As we approach the end of 2012, it's nice to look back to see how the year progressed, and this blog is no exception. After taking a look at my blog entries from 2012, I chose ten blog entries that I thought were my best (based on such factors as readership, content, and number of comments), and have thus listed them in chronological order:
1) With the fiscal cliff discussions, the current debt situation has been brought up more than once. To be able to grasp the extent to which debt is an issue is important in policy discussions, which is why back in January, I wrote this blog entry about debt and Paul Krugman's misunderstanding thereof.
2) We've gone through the Internet bubble and the housing bubble. The next bubble on the horizon is the student debt bubble. When that moment happens, I'm sure there's going to be some genius who recommends that we forgive student debt. Read here to find out why that would be a bad idea.
3) I had to throw at least one religiously related blog entry on here, and I decided to include the one with the most pageviews. A recently developed Jewish practice is to include an orange on the seder plate, which primarily represents the marginalization of the LGBT community [in Jewish communities], but can also represent any other marginalized individuals. Although this blog was initiated by my frustration with a rabbi on the Religious Right, it was nevertheless a nice project to find out whether items can be added to the seder (the answer is a resounding "yes") and the extent to which one can create a new custom while staying within the Jewish framework.
4) This entry received the most pageviews in 2012. Back in June, Californians voted on Preposition 29, which would have increased the cigarette tax by a dollar. Fortunately, the initiative did not pass. My entry goes into why this specific initiative would have not worked, as well as the more general issues with sin taxes.
5) The word "sweatshop" is very emotionally charged. It seems as if given the conditions of "sweatshops," one could not possibly defend these factories. However, when you extract the emotional element from the argument, not only could one make an argument for "sweatshops", but it should lead us to the conclusion that "sweatshops", at least in the short-to-medium run, are the best option for many individuals in developing countries.
6) The sin tax on cigarettes was not the only idiotic policy that Californians attempted to pass via referendum. California was actually looking to require that labels be put on all genetically modified foods letting consumers know which foods are genetically modified. There is nothing wrong with genetically modified food and the labeling process would have been a nightmare, which is why I was glad to see another ridiculous initiative get rejected.
7) "Made in America" is one of those phrases in which many Americans think that it's better to keep jobs in America, as opposed as to sending them overseas, because it's the "patriotic thing to do." As it turns out, "outsourcing" is not a dirty word, and Americans should actually embrace the idea of more free trade.
8) Washington and Colorado were two states that were courageous and intelligent enough to pass referenda that allowed for the legalization of marijuana. I think this an idea that makes perfect sense and should be enacted by all 50 states (Read Part I and Part II).
9) For those of you who were looking to invest in France, I provide a summary of France's politics and its economy to assess the amount of credit risk of France. It's not too bad at the moment, but if they don't get their act together, it'll get worse.
10) Gun control has been a hot-button issue in light of the recent shooting at an elementary school in Connecticut. As unfortunate as these tragedies are, any call for further gun control should not be based on a small subset of gun homicides, especially when gun violence has been declining for the past twenty-plus years. Here I provide an analysis of pertinent gun control measures and see whether they can provide the solace and safety that gun control advocates claim.
I hope you enjoyed this blog in 2012, and hope you continue to enjoy it in 2013. I hope that 2013 brings you even more joy and success in your lives!
Monday, December 31, 2012
Friday, December 21, 2012
Is There Such a Thing as "Common Sense" Gun Reform?
Mass shootings are a tragedy. What happened at Sandy Hook Elementary School last week was even more appalling than the shooting at the movie theater in Aurora, CO last summer because the victims were primarily children, which makes it all the more morally repugnant and disdainful of an act. One of the reasons I gave myself a week to write this is because if one is to have a serious discussion on effective gun policy, not only does there need to be time to reflect, but cooler heads need to prevail if one is to discern a response that is proportionate to the frequency and magnitude of the problem [of gun violence].
Two things I would like to re-iterate from my previous blog entry on the topic that are relevant here:
1) If we have limited resources, we should prioritize by focusing on the causes of death that produce the highest death tolls. Guns do not even make the top ten list in this country (see CDC data). Causes of death such as suicides, car accidents, smoking, and cardiovascular disease, amongst others, all top homicides caused by a firearm. This is not to say that suicides, accidents, or homicides caused by firearms aren't lamentable. However, the low number of overall deaths caused gives us an idea of the relatively low magnitude of the issue.
2) Mass shootings constitute less than one percent of overall homicides. Policy should not be dictated based on a tiny subset of what is already a relatively small cause of death (i.e., gun homicides). For good policy, we cannot look at a small subset to determine overall gun policy, which begs the question of "What is the overall trend of gun violence?" Answer: Overall gun violence has been declining for over the past twenty years, and gun violence is at a thirty-year low. If the trend were upward, this would be a different conversation. Therefore, if we are to have this conversation in sincerity, we need to recognize the trend is downward. Anything short of that is folly.
