Should Silicon Valley Bank Be Bailed Out?: Part I, Considering Financial Contagion

March 10, 2023 should have been another Friday, but it ended up being when Silicon Valley Bank (SVB) collapsed, thereby triggering the second-largest bank failure in U.S. history. If that were not enough, the Federal Deposit Insurance Company (FDIC) stepped in on March 12 to say that they will protect all of SVB's depositors. In addition, the Federal Reserve created a new emergency lending program called the Bank Term Funding Program. Banks in need of liquidity can have a loan between 90 days and a year. What is noticeable about BTFP is that the assets are valued at par instead of market value.

The federal government went to great lengths to stress that this was not a bailout. In some respects, the government's latest intervention is different from the 2008 bailout. SVB is not going to be revived by taxpayer dollars. The lenders and shareholders are not getting government money approved by Congress. Even so, it is still a bailout. Why? The government is stepping in to shore up the banking system with the FDIC's Deposit Insurance Fund (DIF). The DIF is technically funded by other banks. Right now, the DIF has less than $130 billion, whereas deposits in U.S. banks amount to $22 trillion. The Right-leaning American Enterprise Institute estimates that the bailout will cost at least $100 billion.

What happens when the Fund runs out of money? It is possible to recapitalize FDIC to help fund the DIF and spread the cost done to other banks, but that will be done through garnered returns on your bank account. But that is not how the Fund has traditionally been covered when it runs low on funds. If there is not an appeal to Congress, FDIC can ask the Treasury for more money, which is another way of saying this will in all likelihood be funded by taxpayer dollars. And if the Fed decides to buy up some of that government debt to create the funds, we will pay in the form of inflation. One way or another, taxpayers will pay for SVB's mismanagement. 

How concerned should we be about financial contagion?

This is the big question I would like to ask today. This bailout might seem like nothing more than a subsidy for rich, politically connected venture capitalists in the Silicon Valley. Proponents would argue that is not the case. The main justification for such bailouts is the worry over financial contagion. Financial contagion is when an economic crisis spreads from one market or region to another. 

Financial contagion is not mere conjecture or economic theory. While this phenomenon occurred with the bank runs in the Great Depression, the phrase "financial contagion" first emerged during the 1997 Asian financial markets crisis. The Great Recession and the COVID-19 pandemic are other examples of financial contagion. The argument for the bailout is presented succinctly by the American Enterprise Institute:

Without a clear purchaser of SVB, it was entirely plausible that that there could be additional runs on regional banks by Monday. The costs for stabilizing these banks is likely much less than cleaning up the cost of cleaning up a broader financial collapse. 

While SVB's customer base is primarily in tech, there is at least some marginal risk to the broader economy. SVB was the bank for 44 percent of ventured-backed technology and health initial public offerings (IPO). The bank's loans helped start-ups in life sciences, healthcare, and AI technology companies, not to mention funding 15 percent of Massachusetts' charter schools. These are some concerns that point to the potential of contagion. 

While the concerns about contagion are plausible, I have to wonder how likely they are. Forget the poetic notion that SVB had lobbied to remove the systemic risk label off their bank. As covered in my previous analysis of the SVB failure, the conditions leading to the collapse of SVB are much more idiosyncratic in nature. The bank's customer base was predominantly well-off, risk-taking venture capitalists and players in the tech industry. More traditional banking institutions keep a more diversified customer base, which helps spread out risk and better shield themselves from a single shock. Being a niche specialty bank with a narrow customer base in sectors made SVB more prone to high investment risk. 

As we see below from The Economist's analysis, SVB was unique in terms of size, as well as the combination of uninsured deposits and held-to-maturity securities. The bank had a relatively non-diversified portfolio filled with long-term government bonds and mortgage-backed securities. Such a concentration in SVB's portfolio was more prone to interest-rate risk than the average bank portfolio. There was also the "ill-timed and failed securities sale and planned recapitalization [that] were unique to SVB." Furthermore, the interest rate increases did not happen overnight. They were announced by the Fed and anticipated. SVB's lack of hedging against deflationary policy was pure negligence on SVB's end. 

