Friday, July 27, 2012

The Aurora Shooting and the Unjustifiable Hysteria Behind the Call for More Gun Control

One week ago from today, a very unfortunate tragedy occurred. A psychopathic man who was under the delusion that he was "The Joker" went into a movie theater in Aurora, Colorado. He threw two hissing gas canisters into the crowd and proceeded to shoot innocent civilians with a rifle. There ended up being 58 wounded and 12 murdered people. I cannot begin to imagine what the families of the victims are going through. However, gun control advocates couldn't help themselves and have subsequently used this calamity in hopes to bring about more gun control laws. Mayor "I'm Going to Ban Your Sodas" Bloomberg wasted no time in demanding that the presidential candidates focus on enacting greater gun control measures. Many others have jumped on the bandwagon to require more restrictions on gun laws. What I would like to discern is whether this tragedy warrants the call for more gun control.

The first point I want to bring up is regarding the nature of shooting sprees. The first is that shooting sprees, however sorrowful they might be, are nevertheless relatively infrequent occurrences resulting in few casualties. It is also prudent to remind ourselves that guns laws are only applicable to law-abiding citizens. Hardened criminals are criminals precisely because they have no respect for the law. If a criminal is intent on breaking the law, no amount of gun control laws are going to stop the pursuit of that crime. Gun control laws only shift power to the criminals while law-abiding citizens are rendered defenseless.

If you are under the impression that the police are going to help, think again. The police aren't around 24/7 (Thank goodness!). Criminals are at least smart enough to have the intent of committing a crime when cops aren't around. Even so, the Supreme Court even ruled that the police have no legal obligation to protect people (Castle Rock v. Gonzales, Warren v. District of Columbia).

Gun deaths such at these are very emotional for many people. However, we have to put it all into perspective. Guns are not even close to being a leading cause of death in America. If we are to go after guns, we might as well start banning cigarettes, alcohol, and cars, not to mention mandating exercise and a healthy diet because these would at least address issues that kill many more people in this country. Seriously, when does the ridiculousness end? 

There is also the issue of the number of lives that are saved by guns in self-defense, which shadows the number of lives that are taken in gun-related incidents. There is also the matter that gun deaths in this country have been on the decline for the past twenty-plus years (See Census and FBI data). Even the Left-leaning Ezra Klein was kind enough to provide a chart showing that trend (see below). 

There is also the matter of the Second Amendment, which has been upheld by the Supreme Court as a right to bear arms. Guns don't kill people. They are inanimate objects that can either be used to murder others or guns can be used to protect individuals or oneself from being murdered. Implicit within our Second Amendment rights is our right to self-defense in order to do things such as protect and secure our person, property, and freedom.

Ultimately, our response to how we enact legislation should consider the proportion to the severity and prevalence of a given problem. Given my aforementioned points, the gun control crowd is not reacting appropriately. Having a society without guns only works when there are no criminals within a society's midst. Until that day comes along, we should avoid the hysteria and ardently maintain our right to bear arms.

Wednesday, July 25, 2012

The Premature But Nevertheless Telling CBO Report on Obamacare

It has been nearly a month since the unfortunate Supreme Court ruling on Obamacare. Yesterday, the Congressional Budget Office (CBO) released their adjusted report on the costs of Obamacare. You're probably wondering why I call this report "premature." The reason for this is because the results and impacts of this legislation are more decentralized due to the Supreme Court's ruling on Medicaid. As I previously explained, the ruling has provided the states the option to a) not be coerced to expanding their Medicaid program, and b) the health care exchanges essentially need to be provided by the state in order for it to work most effectively. As the CBO report admits (p. 2), "what the states will be able to do and what they will decide to do are both highly uncertain," thereby postulating that "CBO and JCT's assessments in this analysis should not be viewed as representing a single definitive interpretation of how the ACD should or will be implemented in light of the Court's decision." In other words, by the CBO's own admission, being able to sufficiently do a cost-benefit analysis is premature.

