My Top 2018 Blog Entries

The end of a year seems like an appropriate time to look back and reflect on the year that has passed. Much like 2017, 2018 was another crazy year in the world of politics and public policy. There was everything from the Brazilian presidential elections and Brexit politics to the Brett Kavanaugh hearings and the Democrats regaining the House. In terms of my blog, I want to end the year with some of the 2018 highlights from my blog entries.

1. Trump and Immigration. Trump took multiple attacks on immigration this year, including his views on chain migration, his unprecedented family separation policy, and his expressed desire to remove birthright citizenship. With the United States ending the year with the partial government shutdown surrounding the border wall (which is a bad idea to begin with) and Trump turning his back on asylum seekers, it doesn't look like immigrants are going to have a good year in 2019.
2. Trump and Tariffs. International trade is another topic about which Trump has expressed woeful ignorance this year. He started off the year with tariffs on solar panels, proceeded with tariffs on steel and aluminum, and decided to escalate to an all-out trade war with China. Comedian John Oliver understands the price of this stupidity, and covered it quite well this past July.
3. Trump and NAFTA. Trump had a campaign promise of overhauling NAFTA. I'm sure he'll make a bigger deal out of it than it actually is. Rather than a major overhaul, it was only a tweaking that made it slightly worse. Given how protectionist Trump is, I felt that it was the least worst scenario.
4. Having Children Can Be As Selfish As Not Having Children. This blog entry is not related to public policy, but it was one of my more controversial pieces of the year. The title speaks for itself.
5. International Economy. A lot of economies have made the news in terms of having problems, including Argentina, Greece, Italy, and Turkey. If the global markets are as crazy as this past year (or even crazier), the global economy is going to be on quite the roller coaster for 2019. 
6. Causes of Wage Growth Stagnation. An economic question on many minds this year is why has wage growth been stagnant. I come up with a list of 10 possible explanations, ranging from retiring Baby Boomers and automation to unions and monopolies. 

Happy New Year!

Should the Fed Keep on Raising the Interest Rate?: A Look After the December 2018 Increase

President Trump has used Twitter as a platform to criticize and insult a number of people and entities, including Rosie O'Donnell, Nordstrom's, Canada, the NFL, Puerto Rico, Robert DeNiro, the NSA, Mark Cuban, and Chicago. Shortly before Christmas, he decided to rip on the Federal Reserve (see below).

I will pass over the irony of Trump not being capable of understanding trade wars or a strong dollar. What I would like to cover is Trump's animus towards the Federal Reserve. Trump's tweet was in response to the Federal Reserve (the Fed) raising interest rates again. On December 19, the Fed raised the interest rate from 2.25% to 2.5%, resulting in the fourth interest rate hike this year.

When discussing interest rates here, we are referring to the federal funds rate, which is the rate at which "depository institutions, i.e., banks, lend reserve balances to other banks on an overnight basis." The federal funds rate is by far the most influential interest rate because it affects how individual consumers spend and save, as well as businesses.

On the one hand, raising the federal funds rate makes it more expensive to borrow money. This would mean that buying a home became more expensive (although selling one became more lucrative). It also makes it more expensive to pay off debt, which is disconcerting given the trajectory of government debt. On the other hand, raising the federal funds rate incentivizes saving. The Fed is looking at its dual mandate, which essentially to keep inflation at around 2 percent and unemployment at around the natural rate (estimated at 4.6 percent). Since inflation is projected to get higher and we are near full employment, the Fed wants to take its foot off the break because demand is growing faster than supply. The Fed's mentality is that it is better to ease up on the gas pedal than it is to overheat the economy and slam right into a recession. To better understand why the Fed would want to make borrowing more expensive, it would also help to explain the neutral interest rate.

Neutral Interest Rate
As these primers from the Brookings Institution and the Dallas Federal Reserve explain, a neutral interest rate is the estimated rate in which investment in the economy is equal to the amount of capital or savings. This is the magic amount just high enough at which savers can save and just low enough where borrowers feel that borrowing money is not too expensive. The neutral interest rate is neither too accommodating nor too restrictive. Part of what makes this difficult to calculate is that the neutral interest rate is in fluctuation (see below). This dynamic rate takes into account multiple factors, including productivity growth, demographics (e.g., aging population), and fiscal stimulus (e.g., Roberts, 2018).

Reasons to Raise the Interest Rate
Some basic economic fundamentals dictate that we should raise the interest rate. Employment is really high. Normally, a lower interest is used to incentivize businesses to invest, thereby generating greater employment. Now that we are not in a recession, we do not need the easy money anymore. Plus, the GDP and wage growth have been growing in 2018, even amidst the interest rate increases.

There are some other wonderful benefits. Banks are more likely to lend money, which is good since lending practically came to a halt during the Great Recession. Getting off of quantitative easing also means that the stock market can react more to economic fundamentals and less to whether the Fed will perpetually support an expansionary monetary policy. It also means that bonds and bank accounts will have higher yields. A higher interest rate is also anticipated to lead to a stronger dollar, which is good if you're an American looking to invest internationally or travel abroad, a foreign company with American holdings, or a foreign company with exports because your exports are perceived as cheaper relative to American products. The reverse is true for foreign consumers, American producers, or American companies with lots of business abroad.

Another factor to consider is optics. The Fed maintains its reputation in part by maintaining its independence from the White House. If Trump is perceived to be pulling the strings of the Fed, it's bad for business, and ultimately, the global economy.

Reasons Not to Raise the Interest Rate
Raising the interest rate has some drawbacks. Consumers will have to pay more on their loans, which means less money for spending or saving. Given the lack of propensity to save in the U.S. in the past half century, a higher interest rate might not result in a higher savings rate. On the entrepreneurial level, it makes it more expensive for businesses to pay off debt, which means that businesses are less likely to make new investments. Debt servicing also has the potential to reduce employees' wages. Higher interest rates create issues with government debt and the increased cost of government borrowing. Those who are against raising the interest rate point out the fact that inflation has generally remained below the Fed's targeted 2%, and has declined in recent years. Based on this argument, there is not much need to raise the interest rates if inflation is this low. Matthew Yglesias also makes the argument that the economy might not be as strong as it seems, mainly because labor force participation is lower than the official unemployment rate signals.

Postscript
Adjusting the interest rate acts as a reminder that every form of public policy has its tradeoffs, including monetary policy (see tradeoff on a strong dollar here as an example). It is also a reminder of how elusive predicting the economic future can be, even for the experts. Current Fed estimates of the neutral rate are somewhere between 2.5% and 3.5% (see Fed figures here). This would mean that the current interest rate is at the low bound of the neutral rate estimate. Based on these estimates, we are now within range. I do worry about the pace at which the interest rates are increasing since too fast of an increase could cause some unintended reactions in the stock market or the housing market.