The uniqueness of the SVB case do not signal a broader weakness in the banking sector, especially since "the banking system's overall leverage is much less than 15 years ago and bank assets are higher quality than back then." There is the final counterargument that there are enough healthy banks out there that could have purchased and absorbed SVB's assets with little to no shock to the economy. We will never know if that would have been the case because the federal government intervened. The question that remains, which I will have to answer at another time, is whether the potential of contagion outweighs the potential for moral hazard.

Part II will cover the costs of deposit insurance and concerns over moral hazard. 

Poor Investment Choices and Monetary Policy Caused the Silicon Valley Bank Failure, Not "Deregulation"

What a month it has been for banking! I am sure that you have heard the name Silicon Valley Bank, or SVB for short, by now. SVB is a state-chartered commercial bank headquartered in Santa Clara, California. Prior to being closed by the California Department of Financial Protection and Innovation on March 10, 2023, it was the 16th-largest commercial bank in the United States, as well as the largest bank in the Silicon Valley by deposits. The reason why this failed bank closing was so significant is because it is the largest bank failure since 2008. 

Not wanting a repeat of the Great Recession, the Biden administration decided to step in. The Federal Deposit Insurance Commission (FDIC) provides deposit insurance to bank depositors in the United States. Normally, the standard coverage with the FDIC is $250,000 per depositor per bank. On Sunday, March 12, the FDIC announced that it would provide coverage to all SVB depositors. What happened at SVB for this to get so bad? 

You can read this article from financial market news outlet Seeking Alpha, but the short version is the following. The Federal Reserve has kept interest rates low, a concern I have expressed more than once (see here, here, and here). On top of that, the Federal Reserve injected billions of dollars into the economy during the pandemic in hopes of avoiding a deeper recession. What did the Federal Reserve end up causing with that quantitative easing and low interest rates? Its expansionary monetary policy was a major contributor to the inflation we have been seeing since 2021. 

Where does SVB come in? Keeping interest rates low and flooding the markets with cash made low-interest, long-term federal bonds and mortgage-backed securities alluring enough for SVB to invest in. As long as the Federal Reserve kept interest rates low, long-term government bonds were a sound investment plan. Part of the problem was that the Federal Reserve's response to the inflation was to raise interest rates, which lowered the value of the bonds. While these bonds carry minimal credit risk, they carry considerable interest rate-risk. 

This would have not been an issue if SVB followed one of the main principles of finance: diversification. The purpose of spreading out one's investments over multiple [types of] assets (i.e., diversification) is to mitigate risk. Not only did SVB have its clientele heavily be focused in the tech industry, but it invested heavily in longer-term mortgage securities and bonds that take more than 10 years to mature, which caused the problems previously described. SVB was negligent in its fiduciary duty to hedge against interest-rate risk. 

SVB made the problem worse because its deposit base was larger accounts (i.e., greater than $250,000). As of December 2022, 89 percent of SVB's $175 billion in deposits were uninsured by the FDIC. This made SVB more vulnerable to the bank run it experienced this month. It is clear that SVB made a series of poor financial decisions that led to its closing. SVB was financially irresponsible when it took depositors' cash and converted it into devalued bonds. 

The Left wants to curtail the decision-making of SVB and blame it on deregulation. Under Dodd-Frank, banks with over $50 billion in assets would be subject to greater oversight. The Economic Growth Act of 2018, which was passed by Republicans, made the threshold at $250 billion. As the libertarian Cato Institute counters in its analysis along with the Left-leaning Brookings Institution, the Economic Growth Act de facto gives the Federal Reserve the discretion to impose greater oversight for banks with assets over $100 billion. For context, SVB reached this threshold in 2020. The Cato Institute also pointed out how SVB's leverage ratio and tier 1 capital ratio were beyond what the regulations required. 

This is not an issue of there being enough regulation. As pointed out in the previous paragraph, the Economic Growth Act gave the Federal Reserve the discretion to provide this extra oversight. It simply failed in this regard. As Brookings Institution scholar Aaron Klein illustrates, the Fed missed multiple red flags that it should have caught: quadrupled asset growth in four years, hyper-reliance on uninsured deposits (the ones greater than $250,000), huge interest rate risk, and contacting the Federal Home Loan Bank (FHLB) system. The FHLB is especially key because the FHLB is the lender of next to last resort. 

