is not any more positive, showing that it would cause a loss of GDP ranging from 1.13 to 3.09 percent, as well as a loss of UK income up to 3.1 percent (Dhingra et al., 2015Ottaviano et al., 2014).

Now for some studies that are less pessimistic. The Institute of Economic Affairs published a 2015 report showing the claim that "3-4 million British jobs 'depend on' or are 'greatly associated with' EU membership" is exaggerated, thereby suggesting that it would not greatly reduce trade between British businesses and European consumers. Additionally, import substitution and having the WTO's "most favored nation" (MFN) status would help minimize loss for the United Kingdom. Investment company Woodford reviewed other studies in its study, and after looking at various economic metrics, concluded that the Brexit would have insignificant changes in net terms. European think-tank Open Europe published a study in 2015, and also does not think there will be significant changes: its "more realistic range" is that of a 0.8 percent GDP loss to a 0.6 GDP gain by 2030 in comparison to status quo.

Chatham House also published some interesting research earlier this month regarding the myth of how the EU erodes British sovereignty. Aside from the fact that the British government still has control of 98 percent of public expenditures and most regulatory functions (see below), the study argues that it would be difficult for the United Kingdom to argue for better trade agreements than what they currently have under EU membership.



As for regulatory burden, the Centre for European Reform (CER) released a study in 2014 shows that the United Kingdom already is relatively free from regulations, and that EU regulations are not as burdensome as believed. It also goes into how the immigration into the United Kingdom since the UK's entry into the EU has been beneficial for the UK. The British government (Ch. 3) even conceded that the benefits of being in a single market outweighed additional regulatory burden. On the other hand, European think-tank Open Europe published a 2010 study showing that domestic regulations are 2.5 times more cost effective, and that from 1998-2010, EU regulations have cost each UK household an average of an additional £4,912.

Given all this information, what is my take on the Brexit? As a libertarian, I already have mixed feelings on the matter. On the one hand, leaving the European Union would mean less regulatory headache. On the other hand, even though the EU has its flaws, leaving the Euro Zone would probably mean reducing the freedom to trade and migrate since the European Union functions as a free trade bloc. If you want me to give a prediction, it is very difficult. So much of the outcome would depend on how the European Union reacts, the sort of regulations and policies the British government implements in lieu of European Union regulations, the trade agreements that the United Kingdom is able to enact, and how the global economy responds to the considerably high uncertainty of a Brexit.

But let's go with exuding a bit more certainty. If I had to make an educated guess, would I assume there would be a positive or negative outcome with a Brexit? I can get skeptical about how much of a representative democracy the European Union is, or ask whether how much freedom regarding trade and immigration really exist in Europe. With such basket cases as Greece and dealing with negative interest rates, I have to wonder whether the British government should continue to align itself with an institution that may or may not survive. How long can a monetary union without a fiscal union survive? This is even more true given that the United Kingdom has not and continues to not show any sign of abandoning the pound and joining the Euro Zone. Conversely, I can get skeptical as to whether a Brexit would mean freer trade and immigration, as well as less regulation. If I had to take a stance, I would tentatively do so against the Brexit. Aside from an overly optimistic projection from the far-Right UKIP (UK Independence Party), there really aren't projections that show that a Brexit would be a significantly positive for Britain, Europe, or the global economy. If anything, there bulk of economic literature on the topic signals a costly endeavor with modest to severe contraction of British GDP, not to mention the negative effects on the economy of the European Union (Global Counsel). Plus, there is a feasible possibility of either unwind European integration or a sterling crisis, both of which would be catastrophic on a global level. I also have to say that given that a) the United Kingdom is not in the Euro Zone, and b) the United Kingdom has a relatively strong economy, I could see how the adverse effects of a Brexit could be mitigated. Nevertheless, there is still enough to be uncertain about, even with economic studies and educated guesses. At this point, I will play the "wait and see what happens on June 23rd" approach.

