Every morning, well, except for Shabbat or Yom Tov morning, I get an e-mail from Aish HaTorah about various aspects of Judaism. The "Ask the Rabbi" section recently was about chalav Yisrael (חלב ישראל). Chalav Yisrael, which literally means "milk of Israel," is the term in Jewish law that refers to dairy products that were milked and processed under the supervision of a Jew. In addition to talking about chalav Yisrael, the "Ask the Rabbi" response also dealt with chalav stam (חלב סט''ם), which is milk not supervised by a Jew, but is still considered by many observant Jews to be kosher because the supervision over the milking process is so stringent that nothing non-kosher would enter the milk. For those who abide by chalav stam, the status of chalav stam has the same legal status as chalav Yisrael. Although the practice of chalav stam is considered widespread in a country like the United States, it is not a universal practice. I took issue with the "Ask the Rabbi" response because it was unsatisfying, so I decided to find out whether the permisibility of chalav stam was a justifiable leniency or if using chalav Yisrael is the only acceptable practice under Jewish law.
The practice of chalav Yisrael has its origins in the Talmud (Avodah Zarah 35b). Milk coming from a kosher animal is inherently kosher. However, the talmudic rabbis wanted to make sure that there was no non-kosher animal product that mixed in with the kosher milk, which is why from a legalistic and historic standpoint, the rabbis put up a fence (gezeirah) in which an observant Jew needs to supervise the process (Shulchan Aruch, Yoreh De'ah, 115:1). If there were non-kosher product in the milk, it would be rendered chalav akum (חלב עכו''ם), which is milk from "non-Jews."
In recent times, there have been changes in the regulatory oversight of how milk, amongst other foodstuffs, is produced. One of the rules of a bureaucratic organization such as the Food & Drug Administration (FDA) is essentially that there can be no false advertising on milk, e.g., a gallon of milk being sold as cow's milk actually needs to be 100% cow's milk. If a producer of milk misleads the customer and puts milk from other animals into the cow's milk, then the producer is subject to a heavy fine, not to mention negative publicity. Since there is sufficient supervision and incentive to ensure the quality of the milk, this resulted into a third legalistic category of milk known as chalav stam (plain milk).
As if it were a surprise, this is another example of "two Jews, three opinions," which is to say this issue causes controversy in the observant Jewish community. Can we ignore the need for Jewish supervision because we live in an age where the quality of the milk can be ensured, or do we still have to follow the stringency, even though the reasoning no longer applies?
My answer is a bit nuanced: it depends where you are living. In Israel, most of the citizens are Jews, so the question becomes irrelevant. In countries where they do not have appropriate [government] regulation, which includes most of them, then one cannot rely on a leniency of chalav stam. In a country that has strong enforcement and oversight over food, like the United States, I would opine that using chalav stam is not only acceptable, but dare I say preferable.
Under Jewish law, a gezeirah has a very specific function, which is to act as a fence in order to prevent the violation of a biblical law, which in this case is the consumption of non-kosher animal product (Leviticus 11). The historical context in which the law was created was different from today. Much of the laws in Tractate Avodah Zarah deal with avoiding contact with pagans and idol worshipers. When defining chalav akum above, I put "non-Jews" in quotes, and I did so because the word akum is an abbreviation for עובדי כוכבים ומזלות, which literally means "worshippers of the stars and zodiac signs." The non-Jews with whom Jews interacted in the Talmudic era were decidedly pagan. Going with the insights of HaMeiri regarding non-Jewish neighbors, I would argue that Christians and Muslims don't fit under this definition of akum. Even if one were to [erroneously] consider Christians and Muslims to be under the category of akum, the increased government oversight of food processes causes any disquietude to dissipate. Since the concern of non-kosher animal product mixing in with kosher milk is no longer legitimate, the reasoning behind the fence disappears, as should the law. In this case, R. Moshe Feinstein (Igrot Moshe YD 1:47), zt"l, did make an exception because all reasonable doubt disappeared with government protocol (what is called in the halachic world "anon sahadi"), and he thusly allowed for the consumption of chalav stam. Additionally, R. Yosef Soloveitchik, zt"l, also permitted the consumption of chalav stam. In addition to R. Feinstein's reasonings, R. Soloveitchik pointed out that a) there are no non-kosher animals in the vicinity being milked (ein biedro tamei) and b) the animals are technically being milked by machines, which doesn't render it chalav akum.
Even if one wants to point out that there is still a small chance that government protocol doesn't act as enough of a deterrent, then let me respond with this: it is always theoretically possible to sneak some non-kosher product into the milk, whether it's through bribery of a bureaucratic official or simply not caring about the law. Let's ignore for a moment that the probability is next to nil. Keeping kosher is a matter of trust. There is a more-than-reasonable assumption that one can make regarding the origin of the milk. If you want to apply this level of skepticism, you better be able to do it to all facets of your life to the point where you even question your own existence and make plans on the improbability that you really don't exist. So let's be reasonable about setting standards and burdens of proof.
Now, why do I go as far as saying that chalav stam is preferable? One would think that going with the stricture (chumra; חומרה) of chalav Yisrael would be preferable because it shows that one is so dedicated that the individual decides to abstain from that which is permissible, just to be certain that nothing is violated. The problem with that mentality is human nature. A tzaddik is a righteous individual who consistently follows the law. A chassid is one who goes beyond the law. As much as we'd like to, most of us cannot reach these levels of spiritual meticulousness--we're only human. Observing halacha was never meant to be for the few and the spiritual elite. Halacha was meant to be observable and obtainable. Although chalav Yisrael is easier to accrue than it used to be, it's still more difficult to come by and it's still more expensive, which would violate the idea that "the Torah takes pity on the people Israel's money" (Rosh Hashanah 27a). What's more is that this scenario is a rarity in Jewish legal history because it is a case where a change in the reality allows for us to lower the halachic minimum. This is vital because an institutional change [such as governmental protocol] has turned something that was once law into a chumra, at least in an American context, which is not insignificant because about two out of five Jews worldwide live in America. As such, if you have a legalistic justification for a more lenient ruling, especially when a majority of observant Jews abide by it, and you set the baseline at piety, not only would you be opining that a majority of observant Jews in America are really not observant, but you would also be violating the biblical commandment of not putting a stumbling block before the blind (לפני עבר) because it becomes that much more difficult to observe Jewish law.
The way I see it, chalav Yisrael is yet another example of conflating stricture with religiosity and truth. Sometimes, it's better to be more lenient. This is one of those instances. If you, as an individual, want to take on chalav Yisrael because you find that a chumra shows your devotion to Jewish or that you equate strictness with religiosity, go for it! It is an individual's choice (or in some case, a communal norm) to go beyond the letter of the law. And if you want to deal with the obstacles of mingling with Jews that consume chalav stam, then again, it's your prerogative. But much like R. Feinstein (Igrot Moshe, YD, 1:47-49), let's not treat people who consume chalav stam as if they were violating Jewish law.
Thursday, July 25, 2013
Thursday, July 18, 2013
Yes, Long-Term Government Debt Is a Short-Term Issue
Some would like for us to believe that government's ever-expanding debt is not a big issue, or at the very least, it is not as bad as we would like to think. After looking at an infograph (see below) and report recently published by the Peter G. Peterson Foundation that illustrates just what we're in for during the upcoming years, I had to wonder just how bad the overall debt situation is. It's not as if debt issues are anything new; America has been dealing with debt since its inception. The question I would like to answer is whether long-term debt woes are justified or overstated.