As an additional point, economist Gregory Mankiw brings up that the Fed's stress test did not include a major bond drawdown. The fact that the Fed did not have the foresight to include it in its review of banks shows another flaw in government oversight. Another reason why the regulators would not have detected SVB's failure has to do with "hot money," as is explained by Wharton School business professor Kent Smetters. "Hot money" is currency that regularly and quickly flows between financial markets to maximize on the highest short-term interest rates. Smetters pointed out that most banks have more retail clients with "slow money" deposits, whereas SVB dealt with more "hot money" due to much of its clientele being in the technology sector. Since regulatory stress tests de-emphasize money elasticity, there is no plausible way that the Fed could have avoided the SVB bank failure. 

Should the bank, or at least its depositors, be bailed out for SVB's ineptitude? That is another question I plan on answering in the near future. What is clear at this juncture is that the SVB bank failure was not due to there being insufficient regulation or oversight. This debacle was partially self-inflicted due to incompetent investment choices and partially due to myopic monetary policy. This point cannot be emphasized enough because until we can understand the causes, we cannot hope to provide a remedy. 

What I will say for now is that the Federal Reserve is in an unenviable position. The Fed's unprecedented expansionary monetary policy during the pandemic injected too much "easy money" into the economy. The SVB failure is to be one of many symptoms of expansionary monetary policy. The Fed either has to make bank runs systemic or it has to let up on quantitative tightening, the latter of which will escalate inflation even more. Time will tell as to whether the Federal Reserve will learn the right lessons from its excessive intervention in the economy.  

5-7-2023 Addendum: A couple of weeks ago, the Governmental Accountability Office (GAO) and the Federal Reserve released reports on what caused the bank failure. It was nice to see a vindication of what I initially wrote in March. To quote the GAO report (p, 26), "Although FDIC took some actions to escalate its supervisory actions in 2019 and 2020, its actions were inadequate given the bank's longstanding liquidity and management deficiencies. Furthermore, FDIC lacked urgency despite Signature Bank's repeated failures to remediate liquidity and management issues." 

The second page of the executive summary of the Federal Reserve report said that "SVBFG was a highly vulnerable firm in ways that both SVBFG's board of directors and senior management and Federal Reserve supervisors did not fully appreciate." This would imply that either the best at the Fed cannot foresee or that the regulations in play are ineffective. 

Is the Debate on Drag Queen Story Hour Addressing a Legitimate Concern or an Example of Conservative Moral Panic?

The practice of drag, or the performance based on an exaggerated version of masculinity or femininity, has been around for ages. Whether it is Plautus' play of Menaechimi, Shakespearean plays, drag shows that were part of the Prohibition era, Bugs Bunny, Monty Python, or Robin Williams in Mrs. Doubtfire, there has been a practice in cultures (including U.S. culture) of people impersonating the opposite sex with gender-bending. Yet it has become a source of controversy in the United States' culture war, specifically through Drag Queen Story Hour. 

Drag Queen Story Hour was started in 2015 by activist Michelle Tea in San Francisco in the hopes to promote diversity and reading. Essentially, a Drag Queen Story Hour is a public library event in which a drag queen reads a children's story to children from the ages of 3 to 11. Although it started in San Francisco, the nonprofit Drag Queen Hour has 28 chapters in the United States and four chapters abroad. 

Unsurprisingly, the Left and Right have different understandings of what Drag Queen Story Hour is. For the Left, it is a chance for children to be exposed to diversity and being comfortable with and accepting those who are different. For the Right, it is about exposing children to something else. The Right-leaning City Journal opines that Drag Queen Story Hour exists with the purpose of "undermining traditional notions of sexuality, replacing the biological family with the ideological family and arousing transgression sexual desires in young children." So which is it? Is it empowering our children to become better and more caring human beings or sexualizing them?

Whether it is a sexualizing experience is trickier because it is not a simple "yes or no" response. Drag is not inherently obscene or pornographic. The Drag Queen Story Hour is not exposing children to pornography or sexual education. It is an event where drag queens are reading children's books to children. It is also true that a Drag Queen Story Hour is not going to turn children gay. That is not how sexuality works. And let’s not forget that there’s a widely accepted form of sexualizing children, as well as adult women, in the form of beauty pageants.

