Wednesday, April 30, 2014

Would Boycotting the L.A. Clippers Have Taught the NBA a Lesson?: Why Boycotts Rarely Work

There has been plenty of hullabaloo lately around the racist remarks of former Los Angeles Clippers owner Donald Sterling. Magic Johnson thought it would have been a great idea to boycott the L.A. Clippers to teach the lesson that racism is unacceptable in a civilized society. However, the threat of a boycott was allegedly averted because the NBA fined Sterling, as well as placed a lifetime ban. While the outrage towards Sterling's racist comments is perfectly justifiable, the question I have to ask is whether a boycott would have actually done harm.

Boycotts are nothing new. People have collectively and voluntarily abstained from economic commerce with a certain company, country, or other entity to make a political or social statement. The idea is that if one can amass enough support for a boycott, it can adversely affect the bottom line and send the message that certain behavior or beliefs are unacceptable.

Let's take a look at some of the academic work on the topic. A couple of economists showed that the American boycott on French wine because of France's opposition of the Iraq War actually succeeded. (Chavis and Leslie, 2006). Other economists have shown that either the threat of boycotts nor boycotts themselves inflict noticeable economic damage on the boycotted entity (Koku, 2012Koku et al., 1997).

Even with conflicting scholarly works, I'm still unconvinced that a boycott on the Clippers would have worked. If one decides to boycott a country, at least the country has enough economic commerce where it can withstand that sort of pressure. In spite of the attempts of certain countries boycotting Israel, Israel's economy is doing just fine (Congressional Research Service, 2013, p. 3). Companies don't have the luxury of having entire national economies to bolster their revenues. Even so, companies typically have enough insulation to make it through. The L.A. Clippers are worth $575M [as of 2/2014] and bring in $128M in ticket revenues per annum.

For a boycott to work, you need to have a targeted, massive enough of a collective to impact the revenues. Then there is the temporal factor. Even if the Clippers had a bad year in term of its revenue, the boycott would need to last long enough to run the entity out of business.  Most boycotts don't have the longevity to make an impact, presumedly because many people have short attention spans and simply move on to the next thing. Finding a sufficient amount of people who can show the zeal to boycott long enough is highly improbable to affect the bottom line. However, the threat of a boycott or the perception that it works seems to do more harm to one's reputation than anything else (King, 2011). If boycotts succeed in anything, it is a boycott's ability in reaching a compromise solution, which would explain why the NBA replied by fining and banning Sterling in lieu of any actual boycott.

Monday, April 28, 2014

Do Proponents of Mandatory Vaccinations Have a Point?

Between the fact that it's World Immunization Week and the Center for Disease Control and Prevention's (CDC) recently published a statement on the benefits of immunizations, I started to think about vaccines and their benefits. The truth of the matter is that vaccines work. Vaccines have averted 2-3 million deaths per annum; they also have completely eradicated smallpox and rinderpest. As the infograph from UNICEF below shows, vaccines have greatly reduced the incident rate of many diseases, including polio, measles, tetanus, malaria, and whooping cough. The World Health Organization, the American Academy of Pediatrics, the National Institutes of Health, and the CDC all agree that vaccinating children is a good idea. I'm sure that there are naysayers out there, and my response is this: much like any other health-based procedure (e.g., circumcision), there are always risks, but the risks of vaccines are few and far in between (also see here), and are certainly much, much smaller than the benefits derived from vaccines.      


If vaccines are so great, then it would make sense for everyone to voluntarily get vaccinated. However, there are still a sizable amount of people who refuse to do so. The question I would like to ask here is not about the efficacy of vaccines, but rather about whether the government should mandate that citizens get vaccinated.  

In the United States, we currently have de facto opt-out system. What this means is that children who enter public schools are required to get vaccinated. However, if the parents finds that vaccination violates their [religious] beliefs or there is a legitimate medical issue, they can file for an exemption. 48 states allow for religious exemptions, and 19 allow for exemptions based on philosophical grounds. For most states, parents are not so much coerced to vaccinate their children as they are coaxed in doing so.

The premise behind the opt-out system is to prevent the negative externality of the spreading of communicable diseases while showing some respect for one's personal liberties. The question here is whether the negative externality argument is legitimate enough to warrant the government mandating that everyone get vaccinated.

We cannot make a blanket statement about vaccinations because it partially depends on the disease for which one is being vaccinated. There are diseases such as the chicken pox, influenza or rotavirus for which the threat of death is minute, which is to say that the immune system can fight off those sorts of diseases just fine. Measles, meningitis, or polio...that's a different story. It also depends on the extent of the outbreak of the disease, which, if bad enough, might justify government-mandated vaccinations. But short of a pandemic of epic proportions, it's hard to justify such paternalistic impulses.

If you want to ignore the fact that vaccines have been a medical innovation that have saved millions of lives, that should be your prerogative. Unlike with the negative externality of pollution, the individual is not in control of the disease; there is no way to determine with certainty whether the individual will actually pass on the disease. Plus, if the only ones who get ill are the non-vaccinated, the only ones who would contract the disease are other non-vaccinated individuals. Those who want to be immune from a certain disease will get vaccinated, and those who are neglectful in that will pay the price for making that choice. It's no different from telling someone to stop smoking, drinking heavily, or eating a voluminous amount of unhealthy food. In a free society, you are allowed to make whatever intelligent or idiotic health-related decisions you want regarding your body as long as you are not harming others. In spite of what criticisms I have of the British health care system, at least the British government allows for voluntary vaccination, and it works.

If we are to keep the system we have, the government should allow for a way to opt out of vaccinations, regardless of religion or philosophical persuasion. Informing individuals of the benefits of vaccinations would also help. Conversely, I don't see any pronounced negative externalities that would require an opt-out system, so why don't we give a system based on voluntary vaccinations a shot?

2-5-2015 Addendum: With all of the hullabaloo I have seen on Facebook regarding vaccines lately, I thought that I would slightly modify my position on the issue. At the end, I thought that an opt-out system was unnecessary. In order for there to be a legitimate case for requiring an opt-out system, two things need to be the case: 1) vaccines actually work, and 2) herd immunity is ineffective because not enough individuals are vaccinated. I don't have a problem with the first bit; vaccines do work. If you don't think they do, well, that's a problem, to put it lightly. As for the second part, it's trickier, partially because herd immunity is different for each disease. However, if there are a sizable amount of people not getting vaccinated, like we currently experience, then an opt-out system is required to protect public health. In this case, diseases and viruses are a negative externality, and people are unable to control them. For many diseases, a vaccine is the best approach. If you have an exigent medical condition, then you should receive an exemption. Religious exemptions are trickier, but on the whole, they should not be considered because their freedom to not get vaccinated affects others around them. On the whole, vaccinating children should be the default because we should not put ourselves in a situation in which we infringe on other peoples' lives, intentionally or otherwise.