In spite of that prematurity, we can still draw general conclusions from what will happen as a result of Obamacare.

The first has to do with the costs itself. Although those on the Left like to point out that the net costs had a downward adjustment of $84 billion, that's because in net terms, a million people are losing their insurance. Obama's promise was that everyone who has insurance will be able to keep it. The last CBO report on Obamacare (p. 4) estimated that there would be a net loss of 3-5 million who are insured by their employers. This report had an upward revision (Table 1; see below) on the effect of those who would receive insurance.

Nevertheless, I have to wonder: the federal government is spending billions of dollars that it doesn't have in order to set up these health care exchanges, and there are still 30 million people without insurance? And here I thought the bill was supposed to provide universal health coverage. I guess that was my mistake.

The price tag is still bothersome and only gets worse each time projections are made. This legislation is still going to cause a net increase of $1.168T (Table 2), which goes against Obama's promised $900B price tag. I don't understand where those on the Left, or even the CBO for that matter, have this idea that this is going to reduce health care costs. How does spending billions on health insurance exchanges with a de facto zero net effect on the uninsured going to save money?

Also, how does expanding a program that is running up costs (Medicaid 2011 Actuarial Report, 2011; p. 15) even faster than Social Security going to help at all? For one, the federal government is covering the Medicaid expansion 100% up until 2016, at which point the states have to cover 10%. The CBO report (p. 9) even admits that this can be problematic for states. Some states spend a good amount on Medicaid, which can be especially difficult for those already plagued with fiscal issues. Each state will face different incentives on whether 10% is too much or "worth it." There is also the issue of the "woodwork effect," which means that those who previously eligible will now be drawn out due to the publicity that this bill has received.

The health care exchanges and the Medicaid expansion are the two most expensive parts of Obamacare, which is why they have been receiving all this attention in the CBO reports. Neither one of these sub-policies has addressed the issue of neither health care quality nor spiraling health care costs (e.g., all we have done is disincentivized patients to be value-conscious shoppers because "someone else is paying the bill").

However, it does coerce citizens to "buy insurance or pay the tax." The CBO projects that about 4 million will opt for the latter because buying insurance is just too expensive, although enforceability of the tax is tenuous. Obamacare also does come with an array of new taxes. Who would have thought that "health care reform" meant more accountants over at the IRS? Obamacare does add to the federal deficit by $1.17T, which does wonders for our current debt situation. Don't forget adding to the increased dependency on government! Obamacare is also deterring doctors from actually wanting to practice, which is bad for a situation in which the number of doctors isn't growing in comparison to the increased demand (i.e., health care resources are even more scarce and waiting times will be even longer). What could be better for our health care system? And what's even better is that over time, we just find more unintended consequences within Obamacare.

The only thing that this report did for me was increase my hopefulness even more that either Obamacare can be repealed or that a majority of the states can undermine it by refusing to expand their Medicaid programs and build health care exchanges.

Tisha B'Av: Remembering the Past to Bring About a Better Future

Tisha B'Av has been one of those holidays where it's really hard to get into "the spirit of things." The primary premise behind the holiday is to remember various catastrophes that have befallen the Jewish people, most importantly the destruction of the First and Second Temples (בית המקדש). Getting sad over a ritual that most Jews, including myself, consider an "ancient relic" makes something like Tisha B'Av seem insipid. What's more is that this mourning process is counterintuitive.

How so? I analogize Tisha B'av to shiva (שבעה), which is the mourning process for the loss of a certain individual. The shiva process is most intense at its beginning and wanes in intensity as time passes. Not so with Tisha B'Av. Depending on your take, it has either intensified or maintained its intensity over the centuries. In either case, it hasn't lessened. Some are of the opinion that there was something wonderful about the days when there was a Temple. Why else would so many blessings in the Amidah be focused on the Temple? On the other hand, is it politically feasible to worry about building the Third Temple, especially when there is a mosque sitting on it? Is the Temple supposed to be more than just a building?