Monday, May 16, 2016

Louisiana Raw Milk Bill: How Raw Milk Bans Are a Raw Deal

Not quite two weeks ago, a bill in a Louisiana State House Committee died. The bill had passed the Louisiana Senate, and had already caused some controversy. The bill? Legalizing the sales of raw milk. If passed, Louisiana would have been the fourteenth state to allow for the sale of raw milk in retail stores, along with 17 other states that already allow for the sale of raw milk on the farm where it was produced. Why is raw milk so problematic that states feel the need to ban it?

Raw milk essentially is milk that does not go through pasteurization, i.e., the process of briefly heating the milk, followed by an immediate cooling, in order to kill pathogens in raw milk. Pasteurization was a godsend during much of the twentieth century because many people were dying from raw milk. Conversely, modern refrigeration and stainless steel tanks have made raw milk safer than it historically was because dairy farms and production centers are nowhere near as unsanitary or unrefrigerated as they used to be. Even so, the main concern behind banning raw milk is a public health concern. How big and legitimate is the concern?

There are some, such as those at the Weston A. Price Foundation, who advocate for raw milk and its benefits (e.g., better taste, lack of additives, perceived health benefits via positive enzymes killed during pasteurization process). However, the general scientific consensus is that pasteurized milk is healthier for you. The Centers for Disease Control and Prevention (CDC) is very much against the consumption of raw milk because of harmful bacteria that it contains. It even published a study showing the disease outbreaks related to non-pasteurized dairy products between 1993 and 2006 (Langer et. al, 2012). The scary part about the study is that based on the data, non-pasteurized products are about 150 times more likely to lead to dairy-related, food-borne illness than pasteurized products (CDC, 2012, p. 389). The not-so-scary part is that during the 1993-2006 period, 1,571 people became ill from unpasteurized dairy consumption, only one of which resulted in a death (CDC, 2012, p. 386-387). Considering that 3 percent of the population (8.95 million people) consumed raw milk during the end of the study period, I have to wonder about incidence rate. The CDC also released a 2015 study also showing that from 2007 to 2012, there were 979 illnesses, 73 hospitalizations, and 0 deaths related to unpasteurized milk. If legalized in all 50 states, I would imagine that the number of illnesses or deaths would increase, but I would also have to ask "by how much?" The study also points out (Figure 2, p. 388) that a majority of the states had legalized raw milk sales at the time, and enough of those states were states with large population sizes.

I don't even have to get into how pasteurization is an expensive process that acts as a barrier to entry in the dairy production industry, especially in an industry with a profit margin of 2.0 percent (IBISWorld [subscription required]). But if we are to even begin to consider, let alone implement, a ban on raw milk, the burden of proof is one proponents of the ban to show that legalizing raw milk would be such a risk to public health. If the previously cited CDC studies tells me anything, it is that the demand for raw milk, even in states where it's perfectly legal to buy it, is not that high. Not only has pasteurization become an industry standard, but most people are aware that pasteurized milk is better for one's health than raw milk. 30 out of 50 states allow for the sale of raw milk on some level, and many states have allowed for the sale of raw milk for enough years. What is even better is that when looking at CDC data, unpasteurized milk does not even come up on their list of leading causes of death, even when enough people have access to raw milk, thereby questioning the validity of the public health argument.

Aside from the lack of evidence of significant public health concerns, there is also the economic freedom to consider. Any food comes with risk of contamination. Every day we eat and drink, we make decisions about what goes into our bodies, whether it is meat, potato chips, lettuce, fruits, vegetables, or raw fish in the form of sushi. Some individuals might perceive health benefits and/or like the taste of raw milk over pasteurized milk. The decision to do so is both what makes us adults and gives us the right to choose, thereby giving additional meaning to "my body, my choice." Raw milk has been readily available in most states, and what the overall lack of demand and health issues indicate is that banning raw milk in all 50 states as a public health concern is simply not justified.