Currently, federal held debt by the public is 74.74%. Looking at historical public debt, our debt [as a percent of GDP] has not been this bad since the World War II era.
What's better is looking at the projections from the Congressional Budget Office (CBO). The CBO has two scenarios: the baseline and the extended alternative fiscal scenario. As the notes in the graph [below] imply, the alternative fiscal scenario is a more realistic projection of what federal debt will look like by the end of the 2030s.
Given the type of expenditures we plan on spending (below), should it really be a surprise that the debt-to-GDP ratio is rising? We're looking at health care costs that are projected to skyrocket. Social Security needs some major overhaul before it exhausts its funds in the 2030s. Any other spending should, whether discretionary or mandatory, merit serious reconsideration.
If the debt-to-GDP ratio is projected to reach 200% by the year 2040, I see it as a red flag because our debt is projected to be twice as large as our economy. Why the worry, I mean aside from an IMF working paper showing how a ten-percent increase in the debt-to-GDP ratio leads to a 0.2% decrease in GDP growth? The higher the debt-to-GDP ratio, especially when it reaches the realm of three digits, the lower the probability that the government will be able to pay off its debt without having to resort to higher rates of taxation, expropriation of property, expansionary monetary policy (aka, "let's print more money"). Higher tax rates would disincentivize people to work, save, invest, and/or take risks. Expropriation would cause capital flight and decreased investment. Printing more money to monetize the deficit would lead to further monetary instability because using inflation makes it more difficult to determine net present value of a given investment. Essentially, an increase in debt-to-GDP ratio means further economic stability because there will be less innovation, entrepreneurship, and investment because guess where the money to pay off the debt comes from? The private sector. So much for spending our way to prosperity!
And this doesn't even consider the cost of accruing more debt. The more debt, the higher the cost to pay it off, i.e., increased interest rates. In addition to debt interest payments increasing because of the increased debt, why do I assume that the interest rate on debt will also increase? With increased debt-to-GDP ratio comes increased credit risk, as outlined in the previous paragraph. If there is an increased credit risk, that means that the cost of borrowing, i.e., the interest rate, will increase because increased credit risk signals that we're becoming riskier borrowers, which will most likely cause a debt spiral. The Peter G. Peterson Foundation projects that by 2064, interest payments will exceed government revenue [in percent of GDP]. Government can theoretically perpetuate its debt, provided that it can make its interest payments. The second that a government cannot make its interest payments is the moment in which the government is royally screwed (read: default).
Both the Bank of International Settlements and the Organization for Economic Co-Operation and Development (OECD) have bleak outlooks on the United States' long-term fiscal issues. At the rate we're going, economic catastrophe is not a matter of "if" but "when." Not dealing with it now would mean government programs get abruptly cut....not that I'd necessarily be complaining, but I can imagine that a good majority of Americans would be. Not only that, waiting until later puts the financial and fiscal strain on future generations, which will only dampen economic progress in the medium-to-long term. Rather than say "we can deal with it later," this is a fine opportunity to help prevent an unmitigated disaster. Let's talk about reforming Social Security, Medicare, and Medicaid, which will be the three biggest cost drivers for the federal budget. Let's discuss which programs can be scaled back so we can reduce the debt-to-GDP ratio. If we know that long-term government debt is a problem now, shouldn't we do everything in our power to minimize it?
9-8-2014 Addendum: The centrist Council for Foreign Affairs recently published a report on the dire state of America's debt crisis.
7-10-2015 Addendum: The International Monetary Fund (IMF) just came out with research that confirms what has been said along: fiscal reforms leading toward debt reduction are better for the people.
Currently, federal held debt by the public is 74.74%. Looking at historical public debt, our debt [as a percent of GDP] has not been this bad since the World War II era.
What's better is looking at the projections from the Congressional Budget Office (CBO). The CBO has two scenarios: the baseline and the extended alternative fiscal scenario. As the notes in the graph [below] imply, the alternative fiscal scenario is a more realistic projection of what federal debt will look like by the end of the 2030s.
Given the type of expenditures we plan on spending (below), should it really be a surprise that the debt-to-GDP ratio is rising? We're looking at health care costs that are projected to skyrocket. Social Security needs some major overhaul before it exhausts its funds in the 2030s. Any other spending should, whether discretionary or mandatory, merit serious reconsideration.
If the debt-to-GDP ratio is projected to reach 200% by the year 2040, I see it as a red flag because our debt is projected to be twice as large as our economy. Why the worry, I mean aside from an IMF working paper showing how a ten-percent increase in the debt-to-GDP ratio leads to a 0.2% decrease in GDP growth? The higher the debt-to-GDP ratio, especially when it reaches the realm of three digits, the lower the probability that the government will be able to pay off its debt without having to resort to higher rates of taxation, expropriation of property, expansionary monetary policy (aka, "let's print more money"). Higher tax rates would disincentivize people to work, save, invest, and/or take risks. Expropriation would cause capital flight and decreased investment. Printing more money to monetize the deficit would lead to further monetary instability because using inflation makes it more difficult to determine net present value of a given investment. Essentially, an increase in debt-to-GDP ratio means further economic stability because there will be less innovation, entrepreneurship, and investment because guess where the money to pay off the debt comes from? The private sector. So much for spending our way to prosperity!
And this doesn't even consider the cost of accruing more debt. The more debt, the higher the cost to pay it off, i.e., increased interest rates. In addition to debt interest payments increasing because of the increased debt, why do I assume that the interest rate on debt will also increase? With increased debt-to-GDP ratio comes increased credit risk, as outlined in the previous paragraph. If there is an increased credit risk, that means that the cost of borrowing, i.e., the interest rate, will increase because increased credit risk signals that we're becoming riskier borrowers, which will most likely cause a debt spiral. The Peter G. Peterson Foundation projects that by 2064, interest payments will exceed government revenue [in percent of GDP]. Government can theoretically perpetuate its debt, provided that it can make its interest payments. The second that a government cannot make its interest payments is the moment in which the government is royally screwed (read: default).
Both the Bank of International Settlements and the Organization for Economic Co-Operation and Development (OECD) have bleak outlooks on the United States' long-term fiscal issues. At the rate we're going, economic catastrophe is not a matter of "if" but "when." Not dealing with it now would mean government programs get abruptly cut....not that I'd necessarily be complaining, but I can imagine that a good majority of Americans would be. Not only that, waiting until later puts the financial and fiscal strain on future generations, which will only dampen economic progress in the medium-to-long term. Rather than say "we can deal with it later," this is a fine opportunity to help prevent an unmitigated disaster. Let's talk about reforming Social Security, Medicare, and Medicaid, which will be the three biggest cost drivers for the federal budget. Let's discuss which programs can be scaled back so we can reduce the debt-to-GDP ratio. If we know that long-term government debt is a problem now, shouldn't we do everything in our power to minimize it?
9-8-2014 Addendum: The centrist Council for Foreign Affairs recently published a report on the dire state of America's debt crisis.
7-10-2015 Addendum: The International Monetary Fund (IMF) just came out with research that confirms what has been said along: fiscal reforms leading toward debt reduction are better for the people.
Tuesday, July 9, 2013
Do We Affix the Mezuzah for Divine Protection or for Some Other Reason?
