Monday, October 31, 2016

Washington Ballot on Enacting First Statewide Carbon Tax: Yea or Nay?

The carbon tax can hardly be considered a new innovation in the world of environmental public policy anymore. Finland implemented the first carbon tax back in 1990, and 13 other countries and the Canadian province of British Columbia have since followed suit. Some of the taxes are more modest (e.g., Japanese carbon tax of $2 per metric tonne of carbon emitted), and other countries show more eagerness, such as Sweden's $169 per metric tonne of carbon emitted. That is on the international level. For the United States, the City of Boulder, Colorado and the San Francisco Bay area have passed local carbon taxes: $7 and 3¢, respectively. Compared to the vast majority of international carbon taxes, these local carbon taxes are small. Even so, nothing has been passed in the United States on a state or national level. If Washington State passes Initiative 732, then it would be the first state to do so.

Initiative 732 (I-732) was founded by Yoram Bauman, who is an economist whose claim is that he is the world's only stand-up economist. I actually saw his comedy routine a few years back, and I have to say that he is funny (see his cartoon on the carbon tax here). However, I do have to wonder if I-732 is a laughing matter. In July 2017, I-732 would establish a carbon tax of $15 per metric ton. A year later, that would increase to $25 per metric ton. That figure would increase 3.5 percent [plus inflation] annually until it reaches $100 [in current 2016 dollars adjusted for inflation] per carbon ton emitted, an amount that should take place by midcentury.

While the main goal is to reduce consumption of fossil fuels and greenhouse emissions, the Initiative still has a secondary goal of being revenue-neutral. The Initiative would reduce the sales tax from 6.5 to 5.5 percent, as well as reduce the business and occupation tax rate from 0.484 to 0.001 percent. There is also a Working Family Tax Exemption for low-income tax workers since, as I explained four years ago in my criticism of the carbon tax, the poor are disproportionately affected by the regressive nature of the tax. Given the nature of the carbon tax, I was expecting some opposition, such as various Chambers of Commerce and certain industry associations. However, there were some unusual and atypical opponents, such as the Washington State Democratic Party, labor unions, and the Sierra Club. It also does have some Republican legislators supporting the Initiative, thereby making this Initiative all the more unusual. Some questions to answer here: How problematic is the Initiative? To what extent is the problematic nature due to the nature of the Initiative's text, and to what extent is it due to issues intrinsic to the carbon tax?

Potential Issues With Initiative 732
  • Tax Amount and Social Cost of Carbon (SCC): One of my initial reactions was that the ultimate goal of $100 per metric tonne of carbon emitted is high. A lot of my criticism comes from the idea of SCC, which I discussed a couple years ago. The discount rate is supposed to reflect how much we are willing to pay now in order to prevent or mitigate future problems. A higher discount rate means we are willing to pay less now because we want more benefits now. It is bad enough that the EPA does not include a discount rate of 7 percent, which is standard for cost-benefit analyses. If you look at the social costs calculated by the EPA last year, even the very low discount rate of 2.5 percent, which is tenuous, only puts the cost of carbon at $56 per metric tonne [in 2007 dollars]. The cost of carbon with a 5 percent discount rate is $11 per metric tonne [in 2007 dollars]. Even adjusted for inflation, that is a range of $12.78-$65.06 in 2016 dollars. Regardless of discount rate used, the social cost of carbon in Initiative 732 is simply too high. 
  • Is It Revenue-Neutral?: Washington State's Office of Financial Management found that it would decrease revenue by $797.2 million over the first six years. Proponents of the Initiative dispute the State's estimations. However, if even if the State's estimations are correct, the $80 million annual shortfall would be less than 1 percent of the State's biennial budget of $39 billion.
  • Energy Prices: How much will the Exemption be offset by increased energy costs? Even the proponents admit that the Initiative would increase gasoline prices by 25¢ per gallon. This increase would be on top of the recent gasoline tax price increase that has made Washington the second most expensive state to purchase gasoline. As for general electricity prices, Resources for the Future estimates that electricity prices will increase by 6 to 7 percent by 2020, which is about a third of what the No campaign estimated.    
  • Affecting Low-Income Households: While the Working Family Tax Exemption would help out 460,000 low-income families, 340,000 low-income families do not qualify for the Exemption, which is disconcerting. On the other hand, the proponents calculated that the net effect for low-income households, even with the increased energy prices, would be in their favor because the tax exemption would offset increased energy prices. Also, I would think that making the state tax code would make the Left happier, given how regressive it presently is. 
  • Driving Down Emissions: The Washington Environmental Council is opposed to the Initiative primarily because the carbon tax relies on economic signals to reduce pollution. In short, the Council prefers a cap-and-trade system over a carbon tax. My issue with cap-and-trade is that in spite of whatever flaws there are with the carbon tax, cap-and-trade is a worse policy alternative.

My Verdict: A little over a year ago, I wrote about how there could be a case made for the carbon tax for those who believe in limited government. To summarize the long blog entry, there would be five criteria that would need to be met: revenue-neutrality, replacing the carbon tax with more inefficient taxes, replacing the carbon tax with command-and-control regulation with the carbon tax, revenue funds would need to go to energy research and development, and that the tax needs to be modest. One thing that I certainly do like about I-732 is that it is revenue-neutral.The revenue-neutral nature of the bill has annoyed environmentalists and others on the Left because there are not funds for additional pet projects, but as Bauman brought up, the concern is more about reducing carbon than it is aggrandizing the government. I-732 also plans on eliminating an inefficient manufacturing tax while reducing the sales tax, so it gets kudos for that. Removing commend-and-control is trickier because that comes from the EPA and whether or not the Clean Power Plan becomes law, so that is not as much in the control of state policy as it is federal. The revenue allocation bit is also tricky since part of it is going to the Working Family Tax Exemption, but this criterion is secondary.