I personally think this should be adequate to quell the call for more gun control. Nevertheless, I understand that many are shocked by the idea of children being murder en masse, and are still processing that. In spite of the overall downward trend of gun violence, are there "common sense" gun reforms that can be implemented without trampling the Second Amendment? Like many libertarians would, I hesitate to go down the path of even asking this question because if you "give them an inch, they'll take a mile." As an intellectual exercise, I would like to answer the question at hand and see what the consequences of implementing "common sense" gun laws would be:
Confiscation of firearms. This would be the most extreme form of gun control. Essentially, the government would come in and seize every last firearm from the populace. The government would be the sole possessor of firearms. Aside from it being an atrociously Orwellian assault on an individual's liberty, why else would this be a terrible idea? There is an issue of practicality. There are an estimated 310 million firearms in a country of approximately 315 million people. It wouldn't be impossible to enact, but it would be downright difficult. Second, there is political feasibility, which goes beyond the clout of the NRA, which is America's second largest interest group. Even after this shooting, people are still divided on the issue. Third, there is something about American gun culture that is distinct from other developed nations. Without delving into something as "American exceptionalism," there is something unique about being founded on the ideas of "life, liberty, and the pursuit of happiness." In this country, the right to bear arms is as sacrosanct as freedom of speech or freedom of religion. It is an ultimate, quintessential form of freedom. Trampling that freedom goes at the core of what it societally means to be an American, as well as a free human being. Since this has not been ingrained into much of European society (or Israeli, Australian, or Japanese, for that matter), it permeates different societal and cultural norms, all of which are more resilient to surrendering one's right to bear arms. Surely, there must be "middle-ground" options between total confiscation and a completely liberalized firearms market.
Gun-free zone. People have been talking about the link between mentally unstable people and how they cause mass shootings, but there is one commonality that doesn't get talked about, and that's gun-free zones. Aside from the 2011 Tuscon shooting, all mass shootings in the past 50 years took place in gun-free zones (yes, Fort Hood was a gun-free zone). How can this be the case? When you declare a site to be "gun-free," you've disarmed law-abiding citizens. As if this were a surprise, criminals do not care about the law. Criminals think it's an added bonus that they don't have to deal with anyone law-abiding citizens that are armed because that means pulling off their crime would be that much more difficult. A gun-free zone is nothing more than a feel-good policy that makes it more convenient for the criminal.
Assault weapon ban. In all sincerity, when the term "assault weapon" is already an ambiguous term, what would this entail? The term "assault weapon" is vague because it it makes one think of automatic weapons, which means that the basis for the ban would be on appearance and not functionality. An automatic weapon is one in which it will continue to fire if one continues to hold down the trigger. These weapons have been rendered all but illegal since the 1934 National Firearms Act (i.e., they are all but impossible for a citizen to acquire). Semi-automatic guns, on the other hand, only fire once per trigger pull. Any further ban would most probably go after semi-automatics that "look scary," such as the military-style AR-15 or the SKS rifles, even thought they do not function the same way a machine gun does. They are no more lethal, shot-for-shot, than a wooden hunting rifle.
Background checks. We already have a nationalized, computerized background check system in which we prohibit certain people (e.g., fugitives, those in mental institutions) from legally acquiring guns. There is talk about closing the "private collector" loophole, which is estimated to account for forty percent of gun sales. I have some issues here with going about background checks. One is with those who use illegal, controlled substances, which means, amongst other substances, marijuana. Considering how many people try pot, I think the government needs to loosen up its laws, as well as change its definition of felon, in terms of who is a real threat to society. I also worry about what happens if the mental health angle is hyper-sensitized, which could lead to an ever-broader expansion of who is mentally fit to own a gun (e.g., you want to own a gun, therefore you're crazy). I do consider myself a classical liberal and a consequentialist libertarian, so having a background check to stop the legitimate threats (i.e., negative externalities) is what I would deem a "necessary evil." A background check will deter some, but for those hardened criminals who truly don't care about the law, they'll find a way to obtain firearms. Regardless, we do need to be diligent that any background checks enacted need to ensure that the Second Amendment is not violated.
Removing large-capacity magazines. The premise here is to remove cartridges with more than ten rounds from circulation, which supposedly reduces damage caused by mass killers. The problem with this policy is similar to Bloomberg's ban on sodas greater than 16 oz. If I want more soda, I will just buy another soda. It doesn't stop the consumption, but merely cause a slight inconvenience. The same thing with this policy. Most people don't carry guns that require large-capacity magazines. Even if you do limit them, one can just buy and carry more cartridges on their own person. And remember that criminals don't care about the law, so they can go to the underground market to acquire more.
