Posts tagged with: political economy

Blog author: jballor
Friday, September 28, 2012

Article: “Big Questions and Poor Economics”
James Tooley. “Big Questions and Poor Economics: Banerjee and Duflo on Schooling in Developing Countries.” Econ Journal Watch 9, no. 3 (September 2012): 170-185.

In Poor Economics, MIT professors Abhijit Banerjee and Esther Duflo set out their solutions for global poverty. Their key premise is that development experts have been sidetracked by the “big questions” of development, such as the role of government and the role of aid. This approach, they say, should be eschewed in favour of adopting carefully tested “small steps” to improvement. The book ranges widely, covering topics such as food, health, family planning and microfinance. Here I treat only their arguments on education in developing countries. Poor Economics points to evidence that shows that governments have not been successful in bringing quality education to the poor. Nevertheless, the authors bring their own big-think judgments to suggest why, despite the evidence, governmentally owned and operated schooling should remain central. Part of their own evidence concerns how private schooling, including for the poor, is burgeoning and outperforming government schooling. But private education cannot be the solution, they argue, because private schooling is not as efficient as it could be. The problems identified by Banerjee and Duflo are, however, clearly caused by bad public policy. I suggest that development economists are quite justified in forming and exercising judgment on the big questions, and that when they do exercise such judgment they should be aware that they are doing so.


Blog author: jballor
Wednesday, September 19, 2012

Tyler Cowen fielded an interesting topic on his blog last week, focusing on economists who are (or were) clergy.

There’s an interesting list, including notables like the Salamancans, Paul Heyne, and Heinrich Pesch. I didn’t realize that Kirzner is a rabbi. Malthus is named first, but as the initial comment on Cowen’s post notes, anytime you mention Malthus you should mention Anders Chydenius in the following breath.

How about Edmund Opitz of the Foundation for Economic Education, or even Rodger Charles, S.J., or James Schall? It depends largely on how narrowly you define being an “economist,” of course, as the inclusion of the Salamancan theologians indicates. Being a moral theologian who focuses on ethics and economics might not be enough to qualify. Does being a political philosopher/political economist count? But certainly A. M. C. Waterman should be noted.

And of course it also depends on how narrowly you define “clergy.” As Asher Meir notes in the post, how about non-ordained academic theologians, or economists with theological training (or theologians with economic training)? Then the list would start to get very long, indeed.

Any other names come to mind?

Blog author: jballor
Friday, August 31, 2012

Conference: “Global Commodities: The Material Culture of Early Modern Connections, 1400-1800″

Global History and Culture Centre – University of Warwick – 12-14 December 2012. This International conference held at the Global History and Culture Centre of the University of Warwick seeks to explore how our understanding of early modern global connections changes if we consider the role material culture played in shaping such connections. In what ways did material objects participate in the development of the multiple processes often referred to as ‘globalisation’? How did objects contribute to the construction of such notions as hybridism and cosmopolitanism? What was their role in trade and migration, gifts and diplomacy, encounters and conflict? What kind of geographies did they create in the early modern world? What was their cultural value vis-à-vis their economic value? In short, this conference seeks to explore the ways in which commodities and connections intersected in the early modern world.


On, Rev. Robert A. Sirico looks at the recent anti-capitalism, anti-NATO protests in Chicago:

In countless debates and conversations with modern proponents of social justice, I have noticed that they are less interested in justice than in material equality. They borrow the language of justice and the common good but have either forgotten or rejected the classical meanings of those terms.

In the classical tradition of reflection on justice (especially seen in Aristotle, St. Thomas Aquinas, and their intellectual descendants) it is clear that inequality—in the sense of unequal wealth or social status—is mostly compatible with justice, because justice is “to give to each his due.”

What one is due, of course, differs from person to person—in addition to those things due everyone: life, dignity, and liberty for example.

When we speak of the idea of the common good, we need to be open-minded about the most likely way to bring it about. The common good is, after all, a range of conditions, not a set of policies. It cannot be achieved by way of the “commonality of goods” proposed by socialists, but rather through the institutions that the socialists worked so hard to discredit.

Read “There is no ‘social justice’ without economic freedom” by Rev. Robert A. Sirico on

On The American Spectator, Acton Research Director Samuel Gregg observes that, “as evidence for the European social model’s severe dysfunctionality continues to mount before our eyes, the American left is acutely aware how much it discredits its decades-old effort to take America down the same economic path.” Against this evidence, some liberals are pinning the blame on passing fiscal and currency imbalances. No, Gregg says, there’s “something even more fundamental” behind the meltdown of the post-war West European social model. (Thanks to RealClearWorld for linking).

… this reality is that the Social Democratic project is coming apart at the seams under the weight of the economic policies and priorities pursued by most Social Democrats (whatever their party-designation) — including the American variety.

From the beginning, post-war Social Democracy’s goal (to which much of Europe’s right also subscribes) was to use the state to realize as much economic security and equality as possible, without resorting to the outright collectivization pursued by the comrades in the East. In policy-terms, that meant extensive regulation, legal privileges for trade unions, “free” healthcare, subsidies and special breaks for politically-connected businesses, ever-growing social security programs, and legions of national and EU public sector workers to “manage” the regulatory-welfare state — all of which was presided over by an increasingly-inbred European political class (Europe’s real “1 percent”) with little-to-no experience of the private sector.