At the same time, these rate increases are increasing at more modest quarter of a percent. I do believe, much in accordance with the chairman of J.P. Morgan Chase International, that now is a good time to normalize the interest rate since the inflation rate is at the Fed's target, economic growth is good, and unemployment is low (also see Cato Institute policy brief about normalizing monetary policy). I don't have a crystal ball, but I would guess that given current economic strength (not to mention the stock market's recovery yesterday), the increase from 2.25% to 2.5% isn't going to be as dire to the U.S. economy as some suggest.

The Tax Cuts and Jobs Act: A Mixed Bag After Its One-Year Anniversary

A couple of days ago, we had the one-year anniversary of the Tax Cuts and Jobs Act (TCJA). This tax bill passed by the Republicans is the most significant tax reform passed in about thirty years. The types of reform ranged from permanent corporate tax cuts and temporary income tax cuts to repatriation, the mortgage interest deduction, and the child tax credit. I covered the topic twice already (see here and here), and I have to say that there was quite a bit to analyze. With all the speculation and postulating, how are we faring one year after the signing of the TCJA? It is difficult to determine the answer to this question, not only because of how encompassing the TCJA is, but also because it takes time for such reforms to fully take effect. Nevertheless, I made an attempt to answer the question.

A growing deficit. The single largest complaint I have about the TCJA is that it would balloon the deficit. The Joint Committee on Taxation estimated that it would increase the debt by $1.4T over the next decade, whereas the Congressional Budget Office estimated that it would be $1.9T. This would not be a surprising outcome since Congress cut taxes through the TCJA without addressing the spending increases. Without changing our course of action, we are looking at trillion-dollar-plus deficits for the foreseeable future, as well as an estimated 151 percent debt-to-GDP ratio by 2048.

Corporate tax cuts. The TCJA cut the statutory tax rate from 35 percent to 21 percent, which is a 40 percent decrease. Yes, it is true that the corporate tax cut decreased corporate tax receipts by 31 percent. But a report from the Journal of Economic Perspectives projects that the corporate tax cut is more likely to contribute to increased capital investment (Auerbach, 2018). To play Devil's advocate, the Economic Policy Institute shows that TCJA has not had significant increases in non-residential fixed investment and non-defense capital goods.

The red herring of "tax cuts the rich": the TCJA helped Americans experienced tax cuts on net. The Tax Foundation found that 80 percent of taxpayers had a tax cut, whereas 15 percent did not experience a tax increase or decrease. Every income bracket in every congressional district saw a net decrease in taxes. A report from Heritage Foundation not only confirms this finding, but also found that the average household will have $26,000 in extra wages over the next decade.

This is important because those on the Left like to bring up how the those in the top tax brackets received such breaks while the lower quintiles hardly received anything. As I explained in my TCJA analysis earlier this year, that is because the U.S. has a progressive tax code that disproportionately puts the burden on the top quintile and one in which 47 percent of Americans do not pay federal income taxes.

Tax Code Not Simplified: More Tax Breaks. One of the accomplishments that the TCJA was supposed to achieve is simplifying the tax code, as House Speaker Paul Ryan promised when he said that most Americans could fill out their taxes on a form of the size of a postcard. One metric for that is the number of tax breaks. Before the TCJA, there were 216 tax breaks. Now there are 223 tax breaks (Peterson Foundation).

Repatriation: Inconclusive. Prior to the TCJA, earnings from foreign subsidiaries were not subject to the U.S. tax code unless they were paid to the parent company in the form of a dividend. The prior tax code essentially created disincentives for multinational companies to store their earnings in foreign subsidiaries. The TCJA lowered the barrier by imposing a one-time tax of 15.5 percent on liquid assets and 8 percent on illiquid assets. This is an improvement because such assets were subject to the pre-TCJA corporate tax rate of 35 percent. The Tax Foundation found that repatriation has brought more $464.4B into the U.S. in the first six months of 2018, which is more than in 2015, 2016, and 2017 combined. However, the reason this remains inconclusive is because it is indeterminable as to how much is due to current earnings and how much due to past earnings. The Federal Reserve expressed similar ambiguities in its September 2018 report.

SALT Deduction and Interstate Migration. The TCJA doubled the SALT deduction, but put a cap of $10,000 on the deduction. This means that high-income taxpayers will face more of the brunt of state and local taxes. In September, the Cato Institute released a report on how the State and Local Tax (SALT) deduction affect interstate migration. In short, the SALT deduction reform has incentivized those in higher-tax states to move to lower-tax states.

Economic Growth. The Tax Foundation predicts that the corporate tax cut will result in increasing the GDP by 1.7 percent, the long-term capital stock by 4.8 percent, the wage rate by 1.5 percent, and employment by 339,000 jobs over the next decade. Accounting and tax firm Ernst and Young also has positive expectations for the TCJA. For the first five years, EY expects GDP growth to be 1.2 percent higher. As for the next five years, it will be at a more modest 0.8 percent. In the grander scheme of things, EY expects the long-run GDP growth to be 0.2 percent. The Dallas Federal Reserve had similar findings on its near-term GDP growth.

Conclusion: There are many other factors to consider, including the mortgage interest deduction, the territorial system, and the repeal of the individual mandate for Obamacare. Since there is so much to cover, what I would like to do is keep an eye on the TCJA and see what the longer-term effects are.

Bump Stock Ban: Not Just Bad Constitutional Law, But Also Low-Caliber Policy

Nearly 15 months ago, Las Vegas experienced the worst mass shooting committed by a single individual on American soil. The gunman murdered 58 people, as well as injuring over 800 people. The mass shooting brought up the discussion of mental illness linked to mass shootings. My analysis on the matter found that there is not a solid link between mass shootings and mental illness. The Las Vegas shooting brought up another topic in the gun debate: bump fire stocks. The bump fire stock, simply known as a bump stock, is a device attached to a semi-automatic rifle that allows for more than one shot to be fired when the trigger is pulled. Although the bump stock allows for mimicry of an automatic fire, it still requires multiple pulls of the trigger to have the desired effect. Essentially, it allows the semi-automatic rifle to act more like an automatic in terms of the amount of rounds one can fire in a minute. The gunman of the Las Vegas shooting used the bump stock to wreak havoc on those people.

Why am I bringing this up now? Because over a year after the shooting, the Trump administration's Alcohol, Tobacco, and Firearms (ATF) amended gun regulations to have guns with bump stocks categorized as "machine guns," and thus illegal. While President Trump issued a memorandum in February in response to the Parkland mass shooting to allow for such categorization, it took a few months to reach this moment. The point of amending these regulations is to show that the Trump administration is serious about curtailing gun violence.

There is a matter of constitutionality. The Cato Institute argues that the legislation should have been brought through Congress, not shoehorned into old pieces of legislation by executive agencies (also see National Review argument). There is also the argument that the Ninth and Tenth Amendment prohibit such legislation from being passed on the federal level, i.e., it should be done by state governments. Allowing for such a precedent would not only erode the separation of powers, but it could allow for semi-automatic rifles to be categorized as automatic rifles, as the American Enterprise Institute argues.

