51 Responses to Economics and Morality

  • Anthony says:

    Excellent topic, Darwin.

    I’ve started to sense that while socialism tends towards forms of totalitarianism, libertarianism tends towards apathy and indifference. I tend towards the later political philosophy because it is at least grounded in empirical reality, leaving us free to take up our Christian (and I’d argue, most human) responsibilities.

    I sat through last weekend and read the whole thing… at some point I’d like to do a closer analysis.

  • M.Z. says:

    Libertarianism has always led to totalitarianism, because the losers will not live with the consequences of libertarianism.

    I don’t see a difference between “Economic Moralists” and “Indifferentists” except for a happy speech the former tell themselves. You seem to share the problem of assigning a certitude among the classical economics that does not exist even with the economics community, let alone in relation to something like biology. Among the heaviest objectors to the new encyclical, their economic beliefs would not find themselves wildly mocked except at a half dozen institutions of higher learning in the U.S.

  • paul zummo says:

    Now, it seems to me that much of the sound and the fury surrounding Catholic discussions of economics centers around Structuralists holding Economic-moralists to really be Indifferentists,

    Ahh, how prophetic.

    I don’t see a difference between “Economic Moralists” and “Indifferentists” except for a happy speech the former tell themselves.

  • Patrick Duffy says:

    Economics is a description of human behavior, rather than a description of the physical world. Economics describes human nature but also our interaction with the physical world. In other words, economics is about the allocation of limited resources. One can say that the strength of human nature’s interaction with each other and with those resources is so strong that the behavior is almost as inviolable as the laws of physics. Supply and demand is as unchangable as the law of gravity. Attempts to consciously choose some other system have always failed, in the long run, even in the face of totalitarian attempts to enforce the “new order.” Structuralism is a fantasy world, which believes that “us smart people” can determine how people should behave, will behave, if we just make things go our way instead.

    Having said that, there is a difference between Economic Moralists and Indifferentists, as I understand your concept. (Which concept, I think, holds a lot of insight.) An indifferentist thinks that whatever is happening is okay. At an individual level, however, we have a responsibility to do things based on love. That means that we do not do some things that others may choose to do even though they are sinful. My economic choices must be informed by a Catholic conscience.

    As a business owner, I can tell you that there are some businesses that are driven solely by greed, through the exploitation of their employees, their suppliers and even their customers. I believe that my company can survive and even thrive without dealing with those companies. I could go into more detail of how my conscience affects the economic choices we make, but, I think, you get the idea. Even as an individual, non-managerial employee, there are things that may be in your best economic interest that you can’t do without violating generally accepted standards of morality. (e.g. asking for and taking kickbacks from suppliers.)

    Some of these issues are addressed by the newer areas of economics, in which economists are investigating behavior (as opposed, say, to building econometric models), including seemingly “non-rational” decision making. There are also business management issues here, such as the conditions in which people work together, whether that’s all employees feel that they are part of making the company and themselves successful, or the company and people outside the company, perhaps including other companies, work together toward common goals. Think, for example, of a company where 99 people are working together, doing what needs to be done, but 1 person is stealing, i.e. allocating resources for their individual benefit, rather than that of the whole 100.

    Is that not similar to the question of who in the whole society gets resources? You can look at working as the way in which you serve others. Not too long ago, I heard a rabbi propound that concept. He then went on to suggest that retirement, then, might be seen as immoral (assuming that you were physically and mentally able to still work, in some form), because it meant that you were no longer serving the needs of others.

    The difficulties that many have with the resources allocation question include what resources/how many resources should be given to those who can’t serve the needs of others (i.e. who can’t work productively, such as children and the sick, as opposed to those who choose not to work), who should have to do things to serve those people (i.e. who pays) and what are the channels of transmission between the productive and the non-productive (e.g. church, state, individuals, voluntary organizations.)

  • Joe Hargrave says:

    It seems to me that whenever people hear a moral argument they don’t like, they call it “moralism”.

    What am I, on this list? First of all, I am a skeptic of economic science. I will not reject what is obviously true for the sake of morality – but I will question the extent to which a certain truth necessitates a certain policy, the extent to which it ought to negate the democratic will of the people (i.e. as in Pinochet’s Chile, which was established exactly on the notion that violent force had to be used to ensure the smooth operation of these ‘objective laws’ of the economy).

    From one point of view in political theory, from Aristotle to Marx, class conflict is what drives society forward. Certainly the struggle between classes is as much a “fact” subject to scientific analysis as the effects of minimum wages. It is also a fact that has a set of dynamics that can be drastically altered by economic policy.

    But do the neoliberals ever really take that into account in their “scientific models”? No, because they do not see classes, only individuals and their utilitarian preferences. Then “institutionalism” came along to redress some of these errors. But it never cut to the foundation.

    My problem with economic models is not that they are scientific – it is that they are usually abstract mathematical models that rarely, if ever, rely upon in historical evidence or political factors to shape and form them.

    All but a few truisms such as “people like more money than less money” or “people like lower prices than higher prices” cannot be applied universally to all times and places. Sometimes they can be very powerful truisms – Trotsky the Marxist revolutionary was saying, long before any free-market liberal economist was saying, that cheap goods from the West would be the undoing of the Soviet regime, some 60 years before it happened.

    But what about areas where legitimate economists disagree? What other reason besides moral values and personal preference does one have to accept the claims of the American Enterprise Institute over the Economic Policy Institute? Both can find various correlations between trend A and trend B. Both can point to the others correlations and point to some third factor C that renders it spurrious. And so on and so forth.

