Posts tagged with: economics

As Kishore Jayabalan noted yesterday, the fallacy of “broken windows” is, unfortunately, ubiquitous in discussions of public finance and macroeconomics. Though we are told that government spending and public works have a stimulating effect on economic activity, rarely are the costs of such projects discussed.

Such is the case with several stimulus projects in my own hometown of Atlanta, GA. The Atlanta Journal-Constitution reports on a list that Sen. John McCain and Sen. Tim Coburn drew up, criticizing wasteful stimulus projects throughout the country:

Their list includes Georgia Tech professors who received federal stimulus funds to understand how jazz, avant-garde art and Indian classical musicians improvise. The report cites an Atlanta Journal-Constitution article that describes the $762,372 study, which involves using brain imaging to learn how musicians do their work.

[....] The senators also highlighted a $677,462 research project at Georgia State University to study “why monkeys respond negatively to inequity and unfairness.” Asked about the project, the university sent the AJC a news release from last year that said the research “will hopefully answer questions about the evolution of responses to reward inequality — including those responses in humans.”

Georgia Tech has fired back:

Georgia Tech issued a statement in response, saying such research is “necessary for the long-term economic success of our state and our nation.”

But how can one verify such claims? As Kishore has pointed out, the mere fact that money is being spent is not enough to claim that the economy benefits from such expenditure. The hidden costs of stimulus money are the jobs and services that would have otherwise been funded by the private sector.

In order to actually determine whether an investment is truly beneficial to the economy, one must be able to subject it to the cost-accounting of profit and loss. A product or service that makes losses has consumed resources that could have otherwise been put to more productive uses in the economy. But since government expenditures are funded not through any kind of voluntary market exchange, but through taxation, this kind of mechanism cannot be used to evaluate them.

So we can be pretty sure that stimulus projects, in fact, are not as conducive to economic growth as we have been led to believe, since such projects would probably not withstand the profit-and-loss test of the market.

But this is not to say that funding any of this kind of scientific research is not worthwhile. Activities such as philanthropy and charitable giving do not produce any kind of profitable return, but are nevertheless recognized as noble and praiseworthy. There may be good reasons for funding these projects, but economic growth is not one of them.

This week I’m attending Mises University, one of the largest and most rigorous summer courses in the Austrian School of economics (or “reality economics,” as my friend Michael McKay likes to call it).

Among the various lectures, there was one in particular that struck me as particularly relevant to the work of the Acton Institute. Peter Klein, professor of economics at the University of Missouri, delivered a presentation on entrepreneurship, a large part of the focus of his academic work.

Dr. Klein approaches the subject of entrepreneurship from the more realistic Austrian perspective. Rather than viewing people as examples of the homo economicus, as almost robotic, quantitatively-driven machines, Dr. Klein views human beings as unique and free actors. When we act, we do so under conditions of time and uncertainty. Though every human action presupposes cause and effect, there is no guarantee that our instincts are correct or that our efforts will pay off. In this way, every one of us, whenever we choose some action, is a kind of entrepreneur. In the face of uncertainty, we have an intended – but not guaranteed – result of action.

Combine that with the Austrians’ very realist take on production: production is not some kind of abstract graphical function, but the concrete act of taking a natural resource (e.g. some wood, a stone,  some metal ore), and using one’s labor – almost investing a part of oneself – to physically transform it.

In a very broad sense, we all participate in this two-sided entrepreneurial action: actively and consciously transforming the world around us, and doing so in the face of uncertainty and imperfect knowledge.

In a much more specific sense, this activity applies to the people we would usually call entrepreneurs (Ludwig von Mises called them, “entrepreneur-promoters”). These are the businessmen we all know: the small-business owner, the investment banker, the risk-taker. These are individuals whose entrepreneurial spirit in a special way exceeds those of everyone around them. They are the ones willing to take on greater risk, confront greater uncertainty, and make more difficult decisions.

In any case, I find that this realistic description of the role of entrepreneurship fits extremely well with the theology in The Call of the Entrepreneur. In the film, we learn that the entrepreneur is a “co-creator”: He  participates in the act of transforming raw materials and natural resources into products for consumers; but the entrepreneur does so by investing time and energy into the production process. And creativity and imagination play an indispensable role in this process of co-creation.