Conversely, it's not as if these drag queens were dressing up in Victorian-era clothing or something considered more modest in the style of Mrs. Doubtfire. One of the main points of performing as a drag queen is to present an exaggerated version of femininity. Much of the drag getup used by drag queens and the accentuation thereof have a provocative and sexualized aesthetic on some level. It is arguably not as revealing or as explicit as drag queen attire in more adult settings, but there is at least some of it taking place.  

There is a related concern from the Right that Drag Queen Story Hour is used to shove queer theory down children's throats. One selection that is reportedly favored among Drag Queen Story Hour drag queens is Bye Bye Binary. Even if it is true that there are some drag queens that pick children's books with an ideological tilt, it ignores another important facet to this debate. 

Drag Queen Story Hour is not an infringement of parental rights because no one is forcing parents to make their children attend Drag Queen Story Hour. It's a similar concept to how we should deal with children's books from such authors as Roald Dahl or Dr. Seuss. If it offends your sensibilities as a parent, don't buy the book for your child. There is no need to cancel or bowdlerize books.  Similarly, parents have discretion as to whether their children should watch R-rated movies that typically have sex, violence, and/or nudity. 

Conservatives have not had control over the cultural narrative for at least 15 years. It’s why I needed to be reminded that the Right also has the potential to limit freedom simply because they do not agree with the way someone thinks, believes, or acts. The woke Left does not have a monopoly on forcing their views on others. If parent's rights are to apply to more than conservative families, then parents of all political persuasions should be allowed to determine whether an event such as Drag Queen Story Hours is appropriate for their children. To quote the libertarian Reason Magazine, "If you don't approve of drag, don't take your kids there. Leave everyone else alone."

Social Security Is Not Sustainable: Is It Time to Get Rid of Social Security?

Social Security was created in 1935 by the Franklin D. Roosevelt administration with the goal of making sure that the elderly did not drop dead in the street during the Great Depression. Social Security has been portrayed as a program synonymous with economic footing in one's old age. However, Social Security is on shaky ground. 

A recent CBO report details how Social Security is the single largest federal government program in its budget (p. 14). Yes, the U.S. government spends more than it does on Social Security than it does on Medicare, Medicaid, defense spending, and interest payments. Those outlays will be 5.3 percent of GDP in 2024 to 6.0 of GDP in 2033 (p. 18). The CBO recognizes that Social Security is a major driver of federal deficits (p. 28).   

Many are under the misimpression that your Social Security contributions go to your specific account and build value over time. That is patently untrue. This is not only because the Supreme Court ruled in Flemming v. Nestor that no one is guaranteed contractual right to Social Security. As I pointed out way back in 2011, your Social Security tax dollars are not going to a personal retirement account of yours, but to pay for current beneficiaries. While it might not have the same intent as a Ponzi scheme, even the Social Security Administration admits that Social Security uses the same pay-as-you-go payment mechanism as a Ponzi scheme. 

The issue with the pay-as-you-go payment mechanism has shown its true colors over time. It was easier to support Social Security when the worker-to-beneficiary ratio was 159.4 to 1 in 1940 (see SSA historical data here). That ratio is now at 2.8 and is expected to decline to 2.2 by 2042. 

The trajectory does not look good for Social Security, and yet one thing that both Biden and Trump agree on is that we should not decrease spending on Social Security. I have looked at payroll tax reform or raising the retirement age in the past to see if there are any viable reforms. I remember back in college when I was part of an initiative called Students for Saving Social Security that advocated for changing Social Security regulations to allow for the choice of personal savings accounts. I look back and I wonder if the option of personal savings accounts were enough. Perhaps it would be better to scrap Social Security in favor of privatization, as this video from Reason Magazine below suggests. 

It is an awfully tempting policy option. According to the Social Security Administration's 2022 Trustees Report, the Social Security trust is projected to expire in 2034. After the surplus has dried up in 2034, retirees will receive 77 percent of what they were prior to. 

As a 2016 analysis from the Tax Foundation shows, Social Security provides a much lower return on investment (ROI) on Social Security than personal retirement plans or pensions. In 2016, the average annual payout was $19,646 annually. If someone invested 10 percent of wages at 22, it meant an annuitized annual income of $57,319, or nearly three times the payout. The difference in ROI will be more pronounced once the trust fund will run out. A report from OECD also found that privatization of retirement accounts supports broader economic growth.