Conclusion: There are other gun laws that I can analyze, but these are the most relevant in response to the recent mass shooting. In summation, any reasonable gun law has to target criminals instead of engendering the unintended consequence of aiding them, and must do so while making sure that the individual's right to self-defense is not adversely affected. (And to think that I have not even addressed the other half of the equation, i.e., the broken window fallacy aspect: deaths prevented by guns). With exception of intelligently addressing background checks, I find that the response of the gun control advocates will not lead to anything productive. Given the downward trend in gun violence, I hope the hype dissipates in the next couple of weeks and that the government doesn't pass any drastic legislation in response. I won't hold my breath since it wouldn't be the first time idiotic legislation is passed, and it won't be the last.
12-1-2015 Addendum: The Cato Institute released a policy analysis of "common sense" gun reform that essentially comes to the same conclusion as I did about three years ago.
6-28-2016 Addendum: The Foundation for Economic Education published an enthralling piece entitled "Why the Gun Debate Never Ends." Essentially, a) both sides are prone to bad arguments, and b) enacting good gun policy is difficult.
Two things I would like to re-iterate from my previous blog entry on the topic that are relevant here:
1) If we have limited resources, we should prioritize by focusing on the causes of death that produce the highest death tolls. Guns do not even make the top ten list in this country (see CDC data). Causes of death such as suicides, car accidents, smoking, and cardiovascular disease, amongst others, all top homicides caused by a firearm. This is not to say that suicides, accidents, or homicides caused by firearms aren't lamentable. However, the low number of overall deaths caused gives us an idea of the relatively low magnitude of the issue.
2) Mass shootings constitute less than one percent of overall homicides. Policy should not be dictated based on a tiny subset of what is already a relatively small cause of death (i.e., gun homicides). For good policy, we cannot look at a small subset to determine overall gun policy, which begs the question of "What is the overall trend of gun violence?" Answer: Overall gun violence has been declining for over the past twenty years, and gun violence is at a thirty-year low. If the trend were upward, this would be a different conversation. Therefore, if we are to have this conversation in sincerity, we need to recognize the trend is downward. Anything short of that is folly.
I personally think this should be adequate to quell the call for more gun control. Nevertheless, I understand that many are shocked by the idea of children being murder en masse, and are still processing that. In spite of the overall downward trend of gun violence, are there "common sense" gun reforms that can be implemented without trampling the Second Amendment? Like many libertarians would, I hesitate to go down the path of even asking this question because if you "give them an inch, they'll take a mile." As an intellectual exercise, I would like to answer the question at hand and see what the consequences of implementing "common sense" gun laws would be:
Confiscation of firearms. This would be the most extreme form of gun control. Essentially, the government would come in and seize every last firearm from the populace. The government would be the sole possessor of firearms. Aside from it being an atrociously Orwellian assault on an individual's liberty, why else would this be a terrible idea? There is an issue of practicality. There are an estimated 310 million firearms in a country of approximately 315 million people. It wouldn't be impossible to enact, but it would be downright difficult. Second, there is political feasibility, which goes beyond the clout of the NRA, which is America's second largest interest group. Even after this shooting, people are still divided on the issue. Third, there is something about American gun culture that is distinct from other developed nations. Without delving into something as "American exceptionalism," there is something unique about being founded on the ideas of "life, liberty, and the pursuit of happiness." In this country, the right to bear arms is as sacrosanct as freedom of speech or freedom of religion. It is an ultimate, quintessential form of freedom. Trampling that freedom goes at the core of what it societally means to be an American, as well as a free human being. Since this has not been ingrained into much of European society (or Israeli, Australian, or Japanese, for that matter), it permeates different societal and cultural norms, all of which are more resilient to surrendering one's right to bear arms. Surely, there must be "middle-ground" options between total confiscation and a completely liberalized firearms market.
Gun-free zone. People have been talking about the link between mentally unstable people and how they cause mass shootings, but there is one commonality that doesn't get talked about, and that's gun-free zones. Aside from the 2011 Tuscon shooting, all mass shootings in the past 50 years took place in gun-free zones (yes, Fort Hood was a gun-free zone). How can this be the case? When you declare a site to be "gun-free," you've disarmed law-abiding citizens. As if this were a surprise, criminals do not care about the law. Criminals think it's an added bonus that they don't have to deal with anyone law-abiding citizens that are armed because that means pulling off their crime would be that much more difficult. A gun-free zone is nothing more than a feel-good policy that makes it more convenient for the criminal.