Friday, April 25, 2014

Parsha Kedoshim: "Loving Your Neighbor" Also Means Loving Yourself

One of the most oft-quoted Biblical verses is "love thy neighbor" (Leviticus 19:18). When people say "love your neighbor," we have to remember that it's typically abridged, and the entire verse is "love your neighbor like yourself," or ואהבת לרעך כמוך. It brings up a good question: why didn't G-d just say "love your neighbor"? Why did He have to add the word כמוך (like yourself)? What is G-d trying to convey here?

I have two possible answers, the first being that implicit in this famous Biblical verse is that we are commanded to love ourselves.  People who love themselves are happier, which means they are able to better succeed in and enjoy life. If you're in bad shape, how much more difficult is it to have interpersonal relationships? As R. Joseph Telushkin brings up in his book A Code of Jewish Ethics, Vol. 2: Love Your Neighbor as Yourself (p. 10), "Think about your own behavior. Are you more likely to be patient, forgiving, and generous to others when you are feeling good about yourself or when you are feeling low or self-critical?"

The second possibility, which is not mutually exclusive with the first, is that the word כמוך is acting as a clarifier. Many individuals have a high opinion of themselves. Many individuals will still love themselves when they screw up. Many individuals also make sure are concerned about their own welfare. This is not to say that this sort of behavior is wrong. As Pirkei Avot 1:14 brings up, "If I'm not there for myself, who will be there for me?" But the verse doesn't end there. It goes on to say, "If I'm only for myself, what am I?" The Sefer HaChiniuch elaborates on Leviticus 19:18, and says that we are supposed to take the needs of others quite seriously, as if they were our own needs. Rabbi Israel Salanter was one to say that the physical and material welfare of another was indeed tending to one's spiritual needs.

We were not meant to be so altruistic that we neglect our own needs while we help others. Conversely, we do not live in isolation. "Love thy neighbor" means that the universe doesn't revolve around you, and that we are here to treat others in a fashion that would be comparable to how we would want to be treated if we were in the same situation. It means that when we screw up, we forgive others by giving them the benefit of a doubt (Pirke Avot 1:6), the same doubt that we would give ourselves. Even when someone is being cross or you're having a day, it still means treating them with dignity and respect because they are your neighbor, regardless of whether they are Jewish or not.  It's about not judging someone until you have been in their place (Pirke Avot 2:5), whether literally or figuratively. "Loving your neighbor" is about putting yourself in the other person's shoes and loving them as you would yourself. The next time you have an interaction with another (or even if you're dealing with yourself), ask yourself what would be the most loving course of action. Take it as an opportunity to realize that you have multiple opportunities a day to actualize what Rabbi Akiva called the single most important principle to fulfilling the Torah.

Thursday, April 24, 2014

Holy Smoke, an E-Cigarette Ban in Los Angeles!

This past Saturday, the City of Los Angeles enacted a ban on electronic cigarettes, also known as e-cigarettes. Proponents of the ban think that e-cigarettes are too close to the real thing, whereas opponents argue that e-cigarettes are nowhere near the nuisance that regular cigarettes are. A few months ago, I had made a libertarian argument that partial smoking bans in public places were actually justifiable. The question I have to ask here is whether e-cigarettes have the same externalities as regular cigarettes or if e-cigarettes are merely mimics of real cigarettes.

Upon answering the question of whether the City of Los Angeles should have passed an e-cigarette ban, we should first ask ourselves what an electronic cigarette is and how it differs from a regular cigarette. An electronic cigarette is a cigarette-shaped, battery-powered, cylindrical tube that vaporizes liquid nicotine. The major emission from an e-cigarette is nicotine; e-cigarette "vaping" does not entail combustion, which removes the negative externality of imposing second-hand toxins unto others. The other major carcinogens, the ones make tobacco smoke such a negative externality and harm one's health, are essentially non-existent. I know that e-cigarettes are still a new enough of a development where one could argue that conclusions from e-cigarette studies are premature.

However, there is an increasing amount of academic literature that show that e-cigarettes are less harmful than regular cigarettes, which makes sense because e-cigarettes not only lack the carcinogens and tars that are in tobacco products, but they also have smaller concentrations of nicotine than a regular cigarette (also see Oxford study here), which means that they are healthier (Polosa et al., 2013; Waegner et al., 2012Cahn and Siegel, 2011) and can be used to reduce the smoking of tobacco products (Polosa et al., 2011Siegel et al., 2011; CDC, 2013). Additionally, what is lacking is the evidence showing that there are second-hand smoke impacts from this vapor (Burstyn, 2013; McAuley et al., 2012), not to mention the emissions from e-cigarettes are by and large non-offensive, which is why e-cigarettes have been immune from cigarette bans prior to. I can also cite a recent study at the Lancet (Bullen et al., 2013) that suggests that e-cigarettes can be just effective as nicotine patches, which means that they can be used to wean people off of tobacco products.

Just because electronic cigarettes look like cigarettes and use the word "cigarette" does not make it a tobacco product that has the same level of harm of traditional smoking products. E-cigarettes have the nicotine that smokers crave, but it comes without the toxins from tobacco smoking. If we are to aim for the goal of national harm reduction, which is important because tobacco smoking kills many individuals per annum, we should not stub out e-cigarette smoking with e-cigarette bans. Instead, we should find a way to encourage smokers to use these healthier alternatives so smokers aren't killed by the real culprit of tobacco.

5-3-2016 Addendum: The latest and greatest in studies point out why we shouldn't ban e-cigarettes is from the Royal College Physicians in the United Kingdom. To summarize the study, e-cigarettes come with huge harm reduction, and is the next step towards a more tobacco-free society. 

Sunday, April 20, 2014

Dayenu: Is It Really Ever Enough?

I was visiting Chicago this past Shabbat, and I was in shul listening to R. Leonard Matanky give a d'var Torah during Shabbat Chol HaMoed Passover services. After his prefatory comments, he began his remarks on the Passover song דינו ("It would have been enough for us"; Dayenu). Dayenu, which is a popular song in the Passover haggadah, is a fifteen-stanza tune that expresses the thanks for the gifts that G-d gave the Jewish people during the Exodus, ranging from freeing the Jewish people from slavery to giving the gifts of Torah and Shabbat.

Taking his insight from Dr. Israel Eldad's haggadah, R. Matanky brought up an interesting question: was it really enough? One of the stanzas said that it was enough for G-d to take the Jews out of slavery. But what good would that be without the Torah or a raison d'être? What is the point of being thankful for G-d bringing the Jews to Mount Sinai if G-d had not presented the Torah? Traditionally, we keep saying Dayenu either because we have done nothing to deserve G-d's mercy or because we should be thankful for every little thing that G-d does. The point that both Dr. Eldad and R. Matanky were trying to make was that Dayenu was not meant to be literally. It was meant to be a springboard to help us think about what is enough.

This springboard is where I would like to make my comments on the matter. In Pirke Avot (4:1), Ben Zoma asks what makes for a rich person. His response?

השמח בחלקו, or "the person who is satisfied with his own lot." Ben Zoma's response brings us to a paradox in Jewish thought. If we are happy with what we have, doesn't that translate into passivity? If we're supposed to be happy with what we have, why bother striving for more?