I am aware that increased privatization or complete privatization would not be a change that would happen overnight. There would need to be ways to phase it out while helping out current beneficiaries. Over time, I am less convinced of the merits of reforming a broken program and guiding the American people towards something that will help retirees and the American economy in the long-run. 

Social Security insolvency is not a matter of if, but when. The question is whether politicians will make some tough decisions now to help Americans retire or if they simply kick the can down the road as they always have and leave the responsibility of cleaning up this fiscal mess to future generations. I would like to be hopeful that we could find a bipartisan solution instead of making an even more painful choice in the future. But given the intransigence and nature of politicians to have a more myopic view dictated by election cycles, the more realist side of me is not going to hold its breath.

Biden Administration Ignores the Science on COVID: Natural Immunity Edition

When the COVID vaccines were being rolled out, the government promised us that vaccines would be the gateway at getting us back to a pre-pandemic normal. It was seen as such a path to salvation that the government made a failed attempt at a misguided vaccine mandate. Back in October 2021, I argued against vaccine mandates providing 10 reasons as to why they were unnecessary. One of those reasons was that of natural immunity, which is the immunity from a disease that is acquired through infection. Natural immunity is nothing new. It existed for the Spanish flu. The CDC recognizes natural immunity for chickenpox, as well as measles, mumps and rubella. 

With that being said, it seems mysterious as to why the existence of natural immunity, which was a standard understanding amongst epidemiologists and immunologists pre-COVID, became so controversial. I will get to that momentarily. But first, let's get back to the evidence base. Back in October 2021, there were some preliminary data on COVID and natural immunity. Now that it is about two years after we started distributing vaccines, it is nice to have a clearer picture on this topic. According to a meta-analysis of 65 studies from The Lancet (Stein et al., 2023) that was released last week, natural immunity is not ineffective, as the figures below show. Far from it! This was what the report had to say on the matter:

Although protection from past infection wanes over time, the level of protection against re-infection, symptomatic disease, and severe disease appears to be at least as durable, if not more so, than the that provided by two-dose vaccination with the mRNA vaccines for ancestral, alpha, delta, and omicron BA.1 variants.

A comprehensive review of the best available data shows that natural immunity is as good, and better in many cases, than vaccine immunity. However, that did not stop Undersecretary of Defense for Personnel and Readiness Gil Cisneros from saying in an Armed Services Committee testimony last week that "natural immunity is not something we believe in." 

You can say that Cisneros does not know any better because he does not have a background in public health. In 2021, CDC director Rochelle Walensky could not explain why the CDC did not research the topic. And let us not forget former NIAID director Anthony Fauci who said in 2021 that vaccine immunity was vastly superior to natural immunity. In a recent paper that he co-authored (Morens et al., 2023), the authors (including Fauci) admit that they did not expect influenza or COVID vaccines to confer the same immunity that other vaccines provide. This study concluded that "they elicit incomplete and short-lived protection against evolving virus variants that escape population immunity." This is significant because Fauci and his colleagues essentially admit that they did not expect vaccines to get us out of COVID.  

This might sound like this is a scientific debate above all else. What do politics or public policy have to do with it? While the effectiveness of natural immunity is indeed a scientific question, public health policy is only as good as the science that is informing the public policy. Yes, science is a process of testing hypotheses of cause and effect. There is always the possibility that conclusions can change in the event that better evidence can come along. At the same time, public health recommendations should be made on the best available evidence. 

This is not to say that vaccines are bad. I myself got vaccinated. Another recent study from The Lancet (Bobrovitz et al., 2023) showed that hybrid immunity, which is the combination of natural and vaccine immunity, is the best way to go in terms of strengthening the immune system. This does not change the fact that natural immunity is as effective, if not more so, than vaccine immunity. It confirms the notion that the choice to vaccinate primarily has individual benefits, not societal ones. It means that vaccine mandates and vaccine passports were unnecessary. You know what else was unnecessary? Threatening people's livelihoods, forbidding travel, or restricting access to various venues because someone was unvaccinated was unnecessary.