    All of that said, these “structuralists” you want to point out are a strawman. No one wants to ignore what is an obvious economic law for the sake of morality. The problem is that it is not always so obvious that what isn’t really happening is one group imposing its subjective will upon another in the name of some law.

    What I ultimately favor, to put it more crudely, is ‘power to the people’ – political, and economic. And if they make the wrong decisions, then they make the wrong decisions. It is better than being forced by a Pinochet to make the allegedly ‘right’ ones (another area where economists are still arguing).

  • MZ,

    I don’t see a difference between “Economic Moralists” and “Indifferentists” except for a happy speech the former tell themselves.

    Well, how about this concrete example. Six months ago I was filling a position on my team, and the best qualified person for the job was a guy desperate to get our of Michigan where the company he was working for was slowly going bankrupt. Knowing his situation, I could easily have hired him for 10-15k/year less than all the other people doing the same job were making, because his region had a much worse labor market and finding a job outside his region was hard. However, I set him up to be paid the same as everyone else because as an Economic-moralist I did not think it would be moral to take advantage of his situation to pay him less than the others. (However, I differ from a Structuralist, in that I would not support enacting laws requiring that all people doing similar work be paid exactly the same — since I think that restriction of the labor market would end up hurting people more than helping them.)

    In opposite example — seven years ago I was working for a guy who was basically an Indifferentist. I was promoted within the company, but given far less than other people doing the same work, and when I objected I was told very bluntly, “We already know you’ll work for X, why should we pay more?” Now luckily, markets are easily self correcting, so I did the logical thing and found another job within three months and quit.

    But I would say that the different between Indifferentists and Economic-moralists is actually pretty big when it comes to actual moral action.

    You seem to share the problem of assigning a certitude among the classical economics that does not exist even with the economics community, let alone in relation to something like biology. Among the heaviest objectors to the new encyclical, their economic beliefs would not find themselves wildly mocked except at a half dozen institutions of higher learning in the U.S.

    I’m not clear what exactly you’re taking to be the “classical economics” that I’m accused of being too certain on, so I don’t know how to respond. What I was thinking of here is very, very basic observable “economic laws” that one really doesn’t see exceptions to: law of supply and demand, etc. A lot of the basic applications of this are fairly uncontroversial among economists: Excessively high minimum wage laws reduce employment, trade restrictions slow economic growth, etc.

    What I’m discussing in regard to Structuralists is not just a difference over should we have a social program to do X or leave it to private charity, but rather a claim one can ignore very basic economic tendencies in setting policy.

  • Patrick,

    I think those are some very good examples of what I had in mind as regards to the difference between Indifferentism and Economic-moralism.

    (And I’m glad my analysis made basic sense to a business owner.)

    Joe,

    It seems to me that whenever people hear a moral argument they don’t like, they call it “moralism”.

    What am I, on this list?

    Well, I’d put myself down as an Economic-moralist, if that helps any.

  • M.Z. says:

    Exceptions are the rule to the law of supply and demand. “Excessively high minimum wage” isn’t an observed phenomenon, at least not one that has reduced employment. Trade restrictions slow economic growth except in Korea, China, the US prior to the first World War, Britain, etc. The US has seen slower economic growth post free trade than it has pre-free trade, although to retain intellectual honesty I will note that the US had more room for advancement prior to free trade than it did post free trade.

  • But do the neoliberals ever really take that into account in their “scientific models”? No, because they do not see classes, only individuals and their utilitarian preferences. Then “institutionalism” came along to redress some of these errors. But it never cut to the foundation.

    My problem with economic models is not that they are scientific – it is that they are usually abstract mathematical models that rarely, if ever, rely upon in historical evidence or political factors to shape and form them.

    Actually, I do agree that an attempt to act as if people as simply mathematical profit maximizers who can be perfectly predicted by mathematical models invariably ends up running off the rails. People aren’t numbers, and if I were to declare allegiance to an economist it would be Hayak, who had a fair amount to say about the necessity of keeping in mind what actually motivates people rather than just spending all one’s time on statistics.

    However, where we might differ a bit on this is that I think some of the basics (people would rather pay less than more; people would rather have more money than less money; when demand outstrips supply, the price rises, while when supply outstrips demand, the prices falls) actually take one a pretty long way. For instance, I would agree that the entire Soviet experiment was pretty much doomed because it sought to ignore these tendencies, or at least apply them at a class rather than an individual level.

    Which perhaps loops back to another difference, which is that I think it often does work well to model (or just think through) situations as if all economic actors were individuals rather than members of a class — because when push comes to shove most people seem to end up acting that way most of the time.

    Now, that’s not to deny the existence of non monetary cost and rewards. And I think we should, as a culture, definitely seek to increase the non monetary social costs of “doing bad business” in order to encourage right behavior. But I think we might have different ideas of how real class solidarity is.

  • MZ,

    Well, I’m almost out of lunch break — but just real quick:

    Exceptions are the rule to the law of supply and demand.

    I price based on supply and demand every day — believe me, it works.

    “Excessively high minimum wage” isn’t an observed phenomenon, at least not one that has reduced employment.

    As I think BA has pointed linked to studies showing several times, there is very nearly universal agreement that a truly significant increase in the minimum wage would have an adverse affect on employment.

    Trade restrictions slow economic growth except in Korea, China, the US prior to the first World War, Britain, etc.

