Posts tagged with: economics

The Acton Institute will be hosting another thought provoking and discussion orientated Acton on Tap on Tuesday, May 17. The event will begin at 6:30pm at the Derby Station (2237 Wealthy St. SE, East Grand Rapids 49506).

Leading the discussion will be Victor Claar, who is a professor of Economics at Henderson State University. The Acton on Tap with Professor Claar is titled “Clarifying the Question of Fair Trade: A Christian Economist’s Perspective.” Claar will bring a unique perspective of the discussion of fair trade by fusing Christian and economic principles:

Fair trade is an enormously popular idea in Christian and secular circles alike. Who, after all, could be against fairness? There are now fair trade certified products as varied as coffee, chocolate, fruit, and, most appropriate for an Acton on Tap audience, beer. Victor V. Claar, associate professor of economics at Henderson State University and co-author of Economics in Christian Perspective, however, raises significant economic and moral questions about both the logic and economic reasoning underlying the fair trade movement. Claar suggests that, for all its good intentions, fair trade may not be of particular service to the poor, especially in the developing world.

Claar has written extensively on fair trade including his monograph, “Fair Trade? Its Prospects as a Poverty Solution.” He wrote a commentary in 2010 discussing the economic obstacles for the world’s poor, and how to bring them out of poverty:

If we want to be effective agents in aiding the poor, we should focus our efforts in directions leading to the enhanced value of an hour of labor. That is, we should help poor countries wisely grow their stocks of human and physical capital, all the while bearing in mind that markets and their prices send the best available signals regarding where our efforts can have the greatest impact. The newfound success of innovative micro lending efforts such as Kiva can help show us ways to effectively invest in the accumulation of physical capital by the global poor. Compassion International is a marvelous organization that works to further the education—the human capital—of poor children worldwide, with a financial accountability record above reproach.

Further, markets work best when economic systems maintain the dignity of human beings. First, human beings grow and flourish—and accumulate human and physical capital—in systems that afford them considerable economic freedom. Economic freedom means that people are able to make personal choices, that their property is protected, and that they may voluntarily buy and sell in markets. Yet, economic freedom requires the protection of private property. When property rights are clearly defined and protected, people will work harder to create and to save. When they are confident that the fruits of their labors cannot be taken away arbitrarily or by force, people everywhere have greater assurance that their labors will lead to better lives for themselves and their families. Today’s rich collection of NGOs that work toward basic human rights play a critical role in this regard.

[…]

If we really care about the global poor, we should work to make trade freer for everyone in our global community: a level playing field for all. That means tearing down all of the barriers we use to keep the global poor from working in the very jobs in which they are perfectly positioned to make the greatest lasting gains.

To read the full commentary click here.

Click here for more information on next week’s Acton on Tap.

Blog author: lglinzak
Wednesday, May 4, 2011
By

Everywhere we look we are facing rising prices. We find them at the gas pumps and now we see them at our supermarkets. Food prices are climbing, and just like gas prices, they are having broadly felt adverse effects on Americans.

The Wall Street Journal sat down with C. Larry Pope, the CEO of Smithfield Foods Inc., the world’s largest pork processor and hog producer by volume, to discuss the rising food prices and how they are affecting his business. Pope attributes the increase in food prices to corn prices and the ethanol industry:

It’s also a business under enormous strain. Some “60 to 70% of the cost of raising a hog is tied up in the grains,” Mr. Pope explains. “The major ingredient is corn, and the secondary ingredient is soybean meal.” Over the last several years, “the cost of corn has gone from a base of $2.40 a bushel to today at $7.40 a bushel, nearly triple what it was just a few years ago.” Which means every product that uses corn has risen, too—including everything from “cereal to soft drinks” and more.

It is also important to note that, while Pope does not go into great detail, he points to the depreciating dollar as playing a role in inflated food prices.

Pope says the majority of his customers will be hurt by rising food prices:

“Maybe to someone in the upper incomes it doesn’t matter what the price of a pound of bacon is, or what the price of a ham, or the price of a pound of pork chops is,” he says. “But for many of the customers we sell to, it really does matter.” Workers can share cars when the price of oil rises, he quips, but “you can’t share your food.”

As food prices rise, what are most people expected to do? Many are on a limited budget and where will they cut back? Increasing food prices may also result in people turning to cheaper less nutritious food. Lora Iannotti, public health expert and professor at Washington University in St. Louis, explains how rising food prices lead to nutritional problems for everyone—especially the most vulnerable:

“During a food price crisis, households moved away from ‘luxury’ food items such as meat, fish and dairy products to poorer quality food,” she says.