I want to return to my main point, which is we should approach Tisha B'Av much like we approach shiva. As time passes, we move on, we move forward. Even when we are in the intense stages of mourning, we don't say that "they're in a better place;" we honor their memories and remember how they lived. The remembering part is important. We remember the Exodus from Egypt. It happened 3,000 years ago. Yet we still have those biblical passages written on the scrolls of our tefillin. We are reminded it in our prayer books and during the kiddush for Shabbat. We even have a holiday for it: Passover.

Remembering is key. Without it, not only do we repeat history, but we lose our connection to the past. However, invoking memories is insufficient. We also have to honor the loss. Why?

Talk + No Action = Cheap

Talk + Action = Progress

As I pointed out last year, there is still a reason for Jews to lament and observe Tisha B'Av. I would like to now use that as a starting point and figure out how some ways to translate that sorrow into productive action.

For those of you Jews who are of the more religious persuasion, I am sure you will be mourning for the loss of the Temple. However, rather than show despair, we can think of ways to making messianic prophecy more of a reality. If it's in the narrow focus of restoring the Temple, think about making that possible.

Tisha B'Av can be inspiring on a Zionist level, which could either be reading some of the messianic prophecies more broadly or simply being Zionist. Israel is surrounded by enemies hellbent on her destruction, not to mention having to deal with internal quarreling. Israel can use all the help possible. We can work, either as individuals or as organizations, to improve upon the State of Israel, especially for those of us who are living outside of Israel. Donate money to Israel. Buy Israeli bonds. Advocate for Israel, even if it's using social media such as Facebook. By improving Israel, the ascent can be high enough where Israel can return to the "glory days" that are greatly missed by those who feel a sense of nostalgia during Tisha B'Av.

Being able to enact change on a domestic or international level might be too difficult for many, which is why some might look at Tisha B'Av on the individual level. It was the lashon hara and sinat chinam (needless hatred) of many individuals that brought down the Second Temple. Have Tisha B'Av be a day not just for studying Lamentations, but also for studying speech ethics or middot (character traits) such as loving-kindness or generosity. Although it's not bringing about world peace, at least it's about changing the world for those within your sphere of influence.

No matter how you decide to observe Tisha B'Av this year, may it bring you meaning!

Sunday, July 22, 2012

"Outsourcing" Is Not a Dirty Word

As if it were a surprise, it's another election season with negative campaigning. One of Obama's recent advertisements goes after Romney for outsourcing jobs. Romney replies by denying the allegations. Even Senator Harry Reid (D-NV) was bent out of shape over the fact that the U.S. Olympic team uniforms were made in China, as was John Boehner (R-OH). Aside from it being election year, what's the deal with being against outsourcing?

One of the primary arguments for protectionism is the argument of keeping jobs here [in America], also known as the "Buy American" argument. After great strides in technology, economic growth, and globalization, one would think that much of our consumption is done with products from foreign countries. This sentiment is prevalent for those who are against that which is "Made in China." The Federal Reserve Bank of San Francisco put out a report about a year ago addressing this issue. Two results peaked my interest. The first is that only 2.7% of our goods come from China. The second is that 88.5% of our consumption is of goods and services "Made in the USA."

Another argument for protectionism is national security. The idea is that if we become too dependent on other countries for goods, we compromise our national security. It's certainly an odd argument for the most militarily powerful nation in the world to make. Even if it weren't, it still doesn't hold water. If we look at something like gasoline, the commodity function in a global market. Energy independence is a façade because supply disruptions will affect gas prices regardless. The argument ignores the democratic peace theory. The final point, which is an offshoot of the second, if there were a high level of interdependence, as opposed to the misperceived "dependency,"nations would think twice before going to war since not only does war cost money, but losing the comparative advantages with liberalized trade go out the window, as well, which is a loss for both sides.