Assault weapon ban. In all sincerity, when the term "assault weapon" is already an ambiguous term, what would this entail? The term "assault weapon" is vague because it it makes one think of automatic weapons, which means that the basis for the ban would be on appearance and not functionality. An automatic weapon is one in which it will continue to fire if one continues to hold down the trigger. These weapons have been rendered all but illegal since the 1934 National Firearms Act (i.e., they are all but impossible for a citizen to acquire). Semi-automatic guns, on the other hand, only fire once per trigger pull. Any further ban would most probably go after semi-automatics that "look scary," such as the military-style AR-15 or the SKS rifles, even thought they do not function the same way a machine gun does. They are no more lethal, shot-for-shot, than a wooden hunting rifle.
Background checks. We already have a nationalized, computerized background check system in which we prohibit certain people (e.g., fugitives, those in mental institutions) from legally acquiring guns. There is talk about closing the "private collector" loophole, which is estimated to account for forty percent of gun sales. I have some issues here with going about background checks. One is with those who use illegal, controlled substances, which means, amongst other substances, marijuana. Considering how many people try pot, I think the government needs to loosen up its laws, as well as change its definition of felon, in terms of who is a real threat to society. I also worry about what happens if the mental health angle is hyper-sensitized, which could lead to an ever-broader expansion of who is mentally fit to own a gun (e.g., you want to own a gun, therefore you're crazy). I do consider myself a classical liberal and a consequentialist libertarian, so having a background check to stop the legitimate threats (i.e., negative externalities) is what I would deem a "necessary evil." A background check will deter some, but for those hardened criminals who truly don't care about the law, they'll find a way to obtain firearms. Regardless, we do need to be diligent that any background checks enacted need to ensure that the Second Amendment is not violated.
Removing large-capacity magazines. The premise here is to remove cartridges with more than ten rounds from circulation, which supposedly reduces damage caused by mass killers. The problem with this policy is similar to Bloomberg's ban on sodas greater than 16 oz. If I want more soda, I will just buy another soda. It doesn't stop the consumption, but merely cause a slight inconvenience. The same thing with this policy. Most people don't carry guns that require large-capacity magazines. Even if you do limit them, one can just buy and carry more cartridges on their own person. And remember that criminals don't care about the law, so they can go to the underground market to acquire more.
Conclusion: There are other gun laws that I can analyze, but these are the most relevant in response to the recent mass shooting. In summation, any reasonable gun law has to target criminals instead of engendering the unintended consequence of aiding them, and must do so while making sure that the individual's right to self-defense is not adversely affected. (And to think that I have not even addressed the other half of the equation, i.e., the broken window fallacy aspect: deaths prevented by guns). With exception of intelligently addressing background checks, I find that the response of the gun control advocates will not lead to anything productive. Given the downward trend in gun violence, I hope the hype dissipates in the next couple of weeks and that the government doesn't pass any drastic legislation in response. I won't hold my breath since it wouldn't be the first time idiotic legislation is passed, and it won't be the last.
12-1-2015 Addendum: The Cato Institute released a policy analysis of "common sense" gun reform that essentially comes to the same conclusion as I did about three years ago.
6-28-2016 Addendum: The Foundation for Economic Education published an enthralling piece entitled "Why the Gun Debate Never Ends." Essentially, a) both sides are prone to bad arguments, and b) enacting good gun policy is difficult.
Thursday, December 13, 2012
Quantitative Easing: Third Time Is Not the Charm
The Fed is at it again. Yesterday, the Federal Reserve announced a fourth round of quantitative easing, which entails buying $45B worth of long-term Treasury securities per mensem. Apparently, the third time, which was only within the last few months, wasn't the charm. Although it's called quantitative easing, why don't I feel at ease? What is it about quantitative easing that the IMF deems it "unconventional policy?"
Under less dire circumstances, the Fed's normal recourse is to buy short-term government bonds to lower the interest rate. The idea of a lower interest rate is to encourage spending because once again, the assumption is that the issue with the economy is due to aggregate demand. The issue right now is that the interest rates are essentially zero. The interest rates have been this low for quite some time, which means that the Fed cannot lower the short-term interest rates any further. In attempts to stimulate the economy, the following takes place under quantitative easing: the Fed purchases assets (e.g., securities, bonds) from banks and other financial institutions (mostly or solely private firms) with recently issued money. Banks would then lend this new money to consumers and businesses, which would ideally motivate consumers and businesses to spend more money.
The reason why I call this "unconventional policy" is because it's a very new concept. The academics are still trying to fight this one out. It might work. It might not work. It might have a negligible effect. Either way, I'm skeptical about the Fed's success. As Alan Greenspan points out in his autobiography (p. 478), the Fed's pre-1979 track record for avoiding inflationary episodes is "not a distinguishable one." Let's also remember that the Fed was unable to foresee the Internet bubble or the housing bubble. Why extend the powers of an entity that historically has been problematic at controlling inflation?
