Next week on June 5th, California is going to vote on Proposition 29 (also known as the Tobacco Tax for Cancer Research Act), which is a referendum to enact a tax hike on cigarettes. The hike is supposed to be five cents per cigarette, which translates into a dollar per pack. The tax revenue collected would go towards cancer research, which is something the proponents of Prop 29 laud because the tax is supposed to cut back on the number of smokers while heading in the right direction to cure cancer. The opposition is not only worried about a higher level of tax burden, but that the bill would have unintended consequences. So who is right? Let's take a look:
1) Sin tax and tobacco. Before going into the bill itself, we need to differentiate between a Pigovian tax and a sin tax because there are some people out there who think they are synonymous. A Pigovian tax is a tax levied to abate a negative externality (see diagram below).
The classic example of a negative externality is pollution. A factory dumps waste into a river or pollutes the air. Society bears the cost because the water and air are now dirtier. Without the Pigovian tax, the factory does not bear any cost for the pollution. By enacting the Pigovian tax, the producer produces less of their product at the social optimum, which ideally is where P = MR = MSB.
I do not want to get into a discussion right now of whether such a tax is acceptable from a libertarian standpoint because it would be a debate of whether the government's non-action would violate the libertarian axiom of non-agression. Rather, I would like to contrast the Pigovian tax to the sin tax. As economist Greg Mankiw states, "A Pigovian tax is supposed to protect innocent by-standers from the actions of others," whereas sin taxes "try to protect people from themselves." To clarify, a Pigovian tax tries to lower social costs and a sin tax tries to lower individual costs. Sin taxes are not solely levied on cigarettes; they are also levied on alcohol and are being attempted on soda. The sin tax is the government making the moralistic statement of "Hate the sin, Tax the sinner" that goes well beyond nonaggression. If the individual's smoking doesn't adversely affect others, who are we to deter voluntary behavior? Such action would be a violation of "life, liberty, and pursuit of happiness."
2) The harmful effects of tobacco. New York mayor Michael Bloomberg was in support for such a bill because "tobacco kills." I'm not unsympathetic to the lives lost because of tobacco-related illnesses, but last time I checked, tobacco is an inanimate agricultural product that people consciously decide to consume. Tobacco contains nicotine, which happens to be addictive. Addictions are not easy to kick, but there are ways to quit. There is medicine (e.g., Nicotine patch, Nicotine gum), counseling services, and support groups such as family, friends, or Nicotine Anonymous. Even if the treatment costs some money now, it will cost a lot less than paying for the habit, not to mention that you can greatly reduce your chances of getting lung cancer later down the road. Plus, if people don't want to quit smoking, who cares whether it's addictive? People choose whether to smoke or not, and if they have already started, they can choose whether they want to quit or not. Rather than treat individuals like children or as if they had no choice, let us treat individuals like adults who have free will.
Tobacco consumption is not only harmful to our health, but also to our wallets. The line of thought is that because people stop smoking (i.e., they'll be healthier), health care costs are going to drop by $5.1B. However, as the legislative analyst from the Attorney General's Office points out (p. 17), "This measure would have other fiscal effects that offset these cost savings. For example, the state and local governments would incur future costs for the provision of health care and social services that otherwise would have not occurred as a result of individuals who avoid tobacco-related diseases living longer. Thus, the net fiscal impact of this measure on state and local government costs is unknown."
3) Sticking it to the poor. I would take an educational guess that a majority of the proponents of this bill lean to the Left because a) those on the Left are more enamored with tax hikes, and b) this is California we are talking about, after all. This means that these are most probably the same people who want to help the downtrodden. However, this is just yet another policy from the Left in which we see an unintended consequence. Why? Because the poor and uneducated are more likely to smoke. This can be observed both on the national and state level. It is difficult enough in general to stop smoking. Being poor and/or uneducated makes it more difficult to reach that goal. And now proponents want to throw the burden of an additional regressive tax on top of it all that would take more out of their discretionary income? That's just great.
4) How worried should Californians be? The federal government already throws $5 billion (yes, that's billion, with a "b") at cancer research per annum; that doesn't even count the state level or any private organizations funding cancer. I know we haven't found a cure for cancer yet, but it's surely not from a lack of funding. Also, we have to keep the smoking rate in mind. 11.9% of California's adults currently smoke. Not only is that below the OECD average of 22.1%, but is also below the national average of 19.3%. It would be great if the percentage of smokers were near 0% and if we found a cure for cancer. However, such noble goals need to temporarily take a back seat to more important things, such as California's financial situation.
5) California's fiscal burden. With recent tax data, California's state tax burden ranks amongst the highest in the nation (6th highest in 2009). Looking at the economic freedom rating created by the Mercatus Center, California ranks 46th in economic freedom. To top it all off, California is dealing with a huge debt issue, which has been compared to Greece more than once. Simply put, cancer research is not high on California's priority list. So, rather than funding cancer research, which is already well-funded by the federal government, why not focus on debt reduction instead, especially when there are talks to do things like cut public salaries by five percent?
