Saturday, June 30, 2012

The Obamacare Ruling & Why the Fight for Health Care Reform Is Far From Over

The much awaited Supreme Court ruling on the Affordable Care Act (ACA), also known as Obamacare, was released on Thursday (see here). Like most Supreme Court votes, it was 5-4, but not in the direction I was hoping because the law was upheld. What made it aggravating is that Justice Kennedy was on board to have the whole thing repealed; it was Justice Roberts who sided with the liberal judges. Not only was Roberts' vote unexpected, but so was the reason for upholding it. The Court ruled that it violated the Commerce Clause, as well as the Necessary and Proper Clause. The fact that one cannot be coerced to buy something or that government cannot regulate inactivity seemed like a victory for limited government and federalism. However, it's a hollow victory because the ACA was upheld as a tax.

The fact that it was upheld as a tax irks me for three reasons. The first has to do with the Anti-Injunction Act (AIA), which states that one cannot sue over a tax before it has been enacted. Whether the ACA were covered under the AIA was the topic of the first day of the proceedings. If Obamacare were a tax, then the subsequent proceedings would have been postponed until 2014. However, for purposes of the AIA, Obamacare was not considered a tax. When Roberts wrote the majority opinion, Obamacare somehow became a tax. I guess that means that Obamacare is not a tax, except when it is a tax.

My second issue is with the constitutionality of taxation. Under the Constitution, any taxation performed by Congress has to be enumerated. Article 1, Section 9, Clause 4 of the Constitution states that direct taxes, which are assessed on persons or their property, need to be apportioned. The Spending Clause (Article 1, Section 8, Clause 1) applies to indirect taxation. You also have to contend with the General Welfare and Uniformity clauses, neither of which can be ascribed to the ACA. Finally, there is the income tax under the Sixteenth Amendment. The individual mandate is triggered by a non-purchase of insurance. As such, it doesn't qualify under any of these enumerated taxes, which means that there is no constitutional basis to define the individual mandate a tax. There is a difference between a mandate and a tax, and the fact that Roberts used cryptic language to inaccurately label it as a tax is egregious.

Third, one of Obama's major selling points was the ACA was not a tax (see video below). Why? If it were, it would have been way too unpopular and would have never passed Congress. The Supreme Court actually did the dirty work of the bait-and-switch, and thus had a hand in enacting one of the largest tax hikes in American history.


This bill did a bang-up job eroding individual liberties. For the first time in this country's legal history, the Supreme Court has found a way to regulate inactivity and coerce economic activity. Congress' taxation powers have been greatly expanded because all Congress has to do is pass a "mandate," send it to the Supreme Court, and have it ruled as a tax. The Supreme Court sent the message that labels do not matter, and that the government de facto has no limits. It was a sad day for economic freedom, and trust me when I say that the ruling infuriated me. After some time, I "breathed and counted to ten" and subsequently realized that there are reasons to feel that all is not lost.

1) It doesn't seem like a huge victory to have Obamacare pass as a tax, as opposed to being acceptable under the Commerce Clause. It might not seem like a major difference to simply pay a non-coercive tax versus having to deal with jail time or other punishments that could have come with a mandate. However, when Congress tries to enact new social initiative programs in the future, they will have to be considered a tax. Even if Congress decides to ignore this established judicial precedent, any future program that remotely has any provisions related to any taxing authority (e.g., IRS) will undergo as much scrutiny as a regular tax does, which is great because it's politically more difficult to pass a tax than a regulation.

2) There is real potential to take the momentum and use it to fight for liberty. And I'm not even talking about the presidential election, although the ruling will make it easier for Romney to win the election because Obama promised that he wouldn't raise taxes on the middle class. The ruling drew a clear line as to what the Commerce Clause does. The ruling brought back the importance of federalism. This could very well revive the momentum of the Tea Party or have the GOP do some soul-searching on what it actually means to be a party of less taxes and limited government. In short, this can become a cause célèbre for libertarians and fiscal conservatives, and can thus bring the scope of government power as a central political issue.

