Wednesday, November 30, 2011

How Government Regulations Are Undermining the Job Market

Those on the Left are arguing that government regulations have a negligible effect on layoffs.  The Center for Economic and Policy Research (CEPR), for instance, argues that because a small number of businesses attribute government intervention as the cause for the layoffs (see Bureau of Labor Statistics data), we shouldn't have to worry.  I don't even want to get into the argument that the regulations do their damage subtly enough that most businessmen would not be able to accurately attribute government regulations to layoffs.  What I would like to point out is that it is the same Bureau of Labor Statistics (BLS) that recently announced that the level of layoffs are at pre-recession levels.

I'm sure my friends or colleagues on the Left will tell me that we need to have the government intervene in order to help bring up aggregate demand to pre-recession levels (i.e., Keynesian policy of government stimulus spending).  If the issue were consumption, then our levels of consumption would be at lows not seen for quite some time.  However, looking at Bureau of Economic Analysis consumption data (take particular note of the personal consumption expenditure data, especially this one), consumption has exceeded pre-recession levels.      

If job layoffs are at a low not seen for quite one time, and consumption is "back to normal," then there must be some other explanation as to what is plaguing the job market.  The issue facing the job market is that of job creation, as BLS data indicates.  Let's not even consider that a recent Gallup poll of small business owners shows that government regulations are at the top of their list of problems.  Last year, the Small Business Administration (SBA) published a study outlining how government regulations costs small business roughly ten thousand dollars per annum.

I don't know about you, but if I were a small business owner, I would be hard-pressed to hire new employees.  Between the implications of Obamacare for small businesses, the ephemeral nature of the tax cuts, and the increasing amount of regulations that have been implemented since the beginning of the Obama Administration, there is a lot of uncertainty taking place.  Small businesses need some reassurance that economic times are going to get better, and it cannot be done with hollow rhetoric.  If you truly want to help small businesses feel more confident that they can afford to hire new employees without going out of business, de-regulation would go a long way.

Why Wake Up with Modeh Ani

The ability to wake up "on the right side of the bed" is important because doing so properly affects the rhythm and mood for the rest of the day.  There are certain ways of going about this secularly.  I would like to approach this from a Jewish standpoint.

Upon waking up, a Jew is supposed to say the following:

 מודה אני לפניך מלך חי וקים שהחזרת בי נשמתי בחמלה, רבה אמונתך.

I offer thanks before You, living and eternal King, for You have mercifully restored my soul within me; Your faithfulness is great.

Why start off the morning by saying the Modeh Ani?  How does this help Jews "wake up on the right side of the bed?"

The more obvious answer is that you start off your day with a sense of gratitude.  Jewish tradition (Talmud, Menachot 43b) teaches us to say a hundred blessings a day.  The reason for this important practice is so that all we can see in our lives is blessing.  

I would like to take this step further.  In the Modeh Ani, we thank G-d for giving us another day.  Life itself is a gift.  This blessing makes us aware of that fact.  However, it begs a question: what is life?  

Human beings are different from other animals.  Our needs transcend the provision of basic physical needs.  We have free will, and we are to act upon that free will in order to bring goodness to the world.  

That becomes the raison d'être: opportunities in which we can perform good deeds.  This short, but powerful blessing reminds us that we should show appreciativeness to have another chance to make this world a better place.  

Give it a try.  I dare you.  It takes about five seconds to say, and you have nowhere else to be as you're waking up.  By saying the Modeh Ani, you get to spiritually wake up on the right side of the bed by reminding yourself who you are and what your purpose in life is.

10-23-2014 Addendum: I just came across this in-depth analysis of the Modeh Ani blessing, and it was too awesome not to share.

Monday, November 28, 2011

Will Italy's Economy Make It Beyond This Week?