6) Inefficiencies and Unintended Consequences. The bill sounds great on paper. "If we increase the tax on cigarettes, not only do we stop the filthy habit, but we can also fund cancer research." Much like with just about anything else the government does, it is not as great as it sounds. The first is the assumption that the tax will bring in as much revenue as proponents would like. A similar tax was enacted in Maryland a few years back, and they only collected fifty cents for every dollar. This shouldn't be a surprise because taxes create deadweight loss (although I was surprised to say that the legislative analyst took the deadweight loss into account [p. 16]). Even in New Jersey and Washington DC, there was decrease in cigarette tax revenues after enacting the tax. It would be nice to dismiss these examples as anomalies, but the problem with that is unless you are dealing with an exceptionally inelastic good, you won't collect all the revenue you would expect. Also, consider the fact that the rate of smoking is decreasing without the tax increase (See Point 4). Expected revenue is only going to diminish over time.
Second, only sixty percent of the funds would actually go to cancer research (§30130.53(1)). I'm also not a big fan of §30130.53(2) that allows buildings to be build at the committee's discretion. There is just something about "the middleman" that makes me feel uncomfortable. It is not simply because of the excessive amount of $127.5 million would be allocated towards buildings. It is also the matter of the fact that when California passed Proposition 10 to hike the cigarette tax back in 1998, it was met with misappropriation of funds and overall scandal (see California government report here). Since history has a way of repeating itself, you can't help but think that the remaining forty percent is going to get caught up in administration, oversight costs, and possibly corruption.
Even if the money is spent efficiently, there is still the matter of creating a black market. Although black markets are more prevalent with downright prohibition, higher sin taxes still can create a black market. Either people buy smuggled goods or they the cheap roll-your-own cigarettes that are unhealthier because they lack filters. The Cato Institute did a study on New York's black market in cigarettes back in 2003, and as if it were a surprise, it's still a problem. The same goes for Spain and the United Kingdom. The underground market is just another way for smokers to get a hold of cigarettes, as well as a way to increase crime rates.
Conclusion: I don't care if the American Cancer Society or the California PTA support Prop 29, and I'm not going to be swayed by a one-liner like "The choice is simple." I would say the choice is complicated by politics, and the voting results will reflect that. If it weren't for that, I would say the choice is very simple: a sin tax on cigarettes is a bad policy, and the citizens of California should vote against Prop 29. It might sound great to pass a bill that will save lives and beat Big Tobacco. What you get in reality is different. The tax is an infringement of freedom that would disproportionately affect poor people while leaving open the real potential for a black market. The tax revenue would probably not be as much as expected, and even the money saved on health care costs cannot be determined. All of this would be enacted by a government that not only lacks fiscal discipline, but has been troubled with past scandal of the allocation of cigarette tax revenues. I hope that California can repeat its history when it voted against a similar proposition back in 2006.
7-5-2015 Addendum: A working paper was just released showing little evidence of a negative relation between cigarette taxes and youth smoking.
The political and religious musings of a Right-leaning, libertarian, formerly Orthodox Jew who emphasizes rationalism, pragmatism, common sense, and free, open-minded thought.
Tuesday, May 29, 2012
Friday, May 25, 2012
Why Life Expectancy Is a Faulty Health Care Quality Indicator
I was playing around with OECD data from its Better Life Index. My attention was brought to the Health indicator, which had two sub-indicators: life expectancy and self-reported health, the latter of which is a citizen-based perception index. Like with any other perception indexes, my main criticism is that they do not measure actuality. Although perception indexes have their roles, they do not automatically measure in an accurate fashion, which is why I will bring my attention to life expectancy. If we were to use life expectancy as the sole qualifier of health care quality, OECD data would rank American health care 27th out of the 36 countries measured. Considering that "the greatest nation in the world" has a life expectancy below the OECD average, it demands pondering. If a given country were to claim to have superior health care, then it should be able to keep its citizens alive longer. With that logic, American health care would have to be deemed inferior. If that were the case, I would be ashamed to receive American health care. Per contra, as indicated by the divergence of the OECD's self-reported health indicator that would rank America as first in health care quality, everything may not be what it seems.
In order to figure out what is taking place, we need to ask ourselves what factors play into the average life expectancy. We have to ask ourselves the question of "how do people die?" This question is important because it helps determine causal mechanisms for a given life expectancy. A look at CDC data provides further insight (See Tables on p. 31 and 43 with preliminary 2010 data, as well as detailed tables from 2009 data). Let's take a look at some of the larger contributors to mortality in America.
