Posts tagged with: economics

Blog author: jballor
Tuesday, November 2, 2010
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The title of this post borrows from a phrase I employ in the conclusion of tomorrow’s Acton Commentary on the prospects for austerity in America after today’s mid-term elections. (I can’t claim to have coined the term, since about 4,270 other instances of the phrase show up in a Google search, but I like it nonetheless.)

Today I’ll simply highlight a few of the relevant stories that I’ve noted on this theme over recent weeks and months.

As Samuelson notes, austerity is by its very nature unpopular. Speaking of the dilemma facing governments, he writes, “Without unpopular spending cuts and tax increases, unmanageable deficits may choke their economies.”

Tomorrow I’ll discuss the treatment of austerity as a leitmotif in the writings of Paul Krugman, who most recently dubbed austerity proponents “moralizers.” The significance of this will be made more clear tomorrow in relation to my commentary, “‘A’ for Austerity: The New Scarlet Letter.”

Blog author: jcouretas
Friday, October 29, 2010
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As America and Europe continue to wrestle with the question of how best to address their respective economic crises, many are looking back to the lessons of history and how they might be applicable to today. Scholars, public intellectuals, and policy analysts are paying particular attention to the economic debates of the 1930s, during which much intellectual wrestling — not all of it pretty — occurred over the causes of the Great Depression and how to best alleviate its destructive effects. Not surprisingly, the writings of John Maynard Keynes and Friedrich von Hayek are among the most heavily referenced by contemporary figures.

Another scholar who wrote extensively on the causes of, and possible solutions to, protected recessions was the German economist Wilhelm Röpke. His thinking was shaped not only by his lengthy formal studies of business cycles, but also the fact that he was extensively consulted by German governments in the late 1920s and early 1930s as the Weimar Republic struggled to stave off political and economic disaster amidst the collapse of banks and skyrocketing unemployment that fed the extremes of left and right. These consultations came to an end in 1933 after the fiercely anti-Nazi (and anti-Communist) Röpke became of the first academics to be purged from the universities by the new National Socialist government.

In his 2010 book, Wilhelm Röpke’s Political Economy (described by one reviewer in Economic Affairs as “the most comprehensive in its analysis of this important thinker’s political economy” and another reviewer in The American Spectator as “mandatory reading for every student of political economy”) Acton’s Research Director Samuel Gregg included an analysis of Röpke’s thinking about business cycles and recessions as the world remained stuck in an economic quagmire throughout the 1930s. Gregg compares Röpke’s position to that of Hayek and Keynes, illustrating how Röpke moved ever closer to Hayek’s analysis and prescriptions and ever more skeptical (and outspokenly so) of Keynes’s views.

Those interested in this subject, but who also wonder what Röpke might have thought of our current economic predicaments might be interested in an address delivered by Dr. Gregg in Buenos Aires, Argentina, in March 2010. The English-language lecture—“Wilhelm Röpke, The Depression and the 2008 Crisis: Reflections from the Past, Lessons for Today”—has just been published in the May 2010 edition of the Argentine journal Revista de Instituciones, Ideas y Mercados, the flagship journal of ESEADE, one of Argentina’s leading market-oriented universities.

It’s especially interesting to observe that while Röpke was initially willing to contemplate some mild interventions (mainly of the type that removed obstacles to a market-driven recovery), Gregg shows that Röpke soon concluded that most interventionist programs were counterproductive and/or ineffectual. Here Röpke was especially influenced by what he regarded as the failure of the New Deal (a failure beautifully documented by the economic historian Amity Shlaes in her 2008 book, The Forgotten Man) to reignite the American economy. As Röpke wrote in 1942:

It turned out that the original calculation that the Government’s boost of purchasing power would set off the private investment drive that was due, was wrong. Every time the Government’s injections were withheld, it was as if there was no private initiative which could take the place of public initiative.

Sound familiar? In his lecture, Gregg notes:

Most interwar active business-cycle policies aimed at combating the Depression, Röpke argued, had failed . . . . Instead [citing Röpke] ‘only an artificially continued prosperity developed which was bound to come to an end the moment the state injections of purchasing power upon which it depended, ceased.’ Bad investments had driven out good investments, meaning that governments were not only bound to keep injecting purchasing power, but to increase them. Such, Röpke wrote, was ‘the slippery slope of collectivism.’