Many news outlets have been reporting on the "euro crisis."  Within the past few weeks, attention has been diverted from Greece to Italy, primarily because Italy's economy, which is the eighth largest economy in the world, has a debt that well exceeds 100% of its GDP ($1.9 trillion in debt, which is six times the amount of Greece's).  Saying that the eurozone only has days might seem bleak or alarmist, but by observing what is going on in that region in the world, it could very well be in the realm of feasibility.

Looking at Italy's sorry excuse for a bond auction, Italy has seen Euro-era high interest rates on its bonds, which does not bode well for its recuperation because it's a measurement of confidence in Italy's economy.

Does the European Central Bank (i.e., Germany) underwrite Italy's debt?  I know Germany has the healthiest economy within the eurozone, but I'd guess that Germany is sick of being expected to bail out the PIGS.  And even if Germany decides to help, it's a safe bet that many strings will be attached.  An extreme to not helping might be kicking Italy out of the eurozone and having it implode on its own.

Maybe the International Monetary Fund (IMF) can help out.  This would be a high-risk investment.  Even if risks were ignored, Italy has issues with its political institutions.

If Mario Monti can garner enough legitimacy to pressure the central bank to lower its interest rates, maybe it can solve the problem.  Or even the Fed can alter interest rates to prevent a meltdown.

Maybe banks have gotten too big and too dependent on government.  Global bank reform might be needed.

There are a lot of "maybes" in this blog entry, mainly because there is a whole lot of speculation as to what will happen to Italy, which has to do with the unpredictable nature of the financial sector.  Whether Italy is going to make it beyond this week requires as much clairvoyance as predicting in which direction and how much the stock market will swing today.  I'm not even going to begin to make a prediction on what will happen in Italy.  All I can tell is that it does not look good, and the only way to avert disaster is to do something drastic.

Thursday, November 24, 2011

Being Thankful for Comparative Advantage

When asked what people are grateful for, common answers during Thanksgiving are family, friends, financial security, good health, or a nice, wonderful Thanksgiving meal.  These are good answers, and I certainly don't eliminate them as things for which I need to be thankful.  However, I would like to add something a bit more idiosyncratic to the list.  This year, I would like to focus on why I am thankful for comparative advantage.

It might seem peculiar to be thankful for an theoretical concept in economics.  However, when we see how that theory is applied to practice, the reason for the gratitude becomes visible.  The law of comparative advantage, also known as the Ricardian Law of Association, states that an entity, whether it be an individual, firm, or country, has the ability to produce a good or service at a lower opportunity cost than the other.  Although it might not seem logical for a country with absolute advantage in multiple goods or services to trade with a country with absolute disadvantage, the reason for exchanging goods and services makes sense when one considers relative efficiencies.  For example, Michael Jordan might be better both at playing basketball and mowing his lawn than his landscaper (i.e., absolute advantage), but because of comparative advantage, Michael Jordan decides to play basketball while letting the landscaper cut his lawn because his comparative advantage in the former is much greater than the latter.  By using specialization and division of labor, we come across a few things.

On the international level, this translates to free trade.  Free trade leads to competition in the international market, which leads to a greater incentive to create a better product.  Since nation-states are participating in free trade, that also means that they have to cooperate.  Think of Britain and France, two nations that had fought wars with each other for centuries.  When they started to trade with one another, they stopped fighting.  Why?  Because the benefit of improving the quality of one's lifestyle exceeds the costs of warfare.  It's also one of the reasons why China is not attacking Japan right now (although American military backing of Japan and the balance of power issues also attribute to China's military inaction).

To conclude in layman's terms, the free trade induced by the principle of comparative advantage is a stabilizer amongst people.  It better allocates resources.  It brings the competition needed to produce better goods and services.  Overall economic welfare is increased, which means we can all enjoy much better living standards than if we didn't have it, and that is something for which we should all be thankful.

Happy Thanksgiving! 