This morning, I read an article about how a Chabad rabbi wants to have a mezuzah affixed on the doorpost of every Jewish home in the state of Montana. If a rabbi wants to bring people closer to Judaism through a certain mitzvah, I'm all for it. I took issue with the rabbi's reasoning behind it: "Montana should be the most protected state in the union. Not only because of our weapons but because of our mezuzahs. We'll be protected by the Second Amendment and by the mezuzahs." I was unaware that a mezuzah can protect a home just as well as an AK-47, or even a home security system for that matter. If one is to treat the mezuzah as an amulet to protect the home from harm, I have a problem with that idea because that line of thinking comes off as superstitious, if not downright idolatrous.
The issue I have here is not whether the mitzvah should be performed. Of course it should be! It's mentioned twice in Deuteronomy (6:9, 11:20). What is going on is yet another polemic debate between rationalists and mystics. From the mystical standpoint, the function of the mezuzah is to act as a metaphysical home security device. Even before continuing on, you should be able to infer my opinion on the matter simply from my self-declaration as a rationalist Jew, especially since I think the superstition surrounding other practices (e.g., kapparot, tashlich) is utter nonsense.
I have already developed a view that G-d is an impersonal G-d and have done so for enough reasons, most notably that of free will. Even if we are to assume that G-d has [extensive] interaction with the world to the point where a mezuzah would have protective qualities, this brings up a plethora of questions. If we are to give credence to the the "power of mezuzah" argument, wouldn't this create a vain focus on one's material possessions, rather than focus on G-d? Because in Mishneh Torah (Hilchot, Mezuzot 5:4), Maimonides considered those who use the mezuzah as an amulet to be fools who have failed to fulfill the mitzvah. And wouldn't affixing a mezuzah for protection be an attempt to circumvent G-d's will? Also, if we are to give this much credence to the power of the mezuzah, couldn't this mentality lead to worshiping the mezuzah itself rather than G-d? (Side note: Maimonides brought up the concern of using talismans and amulets as a form of idolatry in Guide for the Perplexed [III, xxix]) If the mezuzah is supposed to have this level of protection, why even bother with the other 612 mitzvot? Additionally, why is it that G-d, who loves both Jews and non-Jews, would not provide or offer a similar home security device for non-Jews? Why is it that in Israel, a predominantly Jewish country in which 98% of Israeli Jews have mezuzahs affixed to their doorposts, is there still theft and other property-related crime? Are we to believe that in the entire history of the Jewish people, there has never been a Jewish home with an affixed mezuzah that has unfortunately been flooded, burnt, or even in need of some sort of home repair? If the mezuzah were supposed to protect the house, why is it that someone as reputable as R. Moshe Feinstein, zt"l, permit a Jew to buy insurance for his house? Wouldn't that mean that Torah shows us that we can take preventative actions to avoid bad things to happen to us or our property? And that doesn't even take into consideration such events as pogroms, expulsions, the Holocaust, or terrorist attacks in modern-day Israel. Why didn't mezuzahs protect Jews from those atrocities? The point I am trying to convey here is that if we are to take the assertion of "the mezuzah has protective powers" to its logical conclusion, we would be able to consistently observe that power throughout Jewish history. However, that is not the case.
Before continuing, in the event that this line of questioning has not been convincing, I would like to direct you to a stellar piece written by Rabbi Dr. Martin Gordon, former professor at Yeshiva University, in which he refutes the idea that the mezuzah is supposed to act as a protector of Jewish homes.
If the mezuzah is not apotropaic in nature, then what is the purpose of the mezuzah? The mezuzah is a symbol of a Jewish home, much like any ritual item is a symbol of the particularistic aspect of Judaism. The mezuzah can be a reminder of one's need for self-restraint. In my humble opinion, the best place to look would be where the mitzvah is mentioned. The first mentioning is within the first paragraph of Shema (Deuteronomy 6:4-9). There are enough themes in this passage, but one that stands out is the centrality of G-d in one's life. One recognizes His existence, one is supposed to love Him, and one is supposed to study Torah and transmit it to future generations. After that, the passage states that one posts "these words" (הדברים האלה) [in Deut. 6:6] on one's doorposts, i.e., the mezuzah (ibid, 6:9). As Maimonides points out (Mishneh Torah, Hilchot, Mezuzot 6:13), the mezuzah is supposed to remind us of G-d's Oneness when entering and leaving one's house, and thus arouse a sense of love of G-d. In short, the words printed on the mezuzah are not a form of protection from physical harm. Rather, they are a reminder of the importance of G-d in a Jew's life and how that knowledge [of G-d] leads to performing as many mitzvahs as humanly possible.
The issue I have here is not whether the mitzvah should be performed. Of course it should be! It's mentioned twice in Deuteronomy (6:9, 11:20). What is going on is yet another polemic debate between rationalists and mystics. From the mystical standpoint, the function of the mezuzah is to act as a metaphysical home security device. Even before continuing on, you should be able to infer my opinion on the matter simply from my self-declaration as a rationalist Jew, especially since I think the superstition surrounding other practices (e.g., kapparot, tashlich) is utter nonsense.
I have already developed a view that G-d is an impersonal G-d and have done so for enough reasons, most notably that of free will. Even if we are to assume that G-d has [extensive] interaction with the world to the point where a mezuzah would have protective qualities, this brings up a plethora of questions. If we are to give credence to the the "power of mezuzah" argument, wouldn't this create a vain focus on one's material possessions, rather than focus on G-d? Because in Mishneh Torah (Hilchot, Mezuzot 5:4), Maimonides considered those who use the mezuzah as an amulet to be fools who have failed to fulfill the mitzvah. And wouldn't affixing a mezuzah for protection be an attempt to circumvent G-d's will? Also, if we are to give this much credence to the power of the mezuzah, couldn't this mentality lead to worshiping the mezuzah itself rather than G-d? (Side note: Maimonides brought up the concern of using talismans and amulets as a form of idolatry in Guide for the Perplexed [III, xxix]) If the mezuzah is supposed to have this level of protection, why even bother with the other 612 mitzvot? Additionally, why is it that G-d, who loves both Jews and non-Jews, would not provide or offer a similar home security device for non-Jews? Why is it that in Israel, a predominantly Jewish country in which 98% of Israeli Jews have mezuzahs affixed to their doorposts, is there still theft and other property-related crime? Are we to believe that in the entire history of the Jewish people, there has never been a Jewish home with an affixed mezuzah that has unfortunately been flooded, burnt, or even in need of some sort of home repair? If the mezuzah were supposed to protect the house, why is it that someone as reputable as R. Moshe Feinstein, zt"l, permit a Jew to buy insurance for his house? Wouldn't that mean that Torah shows us that we can take preventative actions to avoid bad things to happen to us or our property? And that doesn't even take into consideration such events as pogroms, expulsions, the Holocaust, or terrorist attacks in modern-day Israel. Why didn't mezuzahs protect Jews from those atrocities? The point I am trying to convey here is that if we are to take the assertion of "the mezuzah has protective powers" to its logical conclusion, we would be able to consistently observe that power throughout Jewish history. However, that is not the case.
Before continuing, in the event that this line of questioning has not been convincing, I would like to direct you to a stellar piece written by Rabbi Dr. Martin Gordon, former professor at Yeshiva University, in which he refutes the idea that the mezuzah is supposed to act as a protector of Jewish homes.