But I also have to look at results of the previous three rounds of quantitative easing. When is the quantitative easing supposed to end? The Fed doesn't know. If the markets keep doing poorly, those in markets will have to keep guessing what the Fed will do next before each FOMC meeting, which breeds more uncertainty while creating additional distortions of market signals (e.g., price-gouging laws) [in the credit market], and yes, disincentivizing saving, as well as punishing those who save. If job growth improves, the Fed has not provided any reliable indication of when it will stop with quantitative easing.
And then there's the matter of economic indicators themselves. I know that job growth isn't linear, but if we continue at this average rate of employment growth, we won't close the pre-recession jobs gap for another 11 years, and this is without taking U-6 unemployment into account. GDP growth is not all that inspiring. Consumer confidence is still low. Assuming this is a recovery, it's a pretty stagnant one. If we take this scenario to mean that it's not working, then all we have done is have more dollar bills than we would have otherwise, which would devalue the dollar. Devaluation doesn't only affect other countries that use the dollar as currency (e.g., Ecuador) or countries that have their currency pegged to the dollar (e.g., Saudi Arabia). It has a ripple effect in the global markets, as well.
Let's assume that quantitative easing does end up working by expanding the monetary base (note that this doesn't expand M2, which is a necessity for GDP growth) and translates into the growth of the money supply and consumer spending. And let's assume that it's doing its job by keeping interest rates low while decreasing unemployment. The perceived success of the stimulative effect (read: looser monetary policy) will cause expected inflation to rise. The Fed would then feel the need to keep at that pace, and before you know it, the inflation rate spirals upwards, at which point we would have a repeat of the 1970s and the high inflation that occurred. If that happens, then the Fed's balance sheet only increases in size, especially if there is a default on the mortgage-backed securities. Even worse, an asset bubble could pop, and given how the housing bubble burst, I don't think we want that. It would be all the more difficult to undo all the injections of those reserves if this scenario took place. This can be avoided by making sure inflation expectations don't get out of hand, but once again, skepticism ensues.
And who can forget about how the Fed ultimately decides to unload all these acquired bonds? If the Fed cannot do so adequately, the economy will have substandard economic growth for years.
Ultimately, my issue lies with the fact that the Fed has been doing everything in its power to keep [long-term] interest rates artificially low, which from a Keynesian's point of view, is supposed to be this great stimulus. This effect hasn't taken place, but even if it works, it misdiagnoses the problem. The problem is not with short-term disincentives to spend. The problems are long-term and structural. If we want to talk about handling unemployment and inflation issues at the root of their cause, we need to address such things as cutting government spending (most notably entitlement spending), deregulation, tax reform, education reform, and immigration reform, just to name a few. Whichever methods the government decides to take, one thing is for sure: cheap money is not a quick fix.
Under less dire circumstances, the Fed's normal recourse is to buy short-term government bonds to lower the interest rate. The idea of a lower interest rate is to encourage spending because once again, the assumption is that the issue with the economy is due to aggregate demand. The issue right now is that the interest rates are essentially zero. The interest rates have been this low for quite some time, which means that the Fed cannot lower the short-term interest rates any further. In attempts to stimulate the economy, the following takes place under quantitative easing: the Fed purchases assets (e.g., securities, bonds) from banks and other financial institutions (mostly or solely private firms) with recently issued money. Banks would then lend this new money to consumers and businesses, which would ideally motivate consumers and businesses to spend more money.
The reason why I call this "unconventional policy" is because it's a very new concept. The academics are still trying to fight this one out. It might work. It might not work. It might have a negligible effect. Either way, I'm skeptical about the Fed's success. As Alan Greenspan points out in his autobiography (p. 478), the Fed's pre-1979 track record for avoiding inflationary episodes is "not a distinguishable one." Let's also remember that the Fed was unable to foresee the Internet bubble or the housing bubble. Why extend the powers of an entity that historically has been problematic at controlling inflation?
But I also have to look at results of the previous three rounds of quantitative easing. When is the quantitative easing supposed to end? The Fed doesn't know. If the markets keep doing poorly, those in markets will have to keep guessing what the Fed will do next before each FOMC meeting, which breeds more uncertainty while creating additional distortions of market signals (e.g., price-gouging laws) [in the credit market], and yes, disincentivizing saving, as well as punishing those who save. If job growth improves, the Fed has not provided any reliable indication of when it will stop with quantitative easing.
And then there's the matter of economic indicators themselves. I know that job growth isn't linear, but if we continue at this average rate of employment growth, we won't close the pre-recession jobs gap for another 11 years, and this is without taking U-6 unemployment into account. GDP growth is not all that inspiring. Consumer confidence is still low. Assuming this is a recovery, it's a pretty stagnant one. If we take this scenario to mean that it's not working, then all we have done is have more dollar bills than we would have otherwise, which would devalue the dollar. Devaluation doesn't only affect other countries that use the dollar as currency (e.g., Ecuador) or countries that have their currency pegged to the dollar (e.g., Saudi Arabia). It has a ripple effect in the global markets, as well.