Let's forget the constitutionality argument for a moment. Even if it were constitutional, I would have a problem with it on a policy level. The National Rifle Association (NRA) was actually in favor of banning bump stocks, and I had to ask myself why. Some thought it as a step that the NRA was in support of "common sense" gun legislation. I will take the more cynical route and say that the NRA wanted to come off as less extremist as it does in the mainstream media by showing that it supports gun control. How so?

Prior to the Las Vegas shooting, the bump stock was considering something of a novelty. While it allows for a semi-automatic to de facto become more of an automatic rifle, the bump stock considerably sacrifices accuracy for a more rapid fire. The Las Vegas shooting was unique in that the shooter was 1,200 feet away and indiscriminately firing on a crowd with the sole purpose of maximizing damage. This would explain why I had such trouble finding empirical research on the effectiveness of a bump stock ban. Bump stocks had not been used in previous mass shootings, and have not been used since the Las Vegas shooting. Their lack of usage in homicides would explain why researchers would not bother analyzing the effects of such a ban.

This does not consider gun violence in the grander scheme of things. Rifles are not responsible for a majority of homicides. Quite the contrary! From 2013 to 2017, rifles only accounted for 1,582 homicides, which amount to 2.3 percent of all homicides (FBI Crime Statistics). The vast majority of homicides are committed by handguns, which would make a bump stock ban ineffective since bump stocks cannot be used for handguns. A bump stock ban would not affect nearly 98 percent of homicides. As for the other 2.3 percent, bump stocks are not used in homicides, as previously stated. Even the New York Times asked gun experts for their opinion on various gun control policy options, and their conclusion was that a bump stock ban would be ineffective (see chart below).

To recap, bump stocks have a high tradeoff between speed and accuracy. The vast majority of homicides are not committed with rifles. As unfortunate and tragic as the Las Vegas shooting was, the use of bump stocks for the purpose of homicide is an anomaly. It goes after a symptom rather than any of the root causes of gun violence. Therefore, there is no logical argument illustrating how a bump stock ban would be effective in reducing gun violence. Since most gun enthusiasts have little to no need for bump stocks, a bump stock ban is a low-hanging fruit for Democrats and Republicans alike. All a bump stock ban is going to do is create the illusion that the government is doing something about gun violence without actually doing anything.

Is There a Vaping Epidemic Among Teens?: The Policy Implications of E-Cigarettes for Teenagers

Ever since smoking electronic cigarettes, also known as "vaping," emerged on the scene, it became quite the controversial practice. Much of the debate surrounds harm reduction versus the precautionary principle. Are e-cigarettes a safer alternative for people? Should we be safe rather than sorry? I have analyzed e-cigarettes on this blog on a couple of occasions (see here and here). My conclusion was that the harm reduction principle is the more convincing of the arguments, that is to say that e-cigarettes are the less harmful (and thereby less evil) of the options. Allowing people a safer alternative to traditional cigarettes sounds like a win-win (maybe not for tobacco companies, but surely the consumers).

It might not be a win for everyone, especially teenagers. Only yesterday did the federal government issue a press release on its findings from its Monitoring the Future survey. One of the main findings is that teen e-cigarette usage increased from 11 percent in 2017 to 21 percent in 2018. This is significant because it is the largest year-to-year increase for any adolescent substance abuse outcome in the 43 years the survey has been conducted.

That might not sound so bad since e-cigarettes are less harmful than traditional cigarettes. However, combine that finding with an article that research organization Rand Corporation released yesterday on teen vaping. The article argues that for this sub-segment of e-cigarette consumers, e-cigarettes are more harmful because e-cigarettes lead to increased likelihood to smoke traditional cigarettes. The Rand Corporation cited a meta-analysis corroborating their theory (Soneji et al., 2017). From a public health standpoint, this is something serious to consider. When looking at e-cigarettes for adults, the idea is the adults go from consuming something more harmful to something less harmful. If e-cigarettes are indeed a gateway to traditional cigarettes, the introduction of e-cigarettes could be harmful to future adults.

In order to understand the trends with vaping, we need to understand the trends of traditional cigarettes, as well, because e-cigarettes and traditional cigarettes are substitute goods. This is important because the question is whether e-cigarette usage among teens causes an increase of tobacco consumption, a decrease, or has no real effect. According to the Centers for Disease Control and Prevention's (CDC) and its most recent survey data of tobacco use among middle and high school students, overall tobacco use for high school students has actually declined.

The CDC found that tobacco consumption was on the decline for middle school students, as well (see below).

How do we deal with the seemingly contradictory findings between the CDC and the Rand Corporation? Through an article in Tobacco Control that was co-authored by Georgetown University public health researcher David Levy (Levy et al., 2018). While e-cigarettes smoked by youth are associated with "an increased risk of ever using [traditional] cigarettes (smoking) and moderately associated with progressing to more established smoking," the report also found that "recent increases in vaping have been associated with declining rates of youth smoking."

In short, what the data tell us is that although the introduction of e-cigarettes makes it likely for some teenagers to smoke, the overall trend is that e-cigarettes reduce the probability that teenagers smoke tobacco products. Combine that with the fact that the British government found that e-cigarettes are 95 percent less harmful than traditional cigarettes, and the argument of e-cigarette opponents go up in smoke. I hope that people take a closer look at the data instead of demonizing a product that has the ability to save hundreds of lives.

12-13-2018 Policy Digest: Gender Wage Gap, Social Security Privatization, Occupational Licensing

There is quite a bit of policy research that has come across my attention in the past few days. The bad news is that I cannot cover it all in the depth that I would like. The good news is that I have covered these topics in the past in some way, shape, or form, which means I can cover these topics more easily. With that being said, let's begin, shall we?

Gender Wage Gap: More Evidence It Is Misleading
Late last month, the Institute for Woman's Research put out some shocking research: the wage gap has been "woefully misstated." Their conclusion is that a woman makes 49¢ for every dollar a man makes. The reason why it looks worse has to do with how they're pulling and manipulating the data. To arrive to this conclusion, the Institute for Woman's Research compared all the earnings of women to all the earnings of men over a fifteen-year period, including part-time and unemployed workers. Unsurprisingly, four out of ten women were out of the workforce for at least a year, which is twice the rate of men being out of the workforce. Beforehand, the gender wage gap figure compared all male full-time workers to all female full-time workers. Including time with no income is naturally going to distort the statistical data to paint the picture that women are very underpaid.