That leaves my primary concern, which is that I think the tax is too high. Even if you want to go with the higher estimates from the EPA, those EPA estimates are still lower than what Bauman is proposing. There are two other concerns more general to the carbon tax, which were brought up by the American Enterprise Institute's recent analysis on I-732. Even if the State of Washington stopped emitting carbon dioxide today, it would be twenty-five one-hundred-thousandths of a degree. Bauman's hope is that Washington's example will inspire everyone else to cut carbon. Let's assume that it does. As AEI brings up, even if the entire world cut carbon emissions by 20 percent, that would mean a 0.5 degree Celsius reduction, which is only about a quarter of what we would need to avoid climate change catastrophe, according to the International Energy Administration. The third concern has to do with how the tax would distort incentives. While the tax is created with the intention to reduce carbon consumption, it can just as easily have the ability to reduce investment in energy-using plant and equipment, which has broader implications for the Washington state economy.

One could counter by saying that we should do whatever we can to avoid catastrophe, even if it is not 100 percent. Given the importance of risk management in a non-diversifiable, low-probability, high-risk scenario, there is a case to be made to err on the side of caution. I am worried about high carbon tax rates, not only because it overvalues the social cost of carbon, but also because of the effects it would have on consumption of and investment in energy. Much like Bill Gates, I still believe that research and development subsidies are preferable to the carbon tax. As far as carbon reduction policy goes, the carbon tax is the second-best out of the major policy alternatives. And as far as carbon tax plans go, this one is not all bad. However, given the high tax rate, I worry that the distortions of the new carbon tax would exceed those of the current tax code. If the tax rate in I-732 were lower, I might tell my friends in Washington state to vote "Yes" on I-732. Since I have to analyze the tax based on what it is versus how I would tweak it, I have to say that I am against I-732.

Wednesday, October 26, 2016

Portugal Stuck in a "Vicious Cycle" of Economic Stagnation

The Great Recession in Portugal, which lasted from 2010 to 2014, screwed over the Portuguese government by making it nigh impossible to pay off government debt without assistance of third-party actors, most notably the International Monetary Fund (IMF).  Although the €78 million loan helped Portugal avoid crashing out of the eurozone, it did not result in long-lasting economic reform.

Fast-forward to the beginning of October 2016. Portugal has sovereign bond junk ratings from Moody's, Standard and Poor's, and Fitch. There is one other credit rating firm that has not rated Portugal as junk bonds: Canadian firm DBRS. The European Central Bank recognizes four credit rating firms: Moody's, Standard and Poor's, Fitch, and DBRS. How DBRS ranks Portugal's investment grade rating is significant because DBRS is the last recognized credit rating agency that does not consider Portugal to be in junk bond range. If all four credit rating firms consider Portugal to be junk bonds, Portugal would no longer be eligible for the ECB's bond-purchase program, which, as you can imagine, would cause Portugal some issues.

Fortunately, DBRS ranked Portugal with an investment grade rating this past Friday, which means that Portugal has averted crisis for the time being. Whether or not DBRS gave this ranking to Portugal because it was concerned about political ramifications or because it honestly believes Portugal is not yet in junk bond range remains unknown. What I do know is that Portugal is not out of the woods yet. The chief economist from DBRS, Fergus McCormick, stated earlier this month that Portugal is in a "vicious cycle, stuck with low growth and large structural problems." To what extent should we worry about Portugal?

The International Monetary Fund (IMF) released its Article IV Consultation on Portugal only last month, and the report found that the economic recovery is losing momentum due to weaker export growth and sluggish investments (p. 1). Even with improvements in current account deficit and unemployment (current rate is at 11.8 percent), a sluggish economy, combined with banking sector vulnerabilities and high debt, create additional challenges for the Portuguese economy (ibid.). The good news is that there have been considerable strides made since the beginning of Portugal's sovereign debt crisis. Much like with DBRS, there is a concern about medium-term growth with regards to public finances. Much of the recovery has been driven by household consumption, which has led to an unprecedentedly low savings rate, which sat at around 3 percent as of Q1 2016 (p. 4). Growth outlook has also weakened (p. 8), which is both bad for investors and trying to lower the debt-to-GDP ratio of 129 percent (p. 5). The banking sector for Portugal is particularly worrisome since supply and demand for credit are particularly weak (p. 12).

Unsurprisingly, the Banco de Portugal has rosier 2016-2018 projections than the IMF, but not by much. Even so, the Banco had to reduce its GDP projections by 0.2 percentage points in comparison to its projections back in March (p. 20). The Banco is expecting, on the whole, a moderate recovery, much based on a more favorable external environment. The Banco does still recognize the high levels of indebtedness and structural weaknesses in the Portuguese economy (p. 23).

The Organization for Economic Co-Operation and Development (OECD) has a view similar to that of the IMF. In its June 2016 economic outlook, it stated that high corporate leverage and weak bank conditions have been holding back investment. Public debt is high, and would require adjustments for fiscal consolidation, which implies that the current trajectory for Portugal's debt-to-GDP ratio is not one of decline. While the Portuguese economy has relied on consumer spending to drive its economy, a historically low savings rate and slow job creation will slow that consumer-based growth down. The OECD finds that if Portugal can focus on corporate debt and repairing banks' balance sheets, investment would flow better to improve the economic state.