Let's assume that quantitative easing does end up working by expanding the monetary base (note that this doesn't expand M2, which is a necessity for GDP growth) and translates into the growth of the money supply and consumer spending. And let's assume that it's doing its job by keeping interest rates low while decreasing unemployment. The perceived success of the stimulative effect (read: looser monetary policy) will cause expected inflation to rise. The Fed would then feel the need to keep at that pace, and before you know it, the inflation rate spirals upwards, at which point we would have a repeat of the 1970s and the high inflation that occurred. If that happens, then the Fed's balance sheet only increases in size, especially if there is a default on the mortgage-backed securities. Even worse, an asset bubble could pop, and given how the housing bubble burst, I don't think we want that. It would be all the more difficult to undo all the injections of those reserves if this scenario took place. This can be avoided by making sure inflation expectations don't get out of hand, but once again, skepticism ensues.
And who can forget about how the Fed ultimately decides to unload all these acquired bonds? If the Fed cannot do so adequately, the economy will have substandard economic growth for years.
Ultimately, my issue lies with the fact that the Fed has been doing everything in its power to keep [long-term] interest rates artificially low, which from a Keynesian's point of view, is supposed to be this great stimulus. This effect hasn't taken place, but even if it works, it misdiagnoses the problem. The problem is not with short-term disincentives to spend. The problems are long-term and structural. If we want to talk about handling unemployment and inflation issues at the root of their cause, we need to address such things as cutting government spending (most notably entitlement spending), deregulation, tax reform, education reform, and immigration reform, just to name a few. Whichever methods the government decides to take, one thing is for sure: cheap money is not a quick fix.
Friday, December 7, 2012
Parsha Vayeshev: Chanukah and Dealing with Spiritual Emptiness
This week's Torah portion brings us to the story of Joseph (starting in Genesis 37). The favoritism that Jacob shows towards Joseph agitates his brothers. The chutzpah that Joseph exudes by telling the interpretation of his dreams doesn't help. One day while Joseph was out with his brothers, the brothers hit a breaking point and try to figure out how to dispose of Joseph. They initially think of murdering Joseph. However, Reuben comes up with the idea of throwing Joseph into a pit. I can come up with some nice, brief explanation of how much like Joseph, we have our high and low moments. Joseph's low moment was being hated by his brothers and sold into slavery, and how that nevertheless, he still managed to hold it together and become very successful. I am not denying the validity of such an interpretation, but would like to draw attention to Genesis 37:24, which talks about throwing Joseph into the pit:
והבור רק, אין בו מים.
"The pit was empty; there was no water in it."
When I read this, I had to ask myself an important question: If I already know that the pit was empty, why did the Torah have to repeat itself in saying that there was no water in it? Isn't that a redundancy? Also, what does this have to do with Chanukah? Chronologically speaking, Chanukah took place long after the Joseph story. To better attempt to answer these questions, we have to go to the Talmud (Shabbat 22a). The Gemara's primary focus is on the laws of lighting Chanukah candles. Out of the middle of nowhere, there is a discussion about the redundancy of mentioning that there is no water in the pit. The tangent is about as abrupt as the story of Judah and Tamar.
Nature abhors a vacuum. Pits aren't mere emptiness. The void has to be filled with something. The rabbis also realized this. To put these pits into context, they were used as water storage facilities. The pit into which Joseph was thrown into, however, was not. What was concluded in the Talmud is that there were scorpions and snakes in the pit. For a Jew, this can harken back to the simile that Torah is like water. Without the water (i.e., Torah) in a Jew's life, that lack of spirituality means that more undesirable elements take over (And for a non-Jew, that is some sort of spiritual goodness that is not the Torah). Again, it's a nice drash, but it still doesn't answer what it has to do with Chanukah.
Let's run with the rabbinic interpretation that Joseph was thrown into a pit with snakes and scorpions. Coming out of that pit unscathed would have to be defined as miraculous. As such, the connection between lighting Chanukah candles and Joseph's survival is the idea of a miracle. It was a miracle that a day's worth of oil lasted eight days, as it was a miracle that a small, rebellious, rag-tag band of Jews can defeat one of the most advanced militaries of its time in order to fight for religious freedom.
Joseph had his struggles. The Maccabees had to fight political oppression. Even in the modern world, we have our obstacles, whether internal or external, to face. The world can be a cold, dark place, much like the pit into which Joseph was casted. Although it's easier to wallow in pity and despair when [metaphorically] thrown into a pit, one of the joys of being human is that we are not confined to being victims of our circumstances: we have free will, and thus the potential to change.
