Friday, October 31, 2014

Kicking the World's Coal Dependency Would Be Such a Rocky Journey

Environmentalists are pretty good at vilifying coal. It emits a lot of carbon. It's dangerous to mine. Coal production emits pollutants like methane. It decreases air quality and increases risk of respiratory issues. It's non-renewable. "Clean coal" is an oxymoron. Coal is continuously under fire, yet for some reason, the world can't get enough of it. What is about coal that continues to draw people in?

The Manhattan Institute just published a report entitled Not Beyond Coal: How the Global Thirst for Low-Cost Electricity Continues Driving Coal Demand (Bryce, 2014), which answers that very question. If I had to summarize coal's appeal in one word, it would have to be "scale." There is a demand for coal, and given its availability, it is the world's most commonly used source of energy (see below).

Whether we're talking about American production or global production (IEA, p. 48), coal consumption consumption is not going anywhere for a while.

If coal is projected to have the greatest growth, then environmental experts predict that coal is not going away anytime soon. Even with modest growth in wind and solar power, we don't see a growth sufficient enough to handle the energy demands or keep costs down like coal can. This is all the more important for developing nations, for whom access to a cheap, viable energy source will be vital if they want their economies to grow. According to the study, anywhere from 671 million to 1.1 billion people gained electricity from coal-fired generators (Bryce, p. 9). It should become clear as to why coal has developed a love-hate relationship. It has its environmental impacts, but it's so good at providing energy en masse. If we want cleaner energy like solar or wind power, it not only needs to be cheaper, but be able to produce enough to meet energy demands. Until that day arrives, we should make sure that all citizens of the world have as much access to energy as possible with as few distortions to the energy market as possible. Instead of implementing cap-and-trade or a carbon tax, let's pour some money into research and development to speed up the technological progress of renewable energies. The "War on Coal" is much less constructive than creating more advanced technologies to make coal a cleaner energy (Bryce, p. 10). We have seen how natural gas, a cleaner energy source, can compete in the marketplace and reduce coal's share in the world's energy portfolio. Unless renewable energy can compete in the same way, there is no sense in using government policy to quash coal and deprive individuals of cheap and accessible energy.

Wednesday, October 29, 2014

If You Decide to Have Children, Get Married First

Love and marriage. Love and marriage. Go together like a horse and carriage. Those Cole Porter lyrics made me think of the importance of marriage as an institution. Marriage is not just about commitment. It creates stability within the household, and you don't have to be conservative to accept that premise. There is something to be said about marriage, where it's a heterosexual marriage or a same-sex marriage, as a framework of cohesion, and it's not something we should dismiss. Whether it's not wearing a bicycle helmet while cycling, smoking cigarettes, or having children before marriage, while we have the economic right to make stupid or unwise decisions, that doesn't mean that we should, and even if we do, we should at least be well-informed before making a decision. The American Enterprise Institute's (AEI) provides such good information in its latest study on the topic, For richer, for poorer: How Family Structures Economic Success in America (Lerman and Wilcox, 2014), and shows just how much marriage is the cornerstone of a stable family life to raise children.

Looking at pre-tax income ratios from 1979 and 2012 (see below), we see a major uptick in inequality between households with married partners and unmarried partners. A couple major changes seen in family composition is increase in divorce and more single-parent households. This results in households with lower income and wealth, which means greater income inequality and wealth inequality. How much of the increase of family-income inequality over the past 35 years can we attribute to a lower marriage rate? According to the AEI study, as much as 41 percent (Lerman and Wilcox, p. 12). If America maintained the marriage rates that existed in 1980, the growth in median income of families with children would have been a whopping 44 percent higher (p. 3).

What makes the AEI study different from Left-leaning economists that focus primarily on wage stagnation is that the AEI study focuses on less-educated males and their declining share in the labor market. Technology, globalization, and a shift to a service-dominant economy have caused the wages of men without college degrees to decline both in real terms and relative to women's wages (p. 14). As a result, less-educated men are less financially desirable, which attributes to the decline in the marriage rate among those who are less educated. The AEI study also proposes the alternative theory that the lack of commitment [via marriage] slackens men's commitment to work and providing for one's family (p. 15). Both higher wages and the commitment of marriage seem to improve upon a man's work ethic and wages.

Marriage is not only good for the partners involved, but also for the children. Aside from the fact that marriage means that there are more economic resources to provide for the children, the stable, two-parent home leads to increased economic mobility and a myriad of positive social outcomes, including increased odds of completing high school (p. 22), working more hours per annum (p. 24), greater economic and social mobility (p. 23), a higher income premium (p. 24), and increased labor force engagement (p. 17).

Although I find that AEI's research did a fine job outlining the income disparities between those who are married and those who are not, it is not as if this was exactly groundbreaking. Even earlier this year, a very thorough, longitudinal study done at Harvard suggested that single-parent households were the single greatest cause of less income mobility. Marriage is an overall, positive social good that should be encouraged (see AEI study, p. 51-55 for policy proposals to encourage marriage). Some might think the institution of marriage is passé, but the reality is that it is a time-tested, stabilizing force that provides the best welfare for children.

Monday, October 27, 2014

Would Piketty's Wealth Tax Help America Strike It Rich?

Economist Thomas Piketty has caused all sorts of hullabaloo with his book Le Capital au XXIe Siècle (Capital in the 21st Century) because his thesis states that because the rate of return on capital is greater than the rate of economic growth in the long run (r > g), this results in such an unhealthy concentration of wealth that it creates societal instability. Its depth and usage of data have gained the attention of those who want to bring income inequality to the forefront of political issues. I do not want to get into the economic nitty-gritty of r > g right now (also see here, here, and here) or even discuss the extent to which wealth inequality is an issue. I would like to go after his idea of a wealth tax.

Piketty's proposal is relatively simple. In addition to taxing the income of the richest citizens, tax their wealth, as well, in order to better reflect the vertical equity of the rich. A wealth tax is essentially a tax on the returns on capital. Piketty suggested multiple rate schedules (see technical index of his book here), but one in particular that he would implement is a 1 percent tax for wealth totaling €1-3M  and a 2 percent tax for anything exceeding €5M. The collected tax revenue could be distributed to those in need, thereby remedying some of the maldistribution. Considering how high the Social Security or income tax rates are, 1-2 percent sound reasonably low in comparison to what the rich are already paying. What harm could a wealth tax cause?

According to the Tax Foundation, quite a bit. The Tax Foundation published a study just a few days ago (Schuyler, 2014) using an economic model in attempts to measure the economic impacts of such a tax. Their main results included reducing employment by nearly 900 thousand, reduce wages, and have the GDP take a nosedive of $1T, all to simply collect a few extra billion dollars in tax revenue. We can go after the flaws that the model almost certainly has, and we could even go after the fact that the leanings of the Tax Foundation are contrarian to those of Piketty. I don't find the latter to be productive, but regardless, why would such a tax be so problematic?