You can also take a look at the European Commission's take on Portugal here, but with a consumption-driven recovery losing steam, private indebtedness, and a banking sector in disarray, Portugal's economy is not doing well, to say the least. Even Left-leaning economist Joseph Stiglitz thinks that Portugal should leave the eurozone. Given its level of economic freedom (see here and here), I can't say that I'm terribly surprised. Unless the Portuguese government acts to make some serious economic reforms, Portuguese economic collapse would not be as far behind as some think.

Sunday, October 23, 2016

Clinton's Child Care Program: Immature Tax Policy

Back in May, Democratic presidential nominee Hillary Clinton said that she wanted to bring child care costs down to the point where they would not cost beyond ten percent of one's income. At the time, it was unclear as to how she was going to achieve that goal. Was she going to use tax breaks to do it? How about subsidies? We don't have to wait to answer that question anymore. A couple of weeks ago, she released the latest details on her tax plan. Three such details pertain to how she will tackle the Child Tax Credit (CTC). First, she plans to double the CTC from $1,000 to $2,000. Second, she plans to change the refundability threshold, which purportedly will allow for the poorest of the poor to claim the Credit. Finally, the plan is to phase in families with children under five years old more quickly. What sort of effects would this have on the United States?

First, let's cover the cost Clinton's CTC plan. The Tax Policy Center estimates that Clinton's plan will reduce revenue by $209 billion over the next decade, which is not all that far from the estimate of the Tax Foundation that estimates that it will reduce revenue by $199 billion over the next decade. I covered the topic of the child tax credit last year, and found that over the next ten years, the CTC is expected to cost $550 billion. What these findings mean is that Clinton's plan will minimally cost an additional 36 percent from what it initially would have.

Then there are the alleged benefits. The Left-Leaning Center on Budget and Policy Priorities (CBPP) released findings that estimate that these CTC modifications would help 14 million families, and even more importantly, raise 1.5 million families out of poverty. The Brookings Institution provides similar praise to Clinton's plan. While some laud Clinton's plan, I retain my skepticism, some of which dates back to my blog entry from last year:

  • The current CTC does not distinguish between family size or socio-economic status, and the Clinton plan does not help with those distinctions. 
  • As the Economist points out, this will increase tax code complexity, not decrease it. 
  • There are doubts as to whether there is the desired short-term consumption stimulus, e.g., Michel and Ahmed, 2012.
  • I already had reservations about the phase-out creating a high marginal tax hike. This would only be more pronounced with Clinton's plan.
  • Since the plan is primarily a tax credit expansion, this plan does nothing to grow the economy. As a matter of fact, the aforementioned Tax Foundation study found that it would actually decrease the GDP by 0.1 percent over the next decade. 
  • While the phase-in portion has the potential to offset the phase-out, the effects of the CTC are still not clear, especially in light of the Earned Income Tax Credit (EITC), which arguably is more successful
  • Since the increased credit is available for four-year-olds and not five-year-olds, many families will deal with the joy of their taxes increasing by $1,000 once their child turns five, which makes transitioning to kindergarten more problematic. 
  • Clinton's plan increases the burden upon childless families to support families with children (see below). In other words, Clinton's plan does not help with the lack of horizontal equity in the CTC. It merely exacerbates the lack of horizontal equity. 

Clinton's plan is primarily a income tax hike disguised as a tax cut. Even the Congressional Budget Office considers the CTC as a form of spending. I prefer a simplified tax code over a complex one targeted towards social engineering. Clinton's plan is primarily an expansion of what is already a tenuous tax credit to begin with. While I am happy to see Clinton propose policy alternatives (unlike some other candidates), I am still disappointed that she could not come up with something more innovative or altering to make a significant difference in poverty rates.

Wednesday, October 19, 2016

UNESCO Rewriting Jewish History: Just Another Reason to Dissolve UNESCO

The United Nations is hardly close to being my most favorite of international organizations out there. Yet it keeps doing ridiculous things to merit my disdain. On October 13, the United Nations Education, Science, and Cultural Organization (UNESCO) passed a one-sided resolution about Israel's alleged assault on Palestinian rights, while naturally ignoring any Palestinian atrocities. It continues by condemning Israel's "aggressions" and "illegal measures" towards Muslims being able to worship at the Temple Mount.

The resolution, which was submitted by Algeria, Egypt, Lebanon, Morocco, Oman, and Qatar, does not simply and blatantly call Israel "The Occupying Power." Never mind that none of these aforementioned countries are a shining light for religious freedom, and would be significantly more oppressive to non-Muslims in their own country. The UNESCO resolution goes on to deny history. Take a look at the resolution for yourself. The resolution does not reference the Jewish name of Har HaBayit (הר הבית), or even the English equivalent of Temple Mount. The resolution only refers to it as the Al-Aqsa Mosque (المسجد الاقصى) and Haram al-Sharif (الحرم الشريف).

Let's consider the Jewish connection to the site for a second. According to Jewish tradition, it is the site where Abraham nearly sacrificed his son. This is also the site where the First Temple was built by King Solomon, and the site of the Second Temple built by King Herod. Observant Jews pray for the building of the Third Temple [on the Temple Mount] three times a day. Jerusalem is mentioned over 300 times in Hebrew Scriptures, and the word "Zion" an additional 148 times. Even better, there is more than enough archeological evidence to support Jewish connections to the holy site. It doesn't take a bonafide Zionist to realize what intentionally disregarding the long-standing, historical connections that Judaism has to the Temple Mount. The Jewish ties to the Temple Mount are undeniable. You know something is up when the Far-Left Israeli newspaper Haaretz is criticizing UNESCO for this fiasco. To write those ties off the way that UNESCO does is negligent and unconscionable. If UNESCO cannot get the most basic of historical of facts correct, how can we trust such an organization with fulfilling its mission? It makes me wonder how such an organization is capable or confident to preserve the world's history if it does not know simple, historical facts. But let's go beyond this latest debacle to see why UNESCO is problematic.