There is also a nostalgia for the manufacturing sector in this country. Seeing the decline of the manufacturing sector since outsourcing began in the 1980's makes some, particularly those on the Left, agitated. In addition to increased worker productivity, the reason why the manufacturing sector is declining is because the service sector is on the increase (at 79.6% as of 2011) . This is actually a good thing because it improves the quality of life here, as well as provide us with better job opportunities that don't involve back-breaking labor from either the agricultural or the manufacturing sectors.

If the gripe is about how we are exporting jobs during a recession, then outsourcing is nothing more than a convenient scapegoat because it actually doesn't have the negative effect on aggregate jobs that many think it does. According to the London School of Economics and the U.S. International Trade Commission, it really doesn't have a net effect on employment. And never mind that the United States still leads the world in manufacturing (producing 21% of the world's manufactured products) or that foreign investment in the United States exceeds U.S. investment abroad by $4 trillion.

The reason why outsourcing happens in the first place goes back to comparative advantage, a concept I remember from Economics 101 back in my undergraduate studies, and something that the Paul Krugman of 1997 was able to understand. If Country X can produce Product A for a smaller opportunity cost than Country Y, it is better for Country X to produce Product A. That way, Country Y can focus on Product B because its opportunity cost is lower than if Country X produced it. Resources are better allocated, and has the potential to create more jobs on both ends in the long-run. Throwing on tariffs or enacting other protectionist laws is only going to make things worse (e.g., Smoot-Hawley tariff, sugar tariffs). The erroneous assumption many make is that there is a fixed pie, and that someone's loss is someone else's gain, when in fact it's a positive-sum game where everyone benefits, even for those working in "sweatshops." It also means more final output for less costs. As Cato Institute scholar Daniel Ikenson points out,

Trade is not a competition between "our producers" and their producers." In fact, U.S.-based firms benefit from collaborating with foreign firms by carving up the production process into distinct functions and processes that suit each location's efficiencies and strengths. Just as trade enables U.S. consumer to benefit from lower-cost final goods, globalization enables U.S. producers to benefit from access to lower-cost resources put into the manufacturing system. That enables them to compete more effectively at home and abroad.

Focusing on outsourcing also diverts our attention from domestic issues that can help with encouraging labor growth in this country, whether it's dealing with our taxation system, burdensome regulations, bringing down Obamacare because of its unintended consequences, addressing government spending, or other much-needed structural reforms.

Finally, I'm also trying to understand this animosity towards outsourcing, and I'd like to take it to its logical conclusion. We don't just outsource to other countries. If we're worried about outsourcing to another country, why aren't we equally worried about outsourcing to another state? If you live in Virginia, for instance, you shouldn't be outsourcing your jobs or paying for goods and services from Michigan. So we should get rid of any interstate commerce since it's a form of outsourcing. And to take it a step further, those in Arlington, VA, shouldn't do any outsourcing to Fairfax, VA. This reductio ad absurdum argument points out a relevant truth: we outsource all the time, whether we decide to move or decide go to a certain mechanic, restaurant, or bookstore. On an individual level, we are trying to figure out whether it's better for us to provide the good or service ourselves or acquire it elsewhere. Businesses do the same thing. Outsourcing is the result of a cost-benefit analysis which benefits both the producer and the consumer. Rather than vilify outsourcing, we should embrace it as a vital aspect of international trade that enriches our lives.

3-6-2016 Addendum: The Washington Post ran a piece on outsourcing, and concluded that the net effect on employment was negligible.

Saturday, July 14, 2012

Analyzing the CBO's Report on Federal Taxes and Income

Earlier this week, the Congressional Budget Office (CBO), which is a non-partisan agency that works for the United States Congress, published a report entitled "The Distribution of Household Income and Federal Taxes, 2008 and 2009." This report is a continuation of the CBO report analyzing household income from 1977-2009, the one that made a big stink about how the income of the 1% grew tremendously in comparison to others. This report is important for many reasons, one of them being that we can better realize the effects that the recession have had both on income and the federal tax levels for economic quintiles.

The history of the American begins with a protest against unreasonable levels of taxation (e.g., no taxation without representation), and those beginnings have continued to shape the political rhetoric as to the type and extent of taxation. When looking at the findings of the CBO, let us keep these considerations in mind, as well.