3) Repealing the ACA just got easier. There are currently 53 Democrats, 47 Republicans, and 2 Independents in the Senate. This Senate election is important because you only have 10 Republicans up for re-election, whereas 23 Democrats and both of the seats for the Independents are up for grabs. Normally, the Republicans would need 60 votes to get past the filibuster, and gaining 13 seats seems unlikely. However, since the Supreme Court ruled the ACA as a tax, it can be repealed through a reconciliation bill, which only requires a simple majority. The House is likely to keep their majority. The catch is with who is sitting in the Oval Office in 2013. If Obama is still in office and the reconciliation bill managed to get passed, there is no way he would sign off on repealing his presidency-defining "achievement." It would get vetoed and a two-thirds majority would be required from both the Senate and the House, which would most likely not take place. If Romney gets elected, he said he would repeal it.

4) While many conservatives and libertarians were bemoaning the upholding of the individual mandate, as they rightfully should, not much attention was brought on the Supreme Court's ruling on Medicaid. Obamacare had mandated that if states did not greatly expand their Medicaid programs to include 133% of the federal poverty level, the federal government would cut off all federal Medicaid funding [that was previously promised]. According to the Left-leaning think tank Center of Budget and Policy Priorities (CBPP), 13% of state budgets on average are allocated to Medicaid, so we're talking a sizable budgetary amount. In a 7-2 ruling, the Supreme Court ruled that such a mandate was highly coercive, and that states had the option of opting out of the Medicaid expansion. Since this Medicaid expansion is one of the two major components (the other one being the health insurance exchanges) of this bill, states that don't want to expand their Medicaid programs can refuse funding, which would reduce Obamacare's potency and could very well make it even more ineffective.

Under the ACA, states can also refuse to create health insurance exchanges, which act as the conduit of the individual mandate. As Cato Institute scholar Michael Cannon explains in the video below, if states reject Medicaid expansion in addition to not setting up health insurance exchanges, the bill becomes so watered down that it practically acts as a repeal. Considering that 26 states filed the lawsuit against the federal government, largely due to the Medicaid expansion, it is not unreasonable to surmise that some, if not all, of those states would use these firewalls to impede Obamacare.


The Supreme Court ruling was anything but the "final say." There are many factors into getting this monstrosity partially or entirely repealed. Time will tell as to what its fate will be. Regardless, this bill only raises costs while doing nothing to address health care quality or the doctor shortage. Obamacare is nothing more than a sorry excuse of a policy based on broken promises. From the recently published CBO report, we know that the ACA is going to cost us way more (see Table 4) than the initial $900 billion Obama promised, and we know that although Obama promised that everyone would keep insured, there is actually a net loss of people insured (p. 4). Obama also promised that this bill would decrease insurance premiums by $2,500 per annum upon its enactment. A study done by the Kaiser Family Foundation found that in 2011, the first year of Obamacare, insurance premiums actually increased by 9%, which is higher than the average increase that has occurred within the past decade. Kaiser stated that Obamacare accounted for an increase of 1-2 percentage points, but isn't an increase the opposite of a decrease, which just means Obama lied again? And don't forget the whole thing about the ACA not being a tax. America doesn't need to deal with this. America needs real health care reform, and I hope that someone drafts and enacts it sooner rather than later.

Sunday, June 24, 2012

California's Genetically Modified Food Folly

Whether it was San Francisco's attempt to ban circumcision or the state trying to hike up the cigarette tax, California is one to propose some peculiar policies. And it looks like California is at it again. This November, Californians will vote on the California Right to Know Genetically Engineered Food Act. Essentially, the initiative would require require the mandatory labeling of genetically modified foods. The proponents have a nice-sounding pitch: "We have a right to know what's in our food. The consumer should be well-informed. Most developed countries implement it. Most Americans want it implemented. The answer is simple. Vote yes." The argumentum ad metum of "Frankenfoods" coupled with an argumentum ad odium launched against the "evil corporations" makes it all the easier to sell the pitch. As sardonic as it might seem, it is that type of an approach that can play to people's emotions and help the initiative succeed. It seems like a no-brainer vote, but in reality, it is not. Not only is it not "that simple," this initiative is just another example of how good intentions translate into poor policy.

Much of the drive for passing this initiative is based on the need to warn the consumer of the risks of genetically modified foods. According to a Zogby poll, people are divided as to the safety of genetically modified foods. The safety of a certain product cannot be determined by perception, but rather by running studies. So what do studies have to say on the matter? According to the European Commission Directorate-General for Research and Innovation Report, "The main conclusion to be drawn from the efforts of more than 130 research projects, covering a period of more than 25 years of research, and involving more than 500 independent research grounds, is that biotechnology, and in particular GMOs, are not per se more risky than e.g. conventional plant breeding technologies (p. 16)." The National Academies of Sciences published a study that concluded that genetically modified foods possess no unique health risks. The World Health Organization also came to the same conclusion (p. 24), as did the Royal Society of Medicine. The American Medical Association recently came out and said that labeling genetically modified foods is unnecessary. Only last month, the New York Times agreed, and even pointed out that the genetic modifications do not materially change the food. It's not only a matter of not having additional health risks. As illustrated by Freakonomics, genetically modified crops could "end hunger and malnutrition [due do increased yield], lift hundreds of millions out of poverty, and reduce the environmental impact of an evermore populous world." 