According to Congressional Research Service, the United States had been responsible for 22 percent of UNESCO's funding, or about $80 million per annum (p. 12) before it ceased payments to UNESCO. The United States withdrew funding in 2011 because UNESCO admitted Palestine as a member of UNESCO. The United States did so because it legally cannot fund any U.N. organization that recognizes the Palestinian Liberation Organization (PLO) or any similar organization without internationally recognized attributes of statehood. This would not be the first time that the United States has withdrawn from UNESCO. It did so back in 1984 because it was perceived to have departed from its original mission, and was not acting either in global interests or American interests due to severe politicization. Organizational reforms were made in the late 1990s and early 2000s, which partially led to the United States returning back in 2003. Nevertheless, I wonder about the United States' transitionary state of being a member without providing funding.

From an American perspective, it is unfair for the United States to disproportionately fund UNESCO while only receiving one vote, which is especially important when determining how funds are allocated. There is also the matter of organizational efficiency. As this 2012 Heritage Foundation report on UNESCO points out, UNESCO fundings are primarily on facilitation, not on implementation. In the 2012 report, Heritage Foundation found that 72 percent of the budget was dedicated to staff, while an additional 10 percent was dedicated to travel and operating expenses. Looking at the 2016 approved budget, it looks like little has changed in ways of paying for staff.

This is not simply about politicization getting in the way or how its selection process of world heritage sites has been problematic (e.g., Keough, 2011). It is about having other countries foot the bill for entrenched management that claims to be preserving important sites. With all of this money going towards bureaucracy, it leaves little room for actually preserving heritage sites. It might seem pretentiously prestigious for a heritage site to have UNESCO status, but at the end of the day, UNESCO is nothing more than expensive smoke and mirrors.

Sunday, October 16, 2016

Ushpizin: Having Sukkot Guests as a Spiritual Act

Sukkot: the Jewish harvest festival. It has a number of particular rituals that may seem peculiar to some. One Sukkot practice that is not as peculiar is that of the Ushpizin (האושפיזין). According to the Zohar (Emor 103a), the spiritual energy of Sukkot is so intense that seven souls leave the Garden of Eden to participate in the celebration of Sukkot. Each one of the seven spiritual guests corresponds to a different day of Sukkot:

  1. Abraham represents benevolence and love (חסד)
  2. Isaac represents restraint and discipline (גבורה)
  3. Jacob represents beauty, harmony, and truth (תפארת)
  4. Moses represents victory and endurance (נצח)
  5. Aaron represents slender and humility (הוד)
  6. Joseph represents foundation and connection (יסוד)
  7. David represents  sovereignty, receptiveness, and leadership (מלכות)

This is meant to inspire each and every one of us to take on the characteristics that each of these biblical figures represents. By manifesting these attributes, the divine light shines down upon this world (Derech Hashem 4:2:2,5). However, the passage in the Zohar does not end there:

"One must also gladden the poor, and the portion [that would otherwise have been set aside for these Ushpizin] guests should go to the poor. For if a person sits in the shadow of faith and invites those guests and does not give their portion [to the poor], they all remain distant from him. One should not say 'I will first satisfy myself with the food and drink, and I shall give the leftovers to the poor.' Rather, the first of everything must be for one's guests. If one gladdens his guests and satisfies them, G-d rejoices over him. Abraham, Isaac, Jacob and the others shower him..." -Zohar, Emor 103a

On a personal level, I generally stay away from mystical teachings because the level of esoteric thought is so much that it leaves much to be desired in a practical sense. However, I think the teaching in this particular passage is astounding. If you want to be spiritual, it is not enough to have lofty thoughts and ideas. They have to be translated into lofty deeds. The idea of manifesting the spiritual into the physical is so important that the Zohar states that those who do not feed the poor greatly diminish the spiritual aspect of Sukkot.

It is Jewish law that during the holidays, it is incumbent upon us to feed the widow, the orphaned, converts, and any other poor and destitute individuals (Mishneh Torah, Shevivat Yom Tov 6:18). However, why is this so emphasized during the holiday of Sukkot? Aside from being important biblical figures, each one of the seven guests mentioned above dealt with uprootedness during the course of their lives. Each one knew what it was like to be wandering and looking for shelter. The Rashbam, in his commentary to Leviticus 23:43, teaches that we are to leave the comfort of our homes to dwell in a temporary booth, to act as a reminder of the ancient Israelites who did not have homes or much in material possessions. While Sukkot teaches us to be happy in spite of the temporary and uncertain nature of life, the Zohar teaches that part of being spiritual is making sure that peoples' needs are taken care of during Sukkot.

Is this a ringing endorsement to end global poverty? Of course not! Pirkei Avot [2:21] reminds us that just because we cannot complete the task, it does not mean we desist from completing the task. Jewish tradition teaches that we do our small part during Sukkot to help out others in need, whether those needs are physical, mental, emotional, or spiritual in nature. We are not meant to celebrate in isolation while others are suffering. Even during Sukkot, which is referred to as "the Time of Our Happiness," we do not act as if others do not matter. Quite the opposite! We share with those who are less fortunate to remind us that we are in this together, that we are human, and that when push comes to shove, we are all faced with the ephemeral state of living on this planet.

