Posts tagged with: political economy

Trade and Mutual AidIn the forthcoming issue of Comment magazine, I examine how free trade orients us towards the good of others. In doing so, I argue against the value of pious banalities and cheap slogans. I include examples like, “Go in peace; keep warm and well fed,” or, “When goods do not cross borders, armies will.” The latter is often attributed to Bastiat, and while it captures the spirit, if not the letter of Bastiat’s views, the closest analogue is actually found in Otto Tod Mallery: “If soldiers are not to cross international boundaries on missions of war,” wrote Mallery in 1943, then “goods must cross them on missions of peace.”

I was struck by the disconnect between ideology and reality, or between idealism and realism, in an anecdote from a recent foreign policy speech from Sen. Rand Paul. As Paul notes,

In George Kennan’s biography, John Gaddis describes President Clinton asking Strobe Talbot “why don’t we have a concept as succinct as ‘containment.'” Talbot’s response [was] “that ‘containment’ had been a misleading oversimplification; strategy could not be made to fit a bumper sticker. The president laughed… “that’s why Kennan’s a great diplomat and scholar and not a politician.”

I guess that’s also the reason that I’ll never be a politician, either. As Lord Acton observed, “Every doctrine to become popular, must be made superficial, exaggerated, untrue. We must always distinguish the real essence from the conveyance, especially in political economy.” The key for responsible governance is not to lose sight of the complexity that lies behind popular exaggerations and conveyances.

As I argue in “Trade and Mutual Aid,” the temptation to rest easy with simple formulas to complex problems is common, but must be resisted: “Divorced
from a more comprehensive conception of the human person and social flourishing, an uncritical reliance on free trade to solve the world’s problems can well become destructive.” Even so, I conclude, “Free trade is a system that imperfectly, and yet with some measure of success—as Bono and countless others are beginning to recognize anew—orients us toward the good of others.” In the course of this piece, I draw on a variety of sources, including Frédéric Bastiat, Adam Smith, John Calvin, Johannes Althusius, Abraham Kuyper, Herman Bavinck, Pope Paul VI, and Friedrich Hayek.

To get your copy of the Comment issue on the topic of persuasion, including my piece on the fundamental persuasive nature of exchange, “Trade and Mutual Aid,” subscribe by March 1. You’ll also find content from new editor James K.A. Smith, Anne Snyder, Jim Belcher, Ashley Berner, Jonathan Chaplin, Marilyn McEntyre, Janet Epp Buckingham, D. Bruce Lockerbie, Calvin Seerveld, Natalie Race Whitaker, and Nicholas Wolterstorff.

Blog author: jballor
Tuesday, February 19, 2013
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My friend John Teevan of Grace College sends out a monthly newsletter, “Economic Prospect.” He passes along this in the current edition:

I found this note from a newly retired accountant (age 66) who has not gone on social security yet. His income as a part-time accountant in his town was $60,000.

“My income is $60,000 and my IRS taxes are 10,000, my FICA deduction is $8,000, my state income tax is $2500, and my property tax is $6000. So I pay a total of $26,500 in taxes leaving me $33,500.

However, I have additional costs that I would like to (but can’t) deduct from my income. As I watch ‘government accounting’ I realize that these should be considered real costs.

I have saved $200,000 and invested the money in bonds earning 1% ($2000).

I could have invested that money in CDs earning 5% (10,000), but as the Fed has lowered the interest rate the cost to me is the difference: $8000.

In addition I am now entitled to social security and at my level of income over the years I would have received $28,000 this year, but I have chosen not to take Social Security saving Uncle Sam that money.

So I have contributed a total of $36,000 to Uncle Sam in foregone interest and foregone Social Security payments. Who got the benefit of that $36,000?

Uncle Sam; not me.

So if I add up my total contributions to the government this past year I paid $26,500 in taxes and paid $36,000 in lost income. These two come to $62,500…more than the $60,000 I earned.

While I enjoy my new job, when I think about this, I start to feel like one of Pharaoh’s slaves toiling to roll immense stones up from the Nile to his pyramid.”

Send John a message if you’d like to be added to his “Economic Prospect” list. It’s always a great read.

JMM_15.2_WebThe newest issue of the Journal of Markets & Morality has been published. The issue is available in digital format online and should be arriving in print in the next few weeks for subscribers. This issue continues to offer academic engagement with the morality of the marketplace and with faith and the free society, including articles on economic engagement with Pope Benedict XVI’s encyclical letter Caritas in Veritate, biblical teaching on wealth and poverty, schools as social enterprises, the Reformed philosopher Herman Dooyeweerd’s economic theory, and much more.

As we have done in the past, Jordan Ballor’s editorial is open access, even to non-subscribers. In “Between Greedy Individualism Editorial and Benevolent Collectivism” he examines the enduring impact of Michael Novak’s The Spirit of Democratic Capitalism, writing,

At the time of its publication, Novak’s work must have been like a window thrust wide open in a dank room, introducing a breath of fresh air and the sanitizing rays of sunlight. Against ideologies that posit state power as a neutral or even benevolent force arising of necessity against the rapaciousness of the market, Novak observed instead that it was democratic capitalism that arose first as a system designed to check the invasiveness of state tyranny. The “founders of democratic capitalism,” wrote Novak, “wished to build a center of power to rival the power of the state.” Indeed, “they did not fear unrestrained economic power as much as they feared political tyranny.” Still more would they fear the union of economic and political power that we find all too often today in corrupt and cronyist regimes.