As Einstein stated, "Darkness is the absence of light." The fact that Chanukah is near the darkest time of the year for those of us in the Northern Hemisphere (sorry for those in the Southern Hemisphere....Israel is still in the Northern Hemisphere, so the interpretation still applies), and I don't think that is incidental. We light the candles during this time to remind us that even during the darkest times, we still can bring light to the world, whether that is in the context of our own personal lives or in the greater global sense. It's actually nice to remind ourselves that the candle-lighting doesn't occur during the darkest time. Why? If we hit a rough patch in our lifetimes, we don't want to hit rock-bottom. If we hit rock-bottom not in the hyperbolic sense, but in the sense that we have no resources, family or friends, or way out, then there's no recourse. If we are in the recesses of darkness, we want to climb out of that pit before it gets too dark. If you reach a point where such darkness falls upon you, G-d forbid, never forget that there is still hope for spiritual ascent so that we can make our lives, as well as the world, a brighter place.
שבת שלום וחג שמח!
Monday, December 3, 2012
Extending Unemployment Benefits Is Not a Solution
The "fiscal cliff" talks are bringing a series of policy issues into play, one of them being the extension of unemployment benefits. If Congress decides to not renew unemployment benefits, it is reported that it will impact over two million citizens. The Congressional Budget Office (CBO) recently published a report on unemployment benefits and how it would affect the economy if the benefits were extended either partially or in their entirety. The idea behind unemployment benefits is that they are supposed to temporarily help those who lost their jobs [in the recession] insure their savings and assets until they can get back on their feet and land another job. Although I am sure some people can think of me as callous for not wanting to extend these benefits because they are trying to peddle an argumentum ad misericordiam, there are a few reasons, mainly surrounded around the concepts of costs and effectiveness, that shape the foundation of my opposition.
One of the primary ideas behind unemployment benefits is that without them, it would reduce the GDP because the would-be beneficiaries would consume less. The idea, which is unsurprisingly Keynesian in nature, is the conclusion that CBO report arrives at. As long as consumption (aka aggregate demand) is boosted, then the problem is solved. But is it really? How can spending be the issue when the marginal propensity to spend was 0.98 pre-recession and only decreased to 0.94? If saving rates were high, I could at least amuse the thought, but since Americans love to spend, I cannot buy it. It's no wonder that government programs such as unemployment insurance disincentivize saving. Also, the idea of aggregate demand is one of indiscriminate spending. Not all spending, consumption, and production are created equal. Even the IMF recognizes the real possibility, and in many instances, the reality, of multiplier effects less than 1 (i.e., government spending is less effective).
If the program is so wonderful because the CBO estimates that it will create $1.10 for every dollar of input, why not extend unemployment benefits to everyone, or at least expand the program greatly? Because the CBO is only looking at half of the equation. My favorite reason for why the Keynesian thinking is flawed is the very idea behind a subsidy. As the adage goes, "If you want more of something, subsidize it; if you want less of something, tax it." What are we subsidizing? Unemployment, which means we get more of it....more on that in a moment. Second, you are taxing employers. Money does not grow from trees. Government does not have its own revenue base, hence the reason for taxation, which in this case is in the form of the payroll tax. When the government takes that money from the private sector, it dampens the private sector and causes a firm to produce less.
Although I would much prefer private donors, charities, and organizations to help with those who are temporarily unemployed, even if I were to concede to some temporary mechanism for unemployment benefits to be given by the government, they would need to be temporary. The fact that this a repeat of last year's discussion is ridiculous. Why? When you extend the benefits and make them more generous, like Congress is discussing, you decrease the incentive for an individual to look for work, which leads to structural unemployment. If you're disinclined to believe the conservative think-tank Heritage Foundation, maybe you'll take the word of Left-leaning economist Paul Krugman. After all, he was the one who gave this very explanation in his macroeconomics textbook (p. 210).
The reason why this disincentive exists is because individuals have a "reservation wage," which is the minimum wage an individual expects before accepting a job. The unemployment benefits cause the reservation wage to increase, which forces the individual to be pickier about job selection. This is not only the thinking in the CBO report (p. 9), but this also comes from Lawrence Summers, who was the former director of Obama's National Economic Council. Furthermore, the Federal Reserve Bank can hardly be considered a bastion for free-market thought, but amazing how they came to the conclusion that extended unemployment benefits actually increase unemployment (also see Katz and Meyer, 1990).