A lot of the commentary surrounding this Pirke Avot verse has to do with material wealth (Commentary, Pirke Avot 4:1, Rashi, Magen Avot, Tiferet Yisrael). As R. Matanky brought up, people have way too high of standards when it comes to material wealth. We are always looking to own the latest technology and acquire mass amounts of wealth because they think it will fill in the void. Spiritual fulfillment is conflated with acquiring material wealth, and the crossing of wires leaves many highly unsatisfied.

When it comes to spirituality, however, many people set the bar too low. For many, it is regrettably set so low that they are lulled into a sense of complacency of doing enough. Judaism is not a religion of passivity. Judaism is not a religion in which we say Dayenu because we did something and we were meant to stop. We are meant to continue developing ourselves as better humans, help our fellow man, and foster a stronger relationship with G-d. As R. Zelig Pliskin points out in his book Happiness (p. 68), "In spiritual matters, look up and raise your sights. But when it comes to material and physical matters, look down."

In addition to raising the bar in spiritual matters, we can resolve another paradox of human nature. As humans, we are partly physical creatures and partly spiritual creatures. G-d didn't create us to be angels, but He didn't create us as animals without impulse control. We have free will. In Jewish thought, we are created in His Image. In this respect, we are "good enough." On the other hand, we were meant for more; we were meant to strive and constantly improve in our spiritual lives. As the Sages once said, although we were not meant to complete the task, it does not excuse us from desisting (Pirke Avot 2:21). Let Dayenu be a reminder that while we are to recognize where we have progressed spiritually, we are more importantly supposed to remind ourselves that we can always strive for further spiritual development.

Friday, April 18, 2014

More Legal Immigration In the United States Would Mean More Tax Revenues

We just had Tax Day, which gets me thinking about a myriad of tax-related topics. After reading an article from the Center of American Progress, I was thinking about taxes in the context of immigrants, whether they are legal, temporary, or unauthorized. One of the arguments that is commonly used against illegal immigration is that unauthorized immigrants do not pay taxes. "If they only mooch and don't pay their fair share, we shouldn't let them in," or so goes the argument. I looked at the issue of the economic impact of legalizing more immigrants about a year ago, and these immigrants are far from being moochers. As a matter of fact, they create a net positive economic benefit. The discussion I present here will be two-fold: 1) unauthorized immigrants already pay taxes, and 2) immigration reform that would grant these immigrants citizenship would mean even greater tax revenue.

Unauthorized Immigrants Pay Taxes
The argument used to bolster the anti-[illegal] immigration crowd is that unauthorized immigrants do not pay taxes to help fund the system. Supposedly, the jobs of unauthorized immigrants stay in the underground market, which means it doesn't circulate back to the licit, formal economy. Much to the dismay of the naysayers (e.g., the Heritage Foundation), unauthorized immigrants already pay taxes.

Anytime that an unauthorized immigrants buys gasoline, food, clothing or any other good, they have to pay consumption taxes. Unauthorized immigrants also pay taxes on property (also see here), even if they have to rent. Additionally, they also pay income taxes. According to the Congressional Budget Office (CBO), 6 million unauthorized immigrants, or about half, file income taxes return each year (CBO, 2007, p. 6).

More Legal Immigrants = More Tax Revenues
Not only do unauthorized immigrants already pay into the system, but if they were granted citizenship, they would contribute even more money (partially because of the higher wages they would earn). The idea here is that unauthorized immigrants work in the underground economy. By removing these workers from the informal economy, these workers can be taxed in line with documented workers with similar incomes. A recent study by the Institute on Taxation and Economic Policy (ITEP) confirms this economic theory, as well as the fact that unauthorized immigrants already pay taxes. The ITEP study estimates that legalizing immigration would increase state and local tax revenues by $2B per annum. According to the Social Security Administration (p. 3), only 3.1 million unauthorized workers paid Social Security taxes, which means legalization would increase tax revenues. Furthermore, if only half of unauthorized immigrants pay on income taxes, then the government would be able to collect on a majority of that other half.

For more impact on the state and local level, let's use the state of California as an example because California has a high population of unauthorized immigrants. What are the effects of not granting these workers legal status? The federal government misses out on $1.4B in tax revenues from California, and the state of California loses out on $310M in income taxes per annum (Paster et al, 2010, p. 1).

Last year, the CBO was analyzing the effects of S. 744, which was a piece of immigration reform legislation that would, amongst other things, grant legal status to a number of unauthorized immigrants. While doing its analysis, the CBO found that between 2014 and 2013, the legalization engendered by S. 744 would cause an increase of $459B in federal tax revenues (CBO, 2013, p. 2).

In summation, unauthorized immigrants already paid taxes. If we liberalized the flow of labor into this country, our country would experience further economic growth and our government would be able to collect more tax revenues as a result.

Thursday, April 17, 2014

Getting My Hooks Into the Idea of Property Rights for Fisheries

The effects of environmental issues such as anthropogenic climate change, genetically modified food, or whether oil production has hit its peak have been and continue to be debated. One issue where I find it to be nigh impossible to debate is that we are depleting the world's fisheries all too quickly. If we don't do something to maintain the population of various fish species, we will find ourselves with a longer and longer list of extinct fish. The question we need to ask ourselves is how we got to this point and what we can do to mitigate the situation. Upon reading a publication from the Cato Institute, I came across a viable possibility: property rights for fisheries. This can be done in the form of a catch share, which is a quasi-property right that allows for an individual or entity to harvest a certain percentage of a fishery's total catch limit. The idea here is to conserve resources while maintaining the fisheries' value. I can imagine skeptics curmudgeonly lambasting the idea because they think that "privatization leads to exploitation of our natural resources." Aside from me disagreeing on that one, we should ask ourselves how we got into this mess in the first place.

Tragedy of the Commons
In economic terms, a fishery is treated as a common good. A common good is both non-excludable and rivalrous, which means that not only one cannot prevent others from having access to the good, but a consumer's consumption of a unit of the good prevents other consumers from consuming it. Most tangible goods, including fisheries, qualify as rivalrous. The issue with common goods is best illustrated with what has been dubbed as the Tragedy of the Commons. Using the hypothetical example of a parcel of land used for grazing, Garrett Hardin showed that if all individuals independently act on their own self-interest, the land would be overgrazed. The individual is incentivized to use the resource until depletion, which hurts the whole group [or society] and its long-term interests in the end, hence why it's called the Tragedy of the Commons. The non-excludability of a rivalrous good is what causes the good to be depleted as such. If anything is the tragedy here, it is that we treat fisheries as a common good.

Theory of Property Rights and Fisheries
The current fishery management system, which has been entrusted to the government in a command-and-control fashion to ensure resource sustainability, does not incentivize conservation, but rather incentivizes depletion with total disregard for the longevity of fisheries (Also, subsidizing the fishing industry exacerbates the issue). The government putting entry limitations in place, per-trip catch limitations, or shortening the fishing season has done nothing to stop depletion. Property rights can stop the hemorrhaging by turning the common good into a private good, which would entail making the good excludable. Limiting the access would help restore fisheries. It's about stewardship and providing individuals with the incentive to maintain both the quantity and quality of fish. 