    Whose trade restrictions and whose economic growth? All of those countries achieved massive growth based upon export economies, though at the same time keeping some restrictions on imports. Is your theory that they were at some magic sweet spot where they would have had less growth if their export trade had been restricted by destination countries, and also less growth if they had allowed greater imports? Evidence shows that growth can be achieved despite some restrictions (especially if other countries decide to allow free trade with you while letting you get away with restricting imports from them) but that doesn’t mean that freeing trade does not in fact increase growth. Again, the agreement on this is near universal — as shown by the amusing display during the campaign of Obama threatening to unilaterally change trade agreements while his advisers ran around assuring all our trading partners that he was lying.

    The US has seen slower economic growth post free trade than it has pre-free trade, although to retain intellectual honesty I will note that the US had more room for advancement prior to free trade than it did post free trade.

    Depends what you’re defining as free trade. The periods when the US suddenly clamped down on trade always had seriously adverse affects. I think you’re right about the different point in the development and opportunity curve.

  • Blackadder says:

    But what about areas where legitimate economists disagree? What other reason besides moral values and personal preference does one have to accept the claims of the American Enterprise Institute over the Economic Policy Institute?

    Thinking of the economics profession as consisting of the American Enterprise Institute and the Economic Policy Institute is probably not a good idea. In any event, it seems to me that one could choose between the claims of AEI and EPI not based simply on moral values or personal preference but based on the quality of the arguments presented and the evidence used to support the claims.

  • Joe Hargrave says:

    “Thinking of the economics profession as consisting of the American Enterprise Institute and the Economic Policy Institute is probably not a good idea.”

    Well, then, its a good thing I don’t, and was simply picking two examples at random to make a point.

    “In any event, it seems to me that one could choose between the claims of AEI and EPI not based simply on moral values or personal preference but based on the quality of the arguments presented and the evidence used to support the claims.”

    That’s just the problem – the quality of the arguments is always good. Different sides can make equally plausible cases for whatever it is they wish to justify.

    The problem is what is emphasized and what is not, what is considered relevant and what is not, what goals for society are considered worthy and which are not. These are ultimately subjective positions.

  • Joe Hargrave says:

    Darwin,

    “But I think we might have different ideas of how real class solidarity is.”

    It became real enough to force every government in the world and the Catholic Church to react to it. But not real enough, it would seem, for a good many economists to react to it. Which is why I have a very hard time taking most of them seriously. Any economic model that ignores or minimizes politics is worthless.

  • Blackadder says:

    That’s just the problem – the quality of the arguments is always good. Different sides can make equally plausible cases for whatever it is they wish to justify.

    Except that this isn’t actually true (if all economic arguments appear of equal quality and plausibility to you, then I would suggest this might have other causes than the inherent deficiency of economics).

  • Patrick Duffy says:

    In support of DarwinCatholic’s comments about free trade or the lack thereof, let me point to the effects of the Smoot-Hawley tarrif during the Depression. I haven’t seen any economist who hasn’t said that Smoot-Hawley deepened and lengthened the Depression, because it did cut off trade.

    Further, in my opinion, opposing free trade is an immoral position. A is making widgets for B. A and B happen to be living in the same country. Now C can make widgets for B just as well as A can, at less cost to B. Is it moral for A to change the law so that B can’t buy from C, esentially to use force to prevent B from buying from C? I would argue that it is not moral, for two reasons. First, it hurts B because he has to pay more for widgets, in effect paying a tax to A. Second, he is also hurting C and all of the people who would work for C making widgets, if B could buy from C. All that law does is allow B to be greedy. (I believe the economic term is monopoly rents.)

    Ah, but what if C is in another country than A and B? (Or did you already assume that? If so, go back and rethink it if they are in the same country.) Is it any more moral for A to keep C from selling to B if they are citizens of different countries? Those who would say yes usually talk in terms of “defending local jobs.” However, while those people usually work for A, those who would be working for C should not be deprived of employment. Protecting A, through artificial means, insures that the people who would work for C can not improve their economic lives. How is that moral?

  • It became real enough to force every government in the world and the Catholic Church to react to it. But not real enough, it would seem, for a good many economists to react to it. Which is why I have a very hard time taking most of them seriously. Any economic model that ignores or minimizes politics is worthless.

    I think it’s important to be clear on what it was that was real: the suffering caused in unskilled or low skilled workers during a rapid economic transformation of society. This provided large numbers of angry people with little to lose who were available to radical political movements.

    That doesn’t, however, necessarily mean that those individual people acted much like classes when they went out and decided what to buy — or to an extent who to work for.

    Also, economists (even very free market ones) don’t necessarily suggest one ignore those social pressures — their answers just aren’t the same as labor organizers or others with a specific class consciousness. For instance, Milton Freedman, as I recall, endorsed the idea of a negative income tax to assure that all people had a minimum standard of living.

    So the dispute isn’t so much over whether things should be done to relieve social pressures on the disadvantages as _how_ to do so.

  • Joe Hargrave says:

    “Except that this isn’t actually true (if all economic arguments appear of equal quality and plausibility to you, then I would suggest this might have other causes than the inherent deficiency of economics).”

    Ah, very funny. But thats not exactly what I said, and I will clarify so there is no misunderstanding – and hopefully, no call for such a snide remark.

    I believe there are different schools of economic thought that each have very able representatives capable of making quality arguments for different interpretations of economic reality and particular economic policies.

    It would be ‘deficient’, not to mention arrogant, to proclaim the triumph of one school or one paradigm over all others, as Fukuyama did when the USSR collapsed in 1991. It was been widely acknowledged that the “end of history” was prematurely proclaimed.

  • M.Z. says:

    I haven’t seen any economist who hasn’t said that Smoot-Hawley deepened and lengthened the Depression, because it did cut off trade.

    It’s a tragedy that you haven’t seen that. Perhaps ideological blindness afflicts you.