Forget the fact that even Piketty himself calls the idea of a global wealth tax "utopian," mainly because trying to collect that tax on a global level without a global taxing authority is essentially impossible at this time. Even if we attempted that a wealth tax on the national level, it would still be problematic. The closest thing America has right now is the estate tax, which is only collected on inheritances. This is not simply a matter of asking whether the rich in this country "pay their fair share" or if the rich are being whopped with a form of double taxation because a wealth tax is a surtax on income. If we went went Piketty's suggestion of starting the tax at the equivalent of $260,000, it would hit a lot of middle-class Americans because it's not unreasonable to assume that they have that much in wealth. This would also disproportionately affect seniors who are trying to save up for retirement and have finally reached the wealth tax minimum. Even with a higher tax minimum, you still run into these issues, just at a smaller magnitude. As we see with the Tax Foundation study, a wealth tax would reduce wealth inequality, but it would also increase poverty. There is also the matter of liquidating illiquid assets for the purposes of paying the tax, which would further jam up taxpayers. If you need a small list of countries that have abandoned the wealth tax, here's one: Austria, Denmark, Germany, Finland, Luxembourg, and most notably, Sweden. Taxation has two primary goals: 1) tax revenue collection, and 2) disincentivizing behavior. What are we disincentivizing here? Wealth. Since it's easier than ever for jobs and capital to cross borders in our increasingly globalized world, the last thing America needs to do is further punish wealth creation.

Let's say that the Pikettys of the world didn't care that the wealth tax would increase poverty because wealth equality is the prime goal. Can you imagine trying to administer this tax? In order to measure one's wealth, the government has to be able to make an itemized list of every asset and every bit of capital an individual has. That would include housing, land, stocks, bonds, cash, cars, jewelry and antiques, retirement savings, the list goes on. If you think administering a value-added tax is problematic because its multiple stages increases the likelihood of tax evasion, imagine how much of an intrusive nightmare it would be to account for every last piece of wealth in one's possession. And this is not mere theory: this has been an issue in the past (Seim, 2014Pichet, 2007). It is easier to value bonds and stocks, but have fun trying to put a price on other assets! This inventory check would not be a one-time endeavor, either. It would have to be done on an annual basis, and I don't see the government capable of doing it, especially given how it currently administers current redistributive programs. Amazing how Piketty thinks that too much concentrated power in the private sector is so problematic, but when it comes to government, they are somehow immune. Go figure. Let's not forget that the Constitution (Article I, Section 9, Clause 4) prohibits direct taxation, which means that either the Supreme Court would have to rule in favor of its constitutionality or the relatively more likely occurrence of Congress passing an amendment for a wealth tax, which I don't see happening anytime soon. Valuation, administration, and collection: a trifecta that kills the wealth tax's possibilities of having any practical benefit or application.

Much like I brought up last Friday, we don't need to go after the ever-abstract concept of income inequality in hopes to redistribute wealth "more fairly." Why are we so focused on outcome when we should be focused on institutions, incentives, and processes? We need a way to encourage entrepreneurship and stimulate economic growth, and a wealth tax is simply not the way to go.

Saturday, October 25, 2014

"Death of Klinghoffer": First Amendment vs. Intellectual Honesty and Moral Decency

Tensions have arisen outside New York City's Metropolitan Opera House, or "MET" for short, over a controversial operatic piece called The Death of Klinghoffer. Why the controversy? Let's start with the actual story itself. Leon Klinghoffer was a 69-year old, disabled American Jew enjoying a cruise on the Achille Lauro with his wife to celebrate their thirty-sixth wedding anniversary back in 1985. Four hijackers from the Palestinian Liberation Front (PLF), a known terrorist organizations, commandeered of the ship, and took the passengers and crew hostage to put pressure on the Israeli government to release Palestinian prisoners. Since the Syrian government didn't allow the boat to dock, the PLF singled out Klinghoffer, shot him, and threw him overboard simply because he was a Jew. Voilà, a synopsis of the Achille Lauro hijacking of 1985. The Death of Klinghoffer was first produced in 1991, so it's not as if the controversy is new. The controversy reignited because the opera is being viewed at the MET and has received protest-worthy attention. The reason for its controversy behind the piece in the first place is that it presents the view of Klinghoffer and that of the terrorists as equally valid. Those who criticize the libretto opine that it is an anti-Semitic opera. It is moments like these that can simultaneously and truly test my libertarianism and my Judaism, not to mention my sense of moral decency.

Do I believe that such a piece should be censored? Absolutely not! We live in a country that very much protects the freedom of speech and expression via the First Amendment. We do not have the right to not be offended. To live in a free society, we need to be able to protect opinions we find unsavory or disagreeable. It doesn't take a genius to figure out the issues of the government censoring pieces that people find offensive. If you don't like The Death of Klinghoffer, don't go to it. Boycott it. Protest it. Put pressure on the funders of the MET. Downright government censorship does not do any favors for citizens in a free society. Conversely, this also means that the government should not be funding The Death of Klinghoffer, which is why it was dismaying to find out that $0.7M of MET funds come from the government (see MET financial statements, p. 17). Even though it's a small amount in comparison to the $140.8M, the government has no business in funding the arts.

That being said, a free society implies that there is a vibrant, intellectual marketplace. Ideas are free to expressed, and ideas are also free to be criticized. To quote the daughters of Leon Klinghoffer, "We are strong supporters of the arts, and believe that theatre and music can play a critical role in examining and understanding significant world events. 'Klinghoffer' does no such thing. It presents false moral equivalencies without context and offers no real insight into the historical reality and the senseless murder of an American Jew. The opera rationalizes, romanticizes, and legitimizes the terrorist murder." For both conductor John Adams (also see hereand Peter Gelb, the director of the MET, the opera is presented to understand the other side, and to understand the motivations of those who would commit such an act. If The Death of Klinghoffer was merely a springboard of discussion, why cancel the global simulcast?

I know that one of art's potential functions is to provoke the consumer, but who cares if the PLF had profound motivations or grievances? People who commit despicable acts have had grievances or profound motivations, and there are plenty of issues that merit and require nuance. However, there are some issues that are quite simple, and I wish more people and the moral fortitude to say so. There is no other side to this scenario. To quote Judea Pearl, Daniel Pearl's father, "We do not stage 'nuanced' operas for rapists and child molesters, and we do not compose symphonies for penetrating the minds of ISIS executioners. Some coins do not have two sides. And what was done to Leon Klinghoffer has no other side. What we are seeing in New York is not an artistic expression that challenges the limits of morality but a moral deformity that challenges the limits of the art."