How little we have learned from the past.

Acton’s Research Director in the American Spectator:

Europe’s Broken Economies

By Samuel Gregg

During September this year, much of Europe descended into mild chaos. Millions of Spaniards and French went on strike (following, of course, their return from six weeks vacation) against austerity measures introduced by their governments. Across the continent, there are deepening concerns about possible sovereign-debt defaults, stubbornly-high unemployment, Ireland’s renewed banking woes, and the resurgence of right-wing populist parties (often peddling left-wing economic ideas). Indeed, the palpable sense of crisis left many wondering if some European economies have entered a period of chronic decline — one which might eventually reduce Europe to being a bit-player on the world stage.

Obviously we should avoid over-simplification. In Germany and Sweden, for instance, unemployment is declining while economic growth and exports are rising. Not coincidentally, both countries have implemented significant economic reforms over the past ten years. To the audible disappointment of the world’s left-wingers, Sweden is no longer Social Democracy’s poster-child.

Nor can Europe’s present woes be explained in mono-causal terms. Like America, property-bubbles and over-leveraged financial industries played a role in some countries’ meltdowns. But not every European nation presently enduring economic hardship experienced banking crises on the scale experienced by Ireland and Britain.

It will be decades before economists and historians completely diagnose what’s happened to Europe’s economies since 2008. Many, however, will likely conclude that many European countries’ economic culture helped them lurch into seemingly unending crisis.

“Culture” is one of those heavily over-used words. But in sociological and historical terms, “culture” is a way of describing, among other things, the approach to life, the values emphasized, attitudes toward work, the understanding of law, and ultimately the view of science, the arts and religion prevailing in a given society. Over time, these form a type of inheritance that can remain relatively stable in particular historical settings over several generations. (more…)

Blog author: jballor
Tuesday, September 21, 2010
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The conversations over the last few weeks here on work have raised a couple of questions.

In the context of criticisms on the perspectives on work articulated by Lester DeKoster and defended by me, commenter John E. asks, “…what is it that you hope readers will change in their lives, and why?”

I want to change people’s view of their work. I want them to see how it has value not simply as a means to some other end, but in itself. I want to change how they view their relationship to their work.

To echo DeKoster and Berghoef again, many of us simply view work as “a drudge, a bore, a fearful trial.” It may well be that. There is work that is better and work that is worse (to anticipate one of Schumacher’s points below). But we should also know that “the harder it is for you to face each working day, the more your will to persevere schools the soul.”

I want to add a bit of mystery back to the concept of work as well as a bit of spirituality. Again, DeKoster and Berghoef:

The results of one’s work can never be fully known. What will become of the produce raised, of the machine built, of the person fed? No one can foretell what will be the final consequence of today’s effort. Nor does the pay check really measure the value, nor the effort, of the work for which it is given. Wages are set by the market, and the results of work are hidden in the mists of tomorrow. What endures is what happens to the worker who bravely makes it through the day.

An aspect of this perspective, I think, is similar to that articulated by E.F. Schumacher in the essay, “Buddhist Economics” (HT: The Western Confucian).

Grace Marie Boggs notes the importance of the essay, in which Schumacher writes,

The modern economist has been brought up to consider ‘labour’ or work as little more than a necessary evil. From the point of view of the employer, it is in any case simply an item of cost, to be reduced to a minimum if it cannot be eliminated altogether, say, by automation. From the point of view of the workman, it is a ‘disutility'; to work is to make a sacrifice of one’s leisure and comfort, and wages are a kind of compensation for the sacrifice.

By contrast, the view of work in Buddhist economics is that it gives man “a chance to utilize and develop his faculties; to enable him to overcome his ego-centeredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence.”

On this point, at least, there is some correspondence between the Christian and the Buddhist view of work as school for the soul. Joshua Snyder relates how Schumacher said of the essay, “I might have called it ‘Christian Economics’ but then no one would have read it.” The views of DeKoster and Berghoef on the one hand and Schumacher on the other are not identical. But what they share is, in Schumacher’s language, a criticism of “a complete misunderstanding of one of the basic truths of human existence, namely that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.”