Tuesday, November 22, 2011

EU Stupidity: Water Doesn't Prevent Dehydration

The European Food and Safety Authority, a bureaucratic entity of the European Union, put out a scientific publication that states that water does not prevent dehydration.  Yes, you read that correctly.  Water doesn't prevent dehydration, even though the very definition of "dehydrate" entails a net loss of water.  Anyone who has drank water, which is everybody since it is necessary for survival, knows that water prevents hydration.  This is about ridiculous as saying that food does not prevent hunger.

Why is it that when the European Union is on the verge of collapse, why are you publishing idiocies that defy common sense?  I don't live in the European Union, and I find this to be yet another waste of taxpayer dollars.  Under British law, if an advertiser makes a claim contrary to EU law is subject to being jailed for two years.  Since this is an edict from the EU, you can get punished for advertising that water prevents dehydration.  Punishing individuals for common sense is well beyond stupid.  This study is nothing more than another reason to beg the question of how the European Union has existed as long as it has.    

Thursday, November 17, 2011

Is Taxation Theft?

"Taxation is theft" is one of those catchy one-liners used by anarcho-capitalists and certain non-anarchic libertarians.  The argument is based on the axiom of nonaggression, which deontological libertarians tend to take to the extreme.  The argument goes something like this:

"Theft is the coercive taking of one's property without one's consent.  Taxation is the government taking your property [in the form of taxes] without one's consent.  Therefore, taxation is theft."

A lot of Americans are angry at the rate at which citizens are taxed.  The form of the tax also helps with the feeling of theft.  A tax, like the income tax, directly affects what you make.  Especially in our current progressive taxation set-up, it essentially punishes people for working better jobs.  An indirect tax (e.g., sales tax, value-added tax) would do a much better job.  After all, no one is forcing you to consume.

Even if you like to still say "taxation is theft," your argument misses one key element: legitimacy.  Locke stated that a government is not legitimate unless it has the consent of the governed.  That consent was established during the founding of this nation, and still exists.  We have to remember that the revolutionaries in this countries threw tea into Boston Harbor because of "taxation without representation," not straight-up taxation.  If you need more about the concept of social contract, read some John Locke, and you'll get the idea.

In Conscience of a Conservative, Barry Goldwater said that government should be able to do what it needs to do, not what it can do.  I believe that many Americans have a similar sentiment.  Government should enforce natural rights, not guarantee them.  Government should have enough power to enforce contract rights for all.  If you are to argue that national defense is a public good, then you should collect revenue for the military.  Ditto for a police force!

Think of taxation as an enforced contract fee rather than as an act identical to theft.  If not, I'm sure things would be much more enjoyable for you in Mogadishu.

Monday, November 7, 2011

Mississippi's Personhood Amendment: Talking About Unintended Consequences!

Citizens of Mississippi will vote on a constitutional amendment tomorrow that will re-define personhood.  According to the ballot initiative, a person will "include every human being from the moment of fertilization, cloning, or the functional equivalent thereof."  You can imagine that there are those for and against the initiative, and that it is quite contentious, although these days, everything in politics is a "hot-button issue."

I would like to state that I consider myself pro-life.  The fetus is not just a clump of cells equivalent to a tumor or "part of the mother's body."  Although birth marks a time in which the child separates from the mother, its worth and individuality are established long beforehand.  Looking at fetal development, the fetus has all vital organs around the seventh week of gestation.  From a biological standpoint, an unborn child is still genetically a human being.