You can see my analysis from February 2018 and April 2013 on the gender wage gap, but my contention has been that not using an apples-to-apples comparison is a manipulation of the data to advance a certain goal. The Institute for Woman's Research is merely the latest attempt to manipulate the data a step further. When you adjust the data for educational attainment, occupational choice, hours worked, and other forms of labor force attachment, the wage gap is all but nonexistent. Fortunately, a study from Harvard University adds to evidence to support my contention (Bolotnyy and Emanuel, 2018). The Harvard study looked at data on bus and train operators from the Massachusetts Bay Train Authority. Since the Authority is unionized, men and women do the same work for the same hourly wages and conditions, and promotions are based on seniority, and yet there was still a wage gap of 89¢. The reason for the gap? Men worked longer hours, and were paid more overtime. Plus, the women took off more time due to childrearing. Much like the study on the wage gap in the ride-sharing earlier this year, it focuses on one market, but it also adds to the increasing preponderance of evidence that the wage gap is not caused by gender discrimination, but by the different choices made by men and women.

Social Security Privatization
I thank former Cato Institute fellow Daniel Mitchell for bringing this one to my attention. The Organization for Economic Development and Cooperation (OECD) released the OECD Pensions Outlook 2018. In it, the OECD stated that "funded, private pensions may be expected to support broader economic growth and accelerate the development of local capital markets by creating a pool of pension savings that must be saved." Many OECD countries have partially or completely privatized its retirement savings (see below), including Australia, Denmark, Sweden, Singapore, the Netherlands, Chile, and Switzerland. I hope that the United States can have the good sense to privatize Social Security one of these days.

Occupational Licensing: Two New Studies
I have written about how occupational licensing creates barriers of entry to many markets, which disproportionately affects the poor. It also increases prices of goods and services since it is an additional cost of labor. How much does occupational licensing cost the economy? A study from the Institute for Justice found that occupational licensing costs the U.S. economy $200 billion annually  (Kleiner and Vorotnikov, 2018). A study from the National Bureau of Economic Research also reduces the equilibrium labor supply by anywhere from 17 to 27 percent (Blair and Chung, 2018).

Monopoly: Better As a Board Game Than Having Increased Corporate Monopolization In Real Life

As a child growing up, I remember playing the board game known as Monopoly. It would take hours to rack up all those properties before declaring a winner. Because it took so long, it ended up being one of those board games that one plays when it's raining out and it's one of the only things to do. I'm sure enough of you had similar experiences with Monopoly growing up. As I got older, I ended up spending some of my professional life conducting market research. One of the trends I realized is that multiple markets had high market concentration. What I mean by high market concentration is that very few market competitors (usually less than five) control most or all of the market share. When one company controls the entire market, the market becomes a monopoly. Under the Federal Trade Commission's definition, however, a company does not need to be a literal monopoly (read: pure monopoly) before it applies its rules towards single firm conduct.

Last Monday, the Open Markets Institute released an intriguing report entitled America's Concentration Crisis. OMI covered 32 markets in its report, ranging from home improvement stores and cell phone providers to pet supply stores, e-commerce, and beer. The report also covered the increased monopolization of domestic airlines, a topic that I covered separately last year. Shortly before the report was released, the New York Times released an article on the topic with a concise and damning chart (see below).

Some of you are probably wondering what could possibly be wrong with having monopolies. Some could argue that "bigger is better" in that they could offer the same good with less cost, thereby increasing the possibilities for consumers. I actually made that argument myself when discussing Big Banks in 2016. To tease out some nuance, there are some markets that do better with size. What we have to remember with banking is that a) it is a large market to begin with, and b) the market is not concentrated (see chart above).

With most markets, there are issues that come with too much market fragmentation. The same is also true for its inverse: too high of market concentration (e.g., Schmitz, 2016; Gumus, 2006; von Mises, 1998; Posner, 1974). Why? Looking at a basic economic model of a monopoly (see below), it creates deadweight loss. Deadweight loss is that allocative inefficiency when a good or service cannot be allocated at its most efficient, which is in a competitive market. This has to do with the fact that in a monopoly or a market with high concentration, a company has much more liberty to set prices, which means less of a good or service is produced. As a result, society as a whole is worse off. It is not solely a matter of decreased economic welfare. Fewer competitors in a market means that consumers have fewer places to buy goods and services. Not only do producers have less of an incentive to keep prices down, but they have greater incentive to keep quality low.

There is also a more prevailing theory on the Left that wage stagnation is caused by the employees' lower bargaining power due to market concentration. A recent paper from the Washington Center for Equitable Growth postulates that increased monopoly rents causes wages and interest rates to decline while the average rate of return on capital stays the same. I looked at the theory in August when analyzing wage growth stagnation. I thought the argument had some merit, although the research on monopsony power is relatively new. I can find myself agreeing with my Left-leaning friends on this increased power while disagreeing with the underlying causes (e.g., government intervention in protecting certain companies over others, also known as "rent-seeking") or the solutions (e.g., should we toughen our antitrust laws?). I don't expect those discussions to be resolved anytime soon. What I can say is that monopoly is better as a board game than it is played out as an economic reality.

The Yield Curve Inverted: Does That Mean a Recession Is Coming to the United States?

This week has not been good for investors on Wall Street. It is not simply a matter of the Dow dropping 800 points on Tuesday. On Tuesday, it was also announced that the yield curve between two-year Treasury bonds and five-year Treasury bonds inverted. Hearing the words "inverted yield curve" can be quite scary for investors, but for everyone else, it might mean little or nothing. What has investors so frightened?

First, a brief explanation of an interest rate. The interest rate is the amount, either in percentage or dollar amount, charged by a lender to a borrower for the use of their assets. Essentially, it is the cost of borrowing money. There are multiple factors that go into account for the interest rate, whether that be for a loan on a house, on stocks, and on bonds. One of the factors is that of time, and this is where the yield curve comes in. Typically, a ten-year Treasury bond has a higher interest rate than a two-year Treasury bond to compensate the lender for the time difference. The difference between the two interest rates is referred to as the "spread." A positive spread means that the interest rate for the ten-year bond is higher than that of the two-year bond. The normal spread will take the shape of an upward-sloping yield curve, as is depicted below.

Source: Federal Reserve Bank of San Francisco

That is what happens with a normal yield curve. That is not always the case. Sometimes, there are moments when the short-term bonds have higher interest rates than long-term bonds. This moment is referred to as an inverted yield curve. What an environment with a negative spread would mean is less profitability for banks. While you might not necessarily care about banks or the U.S. Treasury, this has investors spooked. 

Likelihood of a Recession

This is particularly irksome for investors because an inverted yield curve is related towards higher risk of a recession. How much higher exactly? A 2018 economic paper from the Federal Reserve Bank of San Francisco (FRBSF) points out a scary fact: every recession in the past 60 years was preceded by an inverted yield curve. This trend is not only true in the United States, but in other developed nations. The FRBSF goes as far as calling the yield curve "one of the most reliable predictors of future economic activity."