None of this was cost-free. It was financed by punishing taxation and, particularly in recent years, public and private debt. In terms of outcomes, it has produced some of the developed world’s worst long-term unemployment rates, steadily-declining productivity, and risk-averse private sectors.

Above all, it slowly strangled the living daylights out of economic freedom in much of Europe. Without Germany (which, incidentally, also engaged in welfare reform and considerable economic liberalization in the 2000s), it’s hard to avoid concluding that Social Democratic Europe would have imploded long ago.

Read “The American Left’s European Nightmare” by Samuel Gregg on The American Spectator.

Director of Research Samuel Gregg’s thoughts on the debate are up at The Corner. He sees a parallel between the Italian crisis unfolding across the ocean and the problems facing the United States — particularly in Michigan, where this debate was held. The collapse of Italy would certainly be a dramatic illustration of the shortcomings of crony capitalism, and Gregg thinks a candidate could find a majority of voters who don’t want that to happen.

With the Italian-flavored shadow of the European Union’s ongoing financial implosion overhanging the United States, it was expected that America’s own fragile economic state would be front-and-center at this debate.

This time, however, there was less argument among the GOP candidates. Instead, there were far more direct critiques of (1) President Obama and (2) the pattern of crony capitalism with which more and more Americans are visibly losing patience. The debate’s setting — the state of Michigan — is a living exemplar of all the fallacies of bailouts and business-union collusion, as well as a failure to promote the type of innovation that produces wealth but that also threatens businesses (like the Detroit car companies) that don’t like competition.

Also noticeable was the increased willingness of the candidates to advocate market solutions to any number of problems, the most prominent being America’s ongoing mortgage farce, the looming crisis of student debt, and the inexorable rise in health-care costs. That’s a welcome development. If this trend keeps up, maybe one of them will make the dismantling of crony capitalism a central plank of his platform. That won’t please the likes of General Electric and the City of Chicago, but there are surely votes there.

Director of Research Samuel Gregg has a piece in Public Discourse today as part of a series on the 2012 presidential election. “Fix America’s Economy: Two Principles for Reform” explains why limited government is better government, and how the principle of subsidiarity can guide regulation that governments undertake. From the essay:

The economist Arthur Brooks is exactly right when he notes that the end-game of America’s free enterprise culture is not the endless acquisition of wealth. The goal is human flourishing.

In much of Europe, a contrary attitude has long been characteristic of its economic culture: that if people are to lead fulfilling lives, they need to be given things and protected from risk. In policy and institutional terms, this translates squarely into the European social model, which is presently collapsing before our very eyes throughout the Old Continent.

Ironically, however, there is a scarcity of evidence that such policies actually help make people happy. Why? Because people who are always given things know that they have not earned what they have. As evidence, Brooks points to studies that underscore correlations between unearned income and dissatisfaction with life. These illustrate, for example, that welfare recipients are generally less happy than those who earn the same income through employment.

Still, there is a need for governmental regulation of free economic activity—for exceptions to the rule of non-intervention:

But how do we prevent the exceptions from becoming the rule and thus a rationalization for endless economic intervention by the government? Part of the answer lies in a second principle: the much-misunderstood idea of subsidiarity.

Subsidiarity may be summarized in the idea that “higher” organizations (such as governments) should normally not directly intervene in the life of “lower” communities (such as families, businesses, and churches).  Intervention by higher bodies is permitted, however, when (1) a “lower” community has proved itself manifestly incapable of addressing problems that properly fall within its sphere of responsibility; and (2) other communities closer to the problem are unable to resolve the difficulty.

Subsidiarity consequently tells us that in normal circumstances, the function of child-raising is properly performed by families. It also tells us that when a family proves incapable of addressing particular problems associated with child-raising, non-governmental actors such as churches should usually be the first to render assistance.

As Gregg writes in his conclusion, because the principles of economic freedom and subsidiarity both stem from our human nature, successful government cannot ignore them.

If the economy features as the biggest single issue in the 2012 election, defenders of the market should be willing to supplement empirical economic arguments with full-bodied contentions about the nature of human happiness and how we realize it. To do so would not only be consistent with the very best of the American Founders’ vision; it would also breathe new life into America’s great and ongoing experiment of ordered liberty.

On his flight to World Youth Day in Madrid this morning, Pope Benedict XVI responded to a question about the current economic crisis. Not sure what the question was, but the well-respected Italian Vatican analyst Andrea Tornielli captured the reply. Here’s my quick translation of the Pope’s answer:

The current crisis confirms what happened in the previous grave crisis: the ethical dimension is not something external to economic problems but an internal and fundamental dimension. The economy does not function solely on mercantile regulations, but needs an ethical reason to work for man. This is what John Paul II affirmed in his first social encyclical: man must be at the center of the economy and the economy must not be measured by profit maximization but by the good of all, which includes responsibility towards the other. The economy works truly well only if it works in a human way, in respect for the other according to different dimensions. The first dimension is responsibility for one’s nation, and not only for oneself. The second is responsibility towards the world: nations are not isolated, as Europe is not closed in on itself, but responsible for all humanity, and must confront economic problems with this “key” of responsibility also for other parts of the world, for those countries that experience hunger and thirst. The third dimension concerns the future, we have to protect our planet, but we must also protect the working of the labor system for all, to think of tomorrow as well as today. If today’s youth do not find prospects for their lives, our today is mistaken and wrong.