How do we approach this legally?  This one is trickier.  I don't want to live in a society where abortion is viewed as another form of birth control or where abortion is commonplace.  However, if society were to grant personhood as this amendment proposes, it brings up a few questions:

  1. Is birth control going to be outlawed?  And if so, will women in Mississippi have to cross state borders just to use birth control if so desired?
  2. If a rape victim uses the morning after pill to prevent pregnancy, is she charged with manslaughter?
  3. Will birth control have the same societal stigma as an "assault weapon?"
  4. Can an unborn child be a beneficiary in a will?  I bet that will make inheritance laws interesting!
  5. If a mother has an abortion when her life is threatened, will doctors be charged for second-degree murder?  Would the mother be charged with accessory to murder or just get off with self-defense?  
  6. Can you imagine the number of malpractice suits that would take place?  Think what this would do to a state that already ranks 50th in the nation for healthcare.  
  7. If a woman drinks a glass of wine during pregnancy, will the courts charge her with child neglect or child abuse?
  8. Can a fetus be claimed as a dependent when filing taxes so a deduction can be acquired?  
  9. Can the fetus also be used as a claim to receive government assistance?
  10. 10% to 20% of pregnancies sadly result in miscarriages.  Are Mississippi police going to have to investigate each miscarriage as a possible homicide?  Is there enough manpower to do all that investigating?
  11. Do fetuses and zygotes count in the Census?  If so, does every single woman in Mississippi have to be subjected to a pregnancy test to assure an accurate count?  Also, will this affect voter districting?
  12. Do we need to provide fetuses with Social Security numbers?
This amendment is a train wreck waiting to happen.  Think of how much Mississippi's debt and tax rate will increase in order to enforce this.  Think of how much Big Brother will intervene in the lives of Mississippians.  If this amendment made it to the Supreme Court to attempt to challenge Roe v. Wade, think of how much it would backfire and embolden the "pro-choice" movement.  I really, really hope that this amendment doesn't pass!

Friday, November 4, 2011

Parsha Lech-Lecha: The Burden of Being Rich

The media frenzy that is directed towards the Occupy Wall Street movement has brought income inequality to the forefront of the American political discussion.  Those who are in poverty do not have it easy.  As a matter of fact, the Talmud (Baba Batra 116a) says that if you have fifty plagues on one side and poverty on the other, poverty is worse!  This hyperbolic statement shows us how just debilitating poverty can be.

How about the rich?  With the 99%/1% divide in this country, you would think that the rich have it so easy, that they don't have to deal with any issues.  If you think that it's clear sailing for the rich, you're wrong, and nothing shows that like this week's Torah portion.  As Abram was leaving Egypt, Torah said that Abram was very rich, in cattle, in silver, and in gold (Genesis 13:2).

וְאַבְרָם, כָּבֵד מְאֹד, בַּמִּקְנֶה, בַּכֶּסֶף וּבַזָּהָב.

What is interesting is that כָּבֵד does not simply mean "rich."  As Rabbi Yonatan Eybeschutz points out, כָּבֵד can also mean "heavy" or "burdensome."  Being rich beyond your wildest dreams means you can afford whatever you want.  How is it that being rich is burdensome?!

I have two possible answers for this question.

The first is that when one has a lot of money, it is all too tempting to succumb to avarice.  Money becomes the ends rather than the means, and maintaining a moral compass is all the more difficult, and as a result, the rich man's pursuit for acquiring more money for the sake of acquiring more money can result in ruining people's lives.

The second answer is that money is actually a great responsibility.  Everyone in life has their tests.  What is the test for the rich man?  Generosity.  There is the story that the Chofetz Chaim had a nightmare.  What was that nightmare?  Being rich.  Why was that a nightmare?  Because he realized that he would have to distribute a huge amount of tzedakah.  Doing so requires a lot of time and effort.  He wouldn't have had any time left to study Torah, which for him being a rabbi, was a nightmare. Testing one's generosity amidst a load of wealth is never an easy task.  It takes strong moral fiber to successfully pull it off.  Even though the obligation of most citizens will never reach the level of the rich, it should nevertheless make our awareness to the responsibility to help the poor all the more heightened.

Is Income Inequality That Big of a Deal?

Ever since the CBO report came out on income distribution, the Left has once again bemoaned about income inequality.  Paul Krugman even came out with a piece very recently entitled "Oligarchy, American Style."  I'm going to forget that the report is misleading in the sense that it collected data up until 2007.  The reason for my accusation is because if the CBO bothered to look at the IRS data for 2008 and 2009, they would have found that the income for the 1% fell to 1997 levels (see Tax Foundation study for further info on tax burdens).