There is a fine line between maintaining a sense of open-mindedness and regressing into moral and intellectual relativism, and the defenders of The Death of Klinghoffer have crossed that line. Go down this path and we might as well give equal credence to Flat Earthers or 9-11 Truthers. We should be able to have the intellectual honesty to call a spade a spade: rationalizing, romanticizing, or legitimizing coldblooded murder under the guise of a non-existent moral equivalency is not art, but morally reprehensible propaganda.

Friday, October 24, 2014

Note to Janet Yellen: Income Inequality Isn't Killing the American Dream

Federal Reserve Chairwoman Janet Yellen made a bit of a splash last week during her address last week on income inequality last week when she said that "the extent of and continuing increase of inequality in the United States greatly concern me." After highlighting the income inequality, Yellen highlights what she considers the four blocks of opportunity: education in earlier years, college education, ownership of business, and ownership of wealth. According to Yellen, if America had greater access to education and increased business ownership, the problem of income inequality would be solved. After taking a look at Yellen's address, I thought to myself not only that Yellen's concern for income inequality is overstated (see this fine report by the Manhattan Institute that elucidates upon that point), but even if income inequality is a concern, she should look in different places for solutions. It wouldn't be any fun if I simply left you with that, so I am going to delve into further detail as to my criticism of Yellen's address.

A lot of the issues that I will bring up with her analysis of income inequality are ones that I have brought up in the past both when discussing income inequality and wealth inequality. With that being said, I have to start by taking issue with the data she is using. I understand she wants to use the Survey of Consumer Finances (SCF) because they are data that the Federal Reserve generates, but there are other data sources that go back further than 1989. Capturing only 25 years of data does not tell the whole story, especially if you pointed out to Yellen that wealth inequality is lower now than it was in 1989. Second, she groups households into the top 5 percent, next 45 percent, and bottom 50 percent. The income groupings she uses (see below) are so vague that they really don't provide much substance. Grouping in quintiles, for example, would provide me with more information.

Third, her figures are based on cross-sectional data. This is problematic because when looking at Yellen's charts, it makes the assumption that people remain in certain income groupings, i.e., there is no income mobility whatsoever. While there is less income mobility than there was in the 1950's or 1960's, income mobility still very much exists in America (see Federal Reserve research here as an example). A highly regarded study published earlier this year (Chetty et al., 2014) found that in spite of the increased income inequality, income mobility has not really changed since the 1970's. Fourth, the composition of the household has very much changed since the mid-twentieth century. What do I mean by that? To quote former chief economist of the U.S. Labor Department Diana Furchtgott-Roth, "the size of households has changed since 1980, contributing to perceived inequality. With the increased prevalence of divorce, delayed marriage, and longer life expectancy, there are more households composed of one person, or non-family households. These households tend to be in the bottom quintile." Households with two earners fare better than households with one earner. More households with one wage-earner is going to cause a bigger disparity. Fifth, Yellen's analysis is presumably based on pre-tax income. Looking at after-tax income with government transfers paints a slightly different picture. Sixth, even when adjusting for inflation, measuring income is insufficient in terms of accounting for the increased quality of consumption that we have experienced in recent years, which is why Yellen's accusation that income inequality caused "significant wealth and income gains for those at the very top and stagnant living standards for the majority" is a specious one. We should be looking at how peoples' lives are improving in absolute terms, not in relative terms.

It is peculiar that the head of the Federal Reserve is expressing such concern since Yellen does not have control over education or wealth allocation. The Federal Reserve has issues with fulfilling its dual mandate of controlling inflation and decreasing unemployment, so I don't know what all it can do to help with income inequality. I also think it's peculiar that Yellen is giving such a speech, especially the Federal Reserve has arguably caused income inequality with its quantitative easing, although I would argue that the Federal Reserve completely dismantling from the gold standard has done a bang-up job of devaluing the dollar, as well as keeping interest rates near zero percent.

Even if Yellen is simply using her bully pulpit to advance the issue, I still found the address unsettling. She didn't explicitly give policy recommendations, but given her adherence to Keynesian school of economic thought, it's not unreasonable to assume that she would want the government to do something about these issues. She said in her address that "public funding of education is another way that governments can help offset the advantages some households have in resources available for children." The problem here is that public funding of education hasn't been working too well to help. The government implementing universal preschool has been a debacle, not to mention that keeping interest rates artificially low on college student loans has caused that mean education debt to mean income ratio you mentioned to increase. Speaking of keeping interest rates low, the government pressuring banks to keep interest rates low on housing loans was a major contributor to the bursting of the housing bubble, which would help explain why those in the bottom 50 percent lost their wealth during the Great Recession (i.e., their wealth was tied up in the illiquid asset known as their house). None of this even gets into her assertion that "social safety-net spending is an important form of public funding that helps offset disparities in family resources for children" because that would be too time-consuming right now. I've written on poverty and welfare issues before, so you can look here if you want my two cents on the matter.

If you want to help the American people out of this economic sluggishness, you need to create an environment that inculcates economic opportunity. This means that the government needs to implement policy that encourages, rather than stifles, economic prosperity. I'll give a few examples. If Yellen thinks business ownership is a key to reducing income inequality, she should advocate for reducing barriers to entry such as occupational licensing. The Mercatus Center just published a study showing how employer-based health insurance is causing a huge spike in income inequality, so why not remove this antiquated tax break? Competitive markets incentivize businesses to come up with more innovative ideas than monopolies do, so why not provide public-sector unions or public schools with some competition by encouraging alternatives to the status quo? Unemployment benefits don't help, and neither do high income tax rates or other onerous regulations. These are but a few ideas of what can be done to help the American people. Going after the "income inequality" boogeyman isn't going to solve anything. If you don't bludgeon American businesses with taxes and regulations that hold back entrepreneurship, it will be much easier to live the American dream.

9-10-2016 Addendum: The Cato Institute recently published a paper on five myths about income inequality, particularly with the extent to which it affects poverty.

Wednesday, October 22, 2014

Islamophobia in America? So Blown Out of Proportion

America's relationship with Islam has not been the same since September 11, 2001. The last time a foreign entity attacked America was Pearl Harbor. The 9-11 attacks left a mark on the American psyche, one that very well might not heal within my lifetime. Given the magnitude, it should be no surprise that we see some backlash from it, even now. About a couple of weeks ago, Bill Maher goes after Islam and points out how those on the Left tend to have a double standard for Islam and other world religions. For Maher, those on the Left talk about values like women's rights, LGBT rights, free thought, and democracy, but when it comes to Muslims, they somehow get a free pass. Sam Harris went even as far to say that "Islam is the mother lode of bad ideas." The leftists over at Vox think that Maher is not an anomaly, but rather a reflection of the prevalence of the Islamophobia in America. Is this accusation true? Are Americans fearful of Muslims and/or Islam? And if this fear exists, how does it impact Muslims in America?