OECD data for mortality rates can provide reasoning for the life expectancy gap, especially when the United States has a higher mortality rate per 100,000 for enough causes of death to make an impact. Here are some things to consider. Except for Denmark and Hungary, the rate of malignant neoplasms for the lung (i.e., lung cancer) for the United States is highest amongst OECD countries. The United States also has a high incident rate for diabetes, which is another sizable killer in America. Another significant factor of the life expectancy gap is obesity. The OECD published a study in 2010 on obesity and showed that amongst the OECD countries, the United States has the highest rate of obesity, which means Americans are more prone to health care problems. The CDC points out that one in five deaths in America are caused by smoking. Note how they didn't blame it on the ineptness of the health care system, but the conscious choice that Americans make when they choose to smoke. Alcohol causes about another 40,000 American deaths per annum. Although other diseases can be looked at, the point I want to illustrate here is that a good amount of health care issues are based on one's lifestyle. If one has a poor diet, doesn't really exercise, drinks heavily, or smokes cigarettes, they increase their risk of being exposed to fatal diseases. Having some or all of these behaviors is overall more prevalent in America than it is in other countries. Such lifestyle decisions decrease life expectancy and do not have influence on the quality of health care.
It's not simply a matter of people making poor health choices. The number one cause of accidental deaths in America are transport-based (e.g., car accident or plane crash). According to World Health Organization (WHO) data (Table A.2 in the Appendix section), America's estimated road traffic death rate per 100,000 population is 13.9. This number exceeds that of many of the other OECD countries whose road traffic death rate is well in the single-digits realm. Homicides are another example. The UN Office on Drugs and Crime (UNODC) published a study on homicide rates (Table 8.1). The OECD data also confirm the UNODC data. The United States has a homicide rate higher than most other OECD countries. Countries such as Russia, Mexico, and Brazil all have higher homicide rates, and also have a lower average life expectancy. Both accidental deaths and homicides are external forces that have nothing to do with health care quality.
A study done by Drs. June and David O'Neill looks at the life expectancy disparity between the United States and Canada. What they found is that America's health care quality can hardly explain this disparity. The point I have been conveying here is that life expectancy reflects a myriad of factors that have nothing to do with health care quality, including, but not limited to culture, dietary trends, genetics, the aforementioned external forces of accidents and homicides, lifestyle, and level of education. To take these factors into consideration would decrease the gap to the extent where it would not cause such criticism of the American health care system.
Furthermore, there are better health care quality indicators than life expectancy. How about cancer survival rates? Can we look at the waiting time for certain procedures to see if expediency plays a role in better health care? How responsive are doctors and/or medicine being? How important is the quality of preventative care? Are certain external factors, such as government regulations, impeding doctors from providing sufficient health care? If the patient-to-doctor ratio is high, how does that affect availability or quality? How important is the progress of the medical technology, and would a higher price tag for that technology be worthwhile, even if it causes some disparities in terms of access? Is there a way to measure accountability of the system? Is there a way to have indicators to be consistent across borders so that health care quality can be accurately compared on an international level? In our quest for determining a framework for what constitutes quality health care, such questions are important to answer. Using life expectancy to determine such quality, however, is not.
In order to figure out what is taking place, we need to ask ourselves what factors play into the average life expectancy. We have to ask ourselves the question of "how do people die?" This question is important because it helps determine causal mechanisms for a given life expectancy. A look at CDC data provides further insight (See Tables on p. 31 and 43 with preliminary 2010 data, as well as detailed tables from 2009 data). Let's take a look at some of the larger contributors to mortality in America.
OECD data for mortality rates can provide reasoning for the life expectancy gap, especially when the United States has a higher mortality rate per 100,000 for enough causes of death to make an impact. Here are some things to consider. Except for Denmark and Hungary, the rate of malignant neoplasms for the lung (i.e., lung cancer) for the United States is highest amongst OECD countries. The United States also has a high incident rate for diabetes, which is another sizable killer in America. Another significant factor of the life expectancy gap is obesity. The OECD published a study in 2010 on obesity and showed that amongst the OECD countries, the United States has the highest rate of obesity, which means Americans are more prone to health care problems. The CDC points out that one in five deaths in America are caused by smoking. Note how they didn't blame it on the ineptness of the health care system, but the conscious choice that Americans make when they choose to smoke. Alcohol causes about another 40,000 American deaths per annum. Although other diseases can be looked at, the point I want to illustrate here is that a good amount of health care issues are based on one's lifestyle. If one has a poor diet, doesn't really exercise, drinks heavily, or smokes cigarettes, they increase their risk of being exposed to fatal diseases. Having some or all of these behaviors is overall more prevalent in America than it is in other countries. Such lifestyle decisions decrease life expectancy and do not have influence on the quality of health care.