I remember a kind of feeling of awe when this thought dawned on me during Dr. Klein’s lecture. Here we find yet another example of how the market process, when understood and employed correctly, is not simply a morally indifferent result of choice, but a morally positive thing. Society and its consumers are made better off, and both the laborer and the entrepreneur are reminded of their human dignity as they participate in God’s work of fashioning the world.

In a recent post Dr. Sam Gregg outlined several arguments in the case for returning to some kind of gold or commodity-based monetary system.  One of the advantages to a commodity standard, Dr. Gregg argues, is that it “placed a high premium on economic security by reducing the uncertainty and risk that flows from fluctuations in the value of money that have nothing to do with the relative valuation of different goods and services.”

One of the main determinants of trust in a currency is its ability to maintain its value over time.

On that note, reports have begun coming recently from central Michigan about the emergence of “competing currencies.” One of the concerns that the currency traders specifically raise during the video is their uncertainty over the future value of the dollar.

Milton Friedman used to remark that one indicator of a country’s relative success was how people “voted with their feet”: i.e. people fled from Cuba to the USA, and from China to Hong Kong, but never the other way around.

In the same way, even as Fed Chairman Ben Bernanke assures us that the nation’s central bank expects low inflation for the near future, perhaps this episode raises a new question: What does people “voting with their currency” mean for expectations of inflation and the stability of the dollar?

Courtesy Evangelical Outpost and the always-interesting 33 Things, here’s a video on the strangeness of the economics of incentives and punishments:

We exist in the context of social webs and relationships. But we also have non-material faculties; consciences, free choice, creativity, speculative reason.

Homo economicus is useful as a partial model of human behavior, but it is not exhaustive, comprehensive, or reliably predictive. Why do economists try to universalize this model?

My theory is that it is in part a response to the post-Englightenment subversion of the unified field of learning. Theology was displaced, albeit briefly, as the queen of the sciences. Philosophy could not hold on, and was torn down by the clamoring crowd of other disciplines. Now each discipline seeks to place itself upon the throne, thus we get tyrannizing and universalizing claims from every academic discipline. Everyone tries to explain everything in the terms of their own discipline, and these explanations are therefore by necessity reductive.

For a bit more, see “Requiem for Homo Economicus,” from the Journal of Markets & Morality 10, no. 2 (Fall 2007): 321-38, in which Edward O’Boyle argues, “Burying homo economicus and substituting homo socioeconomicus brings the basic unit of economic analysis out of the individualism of the seventeenth and eighteenth centuries into the personalism of the twentieth century.”

To these models, we ought also add homo religiosus, all the while recognizing the each are models and therefore limited, partial, and provisional relative to the comprehensive picture of humanity in imago Dei.

Here’s OpenMarket:

Plain and simple economics — not the alleged machinations of Big Oil or Congress’s unwillingness to put a price on carbon – explains why America remains dependent on petroleum.

We are still not beyond petroleum. In fact, we’re quite a ways away.

Judith Dean, currently an international economist at the U.S. International Trade Commission, has a worthwhile exploration of the relationship between Christian faith and economic research (HT). It’s up at the InterVarsity site for the Following Christ conference and is titled, “Being a Good Physician: Reflections on Christianity and Economic Research.”

There’s a lot of good, challenging, and insightful stuff here. As always, read it in full. But here’s a bit that’s especially incisive:

Especially for those working in government policy making bodies, there is a role for advocating change where policies are seen as creating results which are intolerable from the Christian standpoint, or where the economic system fails to address problems which a Christian cannot ignore. Large groups of such advocates already exist, quite often centered around specific issues. Though these groups may include economists, they are quite often made up of non-economists who care deeply about a particular problem (e.g. R. Sider, J. Wallis, and T. Campolo, who all have written about poverty issues). Some of these groups zealously advocate particular solutions to what they view as egregious injustices in the economy. Yet, lacking economic understanding, they fail to see that their proposals themselves are sometimes flawed.

Here the Christian economist’s expertise may be called upon to inform these “advocate groups” about the nature of the problem and the implications of different solutions. Many Christians want to be better informed in order to become better advocates. Yet they do no know where to go to get information. Sound economic reasoning which is made accessible to a non-professional audience is sorely needed. It is odd indeed that most contemporary Christian writing on economic issues for the general public is done by theologians or sociologists.