Friday, May 13, 2016

Parsha Kedoshim: Some Thoughts on the Meaning of Holiness

Justice. Love. Fairness. Decency. They are lofty concepts, but all too often, people capriciously throw them into conversation without having an appreciation or a sense of what they mean. I would throw the word "holiness" into that category. We can talk about the holy of holies, "the Holy Book," Holy Days, but how well of a grasp do people have on the concept? The mere existence of those who are "holier than thou" has to make me wonder: is there a working definition of holiness? Can there be multiple definitions? Is holiness a mere abstraction or something more?

This week's Torah portion opens up with a command to be holy:

קדשים תהיו כי קדוש אני הי.
You shall be holy for I, the L-rd your G-d, am holy. -Leviticus 19:2

The rest of the Torah portion proceeds with a list of laws, which is considered the apex of the Holiness Code. These laws vary quite considerably, from keeping Shabbat (19:4) and not mixing wool and linen (19:19) to loving your neighbor like yourself (19:18), not stealing (19:13), or putting a stumbling block before the blind (19:14). This question of what is holiness has not escaped our Sages. If anything, they have thought about the question to the point where there are different schools of thought on the matter. 

Let's start with Rashi's interpretation. Since the directive to be holy immediately follows the laws around sexuality in Leviticus 18, Rashi views holiness to be a form of self-restriction, specifically in the area of sexuality. Ramban (Nachmanides) takes Rashi's interpretation a step further. Ramban believed that one could still be a "scoundrel within the letter of the law," e.g., binging on kosher food, excessively partaking in permitted sexual relations. For Ramban, holiness was not simply following the letter of the law, but elevating ourselves by going beyond the letter of the law and taking the spirit of the law into account, as well. R. Yaakov Zvi Meklenburg views the separateness in holiness differently in the sense that one removes themselves emotionally from the mitzvah. The only joy that one should derive is that of performing a mitzvah. Any other benefit derived is a byproduct, and should be ignored if one is to achieve true holiness. These more aesthetic interpretations, while in the Jewish tradition, do not speak to me as a traditional Jew who is living in the twenty-first century.

R. Israel Salanter, the founder of the modern-day Mussar movement, emphasized the aspect of money matters within Leviticus 19 that engender one's holiness. For R. Salanter, how one deals in work, commerce, and interpersonal relations reveal a lot more about one's level of holiness than simply doing mitzvahs because of "the fear of G-d." Holiness, from R. Salanter's view, was ultimately viewed on how we interact with other human beings. The Chatam Sofer points out that the reason why G-d wanted Moses to speak to the entire community (19:1) is because holiness does not exist in isolation. It is meant to be actualized by interacting with others.

How do we take these traditional interpretations and translate them into a less abstract concept of holiness? Holiness does not come through osmosis. It does not come from sitting around and "feeling spiritual." It is not a process that comes instantaneously like high-speed Internet or fast food. This week's portion reminds us that holiness comes through effort. How we deal with that holiness depends on whether we view holiness in terms of separateness or distinctiveness. I prefer the latter approach since it brings in the more aesthetic views together with the more interpersonal interpretations.

While many of the laws in this week's portion have to do with interpersonal relations (bein adam l'chavero), that is strictly not the case. There are still laws about keeping Shabbat, not mixing wool and linen, fearing G-d, the prohibition on magic and occult practices, and having a general respect for rituals. The juxtaposition in Leviticus 19:3 between honoring one's parents and Shabbat reminds us that both rituals and ethics make for holiness in the life of a Jew. Judaism has a universalistic view on ethics, but the rituals are what distinguish the Jew from a non-Jew. Without rituals, the Jewish people lose their unique way of connecting to G-d.

That being said, I do realize that Judaism is a Jew's way of connecting to G-d, to becoming holy. Judaism is not easy, and I believe that it is not for everybody. I do believe in G-d as Infinite Oneness and practice Judaism as a religion, but I also recognize that G-d provided non-Jews with ways to tap into holiness. In more general terms, holiness is how we connect with transcendence, regardless of what label we want to attribute to said transcendence, and how it makes us better people as a result. Major world religions, I have found, generally operate on the Golden Rule and are in pursuit of connecting with "the Ultimate Being."

