Posts tagged with: economics

Since the era of Adam Smith economists have been asking, “What creates wealth?” One key answer is specialization and trade. On a timeline of human history, the recent rise in standards of living resembles a hockey stick — flatlining for all of human history and then skyrocketing in just the last few centuries.

As economist Don Boudreaux explains, without specialization and trade, our ancient ancestors only consumed what they could make themselves. How can specialization and trade help explain the astonishing growth of productivity and output in such a short amount of time—after millennia of famine, low life expectancy, and incurable disease?

gaplogoThe furniture store Ikea has announced they will begin to base their minimum pay on what’s considered to be a “living wage” in each local area, rather than on what competitors are paying. Similarly, the clothing retailer Gap says it will set $9 as the minimum hourly rate for its United States work force this year and then establish a minimum of $10 next year.

This makes good business sense — but will lead to a lot of bad economic reasoning.

A prime example is the latest column by Slate’s business and economic writer, Jordan Weissmann:

Notably, Ikea isn’t raising prices on its furniture to pay for the raise. Instead, the company’s management says it believes the pay hike will help them compete for and keep talent, which is of course good for business. The Gap used a similar justification when it announced it would raise its own minimum to $10 by 2015.

Which I think hints at something about what would likely happen if the U.S. raised the federal minimum. Conservatives who argue that higher pay floors kill jobs tend to assume that businesses are already running at pretty much peak efficiency, and so forcing them to spend more on labor will lead to less hiring. But left-leaning economists see it differently. They tend to argue that increasing wages can lead to savings for business by reducing worker turnover, for instance, and forcing managers to make better use of their staff.

Both the conservatives and the left-leaning economists are largely correct. Higher pay floors do tend to kill jobs and increasing wages can lead to savings for business by reducing worker turnover. But where Weissmann and other liberals go wrong is in assuming that businesses can still prevent worker turnover when the minimum wage is increased.
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In 1820, America’s per capita income averaged $1,980, in today’s dollars. But by 2000, it had increased to $43,000. That economic growth has benefited the rich, of course. But it has also transformed the lives of the poor — and prevented many more from becoming or staying poor.

In this superb short video, the American Enterprise Institute briefly explains the moral value of economic growth.

offering-plateDespite the struggling-to-recover economy, charitable giving by Americans continues to rise. But a smaller proportion of this money is going to religious organizations.

According to a newly released report by Giving USA, total estimated charitable giving in the U.S. rose 4.4 percent between 2012 and 2013, to $335.17 billion in contributions. The single largest contributor to the increase in total charitable giving was an increase of $9.69 billion in giving by individuals. In 2013, per capita giving by U.S. adults reached $1,016, and average U.S. household giving reached $2,974.

Giving increased for three of the four sources of giving. Only giving by corporations declined slightly in 2013, notes Tom Watson of Forbes, because of the slow rate of growth in pre-tax corporate profits in 2013, at 3.4 percent.

Unfortunately, charitable contributions to religion continue to slow. The report attributes this to the result of declining religious affiliation and attendance and religious-oriented charitable organizations categorized within other subsections.

But as The Economist points out, the sharp overall rise in charitable giving has been driven by the very rich, who tend to favor secular charities:
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This morning, Acton Institute President Rev. Robert A. Sirico took some time away from his preparations for Acton University to speak with Jim Engster, host of The Jim Engster Show on WRKF radio in Baton Rouge, Louisiana, discussing how to address the issue of poverty in society, and the approach taken by Pope Francis and the church in general to that and other issues. They also discussed the problems with the ObamaCare model of health-care reform, among other issues. You can listen to the interview using the audio player below.

tkc1Christians colleges aren’t usually known for being on the cutting-edge of technology. But The King’s College, an evangelical college located in New York City, is leading the way by becoming the first accredited college in the United States to accept Bitcoin for tuition and other expenses:

“The King’s College seeks to transform society by preparing students for careers in which they help to shape and eventually to lead strategic public and private institutions. Allowing Bitcoin to be used to pay for a King’s education decreases our costs while simultaneously allowing our students to be a part of this exciting new technology,” said Dr. Gregory Alan Thornbury, President of The King’s College.

Coin.co CEO Brendan Diaz added, “Over the past year, the Coin.co team has led the effort to enable U.S. colleges, universities and other major institutions to accept Bitcoin without incurring any currency risk. Coin.co is proud to be working with The King’s College, and to be a part of pioneering the use of Bitcoin for education.”

Before commenting on their adoption of cryptocurrency for tuition, let me express my admiration for TKC. I’m a fan of the school’s president, Dr. Gregory Alan Thornbury, and our friend and Acton contributor Dr. Anthony Bradley, who is a professor of theology and ethics at the school. I applaud the college for being savvy enough to accept Bitcoins—and would advise students to be savvy enough not to pay their tuition with them.