In a related vein, David Michael Phelps wonders whether the perspective he articulates between work and art “is something that Reformed theology could/would/does support).”

The answers are affirmative, I believe: Yes, yes, and yes. Beyond the perspective on the schooling of the soul as written by DeKoster and Berghoef, the seventeenth-century theologian and pastor Richard Baxter has valuable things to say about the relationship between work and temporal goods and spiritual and eternal goods. But these are just a small sampling of the rich Reformed resources that can and ought to be brought to bear on these topics.

Phelps will be discussing “Art, Patronage, and Cultural Investment,” at tonight’s Acton on Tap, and he moderated our RFA podcasts on “The Stewardship of Art” (you can listen to part 1 and part 2 respectively).

You can also preorder Lester DeKoster’s little book, Work: The Meaning of Your Life—A Christian Perspective today at the Acton BookShoppe.

Blog author: jballor
Monday, September 20, 2010
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Victor Claar, Acton University lecturer and professor of economics at Henderson State University, will give a talk tonight in Washington, D.C., hosted by AEI, “Grieving the Good of Others: Envy and Economics.”

If you are in the area, you are encouraged to attend and hear Dr. Claar as well as two respondents discuss the topic of envy and its moral and economic consequences.

Here’s a description of the event:

Critics of capitalism often argue that this economic system is irretrievably tainted by the sin of greed. They claim that by empowering government to “spread the wealth around” we can free ourselves from the tyranny of greed, purging the influence of sin. But are they right? At this event, Victor Claar, associate professor of economics at Henderson State University, will discuss the role of envy in collectivist and redistributive economic systems. Beginning with an explanation of the classic theological understanding of envy, Claar will argue that “grieving the good of others” is an unavoidable aspect of social democracy.

Update: The audio and video of the AEI event is now available. (There’s a nice plug for Acton University at the beginning.)

Tomorrow Dr. Claar will also be appearing as part of The King’s College Distinguished Visitor Series in NYC.

Dr. Claar is co-author of Economics in Christian Perspective: Theory, Policy and Life Choices as well as author of the Acton Institute monograph, Fair Trade? Its Prospects as a Poverty Solution.

As Dr. Claar will elaborate, the question that epitomizes envy, which is defined as “sorrow at another’s good,” is the self-centered concern, “What about me?” For fans of the hit TV series Lost, I can think of no better illustration of this than the turn from envy to malevolence in this climactic confrontation between Ben Linus and Jacob from the conclusion of season 5:

On Public Discourse, Acton Research Director Samuel Gregg looks at fiat money and how today it “represents the end of a long process of development whereby governments have used their power of legal tender to use money to pursue various policy goals.”

This brief excursion into economic history hints at some of the deeper economic—not to mention moral—problems associated with fiat money. One is, as noted, the greater ease with which it permits governments to devalue currencies, thereby reducing the wealth of those with assets denominated in that currency. This surely constitutes an injustice to those individuals and businesses that have saved and behaved in a fiscally responsible manner while simultaneously letting the fiscally imprudent off the proverbial hook.

This underscores the second problem associated with fiat money: its facilitation of systemic moral hazard throughout entire economies. Moral hazard describes those situations whereby people are encouraged to take excessive risks because of the implied assurance that someone (usually the state) will bail them out if the enterprise or investment fails. From this standpoint, fiat money’s very existence arguably encourages the development of moral hazard throughout every sector of the economy. The high level of the U.S. federal government’s public deficit, for example, is at least partly premised on the unspoken supposition that the Fed (which is, after all, a government institution that operates within legal parameters set by Congress and whose members are nominated by the President) can simply print more money in paper or electronic form if creditors become worried that the U.S. government’s borrowings cannot be covered by anticipated taxation revenues, foreign borrowings, and its existing resources. This in turn encourages more people and governments to buy U.S. government debt in the form of bonds, which permits more deficit-spending, thereby encouraging a cycle of ever-spiraling public debt.