Natural immunity is not the only science that the U.S. government has ignored. Last month, a systematic review of randomized control trials (RCT) on face mask efficacy came out from the organization Cochrane. For context, systematic reviews of RCTs are the gold standard of public health research. Cochrane is considered the gold standard organization for carrying out those reviews. Cochrane found that there is zero evidence that face masks work to prevent COVID transmission. CDC Director Rochelle Walensky would rather ignore the evidence and stick with her gut feeling.  

Public health officials ignoring scientific evidence does not stop with masks. Fauci insisted on school closures in spite of evidence to the contrary. Fauci said that we should never stop implementing a mask mandate on public transit. World leaders pushed for lockdowns in spite of all epidemiological guidance advising against lockdowns. What is infuriating is that government leaders ignored or manipulated scientific findings in order to engender policy outcomes that would placate the COVID hysteria. 

Public health policy had an almost exclusive focus on COVID while ignoring non-COVID health costs, as well as economic, social, and psychological costs of COVID policies. Ignoring the science led to these disastrous policy choices, and we are going to live with the consequences for years to come. Most of these policy decisions could have been prevented with foresight, if only public health officials listened to standard epidemiological advice instead of fear and panic. 

What is even worse is that public officials continue to cling to faulty conclusions like a pre-modern peasant would have clung to a talisman. Cisneros indicated that the vaccine mandate for soldiers is still in effect. The United States is the only developed country that still recommends masks for anyone over 2 years old. What is so troublesome is that the so-called "experts" they cannot even admit when they are wrong, they cannot evolve their positions as data become more abundantly clear on various facets of public health, and somehow they still have their jobs. These officials undoubtedly eroded trust in public health institutions. If they want that trust to continue eroding, they can double down and continue to provide recommendations that do not have basis in scientific evidence. If they lack the humility to admit they were wrong, my advice from two weeks ago stands: we should ignore the likes of the CDC and enjoy our lives.

Ta'anit Esther: How Fasting Before Purim Is a Metaphor for Our Potential for Personal Growth

Purim is a topsy-turvy Jewish holiday. On Purim, Jews wear costumes, eat a lot of food, are permitted to drink a larger-than-normal amount of alcohol, and can even cross-dress. For a time that encapsulates so much joy, it seems peculiar at first glance that there would be a fast right before Purim. The fast day before Purim is known as Ta'anit Esther (תענית אסתר). 

In the Purim narrative, Esther approached King Ahasuerus in the hopes that he would intercede on behalf of the Jewish people. She fasted three days beforehand and asked that the Jewish people do the same (Esther 4:16). While we do not fast for three days, this "minor" fast (i.e., it is from dawn to dusk and does not have additional restrictions) on the 13th of Adar does beg the question of why. 

It is interesting to think of Yom Kippur at this time of the year. While Yom Kippur can be translated as Day of Atonement, the phrase יום הכיפורים can also be translated as "a day like Purim." This makes sense since Yom Kippur is a fast day and Purim is proceeded by a fast day. Fasting exists in Judaism for different reasons. Most communal fasts exists as an act of commemoration, such as Tisha B'Av. The fasting on Yom Kippur is for repentance and making up for one's imperfections. As for Purim, the Book of Esther is not explicit on the motive, although Jewish liturgy for Ta'anit Esther provides some clues. 

In the morning, we recite Selichot, or the penitential prayers. In the afternoon, there is the Aneinu blessing, which is done for supplication. But after the afternoon Torah reading, there is a special haftarah reading that is read on fast days: Isaiah 55:6-56:8. It is a combination of wronging one's imperfections, asking for help and [internal strength], and to get focus on what is important. 

This is why it is important to contrast the fasting that the rest of the Jewish people were doing when they found out the news (Esther 4:3) and Esther's fast (Esther 4:16). After all, we are observing the Fast of Esther. What did Esther's fast show us? The fact that we are allowed to listen to music and prepare new clothing on Ta'anit Esther (Piskei Teshuvot, 686:2) indicates that the fast is not about wearing sackcloths, being hard on ourselves, or feeling helpless. 

Esther's story reminds us that not only is there a time to leave our comfort zone and show solidarity, but there is also a time where we have to act instead of depend on G-d to intercede and fix everything. Similar to fasting on Yom Kippur, Esther takes the fast as an opportunity to summon the inspiration and courage to confront King Ahasuerus and ask him to call off the genocide. 