Data from nationally representative household budget surveys show that during a food crisis, calorie intake is reduced by an average eight percent from pre-crisis levels, equally affecting rural and urban areas.

“We are particularly concerned for families with young children,” Iannotti says. “When you have a reduction in calories and critical nutrients for kids under 2, there are long term consequences such as stunted growth, cognitive deficits, lower educational attainment, and reduced future productivity.”

Like many other critics of the ethanol subsidy, Pope calls for an end to these subsidies. That would be a significant aid to reigning in the high food prices:

…Mr. Pope says, get rid of the ethanol subsidies and the tariff. “I am in competition with the government and the oil industry,” he says. “It’s not fair.” Smithfield’s economists estimate corn prices would fall by a dollar a bushel if ethanol blending wasn’t subsidized. “Even the announcement that it is going away would see the price of corn go down, which would translate very quickly into reduced meat prices in the meat case,” he says. Imagine what would happen if the mandate and tariff were eliminated, too.

Gary Wolfram, economics and public policy professor at Hillsdale College, offers a similar message. Wolfram points to the sharp increase in food prices, the inefficiency of corn ethanol, and calls for the end of ethanol subsidies:

World food prices are on the rise. In the United States, retail food prices rose .6 percent in February and are up 2.3 percent from February of 2010, the highest 12-month increase since May 2009. Part of the reason for the revolutionary fervor in the Middle East is rising food prices. Yet our government provides a $6 billion per year subsidy to turn the U.S. corn crop into gasoline. Ever gallon of ethanol refined into gasoline receives a 45-cent per gallon subsidy.

[…]

But this inefficient use of corn does more than just cost taxpayers’ money. It is part of the problem of increasing food prices. Ethanol makes up about 8 percent of U.S. fuel for vehicles, but uses up about 40 percent of the nation’s corn crop. The Economist estimates that if all the American corn crop that goes into ethanol were used as food, global corn food supplies would increase by 14 percent.

And as an article in Investors.com argues, ethanol has failed to achieve many of the goals that its proponents claim it would achieve.

Acton’s criticism of the ethanol subsidy is not new. In 2008, Ray Nothstine was interviewed and articulated the moral problems with the ethanol subsidy, the unintended consequences, and inefficiencies of ethanol that are now coming to light. Readers can listen to the interview here.

Rising food and gasoline prices are causing people to bear economic hardships, and, with limited household budgets, these trends cannot continue. Many leaders and economists are correct in calling for a reevaluation of our ethanol policy.



Today in Acton News & Commentary we brought you guest columnist Steven F. Hayward’s “Economists in the Wild,” based on his new American Enterprise Institute monograph, Mere Environmentalism: A Biblical Perspective on Humans and the Natural World. Hayward, the F.K. Weyerhaeuser Fellow at AEI, looks at how the “connection between rising material standards and environmental improvement seems a paradox, because for a long time many considered material prosperity and population growth the irreversible engines of environmental destruction.” Not so. Hayward:

The central insight of environmentalism is that humanity’s great leap in material progress has come at a high cost to nature: we tear down entire mountains for their minerals; divert rivers and streams and drain swamps to provide water for modern agriculture and urban use; clear large amounts of forests for other uses, often disrupting crucial habitat for rare animal species; and too often dump our waste byproducts thoughtlessly into the air, water, and land.

But this insight contains a paradox. Environmentalism arose precisely because we have mitigated the material harshness of human life through the Industrial Revolution; as Aldo Leopold, author of the classic environmental book A Sand County Almanac, put it: “These wild things had little human value until mechanization assured us of a good breakfast.”

I want to thank John Baden of the the Foundation for Research on Economics and the Environment in Bozeman, Mont., for bringing this to our attention. Baden’s introduction to Hayward’s commentary is worth reprinting here in full; it’s an excellent thumbnail summary of environmental economics.

Steve Hayward’s column … makes one wonder how noted environmental professionals, and even scientists, can be so, how can I say it gently, remarkably ignorant and intellectually arrogant as this: “Economics is a form of brain damage.” Economics isn’t an ideology or a mental affliction. Rather, it’s the systematic study of allocating scarce resources among contending ends.

When applied to environmental and natural resource problems, its practitioners make a few nearly universally valid assumptions. Here are a few.

When things are free, they are counted as such and hence often over used. Common pools of fish exemplify this.

As scarcity increases, people conserve and innovate. Consider barbed wires introduction to open range, the development of particleboard, laminated beams, and plywood. Entrepreneurs developed these solutions to the increased scarcity of grass and old growth timber.

Property rights and markets peacefully coordinate development and use among people who don’t know one another and generate incentives to act as though they care about unknown others. That’s one under-appreciated function of markets.