If the mezuzah is not apotropaic in nature, then what is the purpose of the mezuzah? The mezuzah is a symbol of a Jewish home, much like any ritual item is a symbol of the particularistic aspect of Judaism. The mezuzah can be a reminder of one's need for self-restraint. In my humble opinion, the best place to look would be where the mitzvah is mentioned. The first mentioning is within the first paragraph of Shema (Deuteronomy 6:4-9). There are enough themes in this passage, but one that stands out is the centrality of G-d in one's life. One recognizes His existence, one is supposed to love Him, and one is supposed to study Torah and transmit it to future generations. After that, the passage states that one posts "these words" (הדברים האלה) [in Deut. 6:6] on one's doorposts, i.e., the mezuzah (ibid, 6:9). As Maimonides points out (Mishneh Torah, Hilchot, Mezuzot 6:13), the mezuzah is supposed to remind us of G-d's Oneness when entering and leaving one's house, and thus arouse a sense of love of G-d. In short, the words printed on the mezuzah are not a form of protection from physical harm. Rather, they are a reminder of the importance of G-d in a Jew's life and how that knowledge [of G-d] leads to performing as many mitzvahs as humanly possible.
Thursday, July 4, 2013
An Economic Case for Increasing Legal Immigration
Between the push for immigration reform, the recent repeal of DOMA that has engendered changes for LGBT couples with regards to immigration law, and the controversial study from the Heritage Foundation about the costs of allowing more immigrants into the country, there has been a lot of heated discussion on immigration lately. Considering that today is the Fourth of July, it made me think of how America is supposed to be the land of opportunity, as well as think about the extent to which America has and should absorb "your tired, your poor, your huddled masses." Has America already taken in too many immigrants, legal or not? Does this country need more immigrants? Is there an economic basis for allowing more immigrants to enter America?
When I ask myself these questions, I have to return some of the most basic of economic principles, one being that economic liberalization leads to greater prosperity. There is a lot of talk about free trade, i.e., allowing [little to] no obstruction of the allocation of goods and services. If one is to truly advocate for free markets, or at least more liberalized markets, then that needs to not just apply to good, services, and capital, but to all markets, and guess what? That includes labor markets. I can say that we should treat labor markets like any other market due to comparative advantage and leave it at that, but that wouldn't make for fun blogging.
I know that immigration reform is a complex and nuanced subject. I also know that I cannot touch upon every single detail involved. Nevertheless, let's go into as many reasons as possible as to why we should allow for more immigrants to enter this country.
The most amusing one-liner I have heard in the immigration debate is "they took our jobs." The idea behind this sentiment is that immigrants enter the country and are able to take the jobs of American citizens because they are willing to work for lower wages. First, let's address the idea of job loss. This assumes that there are a fixed amount of jobs out there, which is patently false. This country has been able to absorb a huge influx of immigrants in the past. The labor markets have also been able to adjust to the population increase caused by the Baby Boomers, as well as the huge influx of women that have entered the workforce since the Women's Liberation Movement. If immigrants really did take jobs from native workers without new jobs being created, then we'd see a decrease in the civilian labor force or a noticeable increase of unemployment as time passes, but alas, that is hardly the case.
What is better about the "they took our jobs" mantra is my second point, which is that there is no real wage depression that occurs. Why? When the "wage depression" argument is made, the assumption is that only the supply of labor increases, which is to say that an increase of employed workers increases supply, which decreases the wage. I'm not arguing the economics behind that. However, when the argument [with a static economic model] is being made, the second half of the equation is forgotten, mainly that immigrants also increase the demand for labor. Immigrants increase the overall population. An increased population translates into more people that want more goods and services, which increases the demand of goods and services. This, in turn, increases demand for labor. That increase in labor demand causes an increase of wages (see below). There is also the argument that if the wages were higher, native-born citizens would take those jobs. This overlooks the fact that if the wages were higher, the jobs simply wouldn't exist. Why? As can be observed with the minimum wage, outsourcing, or sweatshops, input of labor has huge costs, which means employers will react accordingly.
When referring to "the" supply curve, this makes the assumption that labor markets are homogenous, which they are not. Since labor markets are heterogeneous, one has to wonder the extent to which the skill sets of immigrant labor overlaps with that of native-born citizens. As the Brookings Institution points out, as do the Congressional Budget Office and the Federal Reserve Bank of San Francisco, immigrants and native-born workers are generally not competing for the same jobs, which is especially true for low-skilled labor. The reason for this is because most of immigrant labor is primarily either very high-skilled or very low-skilled, whereas a vast majority of Americans do not fall on either end of the spectrum. Even when there is some overlap, native labor and immigrant labor are imperfect substitutes and do not have a great competitive effect, which is to say that immigrants do not adversely affect the wages of native-born citizens. As a matter of fact, immigration could very well increase wages slightly. The OECD published a study in 2010 showing that in OECD countries, immigrants bring new skills to receiving countries and contribute both to entrepreneurial activity and job creation. It does not matter whether the immigration is low-skilled or high-skilled: not only does it improve the life of the immigrant (McCarthy and Vernez, 2006), but immigrants bring something new and positive to the table. Not only that, but immigrants actually increase worker productivity.
The immigrants are not the only actors one should take into account. First, there is the American consumer. As already mentioned, labor is a huge cost to a producer. If labor is cheaper, that means the price of goods decreases, which improves consumer welfare because the consumer's purchasing power increases. Goods can be used in a way that were previously uneconomical, which leads to more economic progress. The producer also benefits because s/he can make more profits, which means investing in more capital to expand production. Relatives of the immigrants who live in the home country benefit, too, because immigrants remit money to their relatives. Remittance is a solid and direct form of foreign direct investment that improves the wellbeing of these relatives. There is another actor who benefits from immigration, and we don't automatically think of it because the actor is the worker who was displaced by immigrant labor. Going back to the outrage of "they took our jobs," it is clear as day when an immigrant replaces a native worker. However, this is a case of the broken window fallacy. Job creation and destruction occurs all the time, which is important because in this context, we see the layoff, but we don't necessarily see the subsequent job creation. When we allow more immigrants, that means more workers in the labor force. More workers mean that more accurate specialization takes place. With that specialization, people land jobs in which they are more suited, or to put it in economic parlance, yea comparative advantage! This ultimately leads to increased productivity, economic efficiency, and net economic welfare for the native-born citizen (see subsequent paragraphs).
There is also the demographic factor of the fertility rate to consider. This country's fertility rate is below replacement rate. Since immigrants have a higher fertility rate, removing immigrants would make our fertility rate comparable to that of European nations, which I can tell you is a demographic disaster because an economy cannot survive in the long-run when the worker to retiree ratio is 2:1, and that ratio is only projected to decrease. A higher influx of immigrants would reverse some of the harm done by the decreasing fertility rate.
An additional issue I have with keeping the borders so tight is that it creates an underground market in labor. Whether it is something like the War on Drugs, human organs, cigarettes, or immigrants, a black market creates unintended consequences. Undocumented workers, who compromise of 3.7% of the overall American population, tend to stay in lower-skilled jobs because it is less probable that their legal status would be discovered. They cannot receive the same market return on their markets skills compared to their legal counterparts because they cannot acquire education or a job that fully actualizes their potential. Bringing those workers out of the black market would create better efficiencies in the labor market (Center for American Progress, p. 6). Not only does illegal immigration condemn undocumented workers to perpetuate their state of poverty, but there are also issues of human trafficking, exposing undocumented workers to subpar working conditions and labor rights abuses, as well as deadly risks they take by crossing the border illegally.