The reason, as I’ve pointed out before, is that Bitcoins are no longer completely fungible.

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bratI had a chance to talk with Michelle Boorstein yesterday about David Brat and a bit of his work that I’ve been able to become familiar with over the past few days. She included some of my comments in this piece for the Washington Post, “David Brat’s victory is part of broader rise of religion in economics.”

I stressed that Brat’s research program, which in many ways emphasizes the relationship between Christianity and capitalism, has at least two basic features. First, he’s focused on increasing theological awareness of economic realities: “I never saw a supply and demand curve in seminary. I should have.” This kind of increased economic sensibility would help the church to be a positive factor for social cultural change: “The church needs to regain its voice and offer up a coherent social vision of justice and rationality.”

But on the other hand, Brat has a message for economists as well. He challenges the mainstream assumption of economics as merely a positive, value-free science that can provide objective answers to questions without the trappings of morality or religion. A comment on Boorstein’s piece illustrates this important aspect of Brat’s work:

Dave helped me understand the essentiality of the links between capitalism (voluntary exchange that serves both parties’ interests) and theology (man’s obligation to serve God through work and use gain to carry out Jesus’ admonition to help the poor). At first, I thought he was joking. Surely one did not have to embrace a theological perspective to be a good capitalist. But he was not joking. I now have a much more nuanced and mature understanding of the “moral foundations of capitalism” than I did before I met Dave.

Brat’s faculty page includes portraits of John Calvin, Adam Smith, Friedrich Hayek, and John Maynard Keynes. Obviously there’s a lot to David Brat and I look forward to becoming more familiar with him and his work.

Amid all of the bad reportage out there on Brat, and there is so much that it is hard to keep up, here are a few other pieces that I have found to be helpful:

MoneyRoll

Note: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Money

What it Means: In economics, money is a broad term that refers to any financial instrument that can fulfill the functions of money (more on that in a moment).

There are three basic ways to exchange goods and services: gifting (e.g., I give you a banana, expecting nothing in return); barter (e.g., I give you a banana, in exchange you give me an apple); by using money (e.g., I give you a banana, in exchange you give me $1). Money was invented (and reinvented in every culture) because it makes exchanges easier than the barter system.

What Money Is: Money is a shared belief system used to simplify exchanges of goods and services. To be used as money people have to share a belief that the item —whether paper, gold, rocks, etc. — can perform three main functions: be a store of value, be used as a unit of account, and serve as a medium of exchange.

In the next section we’ll examine these functions. For now, here are two examples of how money serves as a shared belief system:
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long-term-unemploymentThe longer that Americans are unemployed, the more likely they are to report signs of poor psychological well-being. A recent Gallup survey found that about one in five Americans who have been unemployed for a year or more say they currently have or are being treated for depression.

Gallup finds that unemployed Americans are more than twice as likely to say they currently have or are being treated for depression than both those with full-time jobs and those who have been unemployed for five weeks or less. According to the U.S. Department of Labor, there are currently 3.4 million people who have been unemployed for 27 weeks or more. These individuals accounted for 34.6 percent of all the unemployed.

A 2011 study of the long-term unemployed published by the Heldrich Center for Workforce Development at Rutgers University also found that half of participants experienced shame and embarrassment that led them to isolate themselves from friends and associates. Among the long-term unemployed, 31.1 percent reported spending two hours or less with family or friends the previous day, versus 21.5 percent among short-term unemployed adults.

Long-term unemployment is not just a mental health crisis; it’s also a spiritual crisis. And the church is the only institution in American that can adequately respond. “Fortunately, the church is in a unique place to explain Christ’s restoration of work,” says Michael Jahr, “the meaning of suffering, and the hope and peace that result from putting our trust in him.”
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My older son’s college psychology class was recently assigned the film A Beautiful Mind, about the Nobel Prize winning economist and schizophrenia sufferer John Nash. The assignment was to watch the film, dig into Nash’s biography, and report on how the film altered Nash’s story of mental breakdown and recovery.

78A_Beautiful_Mind

We watched the film together as a family (my second viewing), checked out the biography by Sylvia Nasar from a local library, and generally geeked out on Nash and game theory at the family dinner table over the next few days.

An additional motivation for the interest was that my mom’s engineer brother, my Uncle Milton, was a classmate of Nash’s at Carnegie Tech in the 1940s, with the two reconnecting at their 50th college reunion. In our digging into the Nash’s biography, we learned something of particular relevance to Acton Institute friends and followers, something I probably should have known already but didn’t: Nash’s decisive contribution to game theory likely has Austrian economics in its blood line. (more…)