Putting the Rights-Based System in Practice
In practice, catch shares are a very promising solution (Costello et al., 2012; Grimm et al,. 2012; Deacon, 2009Costello et al., 2008; Kerr et al., 2002), particularly because they have been proven to lower collapse rates, which improve resource sustainability. The Food and Agricultural Organization is on board with the idea, as is the National Oceanic and Atmospheric Administration (NOAA), the latter of which believes that the catch-shares system removes "race for fish," increases profits, reduces by-catch, and improves safety. In spite of its successes, catch shares make up only 2 percent of world fisheries (probably due to much resistance of those who kvetch about "their right to fish"). 

Although a rights-based management system has its benefits, it is not a catch-all policy and has its limits. There are concerns that although it creates better resource sustainability, it does not necessarily improve ecological conditions (see Branch, 2008). There is also the issue of government involvement. Much like private-public partnerships for national parks, it is difficult to get around the government playing a role. Not only is there a political feasibility issue, but issues of maritime law and national security play roles in the regulation of coastlines. By utilizing the individual transferable quotas (ITQs), which is the most popular form of catch shares, there is an additional cost to entry in the occupation, as well as the potential corruption that would ensue during the allocation process. With rules such as limits on these permits, there is also an issue that the privileges are not secure, transferable, or secure enough, which would defeat the purpose of having [de jure] rights in the first place. Although I have general skepticism about government management, catch shares are overall a preferable policy alternative to the current management systems that do not implement any sense of property rights. 

In summation, what we have to realize is that catch shares are an allocation tool that succeeds when implemented properly. Catch shares coupled with catch limits would go a long way in making catch shares successful. By aligning desired ecological outcome with economic incentives, we can replenish our fisheries so that future generations can enjoy the value that fisheries provide.

Monday, April 14, 2014

The Bittersweet Passover Lesson of Eating Maror and Charoset

With Passover coming up, I was reading about the various aspects of the seder. There are a plethora of steps in the seder, which means a whole lot of questions. I started wondering about מרור (maror), which are the bitter herbs that one is required to eat during the Passover seder. Where does this practice originate? What does מרור represent? And why are we to mix מרור with חרוסת (charoset), the sweet mix of nuts and fruits?

The practice of מרור comes directly from the Bible (Exodus 12:8). The Talmud expounds upon this practice. According to the Talmud (Pesachim 120a), not only are we supposed to swallow the מרור, but we are supposed to taste it. If the bitterness of the מרור is not tasted, the mitzvah has not been fulfilled. Why do we need to experience the taste of bitterness?

The traditional answer given is that we are supposed to taste a bitterness much like the bitterness that the Israelites experienced while they were slaves in Egypt. While it can represent the bitterness of slavery, Passover is primarily the holiday that represents redemption, which is why Passover is also referred to as זמן חרותינו (literally "the time of our freedom"). Passover is about realizing that exerting free will is the human aspect that liberates us. Part of being free is not being insulated from life's difficulties. In this case, consuming מרור is a reminder that we experience bitterness in life. The world is a cold and dark place. Life can be quite cruel. There is death, injustice, loss, regret, and there are some things we cannot sugar-coat. This is why when מרור is consumed during the seder, we need to taste the bitterness.

Another tidbit here is that חרוסת, unlike מרור,  it is optional, i.e., it is not one of the three requirements of the seder (Mishnah Pesachim 10:3; Talmud, Pesachim 114a, 116a). What can learn from this voluntary consumption of חרוסת? The Talmud teaches that one of the reasons for the חרוסת is to blunt the bitterness. Taking that insight a step further, the Rabbis are teaching us that the reason that consuming חרוסת is not a commandment because it should be our own choice whether we add sweetness to our lives. Life is a combination of the bitter and the sweet. If life were sweet all the time, it would get really boring really quickly. If it were bitter all the time, we would question the point of life.  Redemption is realizing that life requires both, and that we produce our own hope. We do so by choosing how we approach life. When something terrible comes along, how do we make sure we are resilient enough to get through it? When things are going great, how do we make sure that we don't get thrown off if there is a bump in the road? We choose how we react to the bittersweetness of life, and by realizing that we need to make the best of it is a way we can apply the lessons of the Passover seder to our everyday lives.

Saturday, April 12, 2014

France's Debt Is Bad Enough Where the EU Is Chiding France

I don't exactly have the highest threshold of dealing with government's fiscal irresponsibility, but for whatever reason, France seems to grab my attention. Is it as bad as Greece? No. But still, France does a bang-up job. Although France has a history of having a solid credit rating, its credit rating downgrades (most recently from Standard and Poor's) signals that something is amiss. Economic trends must be pointing in an even more downward direction if I end up reading in the Financial Times earlier this week how France is in violation of European Union budget rules because France cannot keep its budget deficits below 3 percent (Ministères de Finances et de l'Économie, 2014, p. 17). The French government is now in a quandary of figuring out how it can reduce its budget deficits without greatly agitating its citizenry. It might be tempting to blame this on the recession. After all, it is why these budgetary rules were implemented in the first place. Looking at France's GDP growth in recent years shows that its tepid GDP growth was an issue even before the recession.

What France needs to do to deal with debt sustainability in the medium-to-long run versus what they will do to keep the European Union placated will be two different things. This is not simply a matter of politicians, regardless of the country, who like to delay major fiscal reform as much as possible. France was the country that had its laborers strike in an uproar a few years back because the government was going to raise the age for retirement benefits from 60 to 62 years. What's more is that GDP projections back in 2012 were a lot more rosy than the current situation (Ministères de Finances et de l'Économie, 2012, p. 3). I expect a minimalist compliance with the European Union so that the bureaucrats get off France's case. As to what they should do, that's a whole different story.

I found a report by Balázs Égert over at the Organization of Economic Cooperation and Development (OECD) covering the topic of how France should reduce its debt. For those who know, the OECD is hardly a bastion of laissez-faire thought. Even so, I was surprised at how much they were concerned about France's unsustainable debt to the point where they were suggesting forms of fiscal consolidation. The major suggestions for public debt consolidation were in the arenas of the public pension system and the health care system, which is no surprise because they tend to be major drivers of federal budgets. The French government also has a reputation of being very liberal with worker benefits, which means that if France has an aging population issue (like the OECD report states), then the French government is going to need to reform labor laws so that benefits are not so generous, and so that French citizens are incentivized to work more hours and retire at a later time.

There is also the matter of dealing with France's tax rates, which are high. Although François Hollande recently claimed to be a supply-sider, I worry because France suffers under a delusion, a delusion in which one puts faith in what the people over at the American Enterprise Institute facetiously call the Krugman Curve, or the idea that an increase in the marginal tax rate translates into more tax revenue. If that were the case, the French government would have an enormous tax base because France's propensity to tax is staggering. France has one of the highest rates of tax revenue as a percentage of GDP in the European Union, as well as one of the highest rates of government spending as a percentage of GDP, both of which are problematic because it signals that France has to rely on its tax base and aggrandized government to drive the GDP (Hint: That's not how you get real economic productivity).