There are a couple of things worth noting. The first is that FRBSF found that the recessions take place six to twenty-four months after the yield curve inverts. Assuming 100 percent accuracy, that means we could have until the end of 2020 before the United States experiences a recession. The Federal Reserve Bank of Cleveland (FRBC) indicates in its analysis that there were two false positives: one inversion in late 1966 and one flat yield curve in late 1998. This would imply that treating the yield curve as infallible is not accurate.

The FRBC is also hesitant on using the yield curve as a predictor for two reasons. The first is that the probability itself is subject to error. The second is that yield curves do not function in the same way as they did in the past, and that is due to different underlying determinants. For example, yield curves have historically been brought on by tight monetary policy. Right now, we have lower interest rates than the historic average, so that case is hard to make. The quantitative easing has distorted the long end of the yield curve. To adjust for it, the Federal Reserve came up with the alternative measurement of the "near-term forward spread," which seems to have better predictive power. Fortunately, this spread has not indicated a recession as of yet. Also, the spread between three-month and ten-year bonds is a more accurate predictor than with the two-year-bonds, and fortunately, there has not been an inversion between three-month and ten-year bonds.

Conclusion
Historic data suggest that a recession is coming soon. Even if we were to set aside the yield curve, we could be worried about contagion from Italy's budgetary woes or the Brexit. We could be worried about Trump's trade policy or the Fed's monetary policy. On the other hand, there are multiple positive economic indicators, including GDP growth, low unemployment, and high consumer confidence. We could fret over the fact we're in the longest bull market in history by saying "we're due for another recession" or we could learn how to keep the bull market going for even longer. I do worry about a recession because a) economies have booms and busts, and b) we have indicators in the global economy that could derail the bull market. At the same time, I am not quite ready to say that this yield curve inversion signals an imminent recession. Even the Federal Reserve of New York predicts an 11 percent chance of a recession in the next year. At this juncture, I will take a "wait and let's see" approach to see what happens within the next year.

What Does White House's Climate Change Report Say About Climate Change Urgency?

Global warming, better known as climate change, has been at the forefront of environmentalists' minds for quite a few years now. The premise is that the planet's overall temperature will rise to the point of causing significant weather changes, which will impact agriculture, migration, economy, and a host of other issues. During Thanksgiving weekend, the U.S. government quietly released its Fourth National Climate Assessment. Looking at the news reports covering this, it confirms the extent to which anthropogenic climate change will end up being problematic down the road. In his bellicose fashion, President Trump denied the findings. Even so, the major news is that a report from the Trump administration, an administration that hasn't exactly been open to increased environmental regulations.

When looking at the report, there are some dire predictions, and that is just looking through the summary findings of the report. The Midwest could lose 25 percent of its production capacity for corn and soybeans. Ocean acidification will limit access to seafood. Pollen seasons will intensify. More extreme weather will cause depression, anxiety, and suicidality. Poor air quality and higher temperatures will result in more premature deaths. Labor-hours will be lost, thereby reducing economic output. There are more adverse effects, but the point that the report is making is that climate change is man-made, and it will wreak havoc on the United States.

A Dose of Skepticism
I wouldn't be doing my job if I were not at least a tad skeptical of this report. A good amount of this skepticism comes from the report's projected changes in climate (see below). There are three scenarios: the higher scenario (RCP8.5), the lower scenario (RCP4.5), and the even lower scenario (RCP2.6). In two out of the three scenarios, the temperatures would not rise to the 2C˚ post-Industrial revolution, the temperature in which climate scientists worry about cataclysmic events.

To be fair, this chart alone does not state the projected probability that each scenario is to occur. The report tries to answer this question, but provides an ambiguous answer (Box 2.4). On the one hand, emissions from the late 1990s up to the early 2010s suggest the higher scenario. On the other hand, since 2014, economic growth has been less carbon-intensive, thereby suggesting the lower scenario. The preliminary data for 2017 suggest a trend towards the higher scenario, but what matters here is that even the report is not certain about which scenario will play out.

There is further reason to be skeptical of the higher scenario beyond the report's ambiguity. The higher scenario is that: a worst-case scenario (e.g., Riahi et al., 2011, van Vuuren et al., 2011). It assumes that population growth is going to be high, technology development is going to be stagnant at a rate below historical averages, there will be a massive increase in poverty (which would be a major reversal of what has happened since the Industrial Revolution), coal consumption will increase 900 percent, and that GDP growth will be slow. As the Institute of Energy Research points out in its analysis of the White House report, the RCP8.5 model injects more pessimism beyond a lack of government action. I have expressed skepticism about implementing policy based on worst-case scenarios before, and given the findings from a 2017 article in Science (Hsiang et al., 2017), I have to wonder (see below).

Conclusion
It is not simply the issues with the climate change modeling or using an extreme scenario as the sole basis for the analysis. It also goes beyond ignoring certain climatological trends, such as as tornado occurrences plateauing since 1954, a more longitudinal look at global temperatures, a lack of trend for droughts and wildfires, or Arctic and Antarctic sea ice fluctuations (see American Enterprise Institute analysis here for more). There is also an issue of providing an accurate cost-benefit analysis. The report gets into the cost of inaction (Chapter 29), but does not specify the costs of action. Providing a cost-benefit analysis means getting the cost and benefits of all options, not just some. I am not here to say we should do nothing because I have made the argument for a modest carbon tax, as well as investing in research and development to lower carbon emissions. At the same time, the climate change we implement should a) have costs that are lower than the cost of climate change itself, b) mitigate the negative effects of climate change on standard of living, and c) be based on realistic projections, not implausible ones. Anything less would be doing a disservice in the world of environmental policy.

2018 Analysis of the Spanish Economy: There Is Economic Recovery in Spain, But...

The global financial crisis reverberated throughout the global economy. Some countries were able to recover more quickly. Much like Greece, the Spanish had a terrible time getting past its recession. It is true that the Spanish Economic Crisis technically ended in 2014. It nevertheless took until this year for the Spanish economy to make a full recovery, as the International Monetary Fund's (IMF) latest Article IV Consultation report illustrates released earlier this week, as did the upgrading of Spain's credit rating from Moody's and Standard & Poor's earlier this year. That was the upside from the IMF report: the Spanish economy is on the mend.




The Spanish economy has many good things going for it. Employment growth is exceeding that of the rest of the Euro area (IMF, p. 4). Employment decreased to 14.7 percent in 2018 from 26.1 percent in 2013 (IMF, p. 5). Monetary policy is accommodative enough to help correct remaining imbalances (OECD). Any economic impact from the uncertainty surrounding Catalonia has been largely confined to Catalonia (IMF, p. 5; also see my 2017 analysis on Catalonia). Low financing costs and improved profit margins are boosting business investment (OECD). Spain became the second most visited country in 2017, even surpassing the United States (IMF, p. 6). Property prices are recovering from a low level (IMF, p. 7), which is important considering one of the major causes of the Spanish Economic Crisis was due to the housing market. The number of non-performing loans is declining, a fact that is in contrast to an Italian economy that is dealing with the adverse effects of a high percentage of non-performing loans.