Wednesday, October 12, 2016

California Proposition 60: A Flaccid Attempt to Over-Regulate Condom Usage in the Porn Industry

I know some peculiar laws have been proposed in California, whether it is a GMO label law or San Francisco's attempted ban on circumcision. However, there is a ballot referendum coming up on this November 8: Proposition 60. While the Proposition is 14 pages long, Proposition 60's primary effect would be to require condom use in California's adult film industry. Secondarily, the Proposition also requires film producers to pay for actors' STD/STI testing, as well as renew licensing with the California Division of Occupational Safety and Health (Cal/OSHA) every two years. Keep in mind that Cal/OSHA already requires condom use on set, but that it only enforces the rules when responding to complaints. Proposition 60 would require greater enforcement mechanisms. As bizarre and intrusive as it might seem, Los Angeles passed a similar law back in 2012.

Essentially, the premise behind this law would be to hold film producers accountable for the health and safety of their actors, as well as to close loopholes and help ensure the enforcement of already-existing laws. The planned effect is to reduce the spread of sexually transmitted diseases, thereby reducing taxpayer burden for healthcare costs that would have otherwise been incurred. It sounds like a common-sense initiative to protect the wellbeing of those in the adult film industry. It is not simply because both the Republican Party and the Democratic Party of California have submitted endorsements against Proposition 60 that makes me curious. It is also because the Adult Performer Advocacy Industry, which is the state's only industry association (and it happens to represent hundreds of Californian adult film workers), opposes it. Between the opposition of both political parties and of a representative amount of adult film workers, it makes me stop and wonder at least for a moment if there is something in the pages of Proposition 60 that make it more problematic.

Let's start with the findings from California's Legislative Analyst's Office (LAO). For one, LAO estimates that it would cost over a million dollars annual to regulate and license adult film studios in order to comply with these new laws. In addition to $1 million in enforcement, the LAO is estimating a high likelihood that it will deprive the State of California several millions of dollars in revenue, either because film producers would move outside of California (e.g., Nevada), film producers would evade regulators, and/or because producers would pay their actors less money. One of the bigger arguments from proponents is that Proposition 60 would reduce health care costs for the taxpayer. However, the LAO undermines that argument by concluding that any reduction in publicly funded health programs would be offset by a minor increase in health care and social services costs caused by reduced industry employment, thereby having a probable net minor effect on health care costs in California.

What LAO did not bring up in its analysis was the fiscal impact of lawsuits. Based on the wording in the Proposition, any citizen of California who does not see a condom in an adult film can sue and receive a portion of any fine imposed [6720.6(a)]. This invasion of privacy is bad enough because the law requires producers to provide their contact information [6720.1(a)(3)] and addresses at which the filming took place[6720.1(a)(1)], which could lead to stalkers and pornography naysayers to unleash their wrath on the performers. Giving the location of the filming is even creepier if the filming was done at one's home. The level of harassment would be even worse for LGBT adult film performers who are harassed by hate groups or other overzealous individuals who have an issue with LGBT individuals, which would explain why LGBT activists in California are against this Proposition. Proponents will say that adult film performers or individuals providing independent services will not be prosecuted, provided that such individuals have no financial interest in the adult film and are not adult film producers [6720(i)]. Politifact picked up on the one slight issue with that: the majority of performers are also producers. While the definition of "financial interest" is not made clear in the Proposition, this has more than a distinct possibility of opening a sizable amount of adult film performers to lawsuits.

Some other features of the bill that make the whole thing downright perturbing:
  • Voluntary regulations adopted by the industry, combined with the Cal/OSHA's already-existing regulations, are arguably adequate. For one, it's already common industry practice to be tested every couple of weeks. Second, there has not been a single case of HIV infection in the adult film industry since 2004, which is a major metric of success for the adult film industry.
  • Forcing actors to wear condoms infringes upon the right of actors to control their own bodies. This includes married couples that decide to produce pornography because if you look at the Proposition, there is no exemption for married couples. 
  • Back in the day, most production companies were big businesses. As Internet porn has become more prevalent, producers are not only more likely be smaller, home-grown operations, but as already mentioned, many performers are also producers that benefit. Particularly looking at the licensing provisions in 6720.2, this would create onerous regulations for small business, especially if the litigative aspect of the Proposition is enforced against them. 
  • This Huffington Post article brings up another good point: Normally, condoms are one of the most effective forms of STD prevention. However, when an actor is on a porn set wearing condoms for a long time, condoms become painful and unreliable. Also, the article brings up that there are occasions that performers get chlamydia and gonorrhea, which proponents use to advocate for Proposition 60. Since these performers are some of the most frequently screened people in California, it's easy to nip these more minor STDs in the bud before it is too late. 
  • Los Angeles already passed a similar law a few years back, and the number of permits issued for film production dropped over 90 percent since its enactment about four years ago. Considering that a sizable amount of the market is located in Los Angeles, the Proposition is not going to do a whole lot in terms of preventing STDs spreading. It will just create more legal headache that could, as the LAO brings up, shrink the industry or force it to move to another state.
  • Per the LAO report, one way that performers and producers can avoid regulators is to work in the black market. This would create unsafer working conditions that would undermine the very health and safety that proponents were intending. 
  • Looking at Section 10 of the Proposition, the proponent, i.e., Michael Weinstein (the main proponent of Proposition 60), is authorized to be "sworn in" as a state employee that can only be "fired" by the California legislature voting him out. If the State refuses to uphold the law, then Weinstein would automatically be hired and reimbursed with taxpayer dollars to cover his legal expenses. Essentially, California would have a Porn Czar. 
  • The Proposition states that it is not required to have "condoms, barriers, or other personal protective equipment to be visible in the final product of an adult film [6720(h)]." However, if you read the rest of the provision, it proceeds to say that "any adult film without visible condoms that is distributed for commercial purposes in the State of California by any means was produced in violation of this section." So instead of regulating the thousands of workers in the agriculture industry or the leisure and hospitality industry, we are going to be disproportionately worried about a few thousand employees in the adult film industry? Got it!
This is the issue with so many of these ballot initiatives. You have a noble goal, such as reducing the spread of STDs, but the language of the ballot is so messed up that it causes unintended consequences, especially for those the ballot was supposed to help. The result of such initiatives? More costs due to regulations, less benefits derived, and causing more harm than good to those the ballot was intended to help. There are other cost-effective and less intrusive ways to reduce the spread of STDs. For those of you living in California, please Vote No on Proposition 60 this November.