Since genetically modified food do not pose any additional or unique threats, I could call it a day and say "case closed." However, I have other issues with this bill.

I worry about the difficulty of actually implementing this if it were to become law. Most people are unaware the extent to which food in this country is genetically modified. Since a large majority of food has ingredients that have been genetically modified in some way, the label itself becomes superfluous. What do you do if you have a dish with multiple ingredients (e.g., pizza), only one of the ingredients is genetically modified, but the rest of the food item is not? Looking at §110808(c), §110809.1, and §110809.2(e) of the initiative, it takes an all-or-nothing approach in 2019, while having a still-stringent 0.5% tolerance level in the interim.

This is not as simple as put a "Not GMO" label and be done with it. When it comes to multiple-ingredient food items, it would take too much of the producer's resources to ensure that it's free of genetically modified ingredients. Not only that, the government would then have to create a new bureaucratic division to regulate the food to make sure the labeling was correct. Can you imagine a bureaucracy trying to micromanage food production on this level? Just what California needs when its government is dealing with fiscal issues: more bureaucracy.

Furthermore, this is an attempt to distort consumer consumption. A label on genetically modified foods is nothing short of the government making an unsubstantiated moralistic statement. If an individual wants to eat genetically modified food, they should be able to do so without hassle. If an individual is [vehemently] opposed to eating genetically modified food, they can simply buy organic products, which by definition are 100% free of genetic modification. If the polling is correct in asserting that most Americans want to know, why not just go with the certainty of buying organic? If more consumers demand organic food, producers will have to meet that demand by increasing supply. As organic food becomes more commonplace, prices will drop to the point of being the cheaper alternative. At that point, genetically modified food producers either have to compete with the increased demand or they will have to exit the market. Making organic food the norm can be accomplished without government intervention.

This labeling is a misguided form of feel-good policy. If it were just a matter of putting a label on a box and it didn't accrue any costs, then it might not be so bad. However, as the opposition points out, this would harm both consumers and producers.

First, the consumer. This label would not do anything to protect the health of the consumer since there are no unique risks. The labeling scheme has realistic potential to undermine the credibility of the labeling system. The bill has so many exemptions (See §11809.2) and ambiguities that it will send a mixed message, at which point the customer will come to disregard the label. The disregard can subsequently have a spillover effect to other legitimate labels, which can be an actual risk. Due to the arbitrary nature of the bill with its exemptions, consumers would have to find information elsewhere to determine its status. It'd be a mistake to think that labeling comes without a cost to the consumer. When it comes to kosher, halal, or organic foods, part of why that food is more expensive is because of the labeling process (see US Department of Agriculture site). If production costs increase, the supply side contracts, which means higher prices. Finally, the consumer is not going to be empowered or assured by this choice. Given the unfounded stigma, they're going to be anxious that so much of their food is labeled as "genetically engineered." It would be unfortunate to tamper with California's food market like that, especially since there is no actual threat.    

The producer also gets hit with costs. As previously stated, it's not just a sticker on a box. It comes with additional costs. The producer has the issue of limited space available on their packaging. The producer has to divert space, which put them at a disadvantage to other producers. There is also the matter of record-keeping. Although the consumer would see increases in food and the government would have to pay for administrative costs, the producer bears the most cost of labeling. If you are a grocer and sell thousands of products, how can you realistically comply by keeping track of everything? Without a meticulous paper trail, you'd be open to a lawsuit. The proponents of the initiative tell you not to worry about the "lawsuit boogeyman" because "it doesn't make sense." They must not have read the report by the Legislative Analyst's Office, which expressed increased litigation as a potential cost since the initiative allows for private individuals to sue for violations. Since §110809.4 states that one only needs to allege that a producer violated the law (i.e., no actual evidence is required), it's open season for litigation: a private plaintiff lawyer's dream come true.