  • Patrick Duffy says:

    Joe Hargrave argues that class solidarity trumps economics, and, therefore, economics is bunk.

    I think that the experiences of the 20th century demonstrate that class solidarity can not be the basis for a moral nation. Moral suasion and nuclear weapons were not sufficient to keep the Soviet Union afloat, either politically or economically. China’s survival has only occurred to the extent that Maoist class struggle has been replaced with the motto “It is glorious to get rich.” We can also look at any number of other countries where class struggle proved to be irrelevant to the average person. Class struggle has to be rejected based on our real world experience.

    Class struggle as a theory also represents a violation of God’s law of love. Whom are we struggling against? The plutocrats? The aristocracy? How can we struggle against them, seek their destruction, as Marx taught, but also love them, as Jesus taught? We should not confuse Catholicism with communism. A moral system can not be built on envy and jealousy as the entire foundation of the system.

    Only people in America and western Europe would think of the government as a potential provider of a moral economic system (if only the “right” people can get elected….”) In the rest of the world, people would scoff at the idea of using politics to improve people’s economic situation. In their world (and in ours, too, if you peek behind the curtain), those holding public office merely seek their own ends and that end is POWER! There is no salvation through politics.

  • Blackadder says:

    I believe there are different schools of economic thought that each have very able representatives capable of making quality arguments for different interpretations of economic reality and particular economic policies.

    There are different schools of economic thought. Some (though not all) of them have able defenders capable of making quality arguments on behalf of their respective positions. It hardly follows that each school “can make equally plausible cases for whatever it is they wish to justify.”

  • Joe Hargrave says:

    “Joe Hargrave argues that class solidarity trumps economics, and, therefore, economics is bunk.”

    That is a gross oversimplification of my argument.

    What I actually argued is that an economic theory that does not take the reality of class conflict into account is not worth very much.

    Would it really have been so painful, so difficult, to address what I actually said instead of reducing it to a strawman that you could easily obliterate?

    Economics is not “bunk” – I don’t make that claim. What I think is “bunk” is a pretension to timelessness and universality made by some economists, which I think flies in the face of historical evidence, even if the pure mathematical models indicate something else.

    “Class struggle as a theory also represents a violation of God’s law of love. Whom are we struggling against?”

    This is a misstatement if I have ever seen one. There is a difference between acknowledging the actual existence of class conflict – as political philosophers since Aristotle and as the Church has done – and endorsing the political program of class struggle.

    Please tell me you understand that difference. Acknowledgment versus endorsement. One is not the other.

    “In the rest of the world, people would scoff at the idea of using politics to improve people’s economic situation.”

    What do you base this on?

  • Mike Petrik says:

    MZ,
    I fail to see the tragedy. Are you seriously suggesting that there are any reputable economists who believe that Smoot-Hawley did not adverely affect the economy? Care to share?

  • Joe Hargrave says:

    “It hardly follows that each school “can make equally plausible cases for whatever it is they wish to justify.”

    I didn’t say that “it follows”. But I do think it happens to be true. What does plausible mean? It just means that the argument appears reasonable. Its the same as saying that each school makes a reasonable argument.

    Obviously I don’t think mutually exclusive arguments can both be true at the same time! Reasonableness is not truth. Plausibility is not truth. But two opposing arguments can both be reasonable at the same time if they are beginning from different assumptions and different perspectives on the available facts.

    I don’t see why anyone would wish to deny such a thing.

  • Mike Petrik says:

    I think that it might be important to distinguish between the fields of micro-economics and macro-economics. At least when I was in school (I was an economics major many moons ago), there was very little debate within the field of micro-economics. While models assumed rational behavior it was fully understood that the desires of consumers and producers involved values other than dollars. Indeed, some people who could be investment bankers choose instead to become priests. Macro-economics is trickier, and the efficacy of fiscal policy stimulus in a liquidity trap environment is certainly subject to debate, for instance. Also, there is plenty of room for debate in the context of the economic consequences of tax policy. For example, do higher tax rates induce less savings (because the reduced after-tax return from investments makes consumption more desirable) or more savings (because the reduced return requires taxpayers to save more in order to satisfy their savings goals. In truth, we probably don’t really know. But debate does not mean that economic principles do not apply; instead it signifies that understanding the disparate motivations of people is complex, even if one assumes that people are fully rational and have adequate information to make proper decisions in light of their particular objectives. The key is to apply economic principles more carefully and mindful of our limitations. But ignoring such principles as though they are fictions or less than real is really very naive and quite dangerous.

  • Joe Hargrave says:

    “To say that the case for one position is equally plausible as that of any other is to say that all positions are or appear to be equally valid, likely, acceptable, credible, etc. That’s not the case.”

    So plausibility is validity now?

    I also hoped that it would have been obvious that I was referring to debates among economists themselves (in fact, I think I said that) – and not necessarily just any old person. I’m assuming a methodological framework and minimum analytical competence here. So no, not “all” positions and arguments if “all” includes any argument that could possibly be made. But among professionals and well-educated laypersons, yes – I’d say opposing views can both be plausible at the same time.

  • Joe Hargrave says:

    “But ignoring such principles as though they are fictions or less than real is really very naive and quite dangerous.”

    Sure, I agree – and my point is that ignoring things that are not directly economic, such as political conflict, class conflict, or any number of potential issues when trying to make an economic analysis, is also really naive and really dangerous as well.

  • Patrick Duffy says:

    Author: Joe Hargrave
    Comment:
    “Joe Hargrave argues that class solidarity trumps economics, and, therefore, economics is bunk.”

    That is a gross oversimplification of my argument.