This led me to an important question: should we be worried about income inequality?  Just a few thoughts on the matter......
  • Looking at income as an economic indicator for one's economic well-being is inaccurate as it is arbitrary.  Why?  Income is a relative measurement.  When the dollar is devalued or inflation increases, income doesn't mean as much.  Would you be more impressed with someone who makes $500K now or fifty years ago?  On the other end, when technology improves what we consume, we are able to consume more quantitatively and qualitatively, thereby increasing our purchase power.  As such, when having this discussion, we should look at consumption, not at income.  And when we do, it's amazing because consumption-based poverty is much lower than income-based poverty.
  • Division of labor comes into mind during this discussion.  We all have different skills, levels of intelligence, motivations, and job preferences.  Some of us choose jobs that we like, but don't pay as much (e.g., social worker).  Other jobs earn a lot of money, and people are in that profession for that reason.  Do we think that a janitor should be paid as much as a doctor?  I certainly hope not!  Doctors are skilled workers that are in high demand.  If we hypothetically made everyone's wage equal, regardless of profession, doctors would hardly see the incentive to pay all those years of medical school just to get paid the same amount as a janitor.
  • Income inequality is not an inherently bad thing.  You have cases such as Bernie Madoff and Enron.  They ruined the lives of many with their avarice.  And while these cases are unfortunate, they are by far much more infrequent than cases of people climbing to the top with innovation.  Take Steve Jobs as an example.  He spent 60-80 hours a week in the office to bring us wonderful Mac products.  Do we hate him for that?  A huge majority of us would answer in the negative.  He worked hard to bring many people Mac products, which have changed the lives of many.  Since he worked hard, he earned the money he made.  It's not so much where there is inequality, but how it is brought about.  
  • This is why income inequality is not so much of a moral issue as is the topic of economic sufficiency, which is a point that philosopher Harry Frankfurt brings up.  "Do we have enough?" That should be the question, not "why does the millionaire have so much, and I have nothing [in comparison]?"  I'm not trying to belittle those who have genuinely suffered through this recession, or say that the unemployed need to "toughen up" or "grin and bear it."  What I can say is that many in America have lost perspective.  Rather than look at what we have and be grateful, we look at what we don't have in hopes to "keep up with the Joneses."
  • We live in a materialistic society that over-emphasizes the individual to the point where many feel that the continual acquisition of more material goods will satiate their happiness.  I have bad news for you: money doesn't buy happiness.  Money is a means to an end.  I would be worried more about what makes me happy than if I have more money than my neighbor, especially if he is part of the 1%.      
  • And if you need to put yourself into perspective, even the poorest American still has more money than three-quarters of the rest of the world.
  • During the period of the CBO study, 57.5% in the lowest quintile jumped at least one quintile, and of those in the 1% during 1999, only 44.6% were still there in 2007.  So let's be thankful that there is economic mobility in America.
Postscript: This is not to say that those in Occupy Wall Street protests have a reason to be angry.  They do.  There is a political system that has failed them while it commits idiocies such as bailing out the banking industry.  If a bank such as Citibank is failing, it should be allowed to fail.  It shouldn't be bailed out because Big Government came to the rescue.  As Ronald Reagan once said, "Government is not the solution to our problem.  Government is our problem."  You want to create more economic prosperity so we can get our economy back on track?  Remove the red tape that inhibits small business from hiring.  Stop pouring money into energy plants like Beacon Power that file bankruptcy.  Enough with the bailouts already!  If you lift the restraints that constrain the markets, there won't be a need to occupy Wall Street anymore.  

8-9-2017 Addendum: A recent study from the National Bureau of Economic Research shows that while income inequality has risen over the past few decades, consumption inequality has stayed relatively stagnant.