It's not simply a matter of people making poor health choices. The number one cause of accidental deaths in America are transport-based (e.g., car accident or plane crash). According to World Health Organization (WHO) data (Table A.2 in the Appendix section), America's estimated road traffic death rate per 100,000 population is 13.9. This number exceeds that of many of the other OECD countries whose road traffic death rate is well in the single-digits realm. Homicides are another example. The UN Office on Drugs and Crime (UNODC) published a study on homicide rates (Table 8.1). The OECD data also confirm the UNODC data. The United States has a homicide rate higher than most other OECD countries. Countries such as Russia, Mexico, and Brazil all have higher homicide rates, and also have a lower average life expectancy. Both accidental deaths and homicides are external forces that have nothing to do with health care quality.
A study done by Drs. June and David O'Neill looks at the life expectancy disparity between the United States and Canada. What they found is that America's health care quality can hardly explain this disparity. The point I have been conveying here is that life expectancy reflects a myriad of factors that have nothing to do with health care quality, including, but not limited to culture, dietary trends, genetics, the aforementioned external forces of accidents and homicides, lifestyle, and level of education. To take these factors into consideration would decrease the gap to the extent where it would not cause such criticism of the American health care system.
Furthermore, there are better health care quality indicators than life expectancy. How about cancer survival rates? Can we look at the waiting time for certain procedures to see if expediency plays a role in better health care? How responsive are doctors and/or medicine being? How important is the quality of preventative care? Are certain external factors, such as government regulations, impeding doctors from providing sufficient health care? If the patient-to-doctor ratio is high, how does that affect availability or quality? How important is the progress of the medical technology, and would a higher price tag for that technology be worthwhile, even if it causes some disparities in terms of access? Is there a way to measure accountability of the system? Is there a way to have indicators to be consistent across borders so that health care quality can be accurately compared on an international level? In our quest for determining a framework for what constitutes quality health care, such questions are important to answer. Using life expectancy to determine such quality, however, is not.
Tuesday, May 22, 2012
Psalm 16:8: Always Having G-d Before Us
I was on the bus today, and my mind could not help but to be fixated on a certain Biblical verse: Psalms 16:8. I was specifically focused on the first half, which says שויתי יהוה לנגדי תמיד, or "I have set G-d before me always." This verse actually shows up on a meditative plaque known as the shiviti (שויתי). I was surprised at how four words in Hebrew could cause so much meditative thought and angst. What sort of message(s) is the שויתי supposed to convey? After contemplating for a while, I came up with a few ideas.
If we are to look at the verse in context of the entirety of Psalm 16, the overall theme is that of total commitment, which is established within the first four verses. The first verse is peculiar because the speaker is requesting that אל (El) protect the speaker. While אל means G-d in Hebrew, it can also be referring to the Canaanite deity El. This can allude that the speaker in this psalm is actually a convert to Judaism. Regardless of whether the speaker is a convert or King David himself, it is evident that the speaker has rejected the idols and has declared his allegiance to G-d (יהוה) by the fourth verse.
The theme of commitment resonates through the rest of the psalm and is present in the eighth verse. Asking the question of "What does G-d want" is made clear with the word לנגדי (before me), meaning that what G-d wants supersedes what I want. The notion is echoed in Pirke Avot 2:4. Rabbi Gamliel said "that you are to do the will of G-d as if it were your own so that He will do your will as if it were His will." Per Rabbeinu Yonah's commentary on Pirke Avot 2:4, one should do the will of G-d with the same energy and zeal of his own desires, which is another way of saying "set G-d before you." Rashi's commentary on the Pirke Avot verse suggests that one is to go as far as to sustain a personal loss in order to perform a mitzvah (i.e., His will).
The Ba'al Shem Tov pointed something of interest out regarding the first word, שויתי. The word שויתי comes from the root שוה, which means "equal" or "even." What has been made equal? Everything in life. Whether we are having a good day or a terrible day, we are to serve G-d with the same alacrity, whose totality is confirmed with the psalm's usage of the word תמיד (always).
A couple of alternatives arise by using juxtaposition, a sine qua non of Jewish interpretation. The seventh verse mentions kidneys. In the Bible, the kidneys figuratively act as a symbol of emotiveness. In this instance, the kidneys represent the biblical seat of conscience, which is another way of saying "judgement." The verse can be interpreted as a reminder of His omnipresence. By being omnipresent, it reminds us that we should always be "on our best behavior." Looking at the second half of the eight verse, G-d is "at my right hand, and I shall not be moved." Not being moved (בל אמוט) shows that G-d in turn hold us constant. It is a sign of encouragement because G-d is here to hold us steady, even when we're going through turbulent times.