    What I actually argued is that an economic theory that does not take the reality of class conflict into account is not worth very much.

    Would it really have been so painful, so difficult, to address what I actually said instead of reducing it to a strawman that you could easily obliterate?

    Economics is not “bunk” – I don’t make that claim. What I think is “bunk” is a pretension to timelessness and universality made by some economists, which I think flies in the face of historical evidence, even if the pure mathematical models indicate something else.

    Patrick Duffy replies:
    I apologize for not repeating every word you used.
    I truly do not wish to be irritating, but we do fundamentally disagree.

    You apparently place a great deal of importance on class struggle. Class struggle, at least in my mind, is a term of art used in Marxist theory for what the true believers think will result in the ultimate triumph of the proletariat. Marxist theory can be rejected as having any value on moral, historical and practical grounds, as I attempted to outline earlier. The pages of 20th history have written fini to Marxist theory as the way to organize a country. If you believe that class struggle is a good way to analyze society, that’s your right, but it is not one shared by the common man, in my experience. Not one member of what you would call the proletariat (aside from middle class intellectuals who like to pose as part of the downtrodden masses) that I know, and I know hundreds, uses that term.

    “Class struggle as a theory also represents a violation of God’s law of love. Whom are we struggling against?”

    This is a misstatement if I have ever seen one. There is a difference between acknowledging the actual existence of class conflict – as political philosophers since Aristotle and as the Church has done – and endorsing the political program of class struggle.

    Please tell me you understand that difference. Acknowledgment versus endorsement. One is not the other.

    Patrick Duffy replies,
    Please excuse me for not going into every implication or assumption of everything I wrote.

    Do people of lesser means want to do better economically? Yes. I reserve the right to point out that “lesser means” is relative to the times and place in which they find themselves. The poor in America have more, economically, than most in many other countries and certainly more than even the wealthy in times past. (E.g. electricity, hot water, indoor plumbing, maybe even a television?)

    If you want to call that “struggle,” then so be it, but it is still not a term that resonates with the public. Can you substitute “making a living?” To limit it to people of a certain class is to write off the ambitions, hopes and dreams of anyone not in that class. I will point, in passing, to the line of thought among many (maybe not a majority, certainly not all, but definitely more than a small number) of the poor, the blue collar, the proletariat, who don’t think that others of their class should try to better themselves. “Getting above themselves” or “putting on airs” are the putdowns used for the ambitious. In short, members of the proletariat who choose not to “struggle.”
    The key, though, is how one tries to advance oneself economically, not whether they are successful, either in absolute terms or relative to others. One can give oneself up to greed, envy, jealousy, even violence in doing so. Politics, as practiced in the real world, is a means of trying to advance oneself by non-economic means. Guess what? Every human being is a sinner. Some sins are manifested in the economic sphere and definitely in the political sphere. Those who are successful in politics are able to draw a smokescreen across their personal interests and talk in terms of lofty ideals. Machiavelli was a realist about politics. At the same time, that’s not the way the game should be played, but power corrupts. My point, and I do have one, is that politics is not more important than economics, anymore than politics is not better than chemistry. Does chemistry have to take politics into account? I don’t think so. Economic theory can talk about what people will do, absent politics. Yes, politics can influence economic decisions (which, I think is what you want me to admit), but so does envy, jealousy, lust and a host of other things. So what? Does that mean that economic theory is not predictive? Yes, it is, in the long run, even if, in the short run, other factors may distort the results. I know I don’t have it quite complete, but Daymon Runyon wrote something like “The race isn’t always to the swiftest, but that’s the way to bet it.”

    “In the rest of the world, people would scoff at the idea of using politics to improve people’s economic situation.”

    What do you base this on?

    Patrick Duffy replies,
    Africa, the Middle East, south Asia, Russia, South America today. Before today, ancient Rome, Europe (before roughly 1800), Africa, China, Russia, the Middle East, south Asia. Perhaps I could have been more exact by saying that “ordinary people would scoff at the idea that politics will improve their lives, unless they are the ones in power, or their minds have been temporarily clouded by the promises of the snake oil salesman.” Politicians may promise that life will be better if they are elected but the sad experience of humanity is that taking money from one group of people to give it to another group is a short term improvement that is not sustainable. Sooner or later, the involuntary payors run out of money. (also cf. California.)

  • armchair critics everywhere says:

    i wonder if surgeons have to endure these kinds of debates with people who don’t know anatomy? debates in the catholic blogosphere about economics always seem to have that quality.

  • Donald R. McClarey says:

    “AS I PASS through my incarnations in every age and race,
    I make my proper prostrations to the Gods of the Market Place.
    Peering through reverent fingers I watch them flourish and fall,
    And the Gods of the Copybook Headings, I notice, outlast them all.

    We were living in trees when they met us. They showed us each in turn
    That Water would certainly wet us, as Fire would certainly burn:
    But we found them lacking in Uplift, Vision and Breadth of Mind,
    So we left them to teach the Gorillas while we followed the March of Mankind.

    We moved as the Spirit listed. They never altered their pace,
    Being neither cloud nor wind-borne like the Gods of the Market Place,
    But they always caught up with our progress, and presently word would come
    That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

    With the Hopes that our World is built on they were utterly out of touch,
    They denied that the Moon was Stilton; they denied she was even Dutch;
    They denied that Wishes were Horses; they denied that a Pig had Wings;
    So we worshipped the Gods of the Market Who promised these beautiful things.

    When the Cambrian measures were forming, They promised perpetual peace.
    They swore, if we gave them our weapons, that the wars of the tribes would cease.
    But when we disarmed They sold us and delivered us bound to our foe,
    And the Gods of the Copybook Headings said: “Stick to the Devil you know.”