Without the conversation being too tangential (since we can delve into each sector and go into detail as to specifically what France can do to reduce its deficits), I suppose the point of the article is that if France is going to seriously reform its economy, it needs to tackle the more systemic issues. Its rates of taxation are too large, as is the state, neither of which can maintain solvency in the long-run. Anything short of market liberalization and cutting the excessively lavish social-welfare programs will only perpetuate France's debt sustainability issues.

Friday, April 11, 2014

Yes, the Fight for Same-Sex Marriage Is Very Similar to the Fight for Interracial Marriage

It looks like this is the second time this week I will be taking the Heritage Foundation to task for shabby analysis (here is the first). A week ago, Ryan T. Anderson at the Heritage Foundation wrote an article entitled Is Opposition to Same-Sex Marriage at All Like Opposition to Interracial Marriage? No., and it reminds me once again that when the Heritage Foundation tries to analyze social issues, it is way off. The author starts by saying that allowing for same-sex marriage is a violation of religious liberty. He then continues by saying "marriage has been and continues to be between one man and one woman." Finally, he ironically argues that although Jim Crow laws and bans on interracial marriage were based on prejudice, the argument for opposition to same-sex marriage is based on reason. I am going to respond to the author point-by-point and illustrate once again why secular opposition to same-sex marriage doesn't have a leg to stand on.

Definition of Marriage
Although this was not addressed first in the article, my comments on this question are prefatory to replying to this sorry excuse of an analysis. Opposition to same-sex marriage is based on the idea that marriage has historically been between one man and one woman, and has been unchanging. In spite of what the opposition has to say on the matter, the definition of marriage has changed multiple times throughout history to adapt to evolving social and cultural norms. In pre-modern times, marriage was arranged by the parents as a way to improve upon one's social status. Women were essentially treated like the husband's property. It is no wonder that one could not marry outside of one's socio-economic status, religion, or race. The idea of marrying someone out of love is a relatively recent concept. There was also a time when it was acceptable for a man to marry a twelve-year old girl, and none of this counts all of the polygamy that existed outside of Western civilization. Even the Bible itself doesn't hold to the one man/one woman definition of marriage (see below). The argument that "marriage has always been between one man and woman" is simply false. Even if it were true, it is still falls under the logical fallacy of argumentum ad antiquitatem because the fact that something has been done for many years has no bearing on whether it is correct. Like any other institution, marriage can adapt and evolve for the better. In its simplest terms, marriage is a contract between consenting individuals that want to develop a committed relationship. Being able to legally sign such a contract is not only a civil right, but is one of the most basic of economic rights that exists.



Is Allowing Same-Sex Marriage a Violation of Religious Beliefs?
I have to answer this question with a resounding "NO!" I tackled the issue of the violation of religious beliefs a year ago, and the Heritage Foundation's argument does not apply here. The author mentions allowing businesses to run their business in accordance with the belief that marriage is between one man and one woman. This argument is inaccurate because whether a baker is forced to bake a cake for a same-sex wedding is a separate issue from whether two consenting adults of the same sex are allowed to marry each other. One has the right to believe that same-sex marriage is against the Bible, but no one has the right to impose that right on society. Doing so would be a violation of the First Amendment. If you do not like same-sex marriage, don't get married to someone of the same sex!

Is Opposition to Same-Sex Marriage Based on Reason, and Not on Prejudice? 
This is another question I have to answer with a resounding "NO!" The last thing upon which the opposition to same-sex marriage is based is reason because there is no logical argument against same-sex marriage (see here, here, here, and here). The author argues that "the bans on interracial marriage and Jim Crow laws, by contrast, were aspects of a much larger insidious movement that denied the fundamental equality and dignity of all human beings and forcibly segregated citizens." This is the author's attempt to try to make interracial marriage and same-sex marriage as dissimilar as possible. One of the differences between the two is that one can hide their sexuality, but one really cannot hide the color of their skin. If homosexuals had some distinguishing mark on them, it would be reasonable to assume that they would have undergone a segregation similar to those subjugated under Jim Crow laws.

The author's implication that homosexual individuals do not experience discrimination or that are not deprived of their fundamental equality and dignity is as egregious as it is ignorant. For one, homosexual individuals still has to deal with workplace discrimination. In terms of hate crimes, LGBT individuals are still high on the list of being victimized (see FBI Hate Crime data). LGBT youth make up for forty percent of those living out on the streets. Homosexual individuals in most states cannot adopt children. Although there has been progress made in terms of LGBT rights, most notably in terms of the right for same sex-marriage, there is still a lot of progress that needs to be made before the [legalized] prejudice against homosexual individuals stops.

Why The Fight For Same-Sex Marriage Is Similar to That of Interracial Marriage
There are many similarities between the fights between these two civil rights, one of them being that the Religious Right used the Bible to justify their views on both. With interracial marriage, it was twisting the verses about interfaith marriage, amongst other verses, to justify their bigotry. Now they're erroneously using Leviticus 18:22 to advance their agenda. For either one, opponents use the argument that this sort of union was unprecedented, abominable, unnatural, will destroy society and "traditional marriage," and will end up being a slippery slope to polygamy and incest. Also, there is that fun argument of "Oh, gay people can just marry people of the opposite sex" is very similar to "Oh, people are allowed to still marry, as long as it's within their own race." Rather than being dissimilar scenarios, the arguments that were used against interracial marriage mirror those that are currently used against same-sex marriage (see Loving v. Virginia as a legalistic example).

The fight for interracial marriage was not only won based on the idea that the color of one's skin is only skin deep, but the idea that at the end of the day, we're all human and we are all looking for love, companionship, and a deep commitment with someone, all of which are essential components of a marriage. I hope there is a day where the vast majority of Americans realize that much like individuals of color, homosexual individuals are human beings like anyone else, and as such, should be afforded the same opportunity to experience life, liberty, and the pursuit of happiness.

Wednesday, April 9, 2014

Stop-And Frisk Is Touch and Go At Best: Why Put a Stop to Stop-And-Frisk?

A few days ago, I was reading a short opinion piece by the Right-leaning Heritage Foundation entitled "Is Stop-and-Frisk Worth It?" In the article, the author justified the practice by saying that the practice of stop-and-frisk is useful and is not inherently bigoted. The article is concluded with ways to make the practice less oppressive. The history of stop-and-frisk goes back to 1968 when the Supreme Court ruled in Terry v. Ohio that stop-and-frisk practices are constitutional. In 1971, New York passed Criminal Procedure §140.50, which allowed for stop-and-frisk practices. Although the practice has been legal for a few decades, the NYPD started implementing it en masse in the early 2000s. Ever since, this issue has been contentious, and given the issues with civil liberties in the stop-and-frisk practice, I have to wonder whether we should continue giving police officers the ability to stop and frisk pedestrians for weapons or contraband if the officer has "reasonable cause."