Life is fragile and full of curveballs. I'm not here to say that life always has happy endings. There are numerous examples in Jewish history, never mind world history, to remind us of that sad truth. At the same time, we are not meant to sit around to wait for life to happen to us. 

Sometimes, we do not have control over situations. Other times, we can still exert influence. It is in those times that were are to call upon our gifts and strengths. We have the potential to take a dire situation and transform it into something more redeeming. When life gives us genocidal threats, we create redemption.....or turn lemons into lemonades, something along those lines. Redemption comes through a growth process. 

That process doesn't happen to people who lounge around in palaces where we can expect to be protected from every one of life's moments of nastiness, heartache, unfairness, and grief. You think a pandemic would have made this lesson hit home, but we cannot escape risk or suffering. I think Esther realized that in the Purim story. 

The fast provides some guidance for how we should live. We are to take the courage to face what is in front of us. We use what is at our disposal to make the situation better. We plan and prepare to the best of our ability. Even after all that preparation, whether spiritual or otherwise, we accept whatever may come, exactly like Esther did (4:16) when she said "if I perish, I perish (וכאשר אבדתי, אבדתי). That is what the fast is supposed to represent. We don't get everything we want in life and we might not be able to fix everything. But if we don't take the courage to face our own challenges, our lives will not get better. Problems are inevitable in life. Through facing and surmounting our challenges can we relish in the joy that life has to offer. 

May you have a meaningful and easy fast! 

More Immigration Would Do Wonders for Economic Growth

The pandemic gave us a great deal of ruckus: a supply chain crisis, inflation caused by fiscal and monetary policy, labor shortages. Because of the tumult, we are looking at a higher-than-normal likelihood of a recession within the next year. After everything we have been through economically in the past three years, it would be dandy to have a period of robust economic growth. 

However, according to a recent report from the Congressional Budget Office, it does not look like the economic growth will be as good. Even with inflationary pressures declining and tight financial conditions easing, what we will have in the upcoming years for economic growth will be relatively modest. 

How does one raise the gross domestic product (GDP)? As the American Action Forum describes it, "mechanically, GDP growth is the sum of the growth in the number of workers and growth in GDP per worker, also known as productivity. Looking back, the labor force grew at an average annual rate of 1.2 percent from 1948 to 2022, but CBO is assuming that it will only grow 0.4 percent annual over the next decade." Population aging and retirement are major culprits in the labor market shrinking because fewer workers in the labor market means a stagnant GDP. One clear-cut way to improve the GDP is to increase workers: more immigration.

Migrants crossing the U.S.-Mexican border remaining near record highs. On top of that, there are 73 percent of Americans who do not want immigration to increase. A political feasibility argument is more difficult to make. Let me make an economic one, much like I have done since 2013. The National Foundation for American Prosperity released findings on the theme of immigration and economic growth. The author was Madeline Zavodny, who is a professor at the University of Northern Florida and formerly worked for the Federal Reserve Banks of Atlanta and Dallas. Her executive summary reported the following:

Immigrants boost economic growth, employment growth, and economic dynamism through their contributions to the workforce, entrepreneurial activities and purchases of goods and services. Metro areas with a higher share of immigrants have more dynamic economies and experience faster growth in the number of jobs created and new business establishments. 

Across 248 metro areas, a 1 percentage point higher share of the population composed of the working-age foreign born in 2010 is associated with a 0.58 percentage point higher growth rate in the number of establishments during 2010-2019. Foreign born workers accounted for up to three-quarters of the growth in business establishments in 248 U.S. metro areas between 2010 and 2019. 

This is hardly the first study to illustrate that more immigration is better for the economy. Immigrant increases employment for native workers. The high-skilled immigrant visas, the H-1B visa, have been shown to generate a net increase in employment, greater productivity growth, more patents, and more tax revenue. Economic benefits are similarly observed when admitting low-skilled immigrants to the economy. 

Time and time again, immigrants have been shown to be productive members of society that contribute to economic well-being of their new country. The countries that can best foster greater immigration will be the ones that can prosper. The United States has had its ups and downs in terms of letting immigrants into the country. The United States has fared better when it allows more immigrants in than fewer. If the American people want a dynamic economy, the majority of Americans will need to get over whatever qualms they have with increased immigration. Otherwise, the U.S. economy will suffer in a similar way we are already seeing in China and Japan.