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.
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?
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
A constant theme here at the Acton Institute is the idea that good intentions are not enough…they need to be connected to sound practice.
It’s admirable that people wish to better the lives of coffee growing peasants. I also applaud their use of private initiatives and organizations. But before scorning their neighbors for not sharing their means, and before trying to turn the world inside out and upside down on the basis of an adolescent “why not?” they should make sure that the vehicle they have chosen for their dreams actually does what it’s supposed to do, and doesn’t do more harm than good.
Check out Claar’s book for more on the intentions, challenges, and realities facing the fair trade movement.
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:
The lesson here is that people in real life, body and soul, are not simple rational economic actors who respond only to material realities.
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.