Islamophobia is yet another hot-button term that gets thrown around all too freely, so let's define it. The term Islamophobia is a neologism formed with the word "Islam" and the suffix "-phobia," meaning "[illogical] fear of-" or "aversion to-." Put them together, and you have "a fear of/aversion to Islam." Part of the problem is that the term is not merely describing the Islamic religion or a growing concern about Islamic extremism, but extended to the entirety of the Muslim people, as well. I don't say this because I think discrimination against a group of people is a good thing. Of course it's a bad thing! In order to live in a pluralistic society based on freedom, you need to be able to live in a place where people are different from you. Racism and bigotry have no place in the modern world. However, when one conflates a group of people versus religious ideas and the implementation thereof, one can merely cry "Islamophobe" to shield Islam from any criticism whatsoever. The other part of a free society is that in an intellectual marketplace, no ideas are free from criticism. If it's a bad idea, we should criticize it, regardless of origin. With that being said, I would like to see what polls have to say about how Americans view the topic.

Back in July, Pew Research asked Americans how they feel about various religious groups. Jews, Catholics, and Evangelicals were rated the highest, whereas atheists and Muslims were at the bottom of the list. Gallup has an interesting piece on Islamophobia on a more global level. Even those who have no animosity towards Muslims as a people, a third of them still have an unfavorable view of Islam. Yes, ignorance and a lack of education increase your odds of being anti-Muslim. Nevertheless, there are those who have a problem with the religion itself. There is another 2010 Gallup poll shows that the greatest religious prejudice is towards Muslims. The polling over at Zogby Analytics doesn't even show a flattering view of Muslims. On the other hand, the public is divided as to whether Islam is more violent than other religions.

Let's steer away from polling from a moment because it is methodologically limited, partially because polls only measure what they think [or do], not what they actually think. If Islamophobia is so prevalent, we should see institutionalization or at least some form of its manifestation. I'd say that violence against members of a certain religion group is a good place to start. If Islamophobia were that widespread, we would see a lot a hate crimes against Muslims. If we look at FBI Hate Crime Statistics, we can see if Muslims are the most common target. Muslims are 0.8 percent of the population (Pew Research, 2010 estimate), and in 2010, there were 160 incidents. Compare that to the 887 anti-Jewish incidents in the same year. Even when adjusted for population, a Jew in America is almost three times more likely to be a victim of a hate crime than a Muslim. With this logic, America has an even bigger Antisemitism problem, which I don't think even really exists in the first place in America. Although any crime against someone based on their religion is a shame, based on the numbers, would you consider this at epidemic proportions? Hate crime statistics do a fine job of deflating the veracity of Islamophobia. One could argue just because the Islamophobia isn't violent doesn't mean it isn't virulent. Income distribution for Muslims isn't particularly disparate compared to other mainstream religions, and the United States government doesn't implement a tax on Muslims that is comparable to the جزية, a tax levied on non-Muslims under Muslim rule simply for being non-Muslim. Are Muslims being deprived of exercising their First Amendment rights? Considering that there are over 2,000 mosques in this country, I hardly think so.

This is not to say that there aren't any individuals who discriminate against Muslims or feel prejudice towards Muslims because there are. I'm not here to excuse bigotry because it is inexcusable. However, if one is going to lecture about pervasiveness of a phobia, there had better be both context and substantiation. First, is discrimination against Muslims worse than it has been or is against other minority groups in America? Second, how are non-Muslims treated in Muslim-majority countries? Third, how is the quality of life for a Muslim in America versus that of the average, Muslim-majority country? If you're going to bludgeon the American people with charges of human rights violations, try to do so with a more global perspective in mind. Fourth, a phobia is defined as an irrational fear. Is there some rational basis for the fear? Looking at religious and historical context, Islam cannot be considered a religion of peace, which is worrisome for those purporting that it is. Islamic countries are authoritarian regimes that quash civil liberties, limit economic freedoms, and oppress women, non-Muslims, and homosexuals. Plus, when you look at the Muslim support for things such as implementing sharia law (شريعة) or suicide bombings, it's not comforting that these views are a bit more mainstream than merely "being on the fringe." If Muslims want to prove to the rest of the world that Islam can be more open and tolerant, they really need to step up to the extremists and defend their faith to the point where there's a reformation in the Islamic world.

Most importantly, how prohibitive is it in terms of Muslim citizens living the American dream? Muslims are still free to acquire gainful employment, associate with whomever they wish, and observe their religion. The typical Muslim in America lives a higher-quality life than the typical Muslim under Islamic rule. While American governance isn't perfect, the truth of the matter is that America is far from being an Islamophobic country.

Sunday, October 19, 2014

Containing the Folly of Travel Bans Being Able to Stop the Spread of Ebola

The news about the virus Ebola is spreading like wildfire, which is a much faster rate than Ebola itself. I tried putting off writing anything about Ebola for as long as possible because of the hype surrounded around the issue. Then I realized it was time to write something because of one of the proposals to stop the spread of Ebola gaining popularity by the majority of Americans, i.e., instituting travel bans. What a travel ban essentially means is that the government prevents any flights coming from Ebola-ridden nations. The intuition behind the travel ban is that the ban would at least contain the virus to the countries of origin, thereby sparing the rest of the world having to go through a pandemic. It's not simply a matter of the government limiting freedom of movement that I find irksome. Whether it's transfats, marijuana, plastic bags, or selling human organs, the government implementation of bans are ineffective and most probably come with unintended consequences. I can anticipate the following counterargument: "Well, wait a second. This is an exception to the rule because we are dealing with a public health issue. Viruses aren't the same as people. People at least have free will and impulse control. Viruses are created to infect, and especially if we do not have a cure for Ebola yet, we need to contain it." It makes for a compelling argument, but can it withstand scrutiny?

The first question I have to ask is if a travel ban is even necessary. Many airlines already de facto self-regulated by canceling flights from those countries about two months ago. Even if the airlines were completely oblivious to the danger presented and continued to allow flights into West Africa, the travel ban would still be a counterproductive measure. The most comprehensive study on the issue (Gomes et al., 2014) showed that even with an 80 percent reduction of airline traffic to the affected areas would only delay the spreading of the virus by a few weeks. As the director of the Center for Disease Control has tried to explain, it is unrealistic to "seal up a country" because even in the improbable hypothetical of having the sheer international coordination to account for connecting flights, people will find still a way out. If you really want to be cautious, America should simply cut off all travel and commerce for all countries for two months, but that would simply be economic suicide.