In spite of these indicators, there are some concerns regarding the Spanish economy. Spain is still dealing with major long-term unemployment and youth unemployment issues (OECD). GDP growth is expected to moderate (IMF, p. 4). Public debt remains at 100 percent of GDP, and doesn't show signs of significantly diminishing (IMF, p. 1). The IMF recommends considerable financial consolidation so the problem does not get out of hand (IMF, p. 10). I hope the Spanish government deals with its fiscal issues so it does not open itself to the craziness the contagion effect from Brexit or the Italian budget debacle.

For more reading on the state of the Spanish economy, please consult the links below.

Major Sources of Information
Banco de España Economic Analysis (in Spanish)
BBVA Research
European Commission
Focus Economics
Heritage Foundation
IMF Article IV Consultation report
Organization for Economic Cooperation and Development (OECD)
Rabo Research

Brief Thoughts on Military Spending and the Department of Defense's First Comprehensive Audit

Defense spending is one of those large and nebulous areas of government spending. The secrecy of many of the Department of Defense's spending, along with other countries' departments of defense, make it easier to hide corruption or inefficient spending practices. This is compounded by the fact that defense spending ranks third on the federal budget, right after Social Security and Medicare. This is bad not only for the taxpayer because millions (and possibly billions) are being poorly spent, but also because a military that is not spending its resources to the best of its ability undermines national security.

Last week, the Pentagon announced that completed its first-ever financial audit. It turns out that the Pentagon by and large failed this $413 million audit. Out of the 21 departments within the Pentagon, only five received a passing grade. Deputy Secretary of Defense Patrick Shanahan said that he was not expecting for the Pentagon to pass. This might sound like a carte blanche for someone who is all for smaller government to rip into the Department of Defense and say, "Of course the DoD was going to fail. It's Big Government at its finest. What else would you expect?"

But let's remember something else: this is the first time they are conducting such an audit, thereby making arguably making it the largest audit in history. It took the more nascent Department of Homeland Security ten years before it got the hang of receiving a passing grade in an audit. More importantly, auditing the Department of Defense was technically part of the National Defense Authorization Act of 2010, but politicians kept making excuses for delaying it. Defense Secretary Jim Mattis took on this behemoth and got it done. Again, given the nature of defense spending, it is significant that this audit took place. Not only is defense spending more transparent, but it means that dollars will less likely be mismanaged, especially when it comes to inventory management. As long as the audit process one is a thorough one and carried out as intended, the failures pointed out in the initial audit are a good thing. It means that there will be less failures in the future, such as when the Air Force spent over $300,000 on 391 specialty mugs.

Ultimately, I see the audit as a step in the right direction for bringing greater accountability to the largest and most powerful military on the planet. As for how that money should be spent, that is another conversation for another time.

For more on defense spending and military budget reform, see analysis from the American Enterprise Institute, Cato Institute, Center for American Progress, Center for Strategic and International Studies, Heritage Foundation.

Government Regulation Is Not the Only Type of Regulation: The Private Sector Regulates, Too

Whether it is the environment, the labor market, or health, there are many individuals (particularly on the Left) that clamor for more regulation. If someone is cutting workers' hours, an airline is treating a customer poorly, or there is some other infraction, there is an instinctive reaction to respond with the trope of "We need more regulation." In the English language, we have become so accustomed to use the word "regulation" that a lack of government oversight implies no regulation (see meme below where Ayn Rand is a "straw-woman"). It has become such a staple in public policy lexicon that I have even been guilty of using the term erroneously.

The purpose of today's blog entry is to demystify this concept. First, a bit on the meaning of the word "regulate." The word "regulate" comes from the Latin verb regulatus, which means "to direct or rule." According to Webster's, the primary definition is "to govern or direct according to rule." The definition does not specify where that rule comes from or what governs the given regulation or standard.

But let's get to the heart of the matter. People use the phrase "we need more regulation" because we believe that deregulation is bad and disorderly, and the government needs to rein in the disorder. Assuming that the choice between government regulation and no regulation creates a false dilemma based on the law of excluded middle. The choice is between government regulation and private-sector regulation. I like how Howard Baetjer, Jr. at the Foundation of Economic Education (FEE) summarizes it:

"We never face a choice between regulation and no regulation. We face a choice between kinds of regulation: regulation by legislatures and bureaucracies, or regulation by market forces. There is no such thing as an unregulated free market. If a market is free, it is closely regulated by the free choices of market participants. The actions of each constrain and influence the actions of others in ways that make actions regular--more or less predictable, falling within understandable bounds."

The Internet has brought such heightened capacity to regulate businesses, whether it is through Amazon, Yelp, Rotten Tomatoes, Angie's List, or giving Uber or Lyft drivers good ratings. Private-sector regulation predates the advent of the Internet, which we know because standards organizations have existed for decades now. The International Organization of Standards (ISO) has existed since 1946, and has provided more global standards for multiple markets. Since 1894, Underwriters Laboratories (UL) has provided safety standards across supply chains. The certification for kashrut (Jewish dietary law) is not managed by the federal government, but such organizations as the Orthodox Union, Star-K, and OK Kosher. Other private-sector organizations that regulate industries include the National Fire Protection Association, the International Electrical Testing Association, and the American National Standards Institute.

When the term "free market" is used, it does not mean that it is free of regulation, but free of government interference. Am I arguing that a "free market" is the best market? Not automatically. We have to remember that both the private sector and government are run by human beings that are definitionally fallible. I have worked in market research long enough to know that business owners are capable of making mistakes, much like government bureaucrats. The question is not whether one is perfect or not because neither will be. The question is when looking at a given issue, which can deliver the best outcome: the private sector, the public sector, or some combination of the two? My experience of analyzing public policy and markets over the years has led me to the conclusion that generally speaking, the private sector outperforms the government. That is not to say that there is not a role for government because there is a role. It is just that the role is smaller than many in power would like. When looking at policy decisions in the future, we should not frame it in terms of "regulation" or "no regulation." We should frame it terms of whether the private or public sector regulates better. At least that way, we can start off the discussion more genuinely.

Improved Relations Between China and Japan: An Unintended Consequence of Trump's Trade War

As long as Japan and China have been around, I am at least somewhat surprised that Sino-Japanese relations (中日關係) have not been contentious for a longer period of time. On the other hand, Japan remained relatively isolationist prior to the Meiji restoration in the 19th century. Sino-Japanese relations were a bit messy in the First Sino-Japanese War (1894-1895), but they got really tumultuous with the Second Sino-Japanese War (1937-1945) on account of the Nanjing Rape of 1937 (南京大屠殺). As you can imagine, relations between the two countries were strained as a result. Things did not really start improving until Shinzo Abe came into power and released a report in 2010 acknowledging the WWII-era atrocities committed. After that, disputes over rare earth metals and the Senkaku Islands put further strain on Sino-Japanese relations. Combine that with a mutual dislike between Chinese and Japanese people (BBC), and it is not a surprise that Sino-Japanese relations have not been going well this decade, even in spite of the fact that Japan and China are major trading partners.