Read “Fiat Money and Public Debt” on Public Discourse.

Until recently, many thought that Europe had escaped the worst of the 2008 financial crisis. Some even argued that the crisis has demonstrated the European social model’s superiority over “Anglo-Saxon capitalism”. In 2010, however, we have seen an entire country bailed out, riots in Athens, governments slashing budgets, and several European nations staring sovereign debt default in the face. Some are even claiming that the euro is finished. So what went wrong for Europe? How adequate have been the responses of European governments? And what are the consequences for America? The video is from the Aug. 2 Acton Lecture Series in Grand Rapids, Mich.

Today’s NYT has an op-ed by David Brooks that’s been getting good cyber-circulation, “The Gospel of Wealth.” Brooks highlights in particular Southern Baptist pastor David Platt, who is touted as the youngest mega-church leader in the country. Rebelling in many ways from the new traditions associated with mega-churches, Brooks says Platt inhabits the nexus between “between good and plenty, God and mammon,” spirituality and materiality, and that Platt “is in the tradition of those who don’t believe these two spheres can be reconciled.”

Here’s what Brooks concludes: “Americans will not renounce the moral materialism at the core of their national identity. But the country is clearly redefining what sort of lifestyle is socially and morally acceptable and what is not. People like Platt are central to that process.”

It’s true that the call to follow Jesus is a radical call. But it is false to juxtapose that radicalism with a demarcation between those areas of life in which one can be faithful to him and not.

What we can really hope for is that each of us will be obedient to Christ in our own callings, whether in plenty or in want, in abundance or scarcity. In the realm of economics, for most people that will mean that they act responsibly with their money, avoiding the temptation to live in the midst of crippling debt and seeking meaning in buying and identity with what we purchase and consume. This is what I’ve called the “fourth” pillar of the new economy, “Spend all you can.”

But as Brooks points out, the pursuit of sustainable wealth and profit in the midst of responsible giving and saving isn’t at all a new idea. It’s only the excessive spending and unsustainable consumption of recent decades that make it seem new.

Blog author: kjayabalan
Wednesday, September 1, 2010
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Forgive the blunt title of this blog post, but the point needs to be made in no uncertain terms.

The Zenit News Agency has interviewed John Medaille, author of Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More, which calls for a direct if brief (more later, perhaps – I have yet to read the book) response from this Catholic defender of the market economy.

Whether or not Pope Benedict’s Caritas in Veritate is a boon to “alternative economics” as the Zenit interviewer claims, the market economy has come under attack from just about every corner since the global financial crisis of 2008. It’s easy enough to kick a system when it’s down, even when there’s plenty of blame to go around. Some critics, however, have been suffering through many decades of capitalist triumphalism to get their revenge. Among these are the distributists.

As I’ve noted in some recent blog posts, distributism has its origin in the writings of G.K. Chesterton and Hilaire Belloc who, for the brilliant Catholic apologists they were, seem to have known very little about economics. As the Zenit interviewer remarks, “many are skeptical, and believe distributism is simply romantic agrarianism, or worse, just an aesthetic sensibility, without any real practical solutions.”

Identified as a “neo-distributist,” Medaille wants to make up for the deficiencies of his fathers. He takes economics more seriously and argues that distributism is the “truly” free-market system compared to capitalism or socialism, though it should be remembered that Chesterton and Belloc also supported distributism in the name of economic liberty, private property and less interference from the state. Be that as it may. The question is ultimately whether distributism, neo- or paleo-, lives up to its claims as an “alternative” or “third-way.”

Medaille starts by critiquing the related notions that economics is a physical, rather than a human, science and that economics has nothing to do with ethics, especially justice. I don’t know who he is debating here. When I studied economics as an undergrad at a large secular university and worked as an international economist for the U.S. government, I may have come across such types, though no one was so brash to say that ethics didn’t matter. But it definitely does not describe those of us who appreciate Austrian economics and promote a Catholic understanding of the market economy.

More to the point, the question is how economics as a human science is to “practice” justice. How exactly can an economic system ensure justice between a buyer and a seller who come to a common agreement? Doesn’t the virtue of justice require just persons? And isn’t legal justice the purview of the state that legislates against force, fraud, theft, etc.?