For a Jew, that idea is embodied within this week's Torah portion. We are meant to work at obtaining a connection with G-d through mitzvahs. We are meant to have ritual be a conduit in which we become closer to G-d and fellow human beings. R. Salanter's interpretation reminds us that ritual is to be an action-based meditation that is to be translated into proper treatment of other human beings. In conjunction, Ramban's interpretation reminds us that holiness means that we shouldn't accept legal minima, and that we should strive to do more and connect more whenever possible. Our actions are meant to be a form of imitatio Dei, a reflection of G-dliness on this planet. That is what the Torah teaches us about holiness. It is not meant to be found in a monastic, isolated situation. We are meant to find it in our daily lives. We are meant to take every seemingly mundane action and imbue it with holiness. We are meant to separate our lives from mundanity and elevate it to a higher plane. Holiness is to remind us that our actions have impact and meaning. It reminds us that with G-d in our lives, we are to focus on G-d and how our lives on Earth play a role in that. Holiness is a series of actions that illustrates our spiritual progress and connection to G-d, and that continuum is the loudest and clearest theological statement we can make about the role G-d plays in our lives.

Monday, May 9, 2016

Economic Costs of U.S. Federal Regulations Harm the "American Way of Life"

For those of us who identify as libertarian or fiscally conservative, government regulations tend to get a bad reputation. "Regulations are burdensome, onerous, cumbersome." We tend to view them as obstacles rather than rules to improve our lives. While I don't have a knee-jerk reaction to regulations, I can say that based on past research on regulatory impact, I remain skeptical of regulatory efficacy. Few regulations, I have found over the years, can actually yield more benefit than cost.

Speaking of cost, that is major factor of regulations that gets a bad reputation. If you look at the price tag, can you blame people? The free-enterprise think-tank Competitive Enterprise Institute (CEI) just released its annual Ten Thousand Commandments study, which attempts to take on the arduous task, a task certainly with methodological difficulties, of measuring the scope and impact of federal regulations. The CEI study found that federal regulatory cost in 2015 was $1.885T, which came out to $15,000 per household. In 2015, Congress enacted 114 laws, while bureaucratic agencies enacted 3,410 new laws. This added to the Federal Register, which now totals to 80,260 pages of regulations. There are those from the Washington Post and other media outlets who have criticized CEI in similar past studies, arguing that their method is too back-of-the-envelope.

Even so, the CEI is not the only organization to come up with comparable figures.  The National Association of Manufacturers found in 2014 that federal regulations cost $2.028 trillion. In 2010, the Small Business Administration (SBA) ran a similar study, and found that federal regulations cost $1.75 trillion. Since it is the SBA, it did also illustrate how these regulations disproportionately affect small businesses. Keep in mind that the SBA is not some organization preserving its self-interest, but is a bureaucratic entity presently under the Obama Administration!

Price tag set aside, one has to wonder how it affects the economy. Fortunately, the Mercatus Center answered that question with a study they released a couple of weeks ago. The Mercatus Center found that the distorting effects that regulations cause resulted in an economic slowdown of 0.8 percent per year, which caused the economy to be $4 trillion smaller in 2012 than it would have been absent the growth of regulation since 1980. What this means is that the regulatory growth since 1980 has translated into the average American being $13,000 poorer. This economic loss makes it more difficult for smaller businesses to grow and also means higher prices, which disproportionately affect lower-income households (Chambers and Collins, 2016).

This is not anywhere near as damning as the 2013 report in the Journal of Economic Growth that found that federal regulations over the past six decades have caused the average American household to receive $277,000 less per year as a result of federal regulations (Dawson and Seater, 2013). Even if you want to take the Office of Management and Budget's (OMB) generous estimation that government regulations cost $80 billion while creating $800 billion in benefits, the Journal of Economic Growth findings factored in still means that the American economy has foregone about $33 trillion in economic growth over the past six decades, which roughly comes to $550 billion lost annually.