Does stop-and-frisk work?
Although I will address issues of civil liberties later, the first question I have to wonder is whether the practice of stop-and-frisk decreases crime. The study that gets closest to showing that is the study of Rosenfeld and Fornango (2011). Even they found "very few significant effects (p. 2)," and that was without considering that a longer time lag between the rate of stops and the crime rate would nullify the effects. The New York State Office of the Attorney General (OAG) published an interesting report back in 2013. For one, the arrest rate with stop-and-frisk is really low (OAG, Appendix G).

The number of stops does not translate into fewer felonies. Stop-and-frisk is not proven to lower the crime rate, whereas such factors as increased number of police officers, an increased prison population, the receding crack epidemic, and the legalization of abortion better help explain the decrease in crime (Levitt, 2004). Even possibilities such a hot spot policing (Braga, 2005) or decrease in lead paint provide more plausible explanations than stop-and-frisk. Essentially, stop-and-frisk has no real effect on the crime rates (Greenberg, 2014).

The decrease in crime that took place in the 1990s took place before the vast increase in stops during the 2000s, which would mean no causal link. As a further indication of failure, only 0.1 percent of all stops lead to weapons confiscated (OAG, p. 1), and merely 0.1 percent of all stops led to a conviction (ibid).

Is stop-and-frisk racist?
Stop-and-frisk itself is not racist unto itself because the mechanism does not target members of certain racial or ethnic background. The issue, however, is the manipulation of using stop-and-frisk as a pretext for racism, much like we saw with Arizona's immigration law a couple years back. Some think that stop-and-frisk actually protects minorities, and thus alleges that it stops crime in predominantly Latino and African-American neighborhoods. However, that does not seem to be the case. During the case of Floyd v. City of New York, Dr. Jeffrey Fagan, an expert in criminology, provided testimony that shows that even when controlled for the crime rate, there is still a racial disparity. Even the NYPD Quarterly Reports show that blacks and Hispanics are disproportionately stopped and frisked. Almost half of New York consists of black and Hispanic citizens. Even so, nearly 90 percent of the stops were of black and Hispanic individuals, although black people were twice as less likely to have a weapon than a white person (Office of the Public Advocate, p. 3). I know that correlation is not causation, but still, to claim this as mere coincidence is tenuous as best.

Constitutionality and Violation of Civil Rights
Being ineffective and quite possibly racist are already troubling enough aspects of stop-and-frisk. There is also the issue of the violation of one's rights. First and foremost, there is the issue of the Fourth Amendment, which was brought up in Floyd v. City of New York. The Fourth Amendment doesn't prohibit any search or seizure, but rather it prohibits unreasonable searches and seizures. Going back to the data, there were 2.4 million stops conducted from 2009 to 2012 alone (OAG, p. 8). However, six percent of stops led to arrests, and only 0.1 percent led to conviction (OAG, p. 1). If reasonable suspicion was the primary reason for allowing the searches, wouldn't a low arrest rate and conviction rate undermine the justification for stop-and-frisk? Since the vast majority of stop-and-frisk encounters are that of innocent citizens, one cannot argue "reasonable search and seizure" with a straight face. And as the previous section on racism shows, there are also issues with violating the Fourteenth Amendment.

Conclusion
This "tough on crime" policy harkens back to the 1970s when New York City had astronomically high rates of crime. Maintaining such a mentality while holding onto an ineffective policy does not do any favors for the citizens of New York City. Stop-and-frisk also erodes trust in the police (see Vera Institute of Justice study here) and increases labor costs of law enforcement who waste time on such inefficiencies. If we're going to talk about reducing crime, let's do away with the War on Drugs so that police resources can be allocated to fighting real crime. We should also discuss policy alternatives to fighting crime, but let's discuss options that actually work and don't erode our constitutional rights in the process.

Monday, April 7, 2014

Implementing Common Core as K-12 Education Reform Defies Common Sense

A lot of ruckus has recently been made around a series of educational standards known as Common Core. Indiana scrapped Common Core standards a couple of weeks ago, and other states very well might follow suit. Some Common Core math questions (see here and here) have garnered attention because of their ridiculousness. A mother in Sacramento was suspended by the Sacramento school district because she disagreed with Common Core standards. What is it about Common Core that is causing such annoyance?

Common Core is a an education initiative dealing with curriculum standards, uniform testing requirements, and teacher training promoted by the National Governors Association, as well as the Obama administration, that have been adopted by 45 states to improve upon academic achievement. The finalized standards were released in 2010, but have only recently begun the implementation stage. Much like with the overhaul of healthcare with Obamacare, I find that Common Core is trying to tackle too much at once. It's no wonder that the head of the National Educators Association, the largest teacher's union in the country, has labeled the beginnings of Common Core as a "botched implementation." Good things can have a rocky start, and I'm not one who is opposed to having standards in our education system. Children should know how to read and do arithmetic. Even with that being said, I still think that Common Core standards are not going to work. Why?

Standards might be a series of expectations, but the purpose of these standards is to drive curriculum (e.g., federal funding tied to standards). Although children require certain skills and knowledge to succeed in the world, the truth is that each child learns differently. A top-down approach for something as individualized as one's learning is tomfoolery. If states are "laboratories of democracy," then the standards and implementation thereof should be done on as localized of a level as possible.

There is no meaningful empirical evidence that national curriculum standards lead to superior educational quality. Tom Loveless, an education expert at the centrist Brookings Institution, points out in a recent progress report that Common Core standards are not projected to have any significant impact on student performance. Are children really that homogenous that a single set of standards works? Is the federal government so omniscient where it would know how to implement a one-size-fits-all solution? Teachers and parents, the very people who most are involved in the child's education, should have the most say, not some bureaucratic entity in Washington D.C. Teachers and parents need the adaptability to provide educational success to their children, and not be tied down to a static list of standards.

More to the point, this would not be the first time that the federal government has attempted to standardize education in such a manner. Head Start, which is the government's attempt to control pre-K education, has been a failure. No Child Left Behind also managed to leave many children behind, hence the reason why the government is giving it another go with Common Core.

I am worried about other factors concerning Common Core, such as the rendering of textbooks obsolete that will cause an expensive overhaul, teachers who will leave the field because they will feel too constrained by Common Core standards or will not be able to keep up with the standards, online testing that would trigger an overhaul in technology, an overvaluing of standardized tests that will lead teachers to "teach the standardized tests" instead of teaching children how to learn, the latter of which is hard to teach if children are being forced into homogeneous thinking.

If we want to compare children's academic abilities across state borders, we already have the ACT, SAT, GRE, and advanced placement examinations. If there is an issue with standardized testing, we should modify what's already in existence and not have the federal government intervene. Common Core is, at best, a distraction from what America needs to do to improve its quality of education. Adopting standards is no substitute for actually dealing with the woes of our school system. If we are serious about education reform, we should discuss different policy alternatives, such as expanding school choice and improving upon teacher evaluations. Until we seriously entertain the merits of policies that can actually work, bureaucrats at Washington are diluting themselves if they think federally-induced standards are going to make American children more educated.