Postscript: My biggest kvetch here has to be the all-or-nothing mentality. The speaker has what the Chasidim call דבקות, which is cleaving to G-d, 24-7. That is why it is important to take the context of the speaker in mind. The speaker of this Psalm (most likely King David) is an exceptional human being. The human condition makes us imperfect, doubtful, and at times fragile. Especially when the going gets tough, it becomes very difficult to "give it your all." Much like with any goal setting, you have to know where you are right now and the destination (i.e., the goal). Not only that, you have to be aware of the obstacles in the way. There are times in which they can be overcome and times where they cannot. The ideal in Judaism is to be able to have דבקות. However, most of us cannot realistically obtain such a rapport with G-d. Does this mean we give up before even beginning? Absolutely not! Setting G-d before us always does not mean acting 100% perfectly 100% of the time. Such perfection is not human. What we are meant to do is love G-d with our heart, soul, and might (Deuteronomy 6:5). It would be fantastic to achieve perfection, but G-d didn't create us to pull it off, and G-d knows it. That's what makes G-d's mercy so wonderful. He understands and He forgives. So what does "setting G-d before us always" mean? Just be humble enough to realize you're only human and give it your best shot. G-d wouldn't want any less and couldn't expect any more than that.
If we are to look at the verse in context of the entirety of Psalm 16, the overall theme is that of total commitment, which is established within the first four verses. The first verse is peculiar because the speaker is requesting that אל (El) protect the speaker. While אל means G-d in Hebrew, it can also be referring to the Canaanite deity El. This can allude that the speaker in this psalm is actually a convert to Judaism. Regardless of whether the speaker is a convert or King David himself, it is evident that the speaker has rejected the idols and has declared his allegiance to G-d (יהוה) by the fourth verse.
The theme of commitment resonates through the rest of the psalm and is present in the eighth verse. Asking the question of "What does G-d want" is made clear with the word לנגדי (before me), meaning that what G-d wants supersedes what I want. The notion is echoed in Pirke Avot 2:4. Rabbi Gamliel said "that you are to do the will of G-d as if it were your own so that He will do your will as if it were His will." Per Rabbeinu Yonah's commentary on Pirke Avot 2:4, one should do the will of G-d with the same energy and zeal of his own desires, which is another way of saying "set G-d before you." Rashi's commentary on the Pirke Avot verse suggests that one is to go as far as to sustain a personal loss in order to perform a mitzvah (i.e., His will).
The Ba'al Shem Tov pointed something of interest out regarding the first word, שויתי. The word שויתי comes from the root שוה, which means "equal" or "even." What has been made equal? Everything in life. Whether we are having a good day or a terrible day, we are to serve G-d with the same alacrity, whose totality is confirmed with the psalm's usage of the word תמיד (always).
A couple of alternatives arise by using juxtaposition, a sine qua non of Jewish interpretation. The seventh verse mentions kidneys. In the Bible, the kidneys figuratively act as a symbol of emotiveness. In this instance, the kidneys represent the biblical seat of conscience, which is another way of saying "judgement." The verse can be interpreted as a reminder of His omnipresence. By being omnipresent, it reminds us that we should always be "on our best behavior." Looking at the second half of the eight verse, G-d is "at my right hand, and I shall not be moved." Not being moved (בל אמוט) shows that G-d in turn hold us constant. It is a sign of encouragement because G-d is here to hold us steady, even when we're going through turbulent times.
Postscript: My biggest kvetch here has to be the all-or-nothing mentality. The speaker has what the Chasidim call דבקות, which is cleaving to G-d, 24-7. That is why it is important to take the context of the speaker in mind. The speaker of this Psalm (most likely King David) is an exceptional human being. The human condition makes us imperfect, doubtful, and at times fragile. Especially when the going gets tough, it becomes very difficult to "give it your all." Much like with any goal setting, you have to know where you are right now and the destination (i.e., the goal). Not only that, you have to be aware of the obstacles in the way. There are times in which they can be overcome and times where they cannot. The ideal in Judaism is to be able to have דבקות. However, most of us cannot realistically obtain such a rapport with G-d. Does this mean we give up before even beginning? Absolutely not! Setting G-d before us always does not mean acting 100% perfectly 100% of the time. Such perfection is not human. What we are meant to do is love G-d with our heart, soul, and might (Deuteronomy 6:5). It would be fantastic to achieve perfection, but G-d didn't create us to pull it off, and G-d knows it. That's what makes G-d's mercy so wonderful. He understands and He forgives. So what does "setting G-d before us always" mean? Just be humble enough to realize you're only human and give it your best shot. G-d wouldn't want any less and couldn't expect any more than that.
Wednesday, May 16, 2012
Would the Return to the Drachma Be a Real Greek Tragedy?