Bureaucratic-political management replaces market prices with political favor seeking. Corn ethanol is a classic example that causes untold human misery and great environmental damage.

Wealthier is greener; poverty is the worst polluter.

And this; things that are best and most easily measured are not those that matter most.

Economics isn’t about money, it’s about confronting and helping to resolve the many problems of scarcity in a clear and logical manner. Soft hearts need not imply a mushy brain.

Read Steven F. Hayward’s “Economists in the Wild” on the Acton site. Sign up for Acton News & Commentary here.

In this week’s Acton Commentary, “Do Less with Less: What the History of Federal Debt and Tax Leverage Teaches,” I reflect on how the federal government has lived beyond its means for decades. This reality is especially important to recognize as we approach Tax Day this year as well as in the context of debates about how to address the public debt crisis.

There are many who think we need to raise taxes in order to close the historic levels of deficit spending. In theory I would consider raising taxes as a viable option, or at least preferable to continued deficit spending, since it would at least make the real cost of government more visible. Roughly 40% of what the government spent last year was beyond what it took in.

But without structural connections between increased taxes and balancing the budget, there’s nothing at all to give us hope that the government wouldn’t simply continue to leverage the greater revenue into greater deficit spending. In this vein I note the conclusions recently updated by Richard Vedder and Stephen Moore, that “over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.”

Calvin College philosophy professor James K. A. Smith doesn’t take this reality into account, I don’t think, when he recently argued that the current situation calls for raising taxes, both on the rich and the middle-class. Thus, he writes,

But only a lazy, unimaginative take on this would assume that “low taxes” is a given. So sure, one strategy to reduce debt would be to slash spending, which inevitably happens on the backs of the poor and vulnerable, particularly women and children.

The alternative to such an unattractive option as Smith sees it is to raise taxes, particularly on the rich. Smith thus points to the idea that America needs to adopt a “graduated tax like most other North American countries.”

The fact is, though, that the US already has a progressive tax system, and indeed places a much higher relative burden on the top decile of household incomes than other developed nations.

One of the next big fights will be over raising the debt ceiling, as Smith points out. Perhaps we can link balanced budgets with increases on the debt ceiling (something more feasible than passing a balanced budget amendment). The idea would be that we only increase the debt ceiling on the condition balancing the annual budget, and that we only think about raising taxes to balance that budget if we actually commit to balancing it.

Simply raising taxes won’t do anything but give the federal government more money to leverage into higher levels of deficit spending.

Bill Whittle at Declaration Entertainment uses a recent Iowahawk post, Feed Your Family on $10 Billion a Day, to figure out how an “Eat the Rich” economics program would work as a solution to our fiscal ills.

A commentary by Acton Research Director Samuel Gregg titled “Deficit Denial, American Style” which was published in Acton News & Commentary on March 9th appeared today in the Detroit News as “It’s time to curb welfare growth” and was also picked up by RealClearPolitics. Gregg provides an enlightening examination on the growth of the welfare system, and with our current budget problems, the need to also reform it:

If, however, the results of a much-discussed Wall St Journal-NBC News poll released on March 2 indicate what Americans really think about fiscal issues, then much of the country is clearly in denial – i.e., refusing to acknowledge truth – about what America needs to do if it doesn’t want to go the way of many Western European nations.

While the poll reveals considerable concern about government debt, it also underscores how unwilling many Americans are to reduce those welfare programs that, in the long-term, are central to the deficit-problem.

Here are the raw facts. America’s federal social security program has become the largest government pension scheme in the world in terms of sheer dollars. It is also by far the federal budget’s single greatest expenditure item.

According to the Office of Management and Budget, “human services” ― Social Security; Medicare; Health-expenditures; Education, Training, Employment, and Social Services; Veterans benefits; and the euphemistically-named “Income Security” (i.e., unemployment-benefits) ― were consuming 4 percent of America’s GDP in 1949. By 1976, this figure had increased to 11.7 percent. In 2009, it was consuming 15.3 percent of GDP.

During the same period, human services began consuming a steadily-increasing size of federal government expenditures. In 1967, human services spending was 32.6 percent of the federal budget. By 2009, this figure had increased to 61.3 percent. It is predicted to rise to 67 percent by 2016. In 2010, 75 percent of human services spending was on Social Security, Medicare, and Income Security ― in short, the core welfare state.

These disturbing numbers make it clear any serious federal deficit reduction must involve spending-cuts to federal welfare programs. That doesn’t mean other areas of government-spending should be immune from cuts. But the deficit simply can’t be properly addressed without a serious willingness to reduce welfare-expenditures.