The first set of findings are based off of a chart which is on the study's cover page (posted below). This chart displays the percent of before-tax income (includes any government transfers) that a given quintile has in comparison to the percent that the given quintile pays in federal taxes. Looking at this chart, you notice a few things. The lowest quintile is hardly paying anything in federal taxes. Even the second and third quintiles are hardly paying anything in comparison to their before-tax income. If we are to define "paying one's fair share" as paying a share of tax burden that is comparable to the share of one's before-tax income, then the rich are paying more than their fair share. The Heritage Foundation wasted no time to point that one out by saying the same thing. Even the economist Greg Mankiw ran the numbers and found that for every dollar earned, those in the lowest quintile receive three dollars in government transfers. Even the middle quintile is starting to become show some dependency on government, says Mankiw. The fact that nearly half of Americans don't even pay the federal income tax, which is both confirmed by Politifact and this CBO report (p. 7), is what the Right uses to fuel the debate on government dependency, although ironically enough, they are, in a sense, affirming the "class warfare" rhetoric of the Left.

Should we conclude from this that the poor don't pay their fair share? This report doesn't factor in state and local taxes. Most government spending (62%) is done on a federal level, which means that federal taxes are providing a good amount of government revenue. There are multiple state taxes. Much like the federal income tax, the state income tax is also progressive. The lower quintiles aren't going to pay the corporate tax. Property tax is assessed on the local level, and will depend not only on their rate of taxation, but the size of one's property. Consumption taxes (e.g., sales and excise) and the rate that you contribute to the state tax revenue is based on your consumption patterns. Although a bit dated, the report done by the Tax Foundation shows that even when considering state and local taxes, the burden doesn't greatly shift from federal taxes. It is thus reasonable to surmise the tax burden is a bit off-balance. 

Looking at the income data can provide ammunition for both sides. The people in the Glenn Beck camp used it to say that the 1% were the hardest by the recession. The after-income tax data provided by the CBO proves that one to be true (p. 15).

I can hardly imagine anyone on the Left crying over the one percent's loss, especially when they look at the before-tax income data provided by the CBO (p. 4). Without government transfers (e.g., Social Security, food stamps, Medicare), the average before-tax income for 2009 was $7,600 for those in the lowest quintile. With government transfers, it bounces up to $30,500. The Left can use that to claim that without such government programs, the poor would be even more destitute. I discussed previously how to target the root causes of poverty, something which might be of interest to those on the Left because these programs have this unfortunate propensity to perpetuate poverty, not alleviate it. Another point I would like to make is that although the top one percent saw a much larger increase in income than everyone else (probably has something to do with globalization and the technological advances we've seen since 1979), notice how the income has still gone up for everyone over the years in real dollars. That's only based on income. I can only imagine what the progress made over time would look like if we considered the quality and quantity of consumption, as well. 

Finally, there is the matter of taxes being at a thirty-year low (p. 14). I find the CBO's chart [below] to be comforting because it should be no surprise that I find lower tax rates to be better. 

Some on the Left disagree because this means less government revenue to continue programs they [inaccurately] view as successes. My former economics professor even took an opportunity to point out that there is no correlation between the tax rate and GDP growth. If there's no relation between tax rate and GDP growth, let me also point out in kind that raising the marginal tax rate on the rich isn't going to make things better, either. I created a scatter plot (see below) between the top tax rate and tax revenue as a percent of GDP (overlapping data dates back to 1933). I chose the top tax rate because it affects "the 1%," and I went with tax revenue as a percent of GDP because it interacts with the other variables that consist of the GDP (i.e., consumption, investment, trade balance, government spending). What I found is that the coefficient of determination is roughly 0.04, which means that the correlation is very low. Even so, whatever correlation does exist is actually pointing in the opposite direction that the Left would want it to be. If the relation between the two variables is almost non-existent, it is better that the government keeps the tax rate lower so it doesn't violate that wonderful libertarian axiom of nonaggression.