Sunday, April 6, 2014

Why Robert Reich's Seven Reasons for a $15 Minimum Wage Are Rubbish

Minimum wage has become a hot-button topic these days. Senator Harry Reid is trying to enact a $10.10 minimum wage because he thinks that $10.10 is the right amount to help people escape from poverty. Some individuals, such as the fast food workers who were protesting a few months ago, erroneously believe that a $15 minimum wage would be appropriate. Former U.S. Secretary of Labor Robert Reich happens to be one of those individuals. He recently came out with a concise video (see below) as to why he believes the minimum wage should be raised to $15 per hour. For me, it does not matter whether a bad idea originates from an uneducated layman or a former Harvard professor with a background in economics because a bad idea is still a bad idea. Let me list Reich's seven reasons and where he goes wrong in his video......



  1. The adjusted minimum wage from 1968 is $15/hour. Reich argues that when both inflation and productivity are factored into the equation, minimum wage should come out to $15 per hour. This assumes that the minimum wage was set at the "right amount" back in the late sixties, and that minimum wage is actually an effective tool against poverty. When adjusted for inflation alone, there is some deviation, but not as much as Reich would hope for. Even if you want to make the productivity argument, what do you think was the cause of the productivity gains over the past few decades: a spike in work ethic or the technological advances made?  
  2. $10.10 is not enough to lift people out of poverty. I can go in many directions with addressing this fallacy. The main counterpoint I will make here, much like I did in my recent discussion on the Earned Income Tax Credit (EITC), is that minimum wage targets low-income workers, not low-income households. To Reich's dismay, the overlap between low-income workers and low-income households is nowhere near 100% because many minimum wage workers live in households with those earning well above minimum wage. If you want to fight poverty, try something else.
  3. We subsidize low-wage workers in form of the welfare system. Two points I would like to bring up here. The first is that we don't need to have a welfare system. Reich brings up the fact that we subsidize the poor in the form of Medicaid, food stamps, and housing subsidies. If the welfare system is that burdensome, we should talk about doing something to scale that back instead. Second, the government declared a War on Poverty back in the Johnson administration. How well has that been working out? Do we honestly think that raising the minimum wage to $15 is going to decrease the aggrandizement of the federal government's scope? Going back to Point #2, raising the minimum wage by more than double is not going to solve the problem.
  4. Increased minimum wage = more jobs. Reich either neglected to read or decided to ignore the Congressional Budget Office's recent report on the effects of minimum wage. That would be the report that said that a $10.10 minimum wage would put around 500,000 employers out of work. Consider that is the net loss in employment for a minimum wage increase to $10.10. Think of the magnitude if that were $15! The minimum wage is a price floor above equilibrium point, and the fact that Reich forgets that basic economic concept, not to mention the "law of demand," says a lot right there.
  5. Wage increases are more likely to come out of profits, not prices. There is more than one way to skin a cat, and absorbing the costs of a minimum wage hike are no exception. Aside from taking the costs from price increases from the product or from profits, an employer can also lay off minimum wage workers, decrease worker benefits, reduce worker hours, or depending on the industry, the employer can find automated technologies to replace some or all of worker responsibilities and duties. What Reich neglects is that most businesses are for-profit, which means that they entered the industry to make a profit. While profit motive is not the only reason for working, it certainly cannot be ignored as having potent predictive power. Even non-for-profit organizations need to keep afloat. Labor is a cost of doing business, and the burden of minimum wage is squarely imposed on the employer. The typical business owner would increase prices or lay off laborers before they would consider a substantial decrease in profits. 
  6. Politics means that we need to ask for what's right now. Not only do I vehemently disagree with Reich's proposal for a $15 minimum wage, but he does not have a good grasp of political feasibility if he is making this comment. The House of Representatives has a Republican majority, and even the Democrats pushing for a minimum wage increase don't want to be excessive, hence why they want a $10.10 minimum wage. Simply put, asking for a $15 minimum wage is politically infeasible. 
  7. It's not just smart, it's right. Is it right to make it more difficult for employers to hire young and low-skilled workers so that they can acquire the skills to move up to higher-paying jobs? Is it right to tell an employer what to do with their business by coercing employers to pay employees higher than their marginal value? Is it right to cause more unemployment during a time when unemployment is still high? Is it right to grandstand about helping the poor when the minimum wage does a lousy job of targeting the poor and causes more unemployment amongst the poor, the very people proponents claim to help? The minimum wage is not smart. The minimum wage is not right. The minimum wage is merely poor public policy that harms those that it was intended to help.

Friday, April 4, 2014

Does It Matter If There Are Not Limits on Aggregate, Individual Campaign Contributions?

Earlier this week, the Supreme Court ruled 5-4 in McCutcheon v. Federal Election Commission (see ruling here) that the aggregate limits on political campaign contributions are unconstitutional. One side decries this ruling as the end of the democratic process and thinks that there will be more money adversely influencing politics because it gives politically motivated rich people an even more disproportionate say than they already have. The other side considers the ruling a victory for the First Amendment, can save the electoral process from gridlock, and make federal elections more substantive. What exactly is going on with this case to cause such hullabaloo from both sides?

Shaun McCutcheon, who was a general contractor in Alabama, wanted to donate funds to federal campaigns in the 2012 elections. However, McCutcheon was limited by the $48,000 cap on individual, aggregate contributions by §441a(a)(3) of the Federal Election Campaign Act (FECA). The FECA was created in response to Watergate, thereby preventing further corruption in elections. Normally, I would come up with a conclusion as to what I think about the ramifications of the ruling and how it will affect the future of campaign contributions. Instead, I will merely list a few considerations going forward:
  1. There is no compelling empirical evidence as to whether limits such as the ones the Supreme Court ruled against actually work or not. If such evidence existed, it would be easier to make a call. Even the evidence of whether money guarantees campaign victories is ambiguous, which is problematic if the only basis for such regulation is the prevention of quid pro quo corruption and said regulation does not explicitly target the corruption in question.
  2. I don't see aggregate limits on campaign contributions so much of an infringement on the First Amendment as much as an infringement on economic freedom. As Chief Justice Roberts indicated in his ruling, "money in politics at times seems repugnant to some, but so too does much of what the First Amendment vigorously protects." Unless the money is used to harm someone else (e.g., money used to hire a hit-man), I really don't care what people do with their money, regardless of whether they are rich or poor. In spite of all the talk about the rich overpowering the electoral process, big donors still make up a small portion of overall contributions. 
  3. This Supreme Court case has some limitations. For one, it applies to federal candidates only. How campaign contributions will be limited for state and local candidates are done on a state-by-state level. Also, this ruling only affects aggregate limits, which addresses the total amount one can give to all candidates. The base limit, which is the maximum one can give to a single candidate, was not addressed in this ruling, which means that the base limits under campaign finance law still apply. Having base limits makes more sense than aggregate limits. After all, if giving money to eighteen federal campaigns at the base limit is permissible and doesn't affect levels of corruption, why not permit the nineteenth [or any number of campaigns]? Furthermore, this ruling would affect less than 600 donors. Citizens United v. Federal Election Commission had more of an impact on campaign finance law than this week's ruling did, but that won't stop pundits from talking about whether this is the "beginning of the end of campaign finance reform."
  4. Are we on a slippery slope to unraveling campaign finance law? Maybe, maybe not. Between this ruling and the Citizens United ruling, there is arguably a trend in deregulation. However, that is like saying that McDonald v. Chicago and District of Columbia v. Heller will engender the complete deregulation of guns. Let's recognize the hyperbole for the logical fallacy it is.
  5. In a way, this is actually more problematic for big donors because now, big donors cannot use the excuse of "I've reached my limit under federal law." It's a distinct possibility that donors can get fed up and actually donate less. 
  6. If the Left is concerned about corruption through increased corruption, how about making Big Government less aggrandized? If there are less bureaucratic agencies and/or those agencies have less power and influence, there would be less incentive for campaign contributors to manipulate the political process. Ergo, if one cares about corruption, let's scale back the size of government.