Another argument against immigration is that [illegal] immigrants are leeches that are mooching off the welfare state without making any positive economic contributions. Using the welfare argument is a red herring because the real issue here is that a welfare state exists in the first place. What's more is that contrary to "popular belief," immigrants are not disproportionately using welfare and immigrants are not causing an economic loss that naysayers like to postulate. As an example, between 2002 and 2009, immigrants contributed $115B more into Medicare than they took out. In net terms, immigrants are not a net drain on the federal government budget. Even if an immigrant is undocumented, they're still paying taxes, whether it is through property taxes or when they pay sales tax on goods and services they purchase. Rather than increase the federal deficit, what the Congressional Budget Office (CBO) found recently is that allowing for more immigrants would actually decrease the federal deficit. More to the point, the CBO also projected that allowing for more immigrants to enter the country would increase the GDP 3.3% relative to current law by 2023. A Bush-era White House Council of Economic Advisors concluded that native-born citizens receive a net benefit of approximately $37B per annum through the participation of immigrants in the American economy. Think of how much larger that net benefit and that growth in GDP would be if the United States government allowed for more immigrants! Even the anti-illegal immigration scholar George Borjas admits there is a $22B per annum benefit (in 2003 dollars). Furthermore, although immigrants are about 12% of the overall population (Census historical data here), they are about 16.4% of the overall workforce, which is to say that their overrepresentation in the workforce is a sign that they are hardly mooching.
In summation, immigration is good for the economy (Ottaviano et al., 2010; Kerr and Kerr, 2011). Approval for immigration is something that has a virtual consensus amongst economists, not to mention that sixty percent of Americans are on board. As such, we should work on liberalizing labor markets so that more immigrants can enter this country. To be sure, providing a streamlined way to enter the country without the red tape and long waiting times is not the same as amnesty since conditions and requirements would have to be met. As the Council of Foreign Relations illustrates, we need to create immigration reform and allow for more immigrants to enter the country to create more net benefits because our current system is woefully deficient. Ignoring the net benefits of immigration is like cutting off one's nose to spite one's face, which is why I hope that Congress passes the immigration reform bill as soon as possible.
12-2-2014 Addendum: The Manhattan Institute just published an issue brief entitled "Does Immigration Increase Economic Growth?" The short answer: Yes.
3-12-2017 Addendum: The Urban Institute summarizes research on why immigration is good for society.
When I ask myself these questions, I have to return some of the most basic of economic principles, one being that economic liberalization leads to greater prosperity. There is a lot of talk about free trade, i.e., allowing [little to] no obstruction of the allocation of goods and services. If one is to truly advocate for free markets, or at least more liberalized markets, then that needs to not just apply to good, services, and capital, but to all markets, and guess what? That includes labor markets. I can say that we should treat labor markets like any other market due to comparative advantage and leave it at that, but that wouldn't make for fun blogging.
I know that immigration reform is a complex and nuanced subject. I also know that I cannot touch upon every single detail involved. Nevertheless, let's go into as many reasons as possible as to why we should allow for more immigrants to enter this country.
The most amusing one-liner I have heard in the immigration debate is "they took our jobs." The idea behind this sentiment is that immigrants enter the country and are able to take the jobs of American citizens because they are willing to work for lower wages. First, let's address the idea of job loss. This assumes that there are a fixed amount of jobs out there, which is patently false. This country has been able to absorb a huge influx of immigrants in the past. The labor markets have also been able to adjust to the population increase caused by the Baby Boomers, as well as the huge influx of women that have entered the workforce since the Women's Liberation Movement. If immigrants really did take jobs from native workers without new jobs being created, then we'd see a decrease in the civilian labor force or a noticeable increase of unemployment as time passes, but alas, that is hardly the case.
What is better about the "they took our jobs" mantra is my second point, which is that there is no real wage depression that occurs. Why? When the "wage depression" argument is made, the assumption is that only the supply of labor increases, which is to say that an increase of employed workers increases supply, which decreases the wage. I'm not arguing the economics behind that. However, when the argument [with a static economic model] is being made, the second half of the equation is forgotten, mainly that immigrants also increase the demand for labor. Immigrants increase the overall population. An increased population translates into more people that want more goods and services, which increases the demand of goods and services. This, in turn, increases demand for labor. That increase in labor demand causes an increase of wages (see below). There is also the argument that if the wages were higher, native-born citizens would take those jobs. This overlooks the fact that if the wages were higher, the jobs simply wouldn't exist. Why? As can be observed with the minimum wage, outsourcing, or sweatshops, input of labor has huge costs, which means employers will react accordingly.
When referring to "the" supply curve, this makes the assumption that labor markets are homogenous, which they are not. Since labor markets are heterogeneous, one has to wonder the extent to which the skill sets of immigrant labor overlaps with that of native-born citizens. As the Brookings Institution points out, as do the Congressional Budget Office and the Federal Reserve Bank of San Francisco, immigrants and native-born workers are generally not competing for the same jobs, which is especially true for low-skilled labor. The reason for this is because most of immigrant labor is primarily either very high-skilled or very low-skilled, whereas a vast majority of Americans do not fall on either end of the spectrum. Even when there is some overlap, native labor and immigrant labor are imperfect substitutes and do not have a great competitive effect, which is to say that immigrants do not adversely affect the wages of native-born citizens. As a matter of fact, immigration could very well increase wages slightly. The OECD published a study in 2010 showing that in OECD countries, immigrants bring new skills to receiving countries and contribute both to entrepreneurial activity and job creation. It does not matter whether the immigration is low-skilled or high-skilled: not only does it improve the life of the immigrant (McCarthy and Vernez, 2006), but immigrants bring something new and positive to the table. Not only that, but immigrants actually increase worker productivity.
The immigrants are not the only actors one should take into account. First, there is the American consumer. As already mentioned, labor is a huge cost to a producer. If labor is cheaper, that means the price of goods decreases, which improves consumer welfare because the consumer's purchasing power increases. Goods can be used in a way that were previously uneconomical, which leads to more economic progress. The producer also benefits because s/he can make more profits, which means investing in more capital to expand production. Relatives of the immigrants who live in the home country benefit, too, because immigrants remit money to their relatives. Remittance is a solid and direct form of foreign direct investment that improves the wellbeing of these relatives. There is another actor who benefits from immigration, and we don't automatically think of it because the actor is the worker who was displaced by immigrant labor. Going back to the outrage of "they took our jobs," it is clear as day when an immigrant replaces a native worker. However, this is a case of the broken window fallacy. Job creation and destruction occurs all the time, which is important because in this context, we see the layoff, but we don't necessarily see the subsequent job creation. When we allow more immigrants, that means more workers in the labor force. More workers mean that more accurate specialization takes place. With that specialization, people land jobs in which they are more suited, or to put it in economic parlance, yea comparative advantage! This ultimately leads to increased productivity, economic efficiency, and net economic welfare for the native-born citizen (see subsequent paragraphs).
There is also the demographic factor of the fertility rate to consider. This country's fertility rate is below replacement rate. Since immigrants have a higher fertility rate, removing immigrants would make our fertility rate comparable to that of European nations, which I can tell you is a demographic disaster because an economy cannot survive in the long-run when the worker to retiree ratio is 2:1, and that ratio is only projected to decrease. A higher influx of immigrants would reverse some of the harm done by the decreasing fertility rate.