Greece has been the center of attention when discussing the Euro crisis. A recently-constructed bailout package put the minds of Europeans at ease, but the recent elections in Greece have made financial markets worldwide feel uneasy. The first round of Greek elections resulted in a stalemate, which is why there will be a second round of elections in June. Leftist candidate Alexis Tsipras, the projected winner for the upcoming elections who will lead the anti-austerity Syriza bloc, is making waves and criticizing European leadership because the previously negotiated bailout conditions include austerity measures as part of the the European Central Bank's conditionality on loaning money to Greece. Tsipras does not want austerity to be a condition because he believes it will be the beginning of the end of the Eurozone, not to mention its wide unpopularity in Greece. There have been many speculations of Greece's exit from the Eurozone. Some would consider an exit to cause chaos in Greece, while others consider it the bitter medicine of returning to the drachma that Greece needs to take in order that its economy can have long-term sustainability. The question here is whether Greece should stick with the Eurozone or not.
For those who support Greece's exit, the issue comes down to fiscal discipline, something which the Greeks severely lack. As of 2011, Greek government debt was 165.3% of the GDP, a lot of which is attributable to cushy government jobs and having to finance insolvent benefit packages, most notably with their pension plans. [If you want to put the data in terms of euro, I provide the chart below created by the Mercatus Center, although if you want to look at the data for yourself, you can go to Eurostat and play around with the data.] Combine the high levels of expenditure with Greece's low levels of economic freedom and its high levels of tax evasion and corruption, and you have one huge fiscal mess in which spending cuts are inevitable.
Nations such as Greece should have never joined the Eurozone. The Eurozone unto itself is a non-optimal monetary union. The chart below, which is from a working paper from my professor on the Euro crisis, shows the interest rates from the bond market for the past twenty years. Before the creation of the monetary union, the interest rates are more disparate. Once the union was formed, the interest rates converged at the German interest rate because there was an implicit guarantee that the other nations would be covered. The European banking crisis shook that assertion, which is why the interest rates became spread out once more. Nations with such economic disparities do not make for a successful monetary union. What can you expect when you unite twenty-seven heterogeneous nations that have much less in common than initially perceived? An overvalued currency that causes prices within the Eurozone to be higher than what the Greeks can afford to charge.
As such, returning to the drachma has been offered as a possibility. It will cause an immediate devaluation of the currency, which in the short-term will unquestionably hurt the standard of living for the Greeks. However, the devaluation will cause the drachma be more competitive in the markets. The competitiveness will make Greek goods and services more attractive in the markets, which is supposed to provide medium-to-long-term growth.
The extent to which this move would succeed would be based on two factors. The first is its response to institutional reform. Exiting the Eurozone would lead to default, which would most probably mean no further assistance from the European Union or the IMF, especially since Greece's only form of financial stability was its European Monetary Union (EMU) status. Greece would either need help from other international financiers or rely on its own public policies to get itself out of its debt-deflationary spiral. If this fails, Greece would face the reality of becoming a closed economy, which could in worst-case scenario lead to becoming a failed state. The second issue is the extent of financial contagion. What happened in Thailand in 1996 spilled over to other countries and caused the East Asian crisis of 1997. Brazil, on the other hand, kept its 1998 financial crisis within its own borders. Sometimes, it's not what is actually going on, but the perception of what could happen, which erodes market confidence and breeds uncertainty. Whether financial contagion would occur in this situation is difficult to tell. If it does, it would be problematic since EMU bonds are important to international banking. Even if the Eurozone could prevent Greece's exit to affect the Euro's strength, it would still deliver a coup to its credibility.
In summation, it is very difficult to discern whether Greece can survive in the Eurozone or whether it should just exit. In either scenario, the Greek situation will unquestionably have to get much worse before it has any chance of getting better. Greece cannot stay competitive in the Eurozone, and it should be no surprise that the Germans do not want to reward the Greeks for profligacy when Germany is dealing with its own debt-to-GDP ratio of about 80%. Plus, a bailout only enables fiscal indiscipline, much like the coddling that led up to the Argentinian crisis of 2001. An exit out of the Eurozone is Greece's best chance of ever seeing any hope of recovery, but it is debatable whether they have the institutions and the willpower to do what it takes to ameliorate the situation in the long-run. Whatever the outcome, I'm just glad I don't have to make those decisions.
For those who support Greece's exit, the issue comes down to fiscal discipline, something which the Greeks severely lack. As of 2011, Greek government debt was 165.3% of the GDP, a lot of which is attributable to cushy government jobs and having to finance insolvent benefit packages, most notably with their pension plans. [If you want to put the data in terms of euro, I provide the chart below created by the Mercatus Center, although if you want to look at the data for yourself, you can go to Eurostat and play around with the data.] Combine the high levels of expenditure with Greece's low levels of economic freedom and its high levels of tax evasion and corruption, and you have one huge fiscal mess in which spending cuts are inevitable.