Wednesday, April 2, 2014

Why the Earned Income Tax Credit Cannot Become the Silver Bullet of Poverty Reduction

The Great Recession and this stagnant recovery have shed some light on the issues of income inequality and poverty reduction. One particular debate that has recently arisen is the "Earned Income Tax Credit versus Minimum Wage." I started wondering about this after reading commentary from the Center on Budget and Policy Priorities (CBPP) regarding the Earned Income Tax Credit (EITC). Is one policy preferable over the other? Should we be implementing both, or for that matter, neither one? As for minimum wage, it should be no surprise that I do not consider it to be wise public policy. But what about the earned income tax credit? If Milton Friedman, one of the greatest libertarian economists in history, advocated for the earned income tax credit in the form of a negative income tax, shouldn't I find it to be sound policy? As much respect as I have for Milton Friedman, I have a mind of my own where I would like to take a look at the evidence and come to my own conclusions.

What was initially a small tax subsidy back during the EITC's inception in 1975 has transformed into a poverty relief program. The earned income tax credit acts as a form of a negative income tax that is supposed to assist low-income households with poverty relief. For individuals that make below a certain amount, rather than have to pay on the income tax, ones receives money in the form of a tax credit. Looking at the chart below (courtesy of the Tax Policy Center), there are three phases of the EITC. The first is the in-phase, which means that each added dollar of earned income receives a matching credit. The second level is the plateau, in which the additional income does not affect the size of the credit. The final phase is the out-phase, in which an increase in income translates to a smaller EITC. The credit continues to decline during the out-phase until one's income reaches the break-even point, which is when an individual no longer qualifies for the EITC.



Determining the net benefit can be tricky with something like the EITC. The first obvious cost is the decrease in tax revenue. The funds have to come from somewhere, and in this case, it would be the revenue collected from income tax. Furthermore, a Princeton University study (Rothstein, 2008) suggests that the EITC depreciates wages of low-skilled workers while harming non-EITC low-skilled workers, which is to say there is a distinct possibility that the EITC is actually trapping low-skilled workers in poverty. The Federal Reserve Bank of Chicago shows that when individuals receive their payments, they purchase healthier food (McGranahan and Schanzenbach, 2013). The downside to this benefit is that the EITC is one lump-sum, as opposed to spread out throughout the year, which means that the purchase of healthier food is more erratic because of mismanagement of money.

The EITC also comes with its benefits. The primary benefit of the EITC is that in increases employment (Meyer, 2010, p. 164-167), and the predominant research in the past 15 years illustrates that. Research also shows that it has a predominant, positive effect on single parents, which is great because single parenthood is shown to be the single largest factor in income inequality. The reason why the EITC incentivizes work is because one has to work to receive the tax credit. In theory, the phase-out of the EITC is supposed to discourage individuals to work because the EITC decreases with increased income. However, due to an inability of workers to freely schedule their hours and an imperfect perception of marginal tax rates, the concerns around phase-out are merely theoretical (Meyer, p. 168). Moreover, the EITC is shown to improve upon infant health (Hoynes et al, 2012), not to mention give a boost to K-12 scholastic achievement. The Congressional Budget Office also shows how the EITC can positively affect Social Security retirement benefits, which also erroneously assumes that Social Security is indefinitely solvent.

Furthermore, the EITC is a better tool for fighting poverty than the minimum wage, which is something economist David Neumark illustrates. Since most minimum wage earners are not in poverty, the EITC does a better job at targeting poorer households because the EITC is based on family income, and not the wage rate. The costs of minimum wage are squarely put on the employer, whereas the tax burden of the EITC is diffusely spread throughout the income tax base. More diffuse costs means that it is easier for employers to higher low-skilled labor than it would be when one implements a higher minimum wage. The EITC primarily focuses on households with children, which leaves single, childless individuals out to dry. The Brookings Institution just published a paper (Kneebone and Williams, 2014) showing how an expansion of the program would further aid childless workers and could rectify the situation.

For those of us who would like to shrink the size of government in a more incremental fashion, the EITC has some allure. Replacing the EITC or a basic income grant with the current welfare system would mean less government intervention. I understand that a direct cash transfer is still the government depriving individuals of a certain percent of their income, but at least with a direct cash transfer, the government doesn't tell the recipients of the cash transfer what they can or cannot spend the money, such as is observed in programs like the Supplemental Nutritional Assistance Program, aka the food stamp program. The other advantage of replacing the EITC with a welfare system is that it would reduce welfare caseloads (Meyer, p. 169), reduce administrative effort, and eliminate duplicative work, which would save taxpayer dollars. In theory, the EITC is supposed to be more clear-cut and targeted. However, the current implementation of the EITC is most bothersome.

The Mercatus Center points out that the government program with the highest improper payment rate is the EITC, which comes in at a whopping 22.7%. The high error rate is something both the Department of Treasury and the Government Accountability Office confirm. This might have something to do with the complexity of the EITC, which not only makes it difficult for qualifying recipients to navigate the application process, but also makes it difficult to enforce and detect fraud.

Until the improper payment rate is well in the realm of single digits, I could not possibly endorse that the EITC replace the current welfare system. Much like with the rest of the tax code, simplification of the EITC is a necessary first step so that a) low-income households are able to file for the credit without significant hassle, and b) payments are better applied. As previously mentioned, increasing the credit towards childless households could help with the perception that the government is punishing individuals for choosing to be single or childless. The EITC for those with children can be combined with other tax breaks to combine it into a single family tax credit.

Even with reform, I'm still skeptical. Much like the CBPP, I have my doubts about the EITC's overall efficacy, but for different reasons. I'm still worried about it being implemented without a high improper payment rate. I'm also worried about the political unfeasibility of removing the current welfare system because many of the programs are too popular to gut. I also think that a silver bullet policy is as rare as common courtesy these days. Although there will inevitably be other policies to help increase employment and reduce poverty, I foresee the EITC playing a more integral role in the "War on Poverty."


10-18-2015 Addendum: This policy brief from the Cato Institute highlights the work disincentives, the fraud, and costs to the taxpayer that might not make the EITC so alluring.