There is also the issue that over ten percent of unemployment benefits were paid in error. Once again, this brings up the issue of the effects of limited competition on efficiency. If a private firm misappropriated this large percentage of their produced goods, they would either adjust for the inefficiency or they would soon go out of business. When the government misappropriates the funds, they can still survive amidst the inefficiencies, which is unfortunate if the goal is to help people out, but over $5B has been misapplied. If that tax revenue were not collected via the payroll tax, employers could have used that extra money to create more jobs. Is it fair for working citizens to pay for a system that is ripe with abuse and fraud?
Unemployment insurance is more of the same "tax and spend" mentality that Washington has in mind. It does nothing to mitigate the wage rigidities, the misallocation of funds, or the fact that it de facto subsidizes unemployment. Interest rates are at extreme lows and consumption is still high, so to continue with this view that businesses cannot borrow or there are not any consumers out there to consume goods is false. Policy should be focused on incentivizing businesses to create more jobs and providing businesses with better confidence in the markets to hire. In broad terms, that translates into such ideas as tax reform, deregulation, and/or cutting back on government spending. Whatever solutions that Congress decides to kick around in the upcoming days, extending unemployment benefits should not be one of them.
One of the primary ideas behind unemployment benefits is that without them, it would reduce the GDP because the would-be beneficiaries would consume less. The idea, which is unsurprisingly Keynesian in nature, is the conclusion that CBO report arrives at. As long as consumption (aka aggregate demand) is boosted, then the problem is solved. But is it really? How can spending be the issue when the marginal propensity to spend was 0.98 pre-recession and only decreased to 0.94? If saving rates were high, I could at least amuse the thought, but since Americans love to spend, I cannot buy it. It's no wonder that government programs such as unemployment insurance disincentivize saving. Also, the idea of aggregate demand is one of indiscriminate spending. Not all spending, consumption, and production are created equal. Even the IMF recognizes the real possibility, and in many instances, the reality, of multiplier effects less than 1 (i.e., government spending is less effective).
If the program is so wonderful because the CBO estimates that it will create $1.10 for every dollar of input, why not extend unemployment benefits to everyone, or at least expand the program greatly? Because the CBO is only looking at half of the equation. My favorite reason for why the Keynesian thinking is flawed is the very idea behind a subsidy. As the adage goes, "If you want more of something, subsidize it; if you want less of something, tax it." What are we subsidizing? Unemployment, which means we get more of it....more on that in a moment. Second, you are taxing employers. Money does not grow from trees. Government does not have its own revenue base, hence the reason for taxation, which in this case is in the form of the payroll tax. When the government takes that money from the private sector, it dampens the private sector and causes a firm to produce less.
Although I would much prefer private donors, charities, and organizations to help with those who are temporarily unemployed, even if I were to concede to some temporary mechanism for unemployment benefits to be given by the government, they would need to be temporary. The fact that this a repeat of last year's discussion is ridiculous. Why? When you extend the benefits and make them more generous, like Congress is discussing, you decrease the incentive for an individual to look for work, which leads to structural unemployment. If you're disinclined to believe the conservative think-tank Heritage Foundation, maybe you'll take the word of Left-leaning economist Paul Krugman. After all, he was the one who gave this very explanation in his macroeconomics textbook (p. 210).
The reason why this disincentive exists is because individuals have a "reservation wage," which is the minimum wage an individual expects before accepting a job. The unemployment benefits cause the reservation wage to increase, which forces the individual to be pickier about job selection. This is not only the thinking in the CBO report (p. 9), but this also comes from Lawrence Summers, who was the former director of Obama's National Economic Council. Furthermore, the Federal Reserve Bank can hardly be considered a bastion for free-market thought, but amazing how they came to the conclusion that extended unemployment benefits actually increase unemployment (also see Katz and Meyer, 1990).
There is also the issue that over ten percent of unemployment benefits were paid in error. Once again, this brings up the issue of the effects of limited competition on efficiency. If a private firm misappropriated this large percentage of their produced goods, they would either adjust for the inefficiency or they would soon go out of business. When the government misappropriates the funds, they can still survive amidst the inefficiencies, which is unfortunate if the goal is to help people out, but over $5B has been misapplied. If that tax revenue were not collected via the payroll tax, employers could have used that extra money to create more jobs. Is it fair for working citizens to pay for a system that is ripe with abuse and fraud?
Unemployment insurance is more of the same "tax and spend" mentality that Washington has in mind. It does nothing to mitigate the wage rigidities, the misallocation of funds, or the fact that it de facto subsidizes unemployment. Interest rates are at extreme lows and consumption is still high, so to continue with this view that businesses cannot borrow or there are not any consumers out there to consume goods is false. Policy should be focused on incentivizing businesses to create more jobs and providing businesses with better confidence in the markets to hire. In broad terms, that translates into such ideas as tax reform, deregulation, and/or cutting back on government spending. Whatever solutions that Congress decides to kick around in the upcoming days, extending unemployment benefits should not be one of them.
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