    On the first Feminian Sandstones we were promised the Fuller Life
    (Which started by loving our neighbour and ended by loving his wife)
    Till our women had no more children and the men lost reason and faith,
    And the Gods of the Copybook Headings said: “The Wages of Sin is Death.”

    In the Carboniferous Epoch we were promised abundance for all,
    By robbing selected Peter to pay for collective Paul;
    But, though we had plenty of money, there was nothing our money could buy,
    And the Gods of the Copybook Headings said: “If you don’t work you die.”

    Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
    And the hearts of the meanest were humbled and began to believe it was true
    That All is not Gold that Glitters, and Two and Two make Four
    And the Gods of the Copybook Headings limped up to explain it once more.

    As it will be in the future, it was at the birth of Man
    There are only four things certain since Social Progress began.
    That the Dog returns to his Vomit and the Sow returns to her Mire,
    And the burnt Fool’s bandaged finger goes wabbling back to the Fire;

    And that after this is accomplished, and the brave new world begins
    When all men are paid for existing and no man must pay for his sins,
    As surely as Water will wet us, as surely as Fire will burn,
    The Gods of the Copybook Headings with terror and slaughter return!”

    -Rudyard Kipling

  • Blackadder says:

    So plausibility is validity now?

    I didn’t come up with the definition. Blame the dictionary people.

    I also hoped that it would have been obvious that I was referring to debates among economists themselves (in fact, I think I said that) – and not necessarily just any old person. I’m assuming a methodological framework and minimum analytical competence here.

    Okay, but in that case there are going to be a fair number of issues on which economists agree. And even where you have minimally competent economists disagreeing with each other, it will still often be the case that one side’s arguments are more plausible than the other’s.

    Assume for a moment, though, that arguments on both sides of a question are equally plausible. You sometimes speak as if this means we can just ignore the arguments. But I don’t think that’s right. Take the minimum wage as an example. A lot of economists say that the minimum wage hurts the poor. Others say that it helps the poor. Suppose that the arguments of both sides seem equally plausible to you. What should you do? If you really aren’t sure whether the minimum wage helps the poor or hurts the poor, then advocating the minimum wage as a means of helping the poor does not seem sensible (in the same way that if you weren’t sure whether the liquid in a bucket was water or gasoline it wouldn’t be sensible to use the bucket to try and put out a fire).

  • Joe Hargrave says:

    PD,

    “I apologize for not repeating every word you used.”

    You don’t have to repeat every word I use to avoid making absurd strawmen out of my arguments.

    “I truly do not wish to be irritating, but we do fundamentally disagree.”

    I don’t really think we do. You’ve misunderstood me, that is for certain.

    “You apparently place a great deal of importance on class struggle. Class struggle, at least in my mind, is a term of art used in Marxist theory for what the true believers think will result in the ultimate triumph of the proletariat.”

    Ok, I see what is in your mind – how about now you try to see what is mine? “Class struggle”, regardless of what we think about it – I’d say class conflict, myself – is a reality. Just like the “laws of economics”, the conflict between classes might also be said to be a “law of history”, one related to economics.

    You do not have to support one class or another in order to acknowledge that they are in conflict. If you see two people in a fistfight on the street, saying, “hey, there’s a fight going on there” is not the same as saying, “hey, I want that guy to win”.

    This is a very, very simple point.

    “Marxist theory can be rejected as having any value on moral, historical and practical grounds, as I attempted to outline earlier.”

    Well, I disagree that it has no value. Love it or hate it, it presents an analysis that cannot be ignored. If the Church can address it, so can we.

    “If you believe that class struggle is a good way to analyze society, that’s your right”

    A good way to analyze society? In the sense that I acknowledge that it is a reality and incorporate it into any understanding of society that I have, then yes.

    But following the example of the Church, my goal is to minimize it, not to exploit it.

    “Please excuse me for not going into every implication or assumption of everything I wrote.”

    Should I forgive you for completely ignoring the main point? You are arguing with me as if I were arguing for a proletarian revolution. Do you really think that’s fair? Do you really think anything I said implies that that’s what I want to see happen?

    As for what “struggle” means, you are mixing up the struggle for individual existence with the struggle between groups for the wealth of society. The battle over wages between workers and employers is a struggle between classes.

    If you follow my postings, however, you know that I do not believe that arbitrarily imposing higher wages is a viable solution to this problem. I do believe workers have a right to organize and collectively bargain, but I believe a better long term solution is to eliminate the conflict between worker and owner by making more workers owners.

    And this solution comes right out of an extended passage in Rerum Novarum, the original document outlining the Church’s position on economic issues.

    “My point, and I do have one, is that politics is not more important than economics, anymore than politics is not better than chemistry. Does chemistry have to take politics into account? I don’t think so. Economic theory can talk about what people will do, absent politics.”

    Economics is not a physical science, it is a social science. It’s subject is never impersonal, inhuman atoms or molecules, but men with free will living in particular social and cultural conditions. That will always make it distinct from physics or chemistry.

    In all this I know it must seem as if I totally reject economic science, but I don’t. What I reject are the pretensions of neoliberals who do not give adequate space to non-economic factors when trying to come up with policy recommendations. No country has ever adopted a perfect, ideal market model, and no country has ever completely collapsed because of it.

    It is arguable that they have been much better off thanks to regulation, periods of economic protection, strong trade unions, social investment and redistribution of wealth.