Cost is not the only metric in evaluating regulations. There is also monitoring, enforcement, compliance, and overall success in terms of intended results and effects of the given regulation. While looking at regulations from a more macro view can be instructive, it can still be limiting because each regulation has different metrics with different weightings. As the Chamber of Commerce points out, "different regulations affect the economy in different ways. No typical regulation or cost exists." This is why we should still analyze each specific regulation on its own merits to understand how individual regulations work and affect the economy and society. Nevertheless, what we can take away from all this is that regulation, and that overregulation in particular, overall comes at a heavy price.

Friday, May 6, 2016

Shlissel Challah: This Post-Pesach Jewish Practice Won't Bring In the Dough

After being confined to a matzah-based diet during Pesach (Passover), the Jewish people are happy to eat leavened products once more. A particular practice related to Pesach that some observant Jews have is that the Shabbat after Pesach, they bake what is called a shlissel challah (שליסל חלה), or "key bread." The reason why it is "key bread" is because the dough of bread is quite literally formed in the shape of a key.


Where did this custom originate? The oldest mentioning of it is from the Apter Rebbe, who was an 18th century Chassidic rabbi. In his work Sefer Ohev Yisrael, the Apter Rebbe provided various kabbalistic interpretations for the practice of shlissel challah. The Apter Rebbe's primary interpretation, just to give an example, is that after the Israelites brought the Omer offering on the second day of Pesach (Joshua 5:11-12), there was no longer manna falling from the sky. Sustenance was very much a worry, and is supposed to represent opening the gates of Heaven to listen to their prayers. When you look at the interpretations, they are loosely tied to the concept of a key, and do not establish a centuries-long practice that could possibly date back to Mount Sinai. This has evolved into the practice of shlissel challah. Some simply shape the bread in the shape of the key. Others put an imprint of a key in the dough, while others back a key into the loaf itself.

The first criticism is that the practice quite probably has non-Jewish origins. Shelomo Alfassa wrote a piece on how its origins are not Jewish in nature, specifically citing the Easter practice of "hot crossed buns" that dates back at least to the 15th century. He also pointed out that keys were traditionally in the shape of a cross, which is unsurprising given the fact that Ashkenazi Jews lived amongst Christians for centuries. Some have attempted to discredit Alfassa's argument, but there is another facet of Christian practice that Alfassa did not cover, and it has to do with hiding trinkets in bread for holidays. Just to give two examples of this concept from the Christian world that shlissel challah mimics. The Greeks bake a New Year's bread called vasilopita, which contains a hidden coin that is supposed to give good luck to the receiver. The Serbians have a loaf called cenisa, which is the same idea, except the bread is eaten on Christmas. The Bulgarians eat a similar bread to the Serbians on Christmas, as well, called a pitka. There are other non-Jewish practices where hiding trinkets into bread, e.g., king cake, which also predates the practice of shlissel challah. Not only does shlissel challah have noticeable parallels with these Christian practices, but these Christian versions even originate from the same region as the custom of shlissel challah, i.e., Eastern Europe. Also, if one considers Nisan the beginning of the Jewish calendar, then having good luck with one's parnassa for the remainder of the year draws upon yet one more parallel.

Even if you remain agnostic on the non-Jewish nature of the shlissel challah's origins, there is another issue to be addressed. The shlissel challah is seen as a segulah (protective or benevolent charm or ritual; סגולה) for one's livelihood (פרנסה), and regardless of the interpretation you accept, the practice of shlissel challah is based on the theme of פרנסה. Essentially, it's treated as a good luck omen for improved finances and career prospects. This practice has a similar problem that I have with the practice of swinging a chicken over one's head before Yom Kippur for the purposes of vicarious atonement. The issue?  The Sages (חז׳׳ל) taught us that we were supposed to earn our keep. Given how the ultra-Orthodox tend to view antipathetically, should they culturally reinforce the idea that work is bad? Normally, I would take a more "live and let live" approach to religious practices. I would even be more accepting of it if those who baked the shlissel challah recognized that we can introduce new rituals into Judaism instead of this fundamentalist idea that everything in Judaism was quite literally given at Mount Sinai. (Spoiler: Judaism has evolved as a religion, it's not identical to what was practiced 3,000, 500, or even 100 years ago, Judaism has taken in foreign practices and ideas, all of which is okay because Judaism is meant to adapt). However, I take issue when it reflects deleterious social values, mainly that "G-d will take care of it, and I don't have to do any work," which is problematic in the ultra-Orthodox world both in Israel and in the Diaspora.