An additional issue I have with keeping the borders so tight is that it creates an underground market in labor. Whether it is something like the War on Drugs, human organs, cigarettes, or immigrants, a black market creates unintended consequences. Undocumented workers, who compromise of 3.7% of the overall American population, tend to stay in lower-skilled jobs because it is less probable that their legal status would be discovered. They cannot receive the same market return on their markets skills compared to their legal counterparts because they cannot acquire education or a job that fully actualizes their potential. Bringing those workers out of the black market would create better efficiencies in the labor market (Center for American Progress, p. 6). Not only does illegal immigration condemn undocumented workers to perpetuate their state of poverty, but there are also issues of human trafficking, exposing undocumented workers to subpar working conditions and labor rights abuses, as well as deadly risks they take by crossing the border illegally.
Another argument against immigration is that [illegal] immigrants are leeches that are mooching off the welfare state without making any positive economic contributions. Using the welfare argument is a red herring because the real issue here is that a welfare state exists in the first place. What's more is that contrary to "popular belief," immigrants are not disproportionately using welfare and immigrants are not causing an economic loss that naysayers like to postulate. As an example, between 2002 and 2009, immigrants contributed $115B more into Medicare than they took out. In net terms, immigrants are not a net drain on the federal government budget. Even if an immigrant is undocumented, they're still paying taxes, whether it is through property taxes or when they pay sales tax on goods and services they purchase. Rather than increase the federal deficit, what the Congressional Budget Office (CBO) found recently is that allowing for more immigrants would actually decrease the federal deficit. More to the point, the CBO also projected that allowing for more immigrants to enter the country would increase the GDP 3.3% relative to current law by 2023. A Bush-era White House Council of Economic Advisors concluded that native-born citizens receive a net benefit of approximately $37B per annum through the participation of immigrants in the American economy. Think of how much larger that net benefit and that growth in GDP would be if the United States government allowed for more immigrants! Even the anti-illegal immigration scholar George Borjas admits there is a $22B per annum benefit (in 2003 dollars). Furthermore, although immigrants are about 12% of the overall population (Census historical data here), they are about 16.4% of the overall workforce, which is to say that their overrepresentation in the workforce is a sign that they are hardly mooching.
In summation, immigration is good for the economy (Ottaviano et al., 2010; Kerr and Kerr, 2011). Approval for immigration is something that has a virtual consensus amongst economists, not to mention that sixty percent of Americans are on board. As such, we should work on liberalizing labor markets so that more immigrants can enter this country. To be sure, providing a streamlined way to enter the country without the red tape and long waiting times is not the same as amnesty since conditions and requirements would have to be met. As the Council of Foreign Relations illustrates, we need to create immigration reform and allow for more immigrants to enter the country to create more net benefits because our current system is woefully deficient. Ignoring the net benefits of immigration is like cutting off one's nose to spite one's face, which is why I hope that Congress passes the immigration reform bill as soon as possible.
12-2-2014 Addendum: The Manhattan Institute just published an issue brief entitled "Does Immigration Increase Economic Growth?" The short answer: Yes.
3-12-2017 Addendum: The Urban Institute summarizes research on why immigration is good for society.
Sunday, June 23, 2013
Pesachim 3: Choosing One's Words Wisely and Reframing Perspective on Life
It has been a while, but I finally picked up my chevruta study again for Daf Yomi [as opposed to studying by myself]. It's nice to study Tractate Pesachim because the last tractate was so dull and insipid in comparison. So I'm studying with my chevruta today. Unsurprisingly, the Talmud goes on a tangent from talking about the Hebrew word אור in the context of Pesach practice to talking about why it's halachically proper to apply euphemisms (לשון נקיה) in one's speech. As Rabbi Yehoshua ben Levi brings up (Pesachim 3a), one should not express not express a crude [or distasteful] matter, which is why Genesis 7:8 refers to the animals as not pure (אשר איננה טהרה) instead of impure (טמא). The Gemara continues listing further proof-texts, whether in baraita or Biblical form, to convey the use of euphemisms to avoid more blunt or crass language. However, an exception is made for when a teacher is teaching a student because in that instance, the teacher should strive for brevity and conciseness, although the caveat of "this only applies when a teacher teaches his student."
Since Chazal spends a good portion of this Talmud portion focusing on usage of euphemisms, the lesson I draw from today's Daf Yomi portion is that it's not simply what we say, but how we say it, which further illustrates that complexity known as Jewish speech ethics. Without sounding too much like a "bleeding heart," what the Gemara is conveying is that in many instances, there is no need to be "blunt and to the point." One can find a way to express the same exact sentiment or thought without the coarse language that the Talmudic sages want us to avoid.
At the end of the Daf Yomi portion, there is an exchange in which Yochanan ben Chakuk is talking to some villagers. The villagers ask Yochanan ben Chakuk about how the wheat crops are doing. He could have said they're not doing well or even that the crops are doing absolutely terrible. He brought up that the barley crops were doing well, but the villagers derisively mocked him by quoting I Kings 5:8. As the Gemara points out, what he should have done instead is divert the villagers from the bad news and said that the lentils are developing nicely.
What the situation with Yochanan ben Chakuk did was, at least in my humble opinion, genius. Instead of focusing on the bad, what he should have focused on were the lentils because the villagers could actually do something beneficial with them, such as use the substitution effect to consume the lentils instead of the wheat. What Yochanan ben Chakuk should have done was turned a problem into a solution: he should have focused on the good instead of the bad, which is an essential to the Jewish concept of gratitude (הכרת הטוב). This sort of "more positive reframing" that the Yochanan situation exemplifies probably explains why upon hearing bad news, Jews utter the formulation of ברוך דין האמת. In some instances, we have to view the glass as half full. In others, we can find a pitcher of water to fill up the remainder of the glass.
Bringing these ideas to the broader picture, Judaism recognizes that we have the potential to elevate the mundane into the holy. Our words, as well as our outlook on life, are no exception. We can express our thoughts, sentiments, and emotions in a crude, crass, or angry manner. Alternatively, we can express all of that by wording it slightly differently (e.g., euphemistically) and getting a better result. When we opt for the latter, we not only bring a sense of equanimity within our own souls, but we also usher in a sense of peace and tranquility amongst our fellow human beings.
Since Chazal spends a good portion of this Talmud portion focusing on usage of euphemisms, the lesson I draw from today's Daf Yomi portion is that it's not simply what we say, but how we say it, which further illustrates that complexity known as Jewish speech ethics. Without sounding too much like a "bleeding heart," what the Gemara is conveying is that in many instances, there is no need to be "blunt and to the point." One can find a way to express the same exact sentiment or thought without the coarse language that the Talmudic sages want us to avoid.
At the end of the Daf Yomi portion, there is an exchange in which Yochanan ben Chakuk is talking to some villagers. The villagers ask Yochanan ben Chakuk about how the wheat crops are doing. He could have said they're not doing well or even that the crops are doing absolutely terrible. He brought up that the barley crops were doing well, but the villagers derisively mocked him by quoting I Kings 5:8. As the Gemara points out, what he should have done instead is divert the villagers from the bad news and said that the lentils are developing nicely.