If studying international relations over the years has reminded me of anything, it is how quickly the nature of alliances can change. Since the beginning of 2018, Trump has gone on the offensive on his trade. China has become the primary target in this trade war, and back in July, I made the case for why Trump should knock it off. However, Trump has decided that he wants to go after the U.S.' allies with tariffs, including Japan. In September, Trump threatened to enact a 25 percent national security tariff on Japanese automobiles and trucks. Trump met with Abe in late September, but it looks like it was more of a delaying tactic than anything else.

As a result of both sides are feeling pressure from President Trump (Wall Street Journal), there seems to be a thawing of Sino-Japanese relations. Last month, Chinese President Xi Jinping and Japanese President Shinzo Abe met to discuss the future of Sino-Japanese relations. Does this mean that everything is copasetic between the two nations? Hardly. Does this mean that things will end up amicably between China and Japan? No, it does not. There are still strategic issues of a military nature. The United States still remains as Japan's primary military ally. Japan has also increased its alliances with Australia and India in hopes to keep China in check. Given the zero-sum nature of geo-politics in eastern Asia, I'm confident both Xi and Abe know why they are meeting.

However, since China is dealing with other economic issues, including a devaluing currency, a real estate bubble, and government debt, it is not shocking that China is trying to hold together its economic clout. Plus, let's not forget that Trump foolishly decided to pull out of the Trans-Pacific Partnership on his first day in office. All that these economic forces do is draw Japan closer to China, even in spite of militaristic and nationalistic factors. This is another unintended consequence of trade wars, especially when when the President enacts trade barriers on the U.S.' allies: it becomes that much more likely to push your allies towards your perceived enemy. If diminishing trade flows with allies in order to pursue some zero-sum protectionism hokum is your idea of making America great again, I fail to see the economic sense or the appeal in doing so. I hope Trump can see the harm he is doing by eroding relations with allies. Otherwise, I wouldn't be surprised if the result is handing over international power, both militaristic power and soft power, over to China.


12-13-2018 Addendum: Political scientist Jeffrey Hornung of the Rand Corporation is not so optimistic that China and Japan are going to get along. He has three reasons for such skepticism: difference of position on disputed territories, difference in threat perception, and difference in vision of international order.

Parsha Toldot: Why Was Isaac Blind, and What Does That Have to Do With Family or Authentic Living?

As someone who loves studying languages, it's always interesting to learn the meaning of words because the same word can have multiple meanings. That is how the phrase "double entendre" (French for the words "double" and "to understand") came to being. With a double entendre, a word can have an obvious meaning and a less obvious meaning. We have a double entendre of sorts in this week's Torah portion with the name of the Torah portion itself: Toldot (תולדות). In Hebrew, the word primarily means "progeny" (children), but it can also mean "history".

I want to get into the word play and how the word means both "progeny" and "history," but first, I need to answer a seemingly tangential question: why was Isaac blind (Genesis 27:1)? There are a few explanations. For the Rashbam, it was a result of Isaac getting older. One of Rashi's theories is that the smoke that Esau's wives were burning for their idolatrous incense got into Isaac's eyes.

There is a Midrash (Genesis Rabbah 65:10) that actually comes up with an explanation, one I find compelling for the purposes of this insight. When Isaac was on the altar for the Akeidah (binding of Isaac), Isaac took a glimpse at the light of Heaven when the angel appeared in order to save Isaac's life. This blinding light, according to the Midrash, caused Isaac to never be able to see clearly again. As a result, Isaac could not see or recognize that Jacob was clearly lying to him, nor could he see that Esau was unworthy of receiving Isaac's blessing.

Isaac was not the only one that experienced some form of blindness. His father, Abraham, dealt with his own form of blindness. As the story goes, Abraham is about ready to sacrifice his son, an angel comes down to stop him (Genesis 22:12). A verse later, Abraham sees a ram enmeshed in a thicket and subsequently sacrifices a ram (Genesis 22:13). This brings up a question of at what point the ram became enmeshed in the thicket. If it was before Abraham and Isaac went up to the mountain, then Abraham did not see the ram when he initially descended or up until that moment in Genesis 22:12. If it was when Abraham was preparing his son for the sacrifice, again, he did not notice a ram coming up the mountain to get enmeshed. Regardless of when the ram showed up on the scene, there was at least a moment in which Abraham did not notice the ram. Abraham was so focused on following G-d's word that he did not notice the ram. Perhaps the ram represents an alternative to sacrificing his son, an alternative that he saw at the last possible second.

While Abraham ultimately did the right thing by sacrificing the ram (Genesis 22:16-17), his metaphorical blindness nearly killed his own son. The moment of the Akeida was a nexus for both of their blindness. Abraham's blindness might have been temporary, but it was nevertheless able to impact Isaac for years to come, at least according to this Midrash.

This is the part where I bring it back to the word תולדות. The Midrash teaches us how much of an impact our parents have on us, hence the English meaning of "children." Children are primarily influenced by nature and nurture. Parents play a major role in both. Parents pass on their genes to their children. Parents are also the single largest influence on an individual. Perhaps this is why when Abraham was making his journey to Canaan, the verse said that he left "the home of his father, his community, his country (Genesis 12:1)." It's because family influences us even more than community or country.

Yes, it is true how much influence family can have over, but we are more than just our upbringing or our genetics. The Zohar attributed a different character trait to each of the Patriarchs: kindness (חסד) for Abraham, strength (גבורה) for Isaac, and beauty (תפארת) for Jacob. This implies that in spite of familial traits or impact, you can and should make our own destiny and have our own personality. Although we are greatly influenced by family, we are ultimately and inevitably not a continuation of our family. We have the power to be our own person.

The Chassidic tale of Rabbi Zusha of Hanipol, a 18th-century rabbi, emphasizes this point of "be your own person" greatly. Essentially, R. Zusha is on his death bed crying. His disciples are wondering why he is in tears since the Rabbi did so many mitzvahs. His reply was the following. When he gets to Heaven, G-d will ask why R. Zusha wasn't as kind as Abraham or as wise as Moses, to which his reply would be "Well, I'm not Abraham or Moses." However, when asked "Why weren't you more like R. Zusha?," R. Zusha had no answer. What ultimately scared him was a lack of authentic living, an inability to make his own history.

To tie it all together, this is the double meaning and lesson of the word "Toldot". On the one hand, we are to remember where we came from. After all, it is how we came into being and why we are the way we are. At the same time, we are meant to be our own individual and to do so authentically. Pirke Avot (4:1) teaches us that a wise person is one that learns from every one. Let us learn from R. Zusha, as well as the Patriarchs Abraham and Isaac, and create a life that is both Jewish and authentic to ourselves.