Paradoxically enough, by constricting travel, you prohibit the movement of volunteers, doctors, supplies, and aid needed to help contain the epidemic. This will not only exacerbate the humanitarian crisis in the currently affected countries, but will make it more likely that the rest of the world will have issues keeping Ebola contained. As an additional point of order, since the virus is not airborne and can only be contracted through direct contact [with the bodily fluids of someone already infected], the World Health Organization recommends that travel bans not be instituted.

Yes, we should work on mitigating the situation because as the the World Bank points out, this could cost billions of dollars. If we should have learned anything from the SARS or N1H1 epidemics, it is that travel bans don't work. We need to eliminate the virus at its core and make sure that the infected individuals can have the medical resources to be quarantined, thereby containing Ebola. Advancing medical progress, instead of implementing travel bans, is the best way to prevent a pandemic.

Wednesday, October 15, 2014

Can We Bloody Well Blame Video Games for Gun Violence?

Considering that gun violence has been on the decline and mass shootings constitute roughly one percent of overall gun homicides, I think that the media coverage on mass shootings is overblown. Even so, there is a preponderance of questioning as to why these unfortunate shootings occur in the first place. One theory that has become popular, and has even garnered favor with the National Rifle Association, is that of video games causing increased violence. The premise is that the violent images in video games desensitize the gamer, thereby making the individual more prone to violence. Since video games are a way that people, and children in particular, interact with the world, there is certainly intuition to the video game violence theory.

Before we even delve into the studies, a brief word about the theory itself. In order to prove causality, you first need to have correlation. Without it, you can't say something like "video games cause an increase violence." For the more simplified version of the theory to work, an increase in video game purchases would lead to an increase in violence. However, as Max Fisher over at the Washington Post illustrates, there is no correlation between video games and violence when looking at the ten largest video game markets. This is not to say that it is not possible for video games to increase violent tendencies in certain individuals, but rather that on the aggregate, it does not seem to have an effect on overall violent crimes, especially since the rate of violent crimes has been decreasing since video games started becoming prevalent in the mid-1980s. The reason why it is difficult for the "video games causes violence" theory to work is because video game consumption has increased substantially while youth violence is at a forty-year low.    

Going to the studies, the truth is that some studies show increased aggression (e.g., Greitemeyer and Mügger, 2013; Delisi et al., 2012) while others show no link between video games and violence (e.g., Parkes et al., 2013Ferguson et al., 2011). Oxford just came out with a study (Przybylski et al., 2014) showing that if there is any aggression, it doesn't come from the violent nature of the games, but the frustration of being incapable to master the technology and the game itself. Also, back in 2011, even the Supreme Court thought the connection between video games and violence was spurious, which would explain its 7-2 ruling in Brown v. Entertainment Merchants Association. The Australian government came to similar conclusions to those of the Supreme Court. Millions of people play video games, but the vast, vast majority don't go out and kill others because "the video game gave me the idea." If anything, it can be used as an outlet for one's violent tendencies, or to put in economic terms, video games have a substitution effect for the real thing (Cunningham et al., 2011), which could potentially help explain the decrease in violent crimes (Gunter and Daly, 2012). After all, there is a difference between aggression and downright violence.

How does this affect how we approach video games in a public policy sense? One is that we have not addressed that video games also come with benefits (Granic et al., 2013). There are a good amount of consumption goods that come with risks, like alcoholmarijuana, or even sugar and trans-fats. At the very least, we should look at the benefits, as well as the costs, before rushing to a decision with regards to video game regulation. If you are going to even begin regulating video games in such a fashion, you better have a less specious reason for doing so. The second is that we have an issue with whether video games cause violence or whether it is merely a manifestation of children that are already violent, i.e., possibility of reverse causation. There is also the possibility that the video games are a reflection of the social milieu, and not a cause of it. Third, people come with free will. To reiterate, millions of people play video games containing violence, and they never go out and harm another living soul. Video games have not been even remotely shown to diminish one's free will, and we should not allow individuals to abscond from the consequences of their actions simply because they have played Call of Duty. We are responsible for cultivating our minds and how we interact with the world. Even when discussing children, it is prudent to point out that parenting should be in the hands of the parents, and that they have a more individualized understanding than a blanket prohibition or regulation that the government could provide. It's amazing what civic pressure and peaceful social interactions can accomplish. If we are going to go down this road of censorship, we might as well start banning comic books, the Internet, movies, certain music, or other literature, none of which is conducive to a free society. Fourth, if the relation is that causal, why don't we have a lot more murderers on the streets? Gaming has become so widespread that a causal link would be obvious by now. Fifth, the industry is self-regulated through game ratings through such organizations as the Entertainment Software Ratings Board. Finally, if we want to address violence, video games are a peculiar place to start. We should look at facets like mental health or even societal views on masculinity to help get at the root of gun violence instead of tenuous connections with little to no evidence.

Monday, October 13, 2014

Parsha Bereshit: A Genealogy Lesson In Love for Human Beings and the Golden Rule

After Cain murdered his brother, Abel, he tried to move on from the abhorrent sin he had committed. Normally, parents try to stick by their children through thick and thin, but something like Cain committing fratricide makes it difficult to the point where Adam had to disassociate. We see Adam starting anew after Abel's murder, most notably with the genealogy of the generations of Adam (Genesis 5). Throughout this genealogy, we see the Torah list ten generations from Adam up to Noah and his children, all the while not mentioning Cain a single time. Why does the Torah go through the trouble of providing us with a genealogical tree?

We are given a hint right at the beginning as to what is going on:

זה ספר תלדת אדם. ביום ברא אלהים אדם, בדמות אלהים, עשה אתו
This is the book of the generations of Adam. In the day that G-d created man, in the likeness of G-d He made him [man]. -Genesis 5:1

According to Rabbi Akiva, the single most important facet of Torah is Leviticus 19:18, which has the famously quoted verse of "Love your neighbor as you love yourself." Ben Azzai actually disagreed with Rabbi Akiva and said that aforementioned verse of Genesis 5:1 is actually even more important than Leviticus 19:18 (Sifra). How is the preface to a genealogical entry more important than loving your neighbor? The passage is to show that we are all descendants of Adam (Nachmanides on Genesis 5:2). I don't want to get into a tiff about how G-d can prohibit incest when according to the פשט (more literal or surface reading) of this verse shows that mankind was conceived out of incest.