What the situation with Yochanan ben Chakuk did was, at least in my humble opinion, genius. Instead of focusing on the bad, what he should have focused on were the lentils because the villagers could actually do something beneficial with them, such as use the substitution effect to consume the lentils instead of the wheat. What Yochanan ben Chakuk should have done was turned a problem into a solution: he should have focused on the good instead of the bad, which is an essential to the Jewish concept of gratitude (הכרת הטוב). This sort of "more positive reframing" that the Yochanan situation exemplifies probably explains why upon hearing bad news, Jews utter the formulation of ברוך דין האמת. In some instances, we have to view the glass as half full. In others, we can find a pitcher of water to fill up the remainder of the glass.
Bringing these ideas to the broader picture, Judaism recognizes that we have the potential to elevate the mundane into the holy. Our words, as well as our outlook on life, are no exception. We can express our thoughts, sentiments, and emotions in a crude, crass, or angry manner. Alternatively, we can express all of that by wording it slightly differently (e.g., euphemistically) and getting a better result. When we opt for the latter, we not only bring a sense of equanimity within our own souls, but we also usher in a sense of peace and tranquility amongst our fellow human beings.
Wednesday, June 12, 2013
Why Low Rates of Return Merit More Social Security Privatization
You know you're a policy nerd when you have a dream, and it consists of a political debate of whether Social Security is a good investment or not. I assume that my subconscious is telling me something, and as such, I figured that I ought to bring that debate to my blog, so here we are.
In the past, I have discussed such Social Security-related issues as erosion of economic freedom, creating further dependency on government, and long-term solvency. Rather than get into a deontological debate about whether we should be coerced to put 12.4% of our earned wages into Social Security or whether one's retirement account should be at the mercy of political whims, what I would like to do today is take a more consequentialist approach and postulate whether Social Security is a sound retirement investment, or if there are alternatives to retirement accounts.
Retirement age and amount of taxes put into the system complicate the analysis, but when looking at the typical American, the average rate of return is about an annual real return of 1.2%. However, this depends on when you retire. As the nonpartisan Congressional Research Service (CRS) points out, if you retire at age 65 in 2003, it takes 17.4 years to break even, and for an individual who retires in 2020, it will take 21.6 years (p. 14). One can argue that for being a low-risk investment, the rates of return on Social Security are not terrible. However, that assertion takes Social Security out of context, particularly in comparison to other options that provide a better rate of return than Social Security.
In spite of the fluctuations of market cycles, the S&P 500 index shows an average annual rate of return between 5-9%. As the Federal Reserve Bank of St. Louis shows, a private portfolio with diversified stocks has a better payoff than Social Security. If you are looking for something less volatile than the stock market, you can voluntarily put your savings in longer-term Treasury Bonds, for instance, and your rate of return would be higher than what it would be under Social Security. Investing in AAA corporate bonds yields an even higher rate of return than Treasury bonds.
Let's also not forget that it's not just markets that are prone to risk. With markets, at least we know that there are booms and busts, which would make the moral of the story "diversify one's portfolio." The current rates of return on Social Security make the assumption that the status quo of the law will by and large be maintained. Governments are prone to political risk, which means that factors such as demographic shifts, economic stagnation, or insolvency can lead to longer-term problems. Also, the only guarantee the government makes is that the Social Security Administration will invest the Social Security taxes in Treasury bills. The longevity of Social Security is up to 535 politicians in DC, and Social Security is not even a constitutional guarantee (Flemming v. Nestor).
Rather than invest tax dollars in an insolvent system with low rates of return, we should follow the examples of Chile, Sweden, and the United Kingdom and implement policies that ease Americans into privatization of retirement accounts so that we can create a new source of capital, not to mention an increase in national savings. By phasing out Social Security while still providing promised benefits to current retirees, we can reduce the debt burden while simultaneously providing Americans with better retirement prospectives.
In the past, I have discussed such Social Security-related issues as erosion of economic freedom, creating further dependency on government, and long-term solvency. Rather than get into a deontological debate about whether we should be coerced to put 12.4% of our earned wages into Social Security or whether one's retirement account should be at the mercy of political whims, what I would like to do today is take a more consequentialist approach and postulate whether Social Security is a sound retirement investment, or if there are alternatives to retirement accounts.
Retirement age and amount of taxes put into the system complicate the analysis, but when looking at the typical American, the average rate of return is about an annual real return of 1.2%. However, this depends on when you retire. As the nonpartisan Congressional Research Service (CRS) points out, if you retire at age 65 in 2003, it takes 17.4 years to break even, and for an individual who retires in 2020, it will take 21.6 years (p. 14). One can argue that for being a low-risk investment, the rates of return on Social Security are not terrible. However, that assertion takes Social Security out of context, particularly in comparison to other options that provide a better rate of return than Social Security.
In spite of the fluctuations of market cycles, the S&P 500 index shows an average annual rate of return between 5-9%. As the Federal Reserve Bank of St. Louis shows, a private portfolio with diversified stocks has a better payoff than Social Security. If you are looking for something less volatile than the stock market, you can voluntarily put your savings in longer-term Treasury Bonds, for instance, and your rate of return would be higher than what it would be under Social Security. Investing in AAA corporate bonds yields an even higher rate of return than Treasury bonds.
Let's also not forget that it's not just markets that are prone to risk. With markets, at least we know that there are booms and busts, which would make the moral of the story "diversify one's portfolio." The current rates of return on Social Security make the assumption that the status quo of the law will by and large be maintained. Governments are prone to political risk, which means that factors such as demographic shifts, economic stagnation, or insolvency can lead to longer-term problems. Also, the only guarantee the government makes is that the Social Security Administration will invest the Social Security taxes in Treasury bills. The longevity of Social Security is up to 535 politicians in DC, and Social Security is not even a constitutional guarantee (Flemming v. Nestor).
Rather than invest tax dollars in an insolvent system with low rates of return, we should follow the examples of Chile, Sweden, and the United Kingdom and implement policies that ease Americans into privatization of retirement accounts so that we can create a new source of capital, not to mention an increase in national savings. By phasing out Social Security while still providing promised benefits to current retirees, we can reduce the debt burden while simultaneously providing Americans with better retirement prospectives.
Friday, May 31, 2013
Single-Payer Health Care Is a Single Pain in the You-Know-What
I was looking at my Facebook feed yesterday, and I noticed that a former colleague of mine was kvetching about the current health care system in America. He said that there were too many lengthy and confusing policies, that there is over-administration, and that the current health care system is an overall waste of resources. At least with that, I can agree: the status quo, even with the infamous Obamacare in place, is inadequate. It was his conclusion that I found troubling, which was that in the name of simplicity and efficiency, we need to switch over to a single-payer health care system. In a single-payer health care system, there is a single entity, i.e., the government, that would collect all the health care-related fees and pay out on those health care costs.
My initial reaction was the following: Whether it is the War on Drugs, Social Security, or something as seemingly innocuous as postal services, the government performs so many functions at a sub-standard level, and typically with unintended consequences that exacerbate the situation. Additionally, two major forms of health care spending in this country are currently Medicare and Medicaid, which is to say that the government already has interfered plenty in the health care decisions of the American people. Why would I relinquish the remainder of that control to an entity that already does such a bang-up job? Do I want to trust the government with an individual's personal life-and-death decisions?