The original Acton commentary by Samuel Gregg can be read in full here.

Kenneth P. Green, of the American Enterprise Institute (AEI), recently examined green energy in Europe in an essay titled, “The Myth of Green Energy Jobs: The European Experience.” Green thoroughly analyzes the green industry in Europe while seeking to discover the reasons behind its current downward spiral. As readers discover, this is largely due to the green industry being unsustainable while heavily relying on government intervention and subsidies.

Green uses the failing green industry in Europe to forewarn the United States that its policies, if continued, will bring the same unfruitful results. If the green industry is going to succeed it should not be a government supported industry, as Green states:

…governments do not “create” jobs; the willingness of entrepreneurs to invest their capital, paired with consumer demand for goods and services, does that.

All the government can do is subsidize some industries while jacking up costs for others. In the green case, it is destroying jobs in the conventional energy sector—and most likely other industrial sectors—through taxes and subsidies to new green companies that will use taxpayer dollars to undercut the competition. The subsidized jobs “created” are, by definition, less efficient uses of capital than market-created jobs. That means they are less economically productive than the jobs they displace and contribute less to economic growth. Finally, the good produced by government-favored jobs is inherently a non-economic good that has to be maintained indefinitely, often without an economic revenue model, as in the case of roads, rail systems, mass transit, and probably windmills, solar-power installations, and other green technologies.

Spain, according to Green, destroys an average of 2.2 jobs for every green job created, and since 2000, it has spent 571,138 Euros on each green job which includes subsidies of more than 1 million Euros per job in the wind industry. Italy also is experiencing problems. If Italy spent the same amount of capital in the general economy as it does in the green sector, then that same amount of capital that creates one job in the green industry would create 4.8 to 6.9 jobs for the general economy.

Green further explains a feed-in law instituted in Germany which requires utilities to purchase different kinds of renewable energy at different rates. The feed-in law requires utilities to buy solar power at a rate of 59 cents per kilowatt-hour when normal conventional electricity costs between 3 and 10 cents, and feed-in subsidies for wind power were 300 percent higher than conventional electricity costs. The implementation of wind and solar power did not even save German citizens money in energy rates because the household energy rates actually rose by 7.5 percent.

Denmark is also experiencing its fair share of problems. According the CEPOS, a Danish think tank that issued a report in 2009:

[the] CEPOS study found that rather than generating 20 percent of its energy from wind, “Denmark generates the equivalent of 19 percent of its electricity demand with wind turbines, but wind power contributes far less than 19 percent of the nation’s electricity demand. The claim that Denmark derives 20 percent of its electricity from wind overstates matters. Being highly intermittent, wind power has recently (2006) met as little as 5 percent of Denmark’s annual electricity consumption with an average over the last five years of 9.7 percent.”

Denmark currently has the highest electricity prices in the European Union, but while Danes are paying such high prices, one would imagine that there is a cost benefit factor occurring, such as great environmental benefits and a lower carbon footprint.  However, Green explains that the greenhouse gas reduction benefits are actually slim to none: “The wind power consumed in Denmark does displace some fossil-fuel emissions, but at some cost: $124 per ton, nearly six times, the price on the European Trading System.”

With large inefficiencies and high costs in subsidies being paid in Europe, Green warns American policy makers not to follow in Europe’s footsteps. So the question is what should the U.S. Government do? The answer, according to the Las Vegas Review-Journal, is nothing.

In an editorial recently published the Las Vegas Review-Journal examines the costs of subsidies and support dollars per megawatt hour the U.S. spent in 2008. According to the Energy Information Administration, oil and natural gas received 25 cents per megawatt-hour, coal received 44 cents, Hydroelectric received 67 cents, nuclear power received $1.59, wind power received $23.37, solar power received $24.34 and refined coal received $29.81. The editorial also published comments from John Rowe, CEO of Chicago based Exelon which is the nation’s biggest nuclear power producer. In the editorial Rowe articulates a resonating message to President Obama and Congress concerning green energy policy:

…in trying to boost “clean” energy — wind, solar, nuclear and natural gas — Congress and the states have enacted or proposed bills that would burden consumers, cripple markets and increase federal debt but do little to clean up the air.

In a speech to the conservative-leaning American Enterprise Institute, Mr. Rowe said his message to lawmakers is simple: “I’m asking that Congress do nothing.”

Mr. Rowe said utilities across the country are turning to “cheap” natural gas to generate electricity and do not need a clean energy standard proposed by President Obama.