For an example, Medaille says that, in matters of trade, foreign financing of domestic consumption is impoverishing to both parties and presumably unjust. While I could be convinced of its imprudence or undesirability in certain situations, I fail to see why or how such financing is always and everywhere unjust and therefore deserving of a blanket condemnation.

Medaille then states his case for distributism as the truly free-market system compared to capitalism and socialism. He makes the obvious point that any system that concentrates power is bound to leave individuals worse off and less free. Socialism is clearly guilty as charged but does capitalism necessarily lead to greater concentrations of economic power? The problem of concentrated power mainly occurs when corporations and the state work together – a.k.a. corporatism – which hardly describes a market economy worth defending and may even resemble the distributist model.

A truly free-market economy must allow free competition; it is only when capitalists collude to restrict competition that power is concentrated and freedom restricted. Yet this is precisely what guilds seek to do. Or have the neo-distributists distanced themselves from Chesterton and Belloc’s defense of guilds and critique of competition and advertising? I cannot tell.

Medaille is on firmer ground when he reminds us that the government should be doing less and that government interference often leads to the concentration of power. But he then ruins his case by looking to the state and trade associations to collude, which seems to be acceptable so long as it all happens at a local level.

Medaille explicitly proposes using tax policy, property law, licensing authorities and other political means to the advantage of some over others. But how is local government somehow exempt from draconian or overly restrictive interference? In fact, the history of republican government is full of such examples, especially in cases where an obstinate minority asserts its rights against the majority. The concentration of power often begins “small”, “locally” or “popularly” and grows from there; see Hayek’s The Road to Serfdom for a well-known demonstration of the phenomenon.

In the end, I am left wondering just what the distributists think is so good about economic freedom. As far as I can tell, it is not about using our God-given skills and talents through the division of labor for the benefit of all, and I see absolutely no mention of poverty reduction, longer life expectancies, medical and technological advances, the social virtues encouraged by commerce, and other goods brought about by economic freedom. The distributist vision of economic liberty and private property seems to feed a misguided notion of self-sufficiency and pride that is as antithetical to Catholic social teaching as materialism and consumerism.

Furthermore, the neo-distributist case for free markets is riddled with the same contradictions and problems that plagued its predecessor. Making the case against socialism and a mythical laissez-faire state of affairs is simply not good enough these days. Instead of urging serious Catholics and others who take ethics seriously to seek new economic models or “lifestyles,” why not encourage them to understand how markets work and what moral freedom and responsibility require from us as citizens and in the marketplace?

Acton University faculty member Jeffrey Tucker has an insightful essay over at InsideCatholic.com, “Why Catholics Don’t Understand Economics.”

Throughout the piece, Mr. Tucker employs a distinction between scarce, economic goods, and non-scarce, infinitely distributable, spiritual goods:

I have what I think is a new theory about why this situation persists. People who live and work primarily within the Catholic milieu are dealing mainly with goods of an infinite nature. These are goods like salvation, the intercession of saints, prayers of an infinitely replicable nature, texts, images, and songs that constitute non-scarce goods, the nature of which requires no rationing, allocation, and choices regarding their distribution.

None of these goods take up physical space. One can make infinite numbers of copies of them. They can be used without displacing other instances of the good. They do not depreciate with time. Their integrity remains intact no matter how many times they are used. Thus they require no economization. For that reason, there need to be no property norms concerning their use. They need not be priced. There is no problem associated with their rational allocation. They are what economists call “free goods.”

[...] This is completely different from the way things work in the realm of scarce goods. Let’s say that you like my shoes and want them. If you take them from me, I do not have them anymore. If I want them again, I have to take them back from you. There is a zero-sum rivalry between the goods. That means there must be some kind of system for deciding who can own them. It means absolutely nothing to declare that there should be something called socialism for my shoes so that the whole of society can somehow own them. It is factually impossible for this to happen, because shoes are a scarce good. This is why socialism is sheer fantasy, a meaningless dreamland as regards scarce goods

The whole article is worth reading (there is even a good St. Augustine reference)