Sunday, October 9, 2016

How Saying Yizkor Enhances Yom Kippur

I find Judaism to generally be a life-affirming religion, but there are moments where death becomes a motif within the Jewish religion. On Sukkot, we read the book of Ecclesiastes, which reminds of our frail mortality. Tisha B'Av is a time to lament all the calamity and death that has befallen the Jewish people. When loved ones pass away, there is a relatively extensive mourning process for the mourner.  Even with those occasional reminders that life is fleeting when you compare yourself with the eternality of G-d, the motif is most pronounced during the High Holy Days (ימים נוראים), especially during Yom Kippur.

In Jewish tradition, the High Holy Days period is auspicious because G-d metaphorically has two Books in front of Him: the Book of Life and the Book of Death. In these books, everyone's names are inscribed. On Rosh Hashanah, each name is written in one of these books. On Yom Kippur, the books are sealed, meaning that the ten-day period is meant as an opportunity to atone for one's misdeeds. The poem Unataneh Tokef illustrates this idea of there being two Books, and determining who lives and who dies. I do not believe that there are literally two Books. I don't even believe that G-d literally determines who lives and who dies this year, but I do believe that one of the purposes of the High Holy Days, and Unataneh Tokef specifically, is to remind us that death is inevitable. It also reminds us that we are not in control of everything, including our own mortality.

And this brings us to the practice of Yizkor (יזכר). What I find interesting about Yizkor is that it is not mandated under Jewish law, yet so many people show up for the Yizkor service. Yizkor, which is an Ashkenazic minhag (custom) that became common practice in the thirteenth century, serves as a memorial service for the departed. The Yizkor service is recited four times on the Jewish calendar: during Passover, Shavuot, Shemini Artzeret, and Yom Kippur. However, the custom of Yizkor was only practiced on Yom Kippur until the eighteenth century, which lends me to believe that there is something special about the tie between Yizkor and Yom Kippur.

In a way, Yom Kippur is quasi-mimicking death. We don't eat or drink for a day. We wear a white shroud, which is also part of burial. We metaphorically approach that tipping point between life and death. And assuming that we do Yom Kippur correctly, we metaphorically die and are reborn through teshuvah in the hopes to become new and better people.

The Yizkor service enhances these motifs by putting life and death into perspective. By thinking of those who have since departed, we realize that while people do not live forever, they live through our memories, and their past influence affects how we shape the future. Yizkor is a time to remember how those from days past have positively impacted our lives. As my rabbi states in his book about Yom Kippur, Yom Kippur is an opportunity to transcend time and space to relive past wonderful moments with departed love ones and to have just a few more minutes with them. Even with the inevitability of death, it reminds us how wonderful life can be, and how much more so that is the case when we give to others and share our greatest moments with others. It is the reminder that no man is an island, and that without the help of others, we would not be the individuals we are today.

We remember and honor the past so we can create a better future. We live through the examples set by those who have since passed. As we approach Yom Kippur, let's ask ourselves how people gave to us and influenced us. That way, we may focus on what truly matters in life and return the favor by helping make this world a slightly better than when we found it.

Thursday, October 6, 2016

Honeybees and My Two Cents on the Endangered Species Act

Honey bees play an important role in the agricultural sector. $577 billion of global food output depends on honey bees, although that figure is disputed by some. If the honey bee population dies substantially, that means that, at the very least, food prices are going to experience a significant hike. There has been concern about the declining population of honey bees for quite a few years, but only in 2006 did experts start referring to it is colony collapse disorder. The Environmental Protection Agency (EPA) stepped up its bee protection game a notch last week by protecting certain species of honey bees under the Endangered Species Act. Hearing this news, I asked myself two questions that I would like to try to answer:
  1. Does the current state of the honeybee population warrant being protected under the Endangered Species  Act?
  2. Regardless of honeybee population size, is the Endangered Species Act an overall good method of protecting endangered species?

Current Honeybee Population
Do we have a "Bee-pocalyse" on our hands? Is the situation so dire that we need to protect honeybees from extinction? The United States Department of Agriculture (USDA) has been keeping honeybee data since 1976. The Washington Post wrote an article on the honeybee population last year. Looking at the chart (1987-2014) below from the aforementioned data, what we see is an overall increase in honeybee population since 2006. As a matter of fact, we are at a twenty-year high, although the number of colonies was higher in the late 1980s. 