In summation, the initiative is based on the faulty assumption that genetically modified food is bad for you, when the overwhelming majority of peer-reviewed studies state the contrary. If this bill passes, California's tax burden will be increased, its food market will be in disarray, consumers will pay more than they bargained for, and producers will be hit the hardest of all. If you live in California, I hope this has provided some food for thought as you head to the voting booth in November. Even if you're not, I hope this was another good lesson in the law of unintended consequences.


10-18-2015 Addendum: This article illustrates the anti-science inanity labeling GMO products.
2-21-2016 Addendum: This article from Reason not only presents a moral argument, but highlights the advantages of GMOs, including greater yield, less pesticides, and how biotech crops save lives.
7-1-2016 Addendum: Over 100 Nobel Laureates just signed a letter to ask Greenpeace to knock it off with its anti-GMO advocacy because being anti-GMO is anti-science, and it it very well could be harming developing countries. How much more proof do we need that being anti-GMO is just folly?

Saturday, June 16, 2012

Why Follow Sweden's Pro-Market Trends

When you hear the country of Sweden mentioned, it's not only things such as IKEA, the Nobel Prize, the group ABBA, or Swedish meatballs. It's one of the Nordic countries, so therefore, it must be one of those "hard Left-leaning, socialist, welfare states with high levels of taxation," a reputation that was developed in the 1970s when Sweden embraced spending larger amounts of government expenditures to provide social goods and benefits to its citizenry.  

When analyzing nations, we have to realize that nations are run by human beings, who are more than prone to imperfection. As such, a degree of leniency has to be granted for that reason. On the other hand, we have standards, so when nations make bad policy decisions (e.g., United States, Israel), we should criticize them fairly and objectively. Sweden doesn't get a free pass on policy criticism. For instance, I can criticize the fact Sweden's government expenditures as a percent of GDP are the highest amongst OECD countries, its top marginal tax rate is at a distressing OECD-high of 56% (OECD, Table I.7), and how nearly half of its GDP is derived from tax revenue (Tax Statistical Yearbook of Sweden, p. 8; OECD, Table A), which is high compared to other developed nations (but to make a counter-point, it is lower than in previous years). Even though I could continue with this line of criticism, what caught my eye was that a "socialist welfare state" could merit a ranking of #21 in the economic freedom ranking from the unabashedly conservative think-tank Heritage Foundation. It turns out that Sweden has been heading in a pro-market direction since its recession in the early 1990s.

According to OECD data, Sweden's corporate tax rate is 26.3% (Table II.1). Although this rate is slightly above the mean of 23.6% and the median of 24.5%, one has to keep in mind that just before its economy collapsed in the early 1990s, Sweden's corporate tax rate in the late 1980s was at 52%! Seeing a drop in the corporate tax rate is progress. It's not just the corporate tax that has seen improvement. In 2007, Sweden repealed its wealth tax, a tax that most countries have abolished. It's nice not to implement a tax that harms economic growth and yields low returns. Sweden also got rid of the inheritance and gift taxes at the end of 2004 (Tax Statistical Yearbook of Sweden, p. 15), which is a great stride towards progress.

Sweden's Financial Minister Andrew Borg was named the best financial minister by the Financial Times for his "fiscal prudence." Why? Sweden has shown enough financial restraint where it ran a surplus last year, amidst a recession. Minus the temporary spike of government spending in 2009, Sweden has managed to decrease its government expenditures as a percent of GDP (Eurostat) and its debt as a percentage of GDP (OECD), but managed to pull off higher GDP growth without having to resort to comparable tax hikes.

The education system in Sweden has also been liberalized. Back in 1992, Sweden implemented a school voucher program. I have some reservations about school choice, but on the whole, anything to loosen the government's monopolistic grasp on education is certainly better than the status quo. As former Swedish Minister of Education Per Unckel stated, "Education is so important that you cannot leave it to just one producer because we know from all monopolies that the monopoly system does not fulfill all wishes." How have the vouchers been doing since 1992? As a recent study from London's Institute for Economic Affairs shows, the private schools are outperforming the public school. The better-performing schools excel, and the inferior schools are crowded out of the education system. The joys of profit motive! One also has to appreciate that Sweden had privatized its Social Security in 1998, or at least reformed it where it was semi-privatized. It's not perfect, but at least it's better than the compulsive, "one size fits all" Social Security program we have here in the United States.