What can we conclude from all of this? It's one big, complicated mess. I'd say life would be a lot easier if the government did less and the tax code were simplified. Short of that, I expect the rhetoric on taxation to be "politics as usual."

Wednesday, July 11, 2012

Should We Rethink the War on Drugs?

Ever since President Nixon "declared war on drugs" back in 1971, the whole War on Drugs has been a highly contentious issue. Based on how the government is doing on the War on Terror and the War on Poverty, it makes me wonder whether the War on Drugs has been equally disastrous.

I know that by going over various sub-points, each one can be a blog entry of its own. I'm also sure that I am not covering every possible facet of the War on Drugs. With Colorado's ballot initiative to legalize marijuana this November, there very well could be more blog entries on this topic. However, I want to give a brief overview to see what the War on Drugs entails.

First, there is the matter of rate of drug usage itself. According to the UN Office on Drugs and Crime (UNODC), drug usage has stabilized in the developed world. Data from the National Survey on Drug Use and Health (NSDUH), the largest national survey of its kind, affirms that fact. Looking at the NSDUH's report from 2008, which was the most recent one published, provides insight. Take Table G.1 on page 242, which shows the types of illicit drugs used in the lifetime of those 12 and older. 108,255,000 people have admitted to using illicit drugs, and 94,946,000 of those people had tried marijuana. Per Table G.2 (p. 243) and G.10 (p. 251), that translates into 47% of Americans 12 and older who have tried. Obviously, the percent of those who have tried in the past year or month, which are 14.2% and 8.0% respectively, will be lower. However, the point here is that in spite of the War on Drugs, the deterrent is not as strong as one would expect; illicit drug usage is not uncommon. Just ask teenagers. According to a study done by the National Center on Addiction and Substance Abuse, it is easier for teenagers to get a hold of marijuana than beer.

The incarceration rate in America of 760 prisoners per 100,000 people is higher than any other country in the world and well above the OECD average of 140 prisoners. Drug abuse violations is one of the largest causes of arrests (FBI data) and accounts for 51% of federal inmates (Department of Justice). Why do I bother mentioning the incarceration rate? Because one of the primary causal mechanisms for its vast increase is the War on Drugs. Just think how much we would save in terms of maintaining all of these prisoners and the prisons who are charged with non-violent crimes. And don't forget how many less lives would be ruined because the individuals now have a record.

There is also the matter of unintended consequences. One of them, recently reported by the UNODC, is that on a global level, there is an significant increase of HIV and AIDS as a result. Much like with increasing the sin tax on cigarettes, another consequence is the black market. There was a time where we prohibited alcohol in this country, and did so through a constitutional amendment (i.e., the 18th). Remember how that one turned out? There were black markets and increased crime, and as a result, the 21st amendment of the Constitution repealed the 18th amendment. Instead of having Al Capone, we now have drug cartels that are not only causing issues on our own borders, but increasing crime on an international level. On top of it, cocaine has gotten cheaper over time.

We've spent over a trillion dollars on a war that cannot be won. What do we have to show for it? Drugs are easier than ever to obtain, prisons are overcrowded because we are punishing non-violent crimes in an exceedingly austere manner, and the black markets perpetuate the existence of drug cartels. If we don't use corporal punishment, what else could we do? First, we could decriminalize these drugs. Decriminalization has been a success for Portugal. It's better to keep these drugs out of the underground market. We don't see people bootlegging alcohol anymore, and that's because there isn't a prohibition on it. Plus, prohibition is an infringement on our civil liberties. After decriminalization, we should provide treatment for those who truly need it. As I pointed out already, most illicit drug usage is marijuana, a drug that wouldn't be considered any more harmful, if not less harmful, than alcohol. Backing off on the "War on Drugs" would ease the fiscal burdens on both the state and federal levels, both in terms of less enforcement and less congestion in the court system, while handling the problem of drug abuse in a more mature, responsible fashion.