Nations such as Greece should have never joined the Eurozone. The Eurozone unto itself is a non-optimal monetary union. The chart below, which is from a working paper from my professor on the Euro crisis, shows the interest rates from the bond market for the past twenty years. Before the creation of the monetary union, the interest rates are more disparate. Once the union was formed, the interest rates converged at the German interest rate because there was an implicit guarantee that the other nations would be covered. The European banking crisis shook that assertion, which is why the interest rates became spread out once more. Nations with such economic disparities do not make for a successful monetary union. What can you expect when you unite twenty-seven heterogeneous nations that have much less in common than initially perceived? An overvalued currency that causes prices within the Eurozone to be higher than what the Greeks can afford to charge.
As such, returning to the drachma has been offered as a possibility. It will cause an immediate devaluation of the currency, which in the short-term will unquestionably hurt the standard of living for the Greeks. However, the devaluation will cause the drachma be more competitive in the markets. The competitiveness will make Greek goods and services more attractive in the markets, which is supposed to provide medium-to-long-term growth.
The extent to which this move would succeed would be based on two factors. The first is its response to institutional reform. Exiting the Eurozone would lead to default, which would most probably mean no further assistance from the European Union or the IMF, especially since Greece's only form of financial stability was its European Monetary Union (EMU) status. Greece would either need help from other international financiers or rely on its own public policies to get itself out of its debt-deflationary spiral. If this fails, Greece would face the reality of becoming a closed economy, which could in worst-case scenario lead to becoming a failed state. The second issue is the extent of financial contagion. What happened in Thailand in 1996 spilled over to other countries and caused the East Asian crisis of 1997. Brazil, on the other hand, kept its 1998 financial crisis within its own borders. Sometimes, it's not what is actually going on, but the perception of what could happen, which erodes market confidence and breeds uncertainty. Whether financial contagion would occur in this situation is difficult to tell. If it does, it would be problematic since EMU bonds are important to international banking. Even if the Eurozone could prevent Greece's exit to affect the Euro's strength, it would still deliver a coup to its credibility.
In summation, it is very difficult to discern whether Greece can survive in the Eurozone or whether it should just exit. In either scenario, the Greek situation will unquestionably have to get much worse before it has any chance of getting better. Greece cannot stay competitive in the Eurozone, and it should be no surprise that the Germans do not want to reward the Greeks for profligacy when Germany is dealing with its own debt-to-GDP ratio of about 80%. Plus, a bailout only enables fiscal indiscipline, much like the coddling that led up to the Argentinian crisis of 2001. An exit out of the Eurozone is Greece's best chance of ever seeing any hope of recovery, but it is debatable whether they have the institutions and the willpower to do what it takes to ameliorate the situation in the long-run. Whatever the outcome, I'm just glad I don't have to make those decisions.
Friday, May 4, 2012
Parsha Kedoshim: The Spiritual Goal of Furthering Equality
The Declaration of Independence states that "all men are created equal" and that they are endowed with the right to "life, liberty, and pursuit of happiness." In the First Article of the UN Declaration of Human Rights, the underlying premise that "all humans are born free and equal in dignity and rights" is laid out. Much since the Enlightenment, equality has developed into a much-valued ideal within modern society. However, the debate of what constitutes equality can be, interestingly enough, exemplified in taxation. A regressive tax would mean that everyone pays the same dollar amount, which causes debate because not everyone could afford the same. A flat tax means that everyone pays the same percentage, which means equal proportionality. However, those who criticize the flat tax because the rich can afford to pay more would prefer a progressive form of taxation. Another facet of equality can be viewed in terms of equality of opportunity (i.e., a meritocracy), equality of outcome (i.e., socialism and Communism), or a mix of something in between.
You must be wondering at this point what all of this political theory of equality has to do with this week's Torah portion. In Leviticus 19, which starts off Parsha Kedoshim, we come across a declaration that "you [the Israelites] shall be holy, for I, Hashem, am holy," followed by a list of commandments that is considered by many to be the crux of what is considered Jewish holiness. As Dr. Steven Kepnes points out, holiness is our spirituality. Chatam Sofer states that Leviticus 19 shows how we are involved within community, and he uses the text proof of Leviticus 19:1 that because G-d was speaking not just to Moses, but to the entire community at the time, the level of holiness can be attained by all members of Israel. Rabbi Israel Salanter, the founder of the modern-day Mussar movement, on the other hand, brings a polemic that holiness is not meant to be found in heaven, but spirituality and holiness is to be found right here on earth that is oriented between relations with other human beings.
That still doesn't answer the question of what holiness has to do with equality, so where's the connection?