Like I typically do with hermeneutics, I like to go for a more figurative interpretation of the verse (דרש), which is what Ben Azzai did here. By tracing the entirety of the human race back to one human being, Ben Azzai was pointing out that we all have one Creator. As Mishnah Sanhedrin 4:5 points out, mankind was created with one common ancestor so that no one can say that "My ancestor was greater than yours (also see Jerusalem Talmud, Nedarim 9)." We are not meant to simply care about those who live down the block or go to the same shul as us. We are supposed to care about other human beings because we are all created in G-d's image. It might be easier to care about those who are more similar to us, but the Torah is teaching us to transcend our human tendency to associate with those with whom we share more things in common and help someone, regardless of religion, because they are created in the likeness of G-d. Ben Azzai might have had a point: how could "the Golden Rule" make any sense "without the presupposition of the absolute unity and equality of the human race as created by G-d (JPS commentary, p. 41)?" Much like the biblical account of humanity having a single origin, the mitzvahs that Jews have to follow, particularly those of an interpersonal nature (בין אדם לחברו), have a single genesis, without which would strip Judaism of its ethical core.

Saturday, October 11, 2014

Why We Shouldn't Be Big on Banking on the Small Business Administration

The Small Business Administration (SBA) is one of those bureaucratic agencies that hardly gets any coverage. What does the SBA even do? According to its own documentation, the SBA "ensures that these [small] businesses have the tools and resources they need to start and expand their operations and create good jobs that support a growing economy and strong middle class." The government wants to help the little guy who wants to live the American dream. What could possibly be wrong with that? Well, the the SBA is another example of government having good intentions, but their policies having the opposite effect of what was intended.

What do I mean by that? One of the primary ways that the SBA provides resources is through government-backed guarantees on loans. The SBA was created back in 1953 to help smaller businesses have access to loans that they otherwise would not have acquired from conventional lenders, or to put it in more economic terms, we're dealing with government subsidizing supply. The reason for these subsidies is to deal with the alleged market failure known as information asymmetry that exists between lenders and borrowers because banks supposedly cannot discern between high-risk and low-risk borrowers. Keep in mind that lending relationships, credit scoring, and credit rationing all exist to mitigate information asymmetry.  Additionally, from an insurance standpoint, if the government is willing to unconditionally pay up to 85 percent on the principle of a given loan, it creates moral hazard, which is why the banks end up being the real winners. So is this all economic theory or is there some substance to SBA opposition? A recent study over at the National Bureau of Economic Research (Young et al., 2014; also see here) measures the direct and indirect effects of the SBA's interventions. Among the findings were that for every increase in SBA loans per capita, we see a two percent decrease in income growth. The study also found negative spillover effects in neighboring counties.  

The Government Accountability Office (GAO) just published a report back in April showing the inefficiencies of its loan program. The GAO has highlighted other SBA deficiencies, including being inefficient at documenting "credit elsewhere" decisions or implementing justifications for 8(a) sole-source contracts. It should also be no surprise that the SBA hasn't helped because its selection process is so arbitrary. Out of 27.5 million small businesses, only 271,000 small businesses receive SBA loans (SBA, p. 30). Other issues I have with the SBA include vague criteria for taking out an SBA loan, waste and fraud, the harm it causes it other businesses (de Rugy, 2006), or having the taxpayers being on the hook for $59.4B on unpaid principle (Congressional Research Service, 2013, p, 13).

Every high-risk venture does not translate into success. What clairvoyance does the government possess to determine whether a certain business would succeed? After being in existence for over 60 years, it has become clear that the SBA is not possess the ESP to help the little guy. Much like the Export-Import Bank, the SBA only perpetuates rent-seeking and arbitrary, ineffective public policy that has regrettably become standard for American governance. It would be nice to reform the SBA, but I think that simply eliminating the SBA and letting the private sector help small businesses find ways to secure loans (e.g., crowdfunding) is right on the money.

Wednesday, October 8, 2014

Should Americans Be Open to the Idea of Open Borders?

Immigration reform is one of those topics that invoke some major emotions in people. If I said America's immigration policy could use some more work, that would be an understatement. Let's face it: we could use more legal immigration fast. But open borders? It's one of the simplest forms of immigration reform, and it is one that is recommended by economist Bryan Caplan. What about national security issues or protecting American jobs? Having open borders seems like a straw man argument more than anything. If America simply opened its borders wide open, wouldn't it just be complete chaos?

From an economic standpoint, it's a consensus among economists that allowing for the liberalized movement of capital and goods is an overall economic benefit. In a free society, if we strive to have goods and capital move freely, that same principle should apply to labor, as well. In this case, the economic case for further legalized immigration is solid. This would mean doing so in its purest form. We encourage labor movement in an interstate fashion, so why is it suddenly a problem when we apply that to the international level? Furthermore, restricting immigration curtails the freedom of movement for millions across the planet.

Let's consider the costs, not to mention the level of government intervention, to enforce our borders. How about the $5.5B per annum we spend on Immigration Customs and Enforcement alone? Let's not forget other costs, such as people dying when crossing the border, the fact that the United States' Cold War foreign policy attributed to the conditions that encourage migrants to flow to the United States in the first place, border control spending, a larger underground economy, perpetuating the inaccurate stereotype that undocumented workers are nothing more than moochers, as well as corrections spending to incarcerate those we label "illegal immigrants."

It's not as if there isn't precedent for the idea of implementing open borders. The European Union de facto allows open borders for member countries through the Schengen Agreement. There are similar agreements between varying countries, including Australia and New Zealand, India and Nepal, Ireland and the UK, and Belarus and Russia. Not only that, having very open borders was American immigration policy for much of the 19th century.

I think the argument for open borders is a strong one (see here, here, here and here). Unfortunately, most Americans don't see the importance or need for more immigration. As a matter of fact, a plurality would like to see immigration decreased instead of increased. The Overton window, or the idea that only politically feasible ideas are the best ones to pitch, is the single largest hurdle from ever making open borders, or even more open borders, a reality. Even if you want to factor in national security concerns and have at least some restrictions, the trend should be towards immigration liberalization, not away from it. Since closed borders denies the freedom of movement, one of the most basic freedoms out there, the burden of proof should go to those against open borders, especially when considering the billions of dollars the global economy loses out on as a result (Clemens, 2011). In a polemic environment, that is how burden of proof works, but I know it's far from the case when dealing with the political process. The best chance that America has for having anything resembling open borders is to keep advancing the economic and moral arguments, and hope that Americans can change their minds on the issue.

10-20-2014 Addendum: See this good argument for a libertarian case for open borders.
11-17 2015 Addendum: An interesting deontological, libertarian argument against open borders and how open borders are actually an assault on private property.  

Monday, October 6, 2014

The Shmita Year: Why Care About Giving The Land a Rest in the 21st Century?