Similar to previous blogging, it would be pointless, as well as aprioristic, to say "less government is better" without backing up my argument, so here we go:
A single-payer health care system grants the government a power that is known as, in economic terms, the power of monopsony (also known as the buyer's monopoly). The monopsonist has the power to dictate terms to its own suppliers, which in this case means that the government is able to mandate lower prices to health care providers than would take place in a competitive market. The plus side is that the artificial depression of prices allows for more providable services. However, like with any attempt at price controls, governmental distortions of this sort create unintended consequences. In this instance, the profit margins are diminished, which means that incentive to innovate in the health care market is also diminished. This would also mean that if doctors do not feel like they are being adequately paid, it will disincentivize people from entering the medical field.
Innovation is not the only factor diminished with a single-payer health care system. The overall economic welfare [in comparison to a competitive market] is also diminished. When the government sets the price below the competitive market level, the monopsony creates a price wedge that causes there to be too little of the good to be produced, thereby creating deadweight loss and subsequently reducing economic welfare (see diagram below).
One of the arguments that proponents of the single-payer health care system like to use is that there is no impediment to receiving health care in a timely fashion, and that choice in provider will not be an issue. However, that ends up not being the case. In order to keep costs from exploding, the monopsony has to decrease the quantity in services provided, as is illustrated above. In addition to decreasing the supply, the increased access causes an increase in demand for health care goods and services. As a result, waiting times for health care procedures increase, as can be observed in Canada and the United Kingdom. Such waiting times make it more difficult for patients to receive the required health care when they need it.
Since access to health care increases under the single-payer system, prices increase because this access causes increase in demand (i.e., "free-for-all" system). Another way to say this is that supply and demand are not static, and will thus cause decrease in supply and increase in demand. Proponents would like for us to believe that the administrative simplicity of a single-payer system helps offset costs, or even that the health care is "free." So why is it that even when adjusting for both inflation and population increases, health care costs for Canada (Canada Institute for Health Information, Table A.3.1.1) and the United Kingdom (Her Majesty's [HM] Treasury, Tables 1.4 and 9.11) have increased since their implementation of the single-payer system? Even Taiwan's single-payer system is under financial strain and has to borrow from banks.
It was Lenin who said that "medicine is the keystone of the arch of socialism." The last thing we need to do is diminish the American health care system by injecting further socialism into society and creating further dependency on government because as Cato Institute scholar Michael Tanner illustrates, the grass is not greener on the other side. As we already can observe with Obamacare, the ability to provide universal coverage is an arduous task, much too difficult for the government to pull off. If the government's health care expenditures are increasing over time (CBO, Figure 1.1) to the point where there are $38.6T in unfunded Medicare obligations (Medicare Trustee's Report, Table V.F2), why would I trust the same entity with more control over health care if the parts that the government already controls are being run into the ground? Insurance companies are hardly perfect, but at least if they run short of money to pay claims, they have a greater incentive to reform than the government does. The problem here is not that there is enough government, but that there is already too much government involved in health care. Is the American health care system imperfect? Yes, it is. Even so, when adjusting raw data to make it more standardized (i.e., something closer to an apples-to-apples comparison), our health care system is comparable to those of other developed countries. If we want to really improve health care in this country, we should treat health care like a good, instead of treating it as a right. Only when health care is treated like a good and opened up to a competitive health care market will we see the improvements in health care that we seek.
August 19, 2014 Addendum: In case you think that longer waiting lines under a single-payer is not a problem, take a look at this Fraser Institute publication.
3-17-2019 Addendum: The Urban Institute released a policy brief covering the pros and cons of a single-payer health care system.
My initial reaction was the following: Whether it is the War on Drugs, Social Security, or something as seemingly innocuous as postal services, the government performs so many functions at a sub-standard level, and typically with unintended consequences that exacerbate the situation. Additionally, two major forms of health care spending in this country are currently Medicare and Medicaid, which is to say that the government already has interfered plenty in the health care decisions of the American people. Why would I relinquish the remainder of that control to an entity that already does such a bang-up job? Do I want to trust the government with an individual's personal life-and-death decisions?
Similar to previous blogging, it would be pointless, as well as aprioristic, to say "less government is better" without backing up my argument, so here we go:
A single-payer health care system grants the government a power that is known as, in economic terms, the power of monopsony (also known as the buyer's monopoly). The monopsonist has the power to dictate terms to its own suppliers, which in this case means that the government is able to mandate lower prices to health care providers than would take place in a competitive market. The plus side is that the artificial depression of prices allows for more providable services. However, like with any attempt at price controls, governmental distortions of this sort create unintended consequences. In this instance, the profit margins are diminished, which means that incentive to innovate in the health care market is also diminished. This would also mean that if doctors do not feel like they are being adequately paid, it will disincentivize people from entering the medical field.
Innovation is not the only factor diminished with a single-payer health care system. The overall economic welfare [in comparison to a competitive market] is also diminished. When the government sets the price below the competitive market level, the monopsony creates a price wedge that causes there to be too little of the good to be produced, thereby creating deadweight loss and subsequently reducing economic welfare (see diagram below).
One of the arguments that proponents of the single-payer health care system like to use is that there is no impediment to receiving health care in a timely fashion, and that choice in provider will not be an issue. However, that ends up not being the case. In order to keep costs from exploding, the monopsony has to decrease the quantity in services provided, as is illustrated above. In addition to decreasing the supply, the increased access causes an increase in demand for health care goods and services. As a result, waiting times for health care procedures increase, as can be observed in Canada and the United Kingdom. Such waiting times make it more difficult for patients to receive the required health care when they need it.
Since access to health care increases under the single-payer system, prices increase because this access causes increase in demand (i.e., "free-for-all" system). Another way to say this is that supply and demand are not static, and will thus cause decrease in supply and increase in demand. Proponents would like for us to believe that the administrative simplicity of a single-payer system helps offset costs, or even that the health care is "free." So why is it that even when adjusting for both inflation and population increases, health care costs for Canada (Canada Institute for Health Information, Table A.3.1.1) and the United Kingdom (Her Majesty's [HM] Treasury, Tables 1.4 and 9.11) have increased since their implementation of the single-payer system? Even Taiwan's single-payer system is under financial strain and has to borrow from banks.
It was Lenin who said that "medicine is the keystone of the arch of socialism." The last thing we need to do is diminish the American health care system by injecting further socialism into society and creating further dependency on government because as Cato Institute scholar Michael Tanner illustrates, the grass is not greener on the other side. As we already can observe with Obamacare, the ability to provide universal coverage is an arduous task, much too difficult for the government to pull off. If the government's health care expenditures are increasing over time (CBO, Figure 1.1) to the point where there are $38.6T in unfunded Medicare obligations (Medicare Trustee's Report, Table V.F2), why would I trust the same entity with more control over health care if the parts that the government already controls are being run into the ground? Insurance companies are hardly perfect, but at least if they run short of money to pay claims, they have a greater incentive to reform than the government does. The problem here is not that there is enough government, but that there is already too much government involved in health care. Is the American health care system imperfect? Yes, it is. Even so, when adjusting raw data to make it more standardized (i.e., something closer to an apples-to-apples comparison), our health care system is comparable to those of other developed countries. If we want to really improve health care in this country, we should treat health care like a good, instead of treating it as a right. Only when health care is treated like a good and opened up to a competitive health care market will we see the improvements in health care that we seek.
August 19, 2014 Addendum: In case you think that longer waiting lines under a single-payer is not a problem, take a look at this Fraser Institute publication.
3-17-2019 Addendum: The Urban Institute released a policy brief covering the pros and cons of a single-payer health care system.
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