Note here the vigorous sense of Christian advocacy in the public square, and how it is to be informed by solid economic, social, and historical research. Note too that the advocacy described is generally not that which ought to be pursued by the institutional church, but by Christians organizing themselves organically in civil society.

As a theologian often writing on economic and public policy matters, I heartily endorse Dean’s call for more sustained, careful, and intentional engagement of Christian economists on these matters.

Read “Being a Good Physician: Reflections on Christianity and Economic Research” and leave a comment below.

Via the Volokh Conspiracy:

Mario Rizzo and Gerald O’Driscoll point to dueling letters to the editor from 1932 in The London Times by John Maynard Keynes and F. A. Hayek on whether government spending can help cure contemporary economic woes. The letters, unearthed by Richard Ebeling, show that today’s debates over economic policy are, in many respects, a rerun of the debates of the 1930s.

Everything old is new again! Related: Fear the Boom and Bust

In the most recent edition of the Harvard Journal of Law and Public Policy, Acton’s Research Director Samuel Gregg has an article in which he argues that the ongoing financial and economic crisis has raised serious questions about the credibility and usefulness of much mainstream contemporary economics. Drawing partly on his recent book, Wilhelm Röpke’s Political Economy (2010), Gregg suggests that much mainstream economics after Keynes became gradually dominated by a fixation upon econometrics that has threatened at times to reduce economics to a poor cousin of mathematics. As Gregg writes:

Since John Maynard Keynes’s time, mainstream economics has undergone a steady process of mathematization and immersion in abstraction. One need only glance through their nearest copy of the American Economic Review and observe the plethora of algebra that is now central to most mainstream economists’ argumentation. (p.445)

Gregg suggests that this partly reflected an unhealthy relationship between parts of the economics profession and the trend to government economic planning that accelerated after World War II. In this connection, Gregg notes:

The postwar “new economics” helped to support the belief that the state could “manage” the economy and therefore facilitated expectations that governments should attempt to do so. Governmental institutions committed to interventionist policies wanted macroeconomic research that added empirical credibility to such proposals. . . . A form of collusion consequently developed between the postwar economics profession and states pursuing interventionist strategies. (p.454)

In the second part of the article, Gregg makes the case for a re-look at the type of political economy pursued by Adam Smith: i.e., one committed to a fuller appreciation of reality.

Economists wishing to re-engage economics in a wider discussion about the truth of human reality could thus do worse than return to the writings of Adam Smith. Here one finds a truly synthetic approach to comprehending not just the economic dimension of human reality, but also how that economic component fits into a fuller picture of human reality—one that is committed to treating moral virtues as real to the same extent as the forces of entrepreneurship and peaceful free exchange, not to mention institutions such as the rule of law that are the very stuff of modern flourishing economies. Returning to Smith does not imply wholesale abandonment of all the tools and methods developed in a range of different schools of economic thought since 1776. It does, however, suggest that efforts to quarantine economic science from normative considerations or even knowledge of the basic moral goods knowable by human reason ought to be themselves viewed as unreasonable and unscientific. (p.463)

Read Gregg’s “Smith versus Keynes: Economics and Political Economy in the Post-Crisis Era” in its entirety in the Harvard Journal of Law and Public Policy.

Last week’s Acton Commentary, “Unity or Unanimity at Reformed Council?” was picked up by a number of news outlets, including the Detroit News and the Holland Sentinel. The latter paper published a response to the piece by Jeffrey Japinga, “Intersection of economics and faith is valid subject for church council.”

I think Japinga misreads me, and in doing so (perhaps unintentionally) ends up agreeing with me. He thinks that I oppose the Accra Confession because “what it says disagrees with the conclusions of the Acton Institute.” I do disagree with the Confession on those grounds, to be sure. But that Accra and Acton conflict on economic questions is really the least of my concern in opposing the Accra Confession.

My greatest problem with the Accra Confession is that it proposes to make its own position a matter of confessional integrity. When Japinga compares the confession to the Acton Institute’s core principles, for instance, he’s making a number of category mistakes. The Acton Institute is a nonprofit educational and research organization, a think tank. The World Communion of Reformed Churches purports to be a global institutional representation of the Christian church.