It’s pretty clear that the Pope is referring to the economic problems particular to Spain, where youth unemployment is over 40 percent, and also where protesters known as los indignados are blocking the reform attempts of the Spanish government. The same indignados who’ve attempted to start riots in Madrid with World Youth Day pilgrims. The Holy Father is clearly a gentle and patient man.

The Pope also addresses ethics, the central role of the person, our responsibility to others and to the future of our planet. Nothing he said was at all different from what he or his predecessor, Blessed John Paul II, has indicated as a morally correct understanding of the market economy. And as he has previously said, dealing with our failings and weaknesses is the price of human freedom and responsibility. The more freedom we have, the greater the risk of our misusing it. But this is not a reason to restrict that freedom; doing so would actually replace the person from the center of the economy with cold, impersonal regulations.

Perhaps the Pope was referring to the record profits of some banks and other companies while unemployment remains high. Much of this is of course due to government policies to “stimulate” the economy in times of uncertainty, regardless of how that money is spent. Was the Pope questioning the results of Keynesian stimulus spending?

The real challenge for economists and policy makers is how do we move from the good intentions of providing ever-increasing, ethically-sound prosperity for all to actual results. Part of that challenge is the fact that our prosperity is the result of constant competition and rapid change, which can also endanger our current standard of living. It is unlikely we’ll ever be able to “guarantee” a stable, prosperous future for everyone because no one actually “controls” the global economy. The cost of putting someone in charge would effectively cut off the competition and innovation needed to create wealth, and would most likely be a force for evil rather than good. The most we can do is to expand opportunities for all, which is difficult enough for today’s local and national leaders, let alone for any global authority.

In today’s Detroit News, Acton communications intern Elise Amyx offers a piece on farm subsidies. She looks at how Michigan Sen. Debbie Stabenow described this government support as “risk management protection” for farmers.

Stabenow, chairwoman of the Committee on Agriculture, Nutrition and Forestry, conceded to the soybean farmers that “it’s wonderful that farming is prosperous now.” But she pointed to droughts in the South and the floods in the Midwest as proof that “you still face the same risk that farmers have always to deal with.” Some agribusinesses get paid seven digits to not farm areas of their farm in the name of “risk management,” but what sort of business person doesn’t take risks?

There is no doubt that farming is a difficult, volatile business filled with risk and uncertainty, but so are many other industries that do not receive any government handouts. Too many farmers view the government as a savior, who will reduce risk, create certainty and save the day if something bad happens. This is a dangerously dependent position to be in, and it is morally problematic when it comes at the expense of everyone else.

The glaring injustices built into farm subsidy policies explain why so many on both the political right and left routinely describe them as immoral.

Read Elise Amyx’s “Farming subsidies often do more harm than good” in the Detroit News.

I had the pleasure of appearing on Relevant Radio last Friday to talk to Sheila Liaugminas on her show, “A Closer Look.” I discussed the idea of “intergenerational justice,” a term favored by evangelicals (Roman Catholics tend to talk about “intergenerational solidarity”), and how that concept relates to much of today’s discussion about the federal budget.

One thing you hear from many is that we need a “both/and” solution: we need to both cut spending and raise revenue in order to close the annual deficits. I’m not really convinced of this, in part because the federal government has historically shown that increased revenue always results in increased spending. The government spends what it takes in, with a little bit more to boot. There has to be something structural and meaningful to stop this from continuing to happen, especially since we can’t count on the political culture to do so itself. Whether that structural obstacle is a balanced budget amendment or some other kind of binding agreement, something like that has to be put in place.

I don’t think it’s fair on the other side, though, to say that closing some tax loopholes, making tax avoidance more difficult, and simplifying the tax code is tantamount to “raising taxes” either. So in that sense there might be a case for raising revenues in this limited sense if it gets the tax system focused on what it is supposed to do (raise revenues) rather than using it as a tool for rent-seeking, social engineering, and pandering to special interests.

What’s more important than the question of revenues vs. cuts, however, is recognizing that the size of the federal government has stayed about roughly constant when you look at it in terms of tax receipts relative to GDP. Anthony Davies does a nice job illustrating this. He points out that the government basically takes in amounts roughly equal to 18% of GDP (+/- 2%). So that’s essentially what the government needs to learn to live on. By contrast, we’re spending about 24% of GDP this year, and that number only goes higher as entitlement promises come due.

So how about this for a both/and solution: we cut spending to get within a couple of percentage points of 18% of GDP and we focus on tax policies that will grow GDP in a sustainable way in the longer term.