The "Nordic system" is ultimately a poor choice. Why else would Sweden's overall policy direction for the past 20 years be an abandonment of it? Sweden was successful before the "Swedish model" became famous, some of it having to do with cultural and demographical factors (e.g., entrepreneurial spirit) but a lot of it having to do with a respect for capitalism. The embrace of the welfare state eroded Sweden's success. Fortunately, Sweden has slowly, but surely been abandoning it for better conditions. This is hardly to say that Sweden would be considered a libertarian haven. Far from it! Sweden still has room for improvement, particularly on the overall size of its government. However, countries such as Greece or even the United States can take lessons from Sweden, and learn to use more market-oriented policies to mitigate the current economic situation.

Monday, June 11, 2012

Why the Reality of Developing Countries Provides Justification for Sweatshops

When you hear the word "sweatshop," what comes to mind? Long hours, low wages, worker abuses, exploitative multinational corporations, and a dirty, crowded, & dangerous work environment. By merely labeling the factories as "sweatshops," the stigma has already been attached, which makes it easy to fight against sweatshops. Any refutation of such conditions would be perceived as "defending the indefensible." However, a video at LearnLiberty.org helped begin the process of me questioning my instinctively emotional response to sweatshops.

Considering the History of Economic Development
Would I want to work in a sweatshop? Of course not! I live in a developed country where my human capital is at such a place where working in a sweatshop would never cross my mind as a viable option. My situation is much different than that of a typical citizen of a developing country. Not to be tautological, but these developing countries are, well, developing.

Prior to the Industrial Revolution, all countries were predominantly agricultural. Poverty was commonplace and development in any sense was rare. Then along came the Industrial Revolution, which brought about a shift towards manufacturing. Sweatshops were a part of the process. As time passed on, sweatshops began to disappear because there was enough economic progress, technological advancement, and institutional development to do away with them. Even after the manufacturing sector became predominant, Western nations developed the service sector, and now that that sector has been well-established, Western nations are considered as developed nations.

It would be great if developing nations could simply bypass the less-than-desirable intermediate steps to becoming developed nations. However, without such things as rule of law, minimized levels of corruption, enforceability of contracts, and other necessary governmental and economic institutions, such a leap is not possible.  

Compared to What?
It should go without saying that working in such conditions is anything but ideal. As deplorable as these conditions are by Westerners, we have to realize how different life is for so many around the world. As long as a worker in the developing countries is voluntarily opting to work somewhere [and not being physically coerced into it], the worker will most likely choose the best-paying job, even with the "coercion of poverty." Rather than ask "How could this happen?", we need to ask ourselves "What are their alternatives?"

$30 a week might not seem much to those in the Western world. Even if paying those wages is either seemingly or actually unfair, the reality is that most sweatshops actually pay well above the average standard of living (Journal of Labor Research, Spring 2006). And what happens when you take away that option? I can tell they are not being replaced with high-paying jobs. A UNICEF study published in 1997 provides insight. In the early 1990s, Bangladesh passed laws that made child labor illegal in the garment industry. Rather than living "the good life," the children found work such as "stone-crushing, street hustling, and prostitution--all of them more hazardous and exploitative than garment production (p. 60)." The alternatives (e.g., waste management, subsistence farming, crime, prostitution) for those who work in sweatshops are considerably worse. Just ask revered, Left-leaning economist Paul Krugman.

Other Economic Factors
One of the things that these multinational companies bring with them is foreign direct investment (FDI). By opening companies, they bring capital and technology with them. That assists with development of the country. Success with these companies attracts additional companies, which begets more jobs, as well as further investments in the given country. The marginal productivity of labor increases over time, which increases wages. It's what makes comparative advantage and division of labor so wonderful in this situation.   

In summation, sweatshops are a symptom of poverty and poor governance, not the cause of it. Poverty has existed well before the existence of such companies. As morally egregious as conditions can be in sweatshops, sweatshops are by far the most optimal option for many laborers in developing countries. The development of these factories are a stepping stone in bringing about economic development. This is not to say that we shouldn't expect higher standards from multinational companies. We need to demand them when it's feasible. But rather than boycotting companies that use sweatshops, we should buy more products so that we can speed up economic development in these countries.


10-23-2016 Addendum: A recent study from the National Bureau of Economic Research sheds some light on sweatshops in Ethiopia. Yes, the study found that the working conditions were unpleasant, risky, and the wages were less than those in the informal economy. However, the research concludes that having these sweatshop jobs are better than not having them at all.