I'm not going to stop people from baking shlissel challah, both on philosophical grounds and because it would not be enforceable. However, I also believe that this practice is more than some innocuous placebo: I take issue when it reflects deleterious social values, mainly that "G-d will take care of it, and I don't have to do any work," which is a prickly issue in the ultra-Orthodox world both in Israel and in the Diaspora. Additionally, I don't like how G-d is treated like a vending machine. You don't metaphorically put in a coin in the machine, and a out pops out what you ask for and thinking you can alter G-d's will by baking shlissel challah. Baking a loaf of bread shaped as a key or a loaf with a key inside it is not suddenly going to solve your financial woes.  Jewish culture has absorbed some superstitious practices (e.g., treating the mezuzah as an amulet, spitting three times), but at the same time, treating shlissel challah in a superstitious manner is a violation of Jewish law. There are other ways to become closer to G-d, but baking a shlissel challah is not one of them.

Monday, May 2, 2016

Puerto Rican Debt Crisis: Brought to You By Lousy U.S. Federal Government Policy

Puerto Rico. It has not so much been a tourist destination lately as it has been at topic of political discourse. For quite some time, Puerto Rico has had enough fiscal woes by acquiring $72 billion in debt, which is more than 100 percent of its GDP. Its fiscal condition is worse than any of the 50 states in the United States mainland. While the topic of Puerto Rican debt is not necessarily new, the fact that it owed about $400 million in debt by May 1st is news. While Puerto Rico defaulted on the majority of its $400 million debt payment, that will be shadowed by the upcoming $2 billion debt payment due on July 1.



John Oliver actually covered this complicated topic last week (see above), but I would like to delve into this topic a bit further. One of the largest factors that caused the debt crisis was U.S. tax code and its peculiar set of tax preferences for Puerto Rico. The Puerto Rican debt crisis has its origins in the early twentieth century. The Jones-Shafroth Act of 1917 exempted Puerto Rican government bonds from being taxed at the federal, state, and local levels. This Act made Puerto Rican bonds very attractive to American purchasers of bonds. For decades, this Act did not cause a financial ruckus. It was during the 1970s when the Puerto Rican government decided to use bond investment money to balance its budget. Since the borrowed funds were not actual revenue, this snowballed into a debt crisis because unsurprisingly, when you borrow money with an interest rate that is artificially lower than market value, it only facilitates more capricious borrowing.

As Puerto Rico's situation worsened in the 2000s, investors took advantage of the financial situation and bought up more of these tax-exempt bonds. What exacerbated the whole situation was the repeal of Section 936 of the U.S. tax code. Section 936 allowed for a corporate tax exemption for U.S. corporations doing business in U.S. territories, such as Puerto Rico. While Section 936 helped Puerto Rico evolve from an agrarian society to a manufacturing hub, this provision became increasingly unpopular during the Clinton Administration because it came off as "evil corporations" tax-dodging. A bill was signed in 1996 to phase out the exemption over the next decade. By the time it was completely phased out, Puerto Rico fell into a recession in 2006. Foreign investment fled the country, and the inability to fill the void that the corporate presence once occupied caused the Puerto Rican economy to contract. One of the lessons here is that if you're going to provide a tax break, make it permanent because otherwise, you undermine the economy and creditworthiness, much like with Puerto Rico. Another lesson is to illustrate the many issues with the corporate tax and why in an ideal world, we wouldn't have corporate taxes.