The Washington Post article pointed out that commercial beekeepers have been helping with the increase since 2006 either by splitting one healthy colony into two colonies, or by buying "packaged" bees. The article concluded that rather than succumbing to colony collapse disorder, the market actually responded by boosting up production. Granted, there was a slight decline reported in May 2016. According to the USDA, there are 2.59 million colonies which represents an 8 percent year-to-year decline in comparison to 2015. Whether this signals a downward trend or is an anomaly remains to be seen.

On the one hand, the number of honeybees is still nowhere near the low we had experienced around 2008. If we look at other countries, the Canadian bee population has increased over the past few years, as is the case for the global population. The evidence seems to point towards an overall increase of honeybees. I'm also not particularly worried about neonics (systemic pesticides targeted towards unwanted pests, i.e., not towards bees) because the global honeybee has been overall increasing since the introduction of neonics in 1995. On the other hand, given the importance that the honeybees play in food production, perhaps it is better to be safe than sorry, at least in an American context. Let's be risk averse for a moment and assume that greater effort needs to be put into increasing the honeybee population. Does protecting honeybees under the Endangered Species Act help?

Effectiveness of the Endangered Species Act
The Endangered Species Act of 1973 was enacted to protect imperiled species from extinction due as a "consequence of economic growth and development untempered by adequate concern and conservation." Section III of the Act states that it also exists to "bring any endangered species or threatened species to the point at which the measures provided pursuant to this Act are no longer necessary." How does it fare?

It depends on the metrics you use to measure success. Politifact found that only 1 percent of the 2,000+ species that have been added to the list have been delisted, meaning that they are no longer endangered. Out of the 66 species that have been delisted, 19 of the species (28.7%) were delisted because of data errors, and another 10 species (15.1%) became extinct. If the goal is to prevent extinction, then losing 10 species out of over 2,000 species, is a high success rate. This does assume that the Endangered Species Act was the sole contributor of success, as opposed to DDT bans or adding species to the list that are foreign species, and thus outside of the purview of the EPA. And none of this assumes that the delisting process is flawless, which it is not.

However, if the ultimate goal, which is used by the EPA itself in Section III of the Act, is to bring about the recovery of species, then the Endangered Species Act has failed. I would argue that the recovery of species is much more important not only because a given species can survive on its own, but also because it means we, the taxpayers, do not have to continue to pay for that species' conservation.

Speaking of cost, the Federal Register stated in 2010 that while these laws are well-intentioned, these laws have many negative unintended consequences (p. 78460), particularly the species on private lands. The punitive restrictions both disincentivize voluntary conservation of species, as well as incentivize discretely removing species in order to avoid regulations or fines. It becomes a problem when endangered species are incentivized to be treated more of a liability than an asset, which is what the Endangered Species Act does for many species. Two such example of endangered species becoming more endangered as a result of the incentive structure are the red-cockaded woodpecker (Lucek and Michael, 2003) and the pygmy owl (List et al., 2006).

More to the point, in 2005, the Fish and Wildlife Service, which is a government agency, admitted that after 30 years since the enactment of the Act, "the Service has found that the designation of statutory critical habitat provides little additional protection to most listed species, while consuming significant amounts of available conservation resources." So the Act costs about $10 billion a year while adding little protection to these species. Not exactly what I would call a ringing endorsement.

When all is said and done, the issue with the Endangered Species Act is incentives. The current system of incentives is not just about the disincentives created for private property owners, but also about a lack of incentive to protect endangered species, certainly to the point of the species no longer being endangered. The issue here, which is something I brought up when writing about fisheries a couple of years back, is that these species are treated like common goods. In economic terms, a common good is a good that is both rivalrous and non-excludable. The fact that it is non-excludable means that anyone can procure it, and the rivalrous portion means that others are going to compete for its ownership, thereby making over-depletion an issue.

Perhaps the Endangered Species Act prevented some extinction because the endangered species became less rivalrous or more excludable versus the status quo back in 1973. Perhaps not. The bald eagle, for example, was able to repopulate largely because of the DDT ban and state-level initiatives, and not because of the Endangered Species Act. The alligator was not an example of actual recovery via the Endangered Species Act largely because of wildlife commerce, i.e., increased demand in alligator hides. The North American bison had a similar recovery story. Throughout America's history, we saw the population of cattle stay high while the bison population dwindled because cattle was commoditized with strong property rights, whereas buffalo were not considered with the same property rights. Because buffalo were treated as common goods, as opposed to private goods, the buffalo nearly became extinct. It was because of wildlife commerce that we saw the population increase.

Merely preventing the extinction of a species, while it does have its worth, is certainly not the same as the species ceasing to be endangered. There might be some environmental activists who have an issue with this, but the truth is that we historically have commoditized animals, and we continue doing so to this day. While we can talk about improving the Endangered Species Act, such as an Endangered Species Reserve program, the fastest and surest way for a species to cease being endangered is for it to be commoditized precisely because private property owners of the given endangered species have a better incentive mechanism than the incentive structure under the Endangered Species Act.

Bringing the discussion back to the honeybees, there is not much to suggest that the honeybee population is dying off. If anything, honeybee statistics show an overall increase of its population. Even if we wanted to further increase the honeybee population, that will be best accomplished through commercial beekeepers who have the incentive to continue producing honey at a fair market value. Provided that there are minimal market distortions, the private sector will do more to ensure the longevity of the honeybee than questionable environmental regulations.