    It is also evident that different cultures – such as, for instance, Japanese culture – can accommodate much more state involvement in the economy, and greater limits on the accumulation of personal wealth, and still manage to become the second most prosperous nation in the world. In this country we hear that only the promise of God-like wealth will induce anyone to want to do anything important, like start businesses and create jobs. This is often presented with the air of an economic law – in spite of the fact that other countries and cultures show that this is just not the case.

    All of that said, my preference is not necessarily for more state involvement but a new localism that gives people more control over their own economic fate. Honestly, the supply and demand stuff, I take no issue with – I don’t want a command economy. I want an end to economic oligarchy and autocracy, and I believe that is a political question.

  • Donna V. says:

    MZ, can you give an example of libertarianism leading to totalitarianism? Before the Chinese takeover, Hong Kong probably came closer to Ayn Rand’s dreams than any other spot on earth – and the place seemed to be doing pretty well. Control was ceded to China because the British lease was up, not because the have-nots rebelled. America in the late 19th century was also a pretty free-wheeling place and, while the corruption and lack of social services and safeguards led to the reforms of the Progressive Era, we clearly didn’t end up living under totalitarianism.

    In fact, I’m very hard pressed to think of any countries, outside of the 2 examples I mentioned, that have come close to having libertarian economic systems, let alone ones which then became totalitarian.

    Czarist Russia was not economically libertarian. Neither was Weimar Germany. Bismarck had laid the foundations for the German welfare state back in the 19th century. The post-defeat malaise and moral decay of Weimar Germany is well-known and certainly contributed to the rise of the Nazis, but libertarianism does not mean “an abundance of libertines,” although when I read libertarian blogs, I see how someone could confuse the two:-)

  • Joe Hargrave says:

    “Suppose that the arguments of both sides seem equally plausible to you. What should you do?”

    This is funny because it is an issue where I actually agree with you and all the other economists. But I don’t go out there arguing against the minimum wage without offering an alternative that addresses the reason why people wanted the minimum wage to begin with.

    On the other hand there are people who have these “all good things will come in the fullness of time” arguments, the long historical view (also typical of socialists on the other side) – these arguments mean nothing to people who are struggling today.

    Ultimately, though, when there is such disagreement, what it means to me is this: certainty is not warranted. Grandiose proclamations that one and only one approach could possibly be acceptable are not warranted. Rigid applications are not warranted. There must always be room for revision and compromise over time. These are no idle concerns, because we have examples of regimes in history that have done these sorts of things in the name of science, even economic science – terrible, inhuman things.

  • Donna V. says:

    According to the 2009 Index of Economic Freedom, Hong Kong is still in the top spot:

    http://www.heritage.org/index/ranking.aspx

    Again, I’d like to know how libertarianism supposedly leads to totalitarianism. When I scan the dismal bottom half of that list, I don’t see many nations – heck, I don’t see any nations where libertarian economic principles once held sway.

  • Anthony says:

    There’s a lot being said, so I’m going to jump in blind and hope I don’t make a fool of myself…

    “Economics is not a physical science, it is a social science. It’s subject is never impersonal, inhuman atoms or molecules, but men with free will living in particular social and cultural conditions.”

    “What I reject are the pretensions of neoliberals who do not give adequate space to non-economic factors when trying to come up with policy recommendations.”

    Economics, as a science, deals with human choices with observable laws that are discoverable. The law of scarcity is not something that can be argued against – resources are always finite and therefore “scarce”. The division of labor is an observable phenomena characteristic of prosperous and developed economies. (Even biology in a sense follows the division of labor!)

    This does not mean that economics is mathematical. No equation is going to fully encapsulate human action. However, nor does it mean that economics is a field of study in which “models” and “isms” ought be created or selected at whim. The consequences of economic choices can be observed and foreseen.

    As we continue to discover the laws of economics, we have to reconcile those laws with our behavior. Our decisions in response to those laws are indeed moral in nature, or at least have moral consequences. Economics, while in and of itself a “valueless” science, involves HUMAN ACTIONS which have moral dimensions. It may sound like hair splitting, but I think its a crucial distinction to make in order to improve our understanding of the world and how we can improve our “lot”.

    No one is arguing that the story begins and ends with economic realities. No economic observation can offer salvation. What defenders of free-market economics argue is that state interventionist policies run completely contrary to reality. It makes perfect sense to want to further build and develop the world, but socialist/Marxist ideals do not accomplish this. Defying the law of gravity took building airplanes with an understanding of physics. It would not have helped aviators to just jump off cliffs over and over again hoping for a different result while whining about physicists’ warnings.

    “No country has ever adopted a perfect, ideal market model…”

    I’d argue that maybe there isn’t a “model” to adopt. There’s just reality next to various degrees of deviation.

    “It is arguable that they have been much better off thanks to regulation, periods of economic protection, strong trade unions, social investment and redistribution of wealth.”

    How so? It all comes at a price, and often the price here is a loss of jobs and a loss of stable growth. New laborers get priced out of the market, resources are sapped away from productive investment and benefits are dolled out not to who needs it most but rather to political constituencies. Protectionism only entrenches the political classes while simultaneously denying foreign infusions of needed capital. Never mind the fact that forced “redistribution of wealth” is just another word for outright theft. If we are so concerned about the morality of economics, how can we justify forcibly taking other people’s property?

    There is a such thing as a moral “redistribution”. Its called charity, and what makes it beautiful and meaningful is that when its done voluntarily and in concert with economic realities great things can be built.

    Perhaps the “models” we ought be looking for are not different economic or state models, but new kinds of businesses and forms of cooperation.