Sunday, June 10, 2012

Do More Guns Increase the Homicide Rate? A Look at Worldwide Data

Gun violence has been a hot-button topic in American society for many years. You cannot turn on the news or read a newspaper without hearing about the rise of gun violence, although you shouldn't tell the fear-mongering media that the murder rate is at a thirty-year low. Gun control advocates, such as those at the Brady Campaign to Prevent Gun Violence, want you to think that it's too easy to get guns in this country and "where there are more guns, there are more deaths." A friend of mine recently tried to persuade me that the United States has a significantly higher homicide rate because guns are more prevalent here, whereas Japan's low homicide rate is caused by its strict gun control laws. I can easily counter that Switzerland is an example of where gun ownership is amongst the highest in the world, but where its crime rates are nevertheless really, really low. As such, I began to speculate as to whether more guns lead to more gun violence, particularly from an international standpoint.

I typically become suspicious when people say that "X is the cause of Y." Although there are occasions in which such a scenario occurs, most scenarios make us realize that we live in a multivariate world, which means that there are multiple factors that cause something to occur. However, let's take the Brady Campaign's claims seriously for a moment and see if some sort of correlation can be translated into a causation. How would we go about proving that higher gun ownership leads to higher gun violence, or at least correlation exists between the two? Two data sets would be required: homicide rate and firearm ownership rate. The reason to go with rates, as opposed to the firearm and homicide counts, is because with rates, we can measure the frequency of both occurrences [per 100,000 citizens], which is necessary to account for population differentials. Clearly, the most recent and most thorough data is optimal for such analysis. The UN Office on Drugs and Crime (UNODC) put out its 2011 homicide report, and has data dating back to 1995. However, I was unable to find firearm ownership data that recent. The Small Arms Survey, which is a Swiss-based independent research project focused on small arms, collected data from the year 2007. In terms of country coverage, the Small Arms Survey included more nations than the UNODC. My data collection includes countries that were in both data sets, which included 91 countries (N=91). It would have been nice to have included all nations, but 91 is still a large enough sample size to obtain the sought-after results. I compiled the data and ran a linear regression. The information is below:




What were the results? To determine correlation, one looks at R-squared, which is the coefficient of determination that measures correlation. R-squared is measured from 0 to 1. An R-squared of 0 signifies no correlation whatsoever, where as an R-squared of 1 means a perfect correlation. Upon looking at this data, R-squared is 0.0266. Such a low coefficient can only mean that the correlation is so low that the relation between increased firearm ownership rates and increased homicide rates is virtually non-existent.

To put it into plain English, having more guns around doesn't cause more gun-related homicides. Looks like the NRA was correct when they came up with the slogan "Guns don't kill people; people kill people." 

Wednesday, June 6, 2012

The Scare Over Peak Oil, Obsessing Over "Insane" Oil Profits, and Four Other Gas Myths Worth Debunking

I recently watched the Stossel show in which he discussed myths pertaining to oil and gasoline. Being libertarian, my views more or less line up with those of Stossel. However, I wanted to see if the data lined up with what he presented on his show.

1) Energy independence is good policy. Why not advocate independence of corn or television sets? The response would be that oil is necessary for national security. As compelling as that might seem, we don't live in an isolationist world. Even if we got all our oil from ANWR (See Myth #6), it wouldn't help with keeping the oil prices down because the oil market is an integrated, global market. Crude oil in Saudi Arabia is going to have comparable costs to American crude oil. Energy independence does not protect us from supply disruptions abroad.

2) Oil companies make huge profits, and that's bad. Let's set aside my philosophical qualms about chiding profit-making for a moment. We see how such oil companies as Exxon Mobil, Chevron, and ConocoPhillips top the list of profit-making. However, some companies are larger than others, which means the size of the profit relative to the size of the company is more useful than simply looking at the profit. Let's analyze to return on revenues for a moment. Although looking at individual companies is somewhat interesting, the most recent data on return on revenues by industry is more telling. Out of the industries that make the most return on revenues, the oil industry ranks ninth. You don't hear Americans clamor against the securities industry or Internet services, both of which rank higher than Big Oil.

3) Our oil is coming from Middle East dictators. America's foreign policy is disproportionately focused on the Middle East. This brings about the conception that we are heavily dependent on Middle Eastern oil. Interesting how that's not the case. First of all, 55% of our oil comes from the United States. A third of imports comes from Mexico and Canada (see composition of import data here).