We live in a world of inequalities, whether those inequalities have to do with socio-economic class, gender, race, sexual orientation, height or weight differentials, intelligence, the list goes on. In Jewish life, there are even certain inequalities, including those between rabbi and congregation, the twelve tribes of Israel (i.e., Kohanim and Levi'im versus everyone else), between the Jew and non-Jew, and between parent and child. For the former three, the differences are in terms of differences of responsibility (e.g., the Jew is not superior to the non-Jew, but rather that the Jew is different because that Jew has additional responsibilities that the non-Jew does not have), whereas the latter is a true difference in how the child treats their parent, although we have to remember that every parent has to follow the same laws because they are also someone's child. Whether in religious or secular life, we have to contend with the reality that people are different from one another. When the Declaration said that "all men are created equal," it meant that each individual is created "in His Image,"and as the UN Declaration states, "we are created with equality in dignity." Let's take a look to see what that means in context of Leviticus 19 in as chronological of an order as possible, especially in light of what the Chatam Sofer and Israel Salanter have to say about Leviticus 19:
You must be wondering at this point what all of this political theory of equality has to do with this week's Torah portion. In Leviticus 19, which starts off Parsha Kedoshim, we come across a declaration that "you [the Israelites] shall be holy, for I, Hashem, am holy," followed by a list of commandments that is considered by many to be the crux of what is considered Jewish holiness. As Dr. Steven Kepnes points out, holiness is our spirituality. Chatam Sofer states that Leviticus 19 shows how we are involved within community, and he uses the text proof of Leviticus 19:1 that because G-d was speaking not just to Moses, but to the entire community at the time, the level of holiness can be attained by all members of Israel. Rabbi Israel Salanter, the founder of the modern-day Mussar movement, on the other hand, brings a polemic that holiness is not meant to be found in heaven, but spirituality and holiness is to be found right here on earth that is oriented between relations with other human beings.
That still doesn't answer the question of what holiness has to do with equality, so where's the connection?
We live in a world of inequalities, whether those inequalities have to do with socio-economic class, gender, race, sexual orientation, height or weight differentials, intelligence, the list goes on. In Jewish life, there are even certain inequalities, including those between rabbi and congregation, the twelve tribes of Israel (i.e., Kohanim and Levi'im versus everyone else), between the Jew and non-Jew, and between parent and child. For the former three, the differences are in terms of differences of responsibility (e.g., the Jew is not superior to the non-Jew, but rather that the Jew is different because that Jew has additional responsibilities that the non-Jew does not have), whereas the latter is a true difference in how the child treats their parent, although we have to remember that every parent has to follow the same laws because they are also someone's child. Whether in religious or secular life, we have to contend with the reality that people are different from one another. When the Declaration said that "all men are created equal," it meant that each individual is created "in His Image,"and as the UN Declaration states, "we are created with equality in dignity." Let's take a look to see what that means in context of Leviticus 19 in as chronological of an order as possible, especially in light of what the Chatam Sofer and Israel Salanter have to say about Leviticus 19:
- Leviticus 19:2 talks about revering one's mother and father. To re-iterate, although a hierarchy is established between parent and child, all children, including those who are parents themselves, still have to show reverence to their parents.
- Leviticus 19:9 says that when you reap the harvest of your land, you shall leave the edges of your field to the poor. In the Levitical context [of an agricultural society], poor people did not even have a field in which they can grow food. In modern-day terms, this would apply to those who are exceptionally poor (e..g, those who are homeless). Judaism teaches us that property rights are not 100% absolute, and that part of what we earn goes to help out the poor.
- Leviticus 19:11, on the other hand, reminds us not to steal because property rights are nevertheless a relatively solid concept in Judaism. Although Judaism doesn't advocate absolute materialism, it does tie property rights to the dignity of man, and taking from the individual defames the individual's G-dliness.
- Leviticus 19:13 first states that you cannot cheat your fellow man, which goes along a similar vain with Leviticus 19:35 that says you shall use correct scales, measurements, and weights. The idea here is to eliminate information asymmetry.
- Leviticus 19:13 continues with the idea that a worker's wage shall not remain with you [the employer] overnight until morning. Why? 1) The employer typically has the advantage over the employee. 2) The livelihood of the employee is dependent on that paycheck. This law is to eliminate any potential abuses by employers.
- Leviticus 19:14, you shall not curse the deaf or place a stumbling block before the blind. Although these individuals have lost one of their five senses, we should not actively make the inequality worse, but rather help them in providing more equal opportunity to successfully function in society.
- Leviticus 19:15 states that you will not commit a perversion in justice by favoring the poor (argumentum ad lazarum) lazy or honoring the rich (argumentum ad crumenam). The purpose is that justice be just, not corrupted by biases. In short, we are meant to be treated equal under the law.
- Leviticus 19:18, a passage that is loved by many, tells us to "love your neighbor as yourself," as well as Leviticus 19:33, which states that we shall "love the stranger as you love yourself." The reason why these verses are vital is because they are the crux of human relations, and once again goes to show that regardless of interpretation, we are commanded to love Jews as well as non-Jews.
Although there are more verses that can be elucidated, I want to end with the following. The world has inequalities, but we are here to mend those inequalities with our fellow human beings as much as possible. To pursue equality and help others is holiness.
שבת שלום!
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