You can read his full editorial here. (more…)

Blog author: jballor
Thursday, January 24, 2013
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Life of Michael Angelo, 1912 - The Prophet JeremiahWhy do the wicked prosper? This plaintive query is a consistent cry from the psalmist and the prophets. As Jeremiah puts it, “Why does the way of the wicked prosper? Why do all the faithless live at ease?”

The concern in large part has to do with injustice; why do those who are so morally and spiritually bankrupt enjoy such great temporal blessings?

Over at the IEA blog, John Meadowcroft passes along an answer, at least insofar as it relates to the political structures of social democracy. Drawing on Friedrich Hayek, Geoffrey Brennan, and James Buchanan, Meadowcroft writes that “we should expect that the people most willing to work to attain political office will be those who expect to gain the most from holding it.” And it turns out that quite often those who stand to gain most from political office are those who, in the words of Brennan and Buchanan, “place higher values on the possession of such power.”

Meadowcroft concludes by invoking Hume’s “dictum that political institutions should be designed as if every person was a knave with no end other than his or her own private interests, even though we know that not all people behave knavishly.” The lesson for political power is that it ought to be limited such that the knaves who seek it for their own selfish ends (or those who are turned into knaves by the exercise of their power) ought to have their ambitions blunted by the constrained scope of their authority.

In the context of political power, the wicked tend to prosper, that is, they tend to become powerful precisely because it is so important to them to become powerful. The truth of this insight from public choice theory can also be applied more generally to the prophetic concern.

Why do the wicked prosper? The answer is in part, at least, because the wicked under examination here are the ones who are so attracted to material or temporal gain that they are willing do to pretty much anything to get it. They often achieve their goals, and thus prosper in this limited sense for a season. But in enabling them to achieve what they so desire, God allows their desire to become its own judgment.

A corollary to all this is that there is an obligation on the part of the church and other morally-formative institutions to do their best within their mandates to encourage and promote the development of those who might seek to exercise authority (whether political or otherwise), not as selfish knaves but as suffering servants. Since there are no systems or structures that are incorruptible, it is perhaps just as important to develop non-knavish leaders as it is to limit the scope of any particular leader’s power.

In the Washington Times, Nile Gardiner praises Becoming Europe: Economic Decline, Culture, and How America Can Avoid a European Future, the new book by Acton Research Director Samuel Gregg. Gardiner, the director of the Margaret Thatcher Center for Freedom at The Heritage Foundation and a Washington-based foreign affairs analyst for The Telegraph, says Becoming Europe “should be on the desk of every member of the House and Senate who cares about the future of America as a prosperous and free nation.” Gardiner recommends the book for its “rich detail describing the economic and social ‘Europeanization’ of America, from the rise of vast welfare systems to growing skepticism of the merits of the free-enterprise system.” Excerpt from the review:

“Becoming Europe” is a meticulously researched and well-argued thesis that lays out what is at stake for the world’s superpower, as it faces a stark choice between European-style decline or a return to the original vision of America’s Founding Fathers, as well as the classical liberal teachings of Alexis de Tocqueville, Friedrich von Hayek and Adam Smith. Mr. Gregg, who is director of research at the Acton Institute, paints a grim picture of the direction America is taking but, nevertheless, conveys a positive message to his readers. Mr. Gregg argues that while America is indeed on the path to the European model, it can still turn back and avoid the fate that Europe looks doomed to suffer. In many respects, this is an optimistic book based upon faith in America’s ability to renew itself through rediscovering the principles of economic liberty.

I agree with Mr. Gregg’s assessment. As Gallup polling consistently shows, America is still at its core a conservative nation, one that cherishes the foundations of individual liberty. The fire of freedom still burns brighter on this side of the Atlantic than it does in the Old World, where the suffocating supranationalism of the European Union marches on, with the EU heading toward ever-greater political and economic centralization. The European nightmare can be avoided here, however, only if America’s leaders, at both a national and state level, are willing to stand up for economic freedom and reject the destructive ideology of big government. Washington is already on the path to Brussels, Paris and Athens, but it still has an opportunity to reverse course and avoid the road to economic ruin.

Read Nile Gardiner’s full review of Becoming Europe in the Washington Times.

On Nov. 28, the Canada-based Fraser Institute released the eighth edition of its annual report, Economic Freedom of North America 2012, in which the respective economic situation and government regulatory factors present in the states and provinces of North America were gauged.

Global studies of economic freedom, such as the Heritage Foundation’s 2012 Index of Economic Freedom and the Fraser Institute’s Economic Freedom of the World 2012, rank the United States and Canada as two of the most economically free countries in the world. But, as data from the North America report shows, not all sections of the countries are experiencing an equal level of economic freedom and it is important to look at areas in which this falters.