For the first time in my life, I am religious enough to be interested in and care about what שמטה (shemita; sabbatical year, literally meaning "release") is. In the Torah, an agricultural cycle lasts for seven years. On the seventh year, we are meant to let the land [of Israel] lie fallow (Exodus 23:10-11, Leviticus 25:1-7), which means no plowing, pruning, harvesting, or planting agricultural goods in the land of Israel. The only form of agricultural work that one can do during שמטה is preventative in nature, e.g., watering, weeding, trimming. There are many halachot (laws) surrounding this practice (see here), but what I want to get into is why we should care and if there is anything we can apply to our own time. Back in ancient times, Israel was a predominantly agrarian society, which meant that agricultural production was very much the lifeline of our ancestors. Not tilling the land for a year was even a bigger leap of faith than taking off one day of the week. Since the time of the Bar Kochba revolt in 136 C.E., the practice of שמיטה was more legal theory than anything else. It was only when Jewish farmers were returning to the land in the late 19th century did שמטה start to have practical applications once more. As a side note, since I don't want to get into the halachic argument right now (also see here), because the land was not fully developed and Jews did not have enough food during the שמטה year, the rabbis invented a legal fiction called the heter mechira, which stated that a Jew could sell his land to a non-Jew during שמטה. Although I think it defeats the purpose of שמטה, the Chief Rabbinate permits this leniency.

None of this is to say that שמטה does not have any practical applications in our time because Israel still has an agricultural sector. It's simply that agriculture represents only 2.5 percent of Israel's GDP, which means that Israel's economy would hardly take a substantial hit, and certainly not in the way it would have for ancient Israelites. Even though Jews are used to living in economies that are predominantly non-agrarian in nature, is there something that we can still take away from this age-old practice?

Overworking the Farmland, Environmental Sustainability, and Consumption Patterns
One of the more obvious reasons for having שמטה is that we give the land a rest because it can use a break (Maimonides, Guide for the Perplexed, 3:27; Sefer HaChiniuch, mitzvah 84). Resources can be over-utilized, and if we run what we have into the ground (pun intended), then it cannot be sustainable in the future. The fact that the Torah had a message of environmental conscientiousness and resource sustainability centuries ago is simply amazing. I don't need to be Left-leaning individual to realize or care about the ramifications that our actions have on the environment. Not only can I be an observant Jew and care, but I believe that we have an obligation under Jewish law to care. שמטה is an indictment on our consumption patterns (more on that below). We cannot simply consume whatever we want; Judaism puts limits on what and how much we can consume. In an environmental context, we only have so many resources. How we best allocate scarce resources is at the very heart of economics. Whether we talk about consumption in meat, plastic bags, light bulbs, or whatever other goods we consume, we should take שמטה as a time to look at our consumption patterns and see how they affect the planet. For more on environmental impact and שמטה, read this article from Canfei Nesharim, an Orthodox, environmentalist organization.      

Food Security, Providing for the Poor, and Communal Responsibility
Judaism highly values making sure that those in the community at large are able to have basic amenities. Even with a respect for economic progress (see below), we are still obligated to help those who need it, which is emphasized once more during שמטה. During שמטה, we are to let our land go and allow for the produce to be open to the community so that the poor may eat (Exodus 23:10-11). Right before this verse are reminded that we were once strangers in the land of Egypt (Exodus 23:9), which is to say that we take some economic risk because we are to help those who are downtrodden. Looking at the verses in Exodus 23 leading up to the verse about שמטה, we see an undeniable motif of what justice is and how to pursue it. No man is an island, and Judaism teaches that we are our brother's keeper. שמטה provides us with another opportunity to live up to the ideals of justice and communal responsibility.

Overworking Ourselves
We live in a rat-racer society, no questions about that. If it weren't for Shabbat, we would constantly be connected to Facebook, Twitter, or our email accounts. We constantly push ourselves to unbearable limitations that run us ragged, and there are times when having Shabbat simply isn't enough to avoid this state of affairs. If I were to apply שמטה fully to a 21st-century, service-based economy, I would say "Take off work for a year." For the vast majority of us, that sort of applied extrapolation would not work in the real world, which is why I would suggest taking שמטה as an opportunity to turn it down a notch and give ourselves a bit of a rest. This can be a time to exert some digital discipline (see here) and have a healthier relationship with digital media.

Material Wealth Isn't the Be-All and End-All
Yes, Judaism has a special place for protecting and respecting property rights. Why have a commandment against stealing if it weren't there? Conversely, what שמטה helps us realize is that material gains aren't everything. This is not only true in regards of שמטה being a time of letting the land rest, but also because שמטה is a time in which one is to forgive loans (Deuteronomy 15:1-11). After acquiring a certain amount of material wealth (estimated at around $75,000 USD in 2014 real dollars), money doesn't really provide additional happiness. שמטה acts as a cap on pursuing material wealth. It is meant to be a wake-up call to what is important, which is all the more relevant in a consumerist, materialistic society that emphasizes self-indulgence and hyper-individualism. We cannot remove all material consumption from our lives, but we can at least put it into perspective. What שמטה does is challenges our sense of self-entitlement in the material world. Our material goods are not extensions of ourselves. They are separate entities, and we should keep that in mind.

Gratitude and Faith: Spirituality and What Is Truly Important
Faith in G-d is one of those tricky topics for me to discuss, even Jewishly, simply because I do not believe that G-d is personal. It is tricky because the idea of faith is one that is explicitly addressed in the Torah when discussing שמטה (Leviticus 25:18-22). When the Jewish people wonder how they are going to survive the שמטה year, as well as the following year (since it takes a year for produce to fully grow), G-d says that there will be enough food to last for three years (ibid., 25:21). I don't think of this passage literally as "I will make everything hunky-dory." It's not that simple. If that were the case, there wouldn't be poor people, and we wouldn't have to worry about the suffering that goes on in the world. Faith is not about passivity. It is about pursuing justice (see above) and knowing that even if life doesn't go the way we want it, G-d has given us the faculties to improve upon our situation. Just coming out of Yom Kippur, our ability to change, adapt, and find ways to improve are within our grasp. I find that another release that we are supposed to experience during שמטה is that of our anxieties tied to the material world. Rather than feel angst about paying bills, we should be satisfied with what we do have. What is implicit in the message of שמטה is that through a time of depriving oneself of economic production, we should be thankful for all of the material wealth we have amassed. There is so much more to life than material wealth, which is why שמטה is a time to focus less on the material and focus more on spiritual pursuits.