4) We're running out of oil, and it's a big problem. There is the debate as to whether we have reached peak oil, which dates back to the 1970s. I don't want to get into whether we have reached that peak or the extent to which advanced technology has tapped into previously unreachable sources of petroleum, particularly because that would require a separate blog entry. The point I would like to make is that it doesn't matter if we have reached peak oil or not. Why? The reasoning goes back to supply and demand. If there is a continual contraction of petroleum (i.e., supply decreases, supply curve shifts to the left), the prices will rise. Since petroleum is a normal good, the market, and more specifically, consumers, will react. There will be a greater push for alternative energy. Consumers will either buy less gas or buy more efficient vehicles, such as hybrids. Prices will gradually increase to the point where petroleum will become a niche market, by which time consumers will have found alternative modes of transportation that make good economic sense.

5) Oil speculators screw over the little guy. Especially because JP Morgan recently lost $2B in speculation, people have a problem with big companies "running amok." Speculation is actually a good thing because it keeps the markets from becoming volatile (see my blog entry from last year on the topic here).

6) Drilling in the Arctic National Wildlife Refuge (ANWR) will solve all of our problems. ANWR would create jobs and bring in revenue while using eight percent of the land, which would minimize the environmental impact. As nice as this all is, this creates two unrealistic expectations. The first is that of energy independence, which I already discussed in the first myth. The second is drilling in ANWR will bring down the price of gas. The government projects that ANWR would have a production peak of 780,000 barrels per day in its mean oil resource case. Looking at world impact, the current global supply of oil is at 87 million barrels per day. Since the oil market is a global one, the impact that ANWR oil would have on the price of oil would be negligible.

Concluding Thoughts: It's nice to bust myths about oil production because it provides a more productive forum to discuss energy policy. Whether it is a matter of running out of oil or figuring out whether we should tap into previously unreachable sources of oil, oil will not solve our problems forever. Having a diverse energy portfolio is a good idea. However, until we reach a point in which we legitimately have to worry about supply contractions, the economically wise thing to do is to make best of what we can procure while simultaneously investing in alternative energy.

Friday, June 1, 2012

Parsha Naso: The Mitzvah of Smiling

Having G-d command us to do things like don't steal, give tzedakah, or love your neighbor are standard mitzvahs that make a good amount of sense to us. But smiling? Who ever talks about a need to "put on a smiling face?" And what does this have to do with this week's Torah portion? A look at the Priestly Blessing (Numbers 6:24-26) can give us some insight:


יברכך יהוה וישמרך
יאר יהוה פניו אליך ויחנך
ישא יהוה פניו אליך וישם לך שלום

"May G-d bless you and watch over you. May He raise His countenance to shine over you and favor you. May He raise His countenance over you and grant you peace."

The latter two thirds of this blessing deal with His countenance and how "G-d makes His face shine upon you." Since imitatio Dei is such an important part of being a good Jew, what practical application does this concept have for us? Let's take a look at Pirke Avot:

Rabbi Shammai (Pirke Avot 1:15) tells us to greet every individual with a smile. Especially since Shammai was portrayed as stern, temperamental, and short of patience, why would he, of all rabbis, have given such an imperative? 

For one, first impressions matter. If you have a scowl on your face when you meet someone, there is a good chance that it will be your last interaction. It's not simply a matter of the initial contact. It helps in keeping a relationship going, as is implied by Proverbs 15:1 when it says "a gentle reply turns away wrath, but a galling word excites anger." We are not only supposed to avoid arousing anger in others (Rabbeinu Yonah), but making sure that we ourselves do not get angry because anger is considered an evil trait (Bertinoro). 

What happens if we don't feel like smiling? Although it would be great if we could be happy all the time, the fact is that we don't always do things in life because we want to do them. Sometimes, we are obligated to do so. Forcing ourselves to smile acts as an externality. Some might criticize this as acting phony. However, in Judaism, external actions are supposed to transform us internally (e.g., giving tzedakah is supposed to make us more voluntarily generous over time). Even when you are feeling glum, "faking it" helps keep your spirits up more so than wallowing in self-pity. 

Whether you are having a good day or not, keeping a smile on your face affects the mood of those around you. Think about it conceptually: are you happier when you are around happy people or sad people? Happiness is contagious, and using that externality makes a difference. Both the Torah and Rabbi Shammai provide us with a necessary tool for successful human interactions. Let's use it to live happier and more fulfilling lives!

שבת שלום!