Sunday, October 2, 2016

Clinton's Criticism of "Trickle-Down Economics" Is Misplaced for a Number of Reasons

The presidential debate last week was the first debate I actually watched during this election cycle. It was the three-ring circus I was expecting it to be. As usual, there were many topics on which Donald Trump inaccurately spoke, whether it was NAFTA, the Trans-Pacific Partnership, stop-and-frisk, or how he would reduce debt (Spoiler: His current plan would increase debt more than Hillary's plan). Even with all of the inaccuracies coming from Trump, Hillary kept going after Trump for advocating for "trumped up, trickle-down economics."

The Left has historically used the term "trickle-down economics" pejoratively to refer to capitalism, supply-side economics, or laissez-faire economics. However, for purposes of this discussion, we will go with the definition of "using tax breaks (e.g., capital gains tax cut) or other forms of public policy (e.g., subsidies, such as TARP or the Chrysler bailout) for large businesses, investors, and entrepreneurs to stimulate economic growth." The idea behind trickle-down theory is that because those who have the greatest resources have the greatest potential to generate productive output, everyone benefits from the increased economic output, i.e., it trickles down.

Before going into whether this theory works, there are a few points I would like to state. The first preliminary point, which is brought up by economist Thomas Sowell, is that after looking at page after page of economic theory, the idea of "trickle-down theory," i.e., taking from Group A to give to Group B in the hopes that Group A will benefit, has not been advocated by any economist. As Sowell continues, why not just give directly to Group A and cut out the middleman?

That set aside, let's go to my second point, which is how "trickle-down economics" is associated with supply-side economics or capitalism. While that is the common mischaracterization, particularly for a number of those on the Left, the truth is that there is not a single economic policy or even economic school of thought that necessarily embodies "trickle-down." For a given policy to be "trickle-down," two main criteria have to be fulfilled: 1) It has to disproportionately benefit the very rich in the short-run, and 2) It is designed with the intention of improving upon the standard of living for all in the long-run. One of the main reasons why "trickle-down economics" is frequently associated with capitalism is because people conflate being pro-business with being pro-free market. AEI scholar Mark Perry helps explains the difference between the two:

"Businessmen like free markets until they get into a market; once they are in it, they want to block entry to others. Pro-marketeers want free markets at all times. The more conservative pro-marketeers are fearful of criticizing business, because they assume they will be seen as criticizing the free market. But we need to stand up and criticize business when business is not helping the cause of free markets." 

This leads to my third point. In an American context, "trickle-down economics" often comes in the shape of rent-seeking and crony capitalism, or the term I prefer to use here is "crapitalism." Giving handouts and goodies to the rich is not what is commonly advocated by libertarians, or even conservatives, for that matter. The idea behind having liberalized markets is that freer trade generates net economic welfare for the rich, middle-class, and poor alike through voluntary exchanges and the wonderful idea of spontaneous order.  As economist Steve Horowitz expresses:

"There are many economists who argue that allowing everyone to pursue all the opportunities they can in the marketplace, with the minimal level of taxation and regulation, will create generalized prosperity. The value of current taxes is not just cutting them for higher income groups, but for everyone. Letting everyone keep more of the value they create through exchange means that everyone has more incentive to create such value in the first place, whether it's through he ownership of capital of finding new uses for one's labor." 

This is true, whether or not we are talking about reducing the tax rate for the corporate tax for the rich or whether we are removing onerous occupational licensing regulations so that poor individuals are more free to start a business. This is not about favoring the rich, but creating as free of a market economy as possible, in which if the rich want to get richer, their enterprise needs to produce even more value for their consumers. This distinction between "trickle-down economics" and capitalism is actually confirmed by the International Monetary Fund's 2015 paper on income inequality, in which they find that "the benefits [of increasing income share of the rich] do not trickle down." While I will point out that this paper focuses on developing countries, which are places with less stable institutions and more corruption, it does bring up the point of helping increase the income shares of the poor. I brought this point up a couple of years ago when discussing income inequality and economic growth: the problem is not the the rich are rich, per se. It is that the poor do not have as much opportunity. While this is topic which can be spoken about at greater length at another time, as already alluded to earlier, we need to provide the poor with incentives to pursue greater wealth, and a lot of that can occur via less regulations and taxes. As the World Bank brought up in a 2013 report, "institutions and policies that promote economic growth in general will on average raise incomes of the poor equiproportionally, thereby promoting 'shared prosperity' (Kraay and Dollar, 2013)."

"Trickle-down" is a politically effective mischaracterization of tax cuts and other economic policies that defy neo-Keynsian tax-and-spend policy, which glosses over the irony that these same politicians believe that taking money from the rich and distributing it to the poor in the form of stimulus programs will also "trickle down." The term "trickle-down" deflects that the reality that there is a certain point where the tax rate or is too high or that there have been enough times where tax rates have been reduced while tax revenue has increased. As Thomas Sowell states, it ignores that "there are limits to how high they can push taxes rates on people with high incomes, without causing repercussions that hurt the economy as a whole."

The question here is the extent to which tax policy has harmed incentives for individuals to pursue more opportunity to become richer. There could be quite the debate on how to address the tax code's bias against savings and investment, or on how fiscal policy affects economic growth. There also could be a discussion on how public policy can provide the poor with greater opportunity to work hard and become richer. But alas, that sounds too reasonable for this election cycle. While Trump makes for a good caricature of "old money," Clinton deprived the American people of another opportunity to discuss ways where public policy can help expand economic welfare for all Americans. It would be nice to see substantive discussions about how to create economic growth, but my guess is that we will see more debates about the ever-misleading "trickle-down economics", the demonization of freer trade, and about Trump's tax returns or Clinton's email controversy while ignoring issues that affect the American people.