States and provinces were evaluated and ranked within three categories: 1) Size of Government; 2) Takings and Discriminatory Taxation; and 3) Labor Market Freedom. The Canadian province, Alberta, claimed the top spot as most economically free, followed closely by Delaware. New Mexico placed 59th, making it the least economically free state, followed by Prince Edward Island of Canada, notching the rank of least economically free area in North America (between the United States and Canada).

The Economic Freedom of North America 2012 report draws a clear link between prosperity and economic freedom, through a comparison of states and provinces. “In the United States, the relatively free Georgia does much better than the relatively unfree West Virginia. In Canada, British Columbia, where economic freedom has been increasing in recent years, has been experiencing considerably greater growth on a per-capita basis than Ontario, where economic freedom has been decreasing in recent years.” (more…)

Is spartan austerity driving us over the fiscal cliff?

The latest step in the budget dance between House Republicans and the White House has to do with where tax increases (or revenue increases in general, depending on what is called what) fit with a deal to avoid the so-called “fiscal cliff.” As Napp Nazworth reports, President Obama has apparently delivered an ultimatum: “there would be no agreement to avert the ‘fiscal cliff’ unless tax rates are increased on those making more than $250,000 per year.”

On one level it seems reasonable to talk about addressing a deficit from both directions: cutting spending and raising revenue. But as Ray Nothstine put it so well earlier this week, without some structural (and cultural) changes to the way Congress works, it would be insane to think that giving politicians more money is going to change how they spend it. One definition of insanity is doing the same thing over and over again and expecting a different result. Historically “politicians spend the money as fast as it comes in – and a little bit more.” Without some kind of balanced budget agreement, something with real teeth, why should we think things will be any different this time around? (I’ve talked about a more promising “both/and” budget solution before.) As Ray and I have concluded elsewhere, “In the case of the federal spending, the government has proved to be untrustworthy with very much. It’s time to see if the politicians in Washington can learn to be trustworthy with less.”
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In this week’s Acton Commentary, I take a look at the relationship between sacrifice and self-interest. One of the common complaints against market economies is that they foster selfishness.

But as Paul Heyne points out, it is crucially important to distinguish between self-interest and selfishness: “Many of the most eminent and sophisticated theorists in the economics profession make no effort to distinguish between self-interest and selfishness or between rational behavior and greedy behavior.” The failure to make such a distinction leads to some pretty strange conclusions about the motivations behind human behavior. If you want to know why people work, just look at what they do with the money they earn.

To this end, I also highlight the perspective of Herman Bavinck, who describes the rhythmic relationship between the spheres of family and work:

Through the family God motivates us to work, inspiring, encouraging, and empowering us to work. Through this labor he equips us to survive not for the sake of satisfying our lusts but for the sake of providing for our family before God and with honor, and also to extend the hand of Christian compassion to the poor.

We go out to work to provide for our families, and we return home from work to enjoy and share the fruits of our labors. We do this daily, in fact. There is a deeply intimate connection here in the cycle between home and work, the dual aspects of the cultural mandate: Be fruitful and multiply and fill the earth and exercise dominion over it.
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After every electoral defeat—whether suffered by Republicans or Democrats—a period of hand-wringing and soul-searching inevitably develops in the days and weeks after the election. Journalists and politicians take to print to explain “What went wrong” and “Here’s what should be done differently.” Although the solutions are almost always what the pundits were saying before the election, the exercise in self-reflection is, on the whole, a much needed corrective. But too often the advice tends to be of the always terrible, “We should be more like the party that won.”

A prime example is an article today by Wick Allison, publisher of The American Conservative. Allison voted for Obama in 2008 and hinted that he would do so this year too. So it probably shouldn’t be surprising that that his economic solution looks similar to what President Obama would endorse.

Allison says that the “Republican Party can appeal to ‘Judeo-Christian values’ as long as the sun shines and their voices hold out. But they’ve abandoned the most basic moral value of all: fairness.” While he may have a valid point, Allison muddies the argument by his misunderstanding of both taxation and fairness:

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This week I wrote about the dignity of paying taxes (among other ways of contributing to social flourishing). But as we know, not all taxes are created equal. Indeed, as Antony Davies and James Harrigan write this week at US News, “Politicians are in the business of buying votes with tax breaks and sweetheart deals for their preferred constituencies, and they have to offset these deals by taxing disfavored constituencies at increased rates. The longer this game is played, the more convoluted the tax code becomes.”

As I argued previously at Capital Commentary, this amounts to a kind of back door social engineering (as well as playing favorites, picking winners, and so on). The fundamental purpose of taxation is not to buy votes and give preference to lobbies and special constituencies. Instead, as I write, “The point of taxation is to raise funds to enable the government to fulfill its moral, political, and social responsibilities.” Such a view is ultimately at odds with a Utilitarian theory, which considers taxation to be a tool rather used “to maximize overall well-being in society.” Matthew Weinzierl argues for greater attention to a theory of Equal Sacrifice, which on Weinzierl’s account “assumes individuals have the first claim to their output, and that they voluntarily agree to form societies that collect taxes in order to purchase public goods.”
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