In a new essay for Public Discourse, Acton Research Director Samuel Gregg explains why we shouldn’t only focus on public sector unions as examples of organizations that seek government power and taxpayer dollars to advance their ends. “A considerable portion of the business community is equally culpable,” Gregg writes. Excerpt:

The attractions of business-government collusion are enhanced when the state’s involvement in the economy grows. This is partly a question of incentives. The larger the scope of government economic intervention, the more businesses are incentivized to cultivate politicians in much the same way that public sector unions have.

As a result, consumers become displaced as the focus of business activity. Nor do the incentives for people of an entrepreneurial bent lie with creating something that the entrepreneur thinks consumers will value.

Instead the incentives become increasingly aligned with successful political entrepreneurship. Competition becomes less about a company’s ability to offer new and better products for consumers at lower prices. Instead, it become a struggle among businesses to secure state subsidies, to lobby legislators to establish tariffs that stack the deck against foreign competition, or to persuade governments to provide one company with exemptions from regulations that apply to every other company in the same industry.

It’s a form of soft corruption that produces higher prices for consumers, undermines value creation in the marketplace, and facilitates unwholesome relationships between politicians and businesses. It also represents the gradual subversion of the market economy by mercantilist arrangements. Smith identified the core of the problem in his Wealth of Nations (1776): “in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and consumption.”

In the end, however, everyone loses.

Read Samuel Gregg’s “Business vs. the Market” on the Public Discourse website.

My first reaction to “What Would Jesus Cut?” is that it tends to reduce Christ to a distributor of material goods through government programs. Jesus is not a budget overseer or a dispenser of government largesse. Sojourners founder Jim Wallis has already countered this accusation with his own post saying, “We haven’t been trying to get Jesus to be the head of any budget committee, or think that he would ever want that job!”

But still, to use Christ as an example of a legislator writing budgetary law is facile when we recognize Christ as the fulfillment of the law (Romans 10:4). It reduces and trivializes Christ at a time when there is already too much theological confusion about the person, nature, and mission of Christ in this country. And while Christ certainly relates and guides us on the day to day questions as we work to uplift the social witness, this practice reduces the Word of Life to moralism when done in a frivolous manner.

As for how we help the poor, as we are commanded to do as Christians, we shouldn’t confuse the Kingdom of Christ with the power and agenda of the state. Evangelicalism, and proclamation of the person of Christ should not be reduced to baptizing and sanctifying the budget.

In October 2009, I wrote “America’s Uncontrolled Debt and Spending is the Real ‘Waterloo,’” agreeing with Jim Wallis that budgets are moral documents, but focusing rather on the immorality of chaining a nightmare of debt to future Americans. The Speaker of the U.S. House of Representatives, John Boehner, waxes eloquent on budget morality, too. He offered this sound byte in an address just last week to the National Religious Broadcasters Association in Nashville:

It is immoral to bind our children to as leeching and destructive a force as debt. It is immoral to rob our children’s future and make them beholden to China. No society is worthy that treats its children so shabbily.

I also agree with Jordan Ballor here and here in his aptly written remarks about the similar “A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis.”

Wallis, who is a signer of “A Call for Intergenerational Justice” has a very disappointing record when it comes to fiscal responsibility. He is on record of already opposing social security reform, welfare reform in the 1990s, slowing the rate of growth of government spending in the 90s, and even checking the rate of growth for SCHIP, as my 2007 commentary points out.

I wore “What Would Jesus Do” apparel for a short time during the fad, and obviously it is good to ask WWJD. But I stopped wearing it when I realized that I already knew what Christ would do, and I should be asking myself deeper questions about what I am really doing to magnify my relationship with Christ and my witness to others.

I think that is what bothers me with “What Would Jesus Cut?” It’s a reduction of the witness of Christ, with no greater context of his redemptive mission. This is a flaw of some, but not all, on both the religious right and religious left. There is a danger in over-politicizing the name of Jesus in the public square, especially when the Church in America is crying out for sound Biblical doctrine. He is the way, the truth, and the life, and to continually reinsert him into the budget debate, which are clearly prudential arguments, shrinks his real power and authority.

For PowerBlog readers around New York City, Rev. Robert A. Sirico will be speaking tonight, Wednesday March 2nd.  The event, Business and Compassion: Rehumanizing Our Economy, is hosted by Heart’s Home, International Center for a Culture of Compassion, and the American Bible Society.  Rev. Sirico is one of four members speaking on a panel.  The event will be from 7:00pm-9:00pm (EST) at the American Bible Society National Headquarters (1865 Broadway, New York, NY 10023).  The cost of admission is $15 for students and $30 for general admission.  Any questions regarding tickets and admission can be directed to Heart’s Home.