Can you see the difference? It is the job of organizations like Acton to engage in debates in the public square about political policy, prudential and particular concerns, in this case economic. This isn’t the primary task of the institutional church, however.

What I really want at the WCRC is the “kind of open, healthy discussion” Japinga celebrates. I don’t really desire to expel what I consider to be the voices of liberation theology and neo-Marxist ideology from the WCRC. That’s not in danger of happening any time soon and my book, Ecumenical Babel: Confusing Economic Ideology and the Church’s Social Witness, describes some of the reasons why.

My real concern is to see that voices that view globalization as having good aspects as well as bad, as the Accra Confession most certainly does not, are not excluded from the Reformed ecumenical discussion. I believe the adoption of the Accra statement as a confessional standard would do just that and serve to silence dissent and undermine intellectual diversity. It would turn an economic ideology (one that also happens to be false) into an article of the Reformed ecumenical faith.

As Ernest W. Lefever writes, “Taking sides and not taking sides both have moral and political pitfalls. But supporting the wrong side is the worst of all options.”

This week’s Acton Commentary from Jordan Ballor:

Unity or Unanimity at Reformed Council?

By Jordan Ballor

Global Christianity comes to Grand Rapids, Mich., this weekend in the form of the Uniting General Council of the World Communion of Reformed Churches (WCRC). Thousands of delegates, exhibitors, and volunteers will gather on the campus of Calvin College to mark the union of two Reformed ecumenical groups, the World Alliance of Reformed Churches (WARC) and the Reformed Ecumenical Council (REC). This new global ecumenical body will include 227 denominations in 108 nations worldwide, with over 80 million Christians of broadly Reformed, Congregational, and Presbyterian membership.

But the proceedings over the next two weeks will go far beyond mere celebration and praise at the joining of these various groups. The future course of the newly formed WCRC will be set at this first council, and all signs point to an institution defined by a narrow set of advocacy items rather than a Gospel-oriented vision. As WARC president Clifton Kirkpatrick has said, “A true test of the value of our impending union will be how it enhances and strengthens our commitment to economic and ecological justice.”

The basis for the WCRC’s exploration of justice is a document called the Accra Confession, named for the last general council of WARC, held in Accra, Ghana in 2004, which produced the text in response to a perceived crisis of the Christian faith. In the words of the Accra Confession, the crisis calls for “a decision of faith commitment,” specifically focused on condemning “the development of neoliberal economic globalization.” At the core of this “faith commitment” is a perspective that views the developing world as victimized at the hands of a vast conspiratorial network of developed nations, multinational corporations, and global financial institutions. The primary villain in this “neoliberal empire” is the United States, cast as the leader of “the coming together of economic, cultural, political and military power that constitutes a system of domination led by powerful nations to protect and defend their own interests.”

The South African economist Stan du Plessis has criticized the Accra Confession for this perspective, one that in his view “substitutes a narrow ideology for a critical understanding of modern economies.” And so the problem with the Accra Confession is not just that it takes sides on questions of economic prudence and policy, although this is something that institutional churches should always be wary of. As the great Princeton ethicist Paul Ramsey wrote in 1967, “The specific solution of urgent problems is the work of political prudence and worldly wisdom. In this there is room for legitimate disagreement among Christians and among other people as well in the public domain–which disagreement ought to be welcomed and not led one way toward specific conclusions.”

The compounding problem with the Accra Confession is that it takes the wrong side, the side that embraces an essentially neo-Marxist narrative of Third World alienation and victimization, and seeks “justice” in the form of retribution against First World villains. Far from promoting the kind of unity that is at the core of ecumenical efforts, this kind of rhetorical and ideological confessionalism drives apart those who ought to be joining together. It pits the rich against the poor, north against south, east against west, inserting the divisive language of economic class into the definition of the Christian church.

Wholesale rejection of globalization should not be made into an article of the Christian faith. But this is precisely what the Accra Confession does. And if the World Communion of Reformed Churches adopts the Accra Confession or its underlying economic worldview in the coming weeks, it will be undermining its own stated commitment to “unite Christians for common witness and service to the world.”