    “It is also evident that different cultures – such as, for instance, Japanese culture – can accommodate much more state involvement in the economy, and greater limits on the accumulation of personal wealth, and still manage to become the second most prosperous nation in the world.”

    But how was this possible? The Japanese people SAVED. That is why they could accommodate the insane policies of their government and central bank. What makes the U.S. situation so much worse is our lack of savings, thanks to the Fed’s long period of low interest rates which rewarded bad behavior. And yes, Japan is a large economy… but they could be doing so much better. I never hear about how great Japan is like I did in the 80′s, I just keep hearing about their “lost decade” now.

    “All of that said, my preference is not necessarily for more state involvement but a new localism that gives people more control over their own economic fate. Honestly, the supply and demand stuff, I take no issue with – I don’t want a command economy. I want an end to economic oligarchy and autocracy, and I believe that is a political question.”

    I think these kinds of things will happen and are happening as the correction continues. For me, the first major step is for the American people to return to honest money. I don’t believe any genuine recovery can be built if the very blood of the economy (money) is poisonous.

  • Anthony says:

    “Again, I’d like to know how libertarianism supposedly leads to totalitarianism. When I scan the dismal bottom half of that list, I don’t see many nations – heck, I don’t see any nations where libertarian economic principles once held sway.”

    If it was framed that libertarianism inspires a totalitarian reaction from those that resent the prosperity of others… I can buy that. But I don’t see how libertarianism naturally could slide into totalitarianism.

  • Donald R. McClarey says:

    “If it was framed that libertarianism inspires a totalitarian reaction from those that resent the prosperity of others… I can buy that. But I don’t see how libertarianism naturally could slide into totalitarianism.”

    Historical examples? Neither Weimar Germany nor Czarist Russia were bastions of economic libertarianism. In both cases of course there were other factors that led to totalitarianism in each of those nations. In regard to both Weimar Germany and Czarist Russia for example anger at defeat in war were key factors, the existence of ruthless parties willing to use any means to seize and keep political power, an inability or unwillingness to take necessary measures to stop violence as a means of attaining political power, intellectuals prostituting themselves at the altar of totalitarian ideologies, etc. Economic distress, the norm throughout most of human history, rarely leads to revolution unless other more important factors are in play.

  • Joe Hargrave says:

    Two things.

    For those asking for examples of what MZ was talking about, I would say Chile is the prime example, though it wasn’t libertarianism “in action” leading to dictatorship, but rather a dictator using oppression to implement the policies of his choosing, which happened to be neoliberal (if you want to call that “libertarian”).

    Unless he was talking about something else entirely.

    Second thing: I’m going to make it a policy not to argue with more than two people at once, which probably means no more arguing about economics on this blog. I don’t know where Tim and Eric are or for that matter, Morning’s Minion or Michael Iafrate, all of whom I think might be more inclined to see my point of view more sympathetically and balance this out a bit. Five or six on one is a game I don’t wish to play.

  • I have a feeling that the conversation is becoming something like a squid fighting with itself, but I’d like to see if maybe we can gain some clarity on one thing (or perhaps this would more be a post request).

    Joe, you say:

    Ok, I see what is in your mind – how about now you try to see what is mine? “Class struggle”, regardless of what we think about it – I’d say class conflict, myself – is a reality. Just like the “laws of economics”, the conflict between classes might also be said to be a “law of history”, one related to economics.

    You do not have to support one class or another in order to acknowledge that they are in conflict. If you see two people in a fistfight on the street, saying, “hey, there’s a fight going on there” is not the same as saying, “hey, I want that guy to win”.

    This may seem dense of me, but I’m actually not sure what it is that we’re talking about here. Looking at history, I very seldom see a class conflict dynamic at work. And the example you give (class struggle between employers and workers) is again something that I just don’t see.

    Maybe this is partly just a matter of perspective. When I look at workers and employers (with some experience as each) I see that workers want to make as much money as they can while still having the time and peace of mind to enjoy their leisure (and wanting to avoid unpleasant work) and that employers want to find good workers who will help them achieve their business aims while remaining affordable. This leads leads to constant exchange and interplay, but I don’t really see a whole lot of struggle involved, and it strikes me as a complex interplay or direct relationships rather than some sort of society-wide struggle.

    I’m not sure if we mean different things by the terms or if we’re seeing different things or what. Would you consider expanding on the topic in a comment or post?

  • I’m going to make it a policy not to argue with more than two people at once, which probably means no more arguing about economics on this blog. I don’t know where Tim and Eric are or for that matter, Morning’s Minion or Michael Iafrate, all of whom I think might be more inclined to see my point of view more sympathetically and balance this out a bit. Five or six on one is a game I don’t wish to play.

    Incidentally — I think that’s a fairly sound approach. The other thing I sometimes do when I venture onto heavily progressive leaning venues is only bother to address the points that actively interest me and not try to take on the whole crowd.

    Picking battles seems essential to sanity on the internet — to the extent I can claim to maintain that.

  • Patrick Duffy says:

    Well said, Anthony, certainly better than I was able to state the argument.

    I’d like to return for a moment to the excessive increases in minimum wage as an employment killer argument. I will disagree with DarwinCatholic on this, at least to the extent that I would like to remove “excessive” from the statement. I believe that any minimum wage keeps people from working, which is immoral on the face of it.

    People are hired to do work because they can produce value for the employer, more value than the employer can produce on his or her own. That’s another way of saying that the employed person can successfully serve the needs of others. That “value” will fluctuate over time for a number of reasons. In the long run, however, people will work at the job that pays the most, in both monetary and non-monetary terms, because that’s how the economy allocates the resource that consists of their time. If a lot of people would pay money to watch me play soccer, why