The Jones-Shafroth Act also has a provision that forbids foreign ships from carrying goods between ports in U.S. territories, which, as you can imagine, hampers trade flows. This goes well beyond an Act dating back about a century. Looking at the World Bank's Ease of Doing Business Index, Puerto Rico presently ranks 57th, which is considerably lower than the United States' ranking of 7th. According to the World Bank's ranking, Puerto Rico has horrid rankings in such vital areas as registering property (164th), enforcing contracts (100th), and paying taxes (134th). These are rankings that are on par with developing countries, not a territory that is part of the developed world.




Up to the 1970s, the Puerto Rican minimum wage was below that of the mainland. The federal government, however, stepped in and told Puerto Rico that their minimum wage had to be that of the federal minimum wage, which was a law that was phased in by 1983. A paper published in the National Bureau of Economic Research found that when implementing the minimum wage back in 1977, Puerto Rican employment decreased a number at 8-10 percent lower compared to what would have prevailed without minimum wage by 1992 (Castillo-Freeman and Freeman, 1992). The Federal Reserve Bank of New York found that a third of Puerto Ricans make the minimum wage (p. 8), which is higher than in the United States. The current minimum wage in Puerto Rico is 77 percent of the median wage, which this comprehensive 2015 report on Puerto Rican debt from the International Monetary Fund (IMF) economists admits (p. 6). Minimum wages that are such a high percent of the median wage cause massive unemployment, which is what we see in Puerto Rico: current U-3 unemployment is at 11.8 percent, which is significantly higher than the current 5.0 percent for the mainland.

On top of the high minimum wage, the welfare benefits are also lavish. As the IMF points out, they often exceeds what minimum wage employment yields (e.g., a household of three could receive $1,743, while a minimum-wage worker only earns $1,159 [IMF, p. 7]). Puerto Rico also does not allow for at-will employment without paying huge severance packages, which makes sense given that 23 percent of employees in Puerto Rico work for the government.  Other costs of employment induced by the government are mandatory Christmas bonuses and lavish mandatory paid leave, which includes 15 vacation days, 12 sick days, eight weeks of maternity leave, and one hour per day for breastfeeding. All of these rigidities discourage job creation, which is why Puerto Rico has a declining real GNP, shrinking population [from 3.82 to 3.55 million within the last decade], and a labor force participation rate that decreased from 56.5 to 50.2 percent since 2005.

And let's not forget the lack of fiscal transparency, that the federal government pays a significantly smaller percent of Medicaid costs than it does for the mainland, glaring budgetary inefficiencies in Puerto Rico's Department of Health and Department of Corrections, or that the Puerto Rico Electric Power Authority (PREPA) owes an eighth of the island's debt (CRS, p. 13), the latter of which has caused energy prices to be higher in Puerto Rico than in the rest of the United States (IMF, p. 8). With all this, here's the "shocker": government expenditures in real dollars have increased by 100 percent between 1980 and 2013!

Puerto Rico is a bloated, inefficient government currently without any bankruptcy or restructuring provisions to help. On the other hand, allowing for Chapter 9 bankruptcy would only encourage what has been years of poor governance, which is why a default would be preferable to a bailout. Puerto Rico should be able to restructure its debt without having it fully repudiated. Even if Puerto Rico can get enough money or can restructure its debt to handle the current debt, this will not take care of some the more systemic issues that allowed this debt crisis to manifest in the first place. Its current trajectory is one of large financial gaps (IMF, p. 14), and longer-term solutions will need to be a part of the overall reform to make sure this does not happen again, whether that comes in the form of greater budgetary transparency, exemptions on the minimum wage and Jones Act, increasing the privatization of public companies that have failed, opening the energy market to competitive forces, or less restrictions in the labor market. Whatever the outcome is, what I can tell you is this: government policy is largely to blame for the fiasco. Let's hope that the federal government can work in conjunction with the Puerto Rican government and the private sector to resolve the crisis.