Postscript: There is a lot going on here. A lot of themes, a lot of spiritual facets to consider. I understand that these ideas come from Torah, and while I find them to be noble and enlightening concepts, I still have to ask myself how realistic it can be to implement. The idea behind שמטה comes off as very Messianic. Most people cannot take off a full year of work for spiritual pursuits. Not only did modern rabbis come up with the heter mechira to get around letting the land lie fallow, but R. Hillel created the prozbul (פרוזבול), which is a legal fiction to bypass the annulment of loans on שמטה. If G-d were so gung-ho on us observing שמטה, why would He make the gap between the ideals embodied within שמטה and reality so vast? This comes back to the paradox of striving towards ideals and contending with reality. It would be fantastic if the Jewish people, or even the entire world, could make the sudden shift to these ideals. There would be a lot more tranquility and a lot less strife. However, it's too much to ask at this time. Much like with Yom Kippur, we are asked to do the best with what we have. We keep to as many of the legal aspects regarding שמטה as possible. We try our best to annul debts. As much as we want to follow G-d's law to the letter, there are just times where reality gets in the way here, which would help to explain the legal fictions created by the rabbis to ensure that the economy can continue. This is not to say that we should continue to work towards the ideals of שמטה. Quite the opposite! You don't necessarily have to stop working, but you can work less (if possible), worry less about your finances and material wealth, and/or make a deeper commitment to Torah and spiritual pursuits. There are many ways we can bring שמטה into our lives, and the Jewish organization Hazon has a really great sourcebook with ways of going about that, as well as insights about שמטה. Whether you go to Israel to enjoy שמטה produce, gain a sense of work-life balance, donate your money to feed the poor, or whatever shmita-related activities you decide to pursue, I hope that you have a meaningful שמטה year that brings you closer to G-d.

Friday, October 3, 2014

Deregulating the Taxi Market for the Sake of Market Competition Would Be Uber-Nice

It's nice to see when economists can have a consensus on something, especially since it seems like such a rarity these days. I was interested to see that a group of economists recently came to such a consensus in taxi competition, of all things. Until recently, I honestly didn't know this was such a hot-button issue, at least hot enough where there were protests going on because of it. Apparently, this company called Uber started up back in 2009 and picked up steam at the end of 2011. The reason it gained such popularity is because it is an on-demand ride-sharing service that uses a smartphone app to connect passengers to private drivers. Not only does the convenience of Uber make it an attractive service, but Uber also charges low fees for their service. While this might sound like a wonderful innovation, not everyone is happy, most notably the taxi drivers who are in the traditional taxi industry. Why? Because they feel as they are losing business and being undercut in the process. Are companies like Uber fair to the hard-working taxi driver trying to make ends meet? Should we allow such price-based selling to exist? And if it's so awful, why have economists developed a consensus that taxi competition is a good thing?

In all honesty, these are the wrong questions to ask. The question I have to ask is "Why is the government so heavily involved in the taxi industry the first place?" I can tell you taxi regulation is nothing new; it can be dated back to the mid-nineteenth century because a lack of regulation would have meant "resulting in a lower level of service to the customer." Whether it's because the government wants to control emissions, ensure public safety, provide high-quality services, or to prevent price gouging/surge pricing, the latter of which is something with which I do not have a problem in the first place, taxi industry regulation is an age-old, textbook example of the "Government knows best" mentality. But does it really know best?

The taxi industry has all sorts of regulations (take a look at New York City's regulations as an example of how convoluted it is), but one of the bigger issues I have with it has to do with barriers to entry in the taxi market. I can tell you right now that I am not a fan of occupational licensing because it creates too many economic inefficiencies and harms so many people either looking to enter a business or stay in a business. Some states require drivers to hold commercial insurance. In some cities, if a prospective taxi driver wants to obtain a license, that individual would need to lease or purchase what is called a taxi medallion. In Chicago, taxi medallions start off at $360,000. In the Big Apple, they cost over a million dollars! Talking about a barrier to entry! The medallion system also constrains supply of taxis by putting a limit of the number of medallions out there. And don't forget that the taxi driver needs a special driver's license, which requires a mandatory class and a test. Minimum-fare rules don't help, either. In Tampa, for instance, sedan and limo drivers are mandated to charge a minimum of $50 for their services, regardless of distance. Basic economics dictate that enacting a price floor below the equilibrium point, much like we see with minimum wage, creates a shortage.

[Side note: In case you were wondering how Uber is legally able to get away with this in the first place, medallions only apply to cars that pick up hail passengers, not general car services.]

The fight against ride-sharing companies like Uber, Lyft, and Sidecar has nothing to do with "general welfare" and has everything to do with protecting the taxi cartel, or to put it in political science terms, this is a clear case of regulatory capture. Yes, deregulating the market would be bad for current taxi drivers. That is because they would no longer be sheltered from the competitiveness in a relatively free market. It means that taxi drivers can no longer lobby the government and partake in rent-seeking to protect them from market forces. They would actually need to compete with services like Uber and stop antiquated practices like using meters. If the taxi driver is incapable of innovating and adapting current practices to the changing times, then that taxi driver should no longer have a job.

Before thinking that I am too callous, think of it this way: Henry Ford invented the automobile about a century ago. This eventually put workers in the horse carriage industry out of a job. Looking back, we don't think to ourselves, "Oh, those poor workers." We think to ourselves, "Wow, aren't we much better off because of the automobile?" If we went with this preservationist, protectionist "government knows best" mentality back in the early twentieth century, we would still be getting around by way of horse-drawn carriages.

People think that if the government is not involved, there would be no regulation. That is a fallacy commonly applied to free-market ideas. Rather than have the government regulate the market, the ride sharing companies would self-regulate. To illustrate but one example, Lyft has a driver rating system. If the driver consistently gets lousy reviews, no one will select that driver. Because such transport is no longer based on "grab the first cab you can hail," you can be more selective about the service you have (read: greatly reduced information asymmetry), which means that market forces such as pricing, competition, and profit incentive are very much in force with the creation of such ride-sharing companies.

Even back in 1984, the Federal Trade Commission wrote a report back then finding that most taxi regulations are bunk (p. 155). This is even truer in 2014 when we have technology like Uber to provide us an innovative way to make traveling by car cheaper and more convenient, not to mention increase economic profitability. Uber has quite literally become a game-changer. No wonder economists are on board with taxi innovation! We, as a society, should advance business models that encourage innovation, not discouraging it. Provided it does not violate the nonaggression axiom, people should be able to voluntarily choose whichever form of economic activity they want, and that includes using Uber. I wish companies like Uber the best of luck in being innovative and showing that once again, the innovation from a competitive market system is downright superior to the stifling bureaucracy and onerous regulations which government enacts all too frequently.

10-28-2014 Addendum: Here is a policy brief from the Mercatus Center about the advantages of liberalizing the taxi market.

8-21-2015 Addendum: I found a study showing that ride-sharing services like Uber reduced the motor vehicle homicides by 5.6 percent in the state of California since inebriated individuals have a better way of getting home.

3-16-2016 Addendum: Another joy of Uber: it carries more passengers per mile or per hour than taxis do.