Has Anti-Semitism in the U.S. Been on the Rise Because of President Trump?

The Pittsburgh synagogue shooting at the Tree of Life Congregation that took place a week and a half ago reverberated throughout the Jewish world. After all, it was the deadliest attack on Jews in American history, with 11 fatalities. Although I did not personally know any of the individuals who were murdered, the evil of anti-Semitism in this massacre was strong enough where I felt its impact. I have been called anti-Semitic slurs in the past, but the impact of those insults seemed to pale in comparison when I heard what happened at the Tree of Life Congregation. Why? Because the suspect of the massacre (who I will not mention by name here) was reported screaming "Kill All Jews!" It didn't matter what the Jew's political affiliation, religiosity, skin color, or sexual orientation was. It acted as a reminder that there are still people out there who will not be happy until all Jews are dead. As you can imagine, I take that personally.

After the massacre, I saw my Facebook inundated with support of the Jewish community and a call against anti-Semitism. However, I noticed something else. There was a rally cry of sorts against President Trump. It was not anything as explicit as "Trump pulled the trigger," but it was indirectly blaming Trump. Essentially, the theory that is popular among those who are anti-Trump is that his rhetoric is responsible for inciting hate-mongers to come out of hiding since they feel like they are emboldened by a President who they believe supports them. Essentially, Trump's incendiary language and anti-immigration, anti-globalism stances motivated the alt-right/white nationalism to be revived in the United States. Part of this alleged revival is a supposed spike in anti-Semitic incidents. And let's forget for a moment that Trump's daughter and son-in-law are Jewish or that he has been one of the most pro-Israel presidents since the creation of the State of Israel.

I do have concerns of whether Trump's rhetoric is stoking the fires because there are times that he can be quite divisive. I expressed concern after the Charlottesville attack last year when I analyzed the prevalence of hate crimes, particularly from the far-Right, in the United States. I found that the odds of being injured in an attack from someone on the far-Right was 1 in 7.6 million, but I can also acknowledge the possibility that a lot can change in a year. Conversely, I know how sensationalist the media can be, and I know how a tragic incident can alter our perception of overall trends, such as with school shootings. As tragic as the Pittsburgh synagogue shooting is, I want to see if it was part of a greater trend because otherwise, it would be cherry-picking, and I'm not a fan of confirmation bias. I am also not a fan of having emotion dictate facts, because the multiple logical fallacies having to do with appeal to emotion also detract us from finding a more objective truth on these matters. If there truly has been an uptick, we should try to find some data to corroborate the theory.

The report that gets most often cited on this topic is the Anti-Defamation Legaue (ADL) report entitled the Audit of Anti-Semitic Incidents. Their data indicate that between 2016 and 2017, the number of anti-Semitic incidents increased from 1,267 to 1,986. That is a year-to-year increase of 719 incidents, which represents a 57 percent year-to-year increase. Before continuing, we should take this finding with a grain of salt for the reason that we are talking about a one-year trend. Regardless of how robust the data are, two points on a data plot hardly tell us anything, especially when asking some of the bigger questions. But let's say that this increase is significant. We already run into some issues with the ADL's report.

Scrutinizing the ADL Report
One is that the ADL's figures are inflated by bomb threats having nothing to do with anti-Semitism. Even by the ADL's own admission (p. 8), at least 150 of the incidents were due to a disturbed Israeli teenager, Michael Kadar, making hoax bomb threats to Jewish Community Centers (JCCs) in the United States. An additional eight bomb threats were made by Juan Thompson, a man who was using the bomb threats to intimidate his girlfriend. This would mean that 22 percent of this increase in the statistics were because of bomb threats in which the motivation ultimately was not anti-Semitism.

Second, a similar argument about the bomb threats could be made for the acts of vandalism. As an example, there was the Jewish cemetery in St. Louis that was vandalized. In this case, the vandal was "drunk and mad," and did not vandalize the cemetery for anti-Semitic reasons. While this is but one case, I wonder how many of these incidents have comparable ambiguities or find to have the motive not be anti-Semitism. As the ADL report's Methodology section states (p. 12), the report includes incidents in which Jews perceive themselves being victimized due to their Jewish identity, as well as those in which the perpetrator expressed anti-Jewish animus. If ADL's reporting includes more incidents in which the motive was perceived rather than determinable, that could skew the perception in terms of perception of the overall trend.

Third, the number of incidents on colleges and universities increased by 108 incidents from 2016. The flaw in the data presented is that it does not indicate who the perpetrators are. Is it far-Right populists or far-Left, pro-Palestinians that have a penchant for such acts? The ADL remains silent on this question.

Finally, the number of assaults on Jews dropped from 36 to 19 incidents, or a decrease of 47 percent. While it accounts for the smallest amount of incidents, it is also the most telling since the nature and motive of assaults is less subjective and more unambiguous.

Postscript
Can we rule out the possibility of a spike in anti-Semitism in the United States? No, we cannot. We would need more data to show a trend line of any sort. At the same time, the ADL report does not definitely prove a huge rise in anti-Semitism, much less that Trumpian populism is the cause for the rise. Not only does the ADL report not provide adequate information, we do not have survey data showing that Trump supporters are more likely to be anti-Semitic, nor do we have FBI hate crime data for 2017. There are plenty of feelings and emotions going around about President Trump's influence on anti-Semitism, but none of this translates into data that could be used to discern whether Trump is responsible. Anything beyond that is speculative.

Before giving into hysteria, let's look at the bigger picture here. While the Pittsburgh synagogue attack was the attack on Jews with the highest casualties in the United States, it was not unprecedented. There was the 2014 Overland Park Jewish Federation shooting, the 2009 shooting at the DC Holocaust Museum, the 2006 attack at the Seattle Jewish Federation, and the 1999 attack on the Los Angeles Jewish Federation.

Second, and more importantly, I question that the far-Right is the only player because of the history of anti-Semitism. Anti-Semitism is the oldest, most universal hatred on this planet. It is so irrational that the Jewish people have been blamed for both capitalism and communism. There is a lot that the far-Left and the far-Right disagree on, but one area where they find common ground is Jew-hatred. Yes, there are white nationalists who hate Jews, but there are those on the far-Left (particularly those of the "pro-Palestinian" variety) that hate Jews, as well.

Before there was a state of Israel, Jews were the minority wherever they went. The Jewish people personify difference and what it means to be "other." This is not to say we should not call out other forms of hatred, whether it be racism, homophobia, xenophobia, or transphobia, because hatred has no place in a pluralistic, democratic society. At the same time, anti-Semitism is unique that it has been taken on by many groups of people over many years in many forms, including religious, cultural, economic, racial, and political anti-Semitism. Anyone who simplifies the anti-Semitism in the United States as a "problem from the alt-Right" or solely blames Trump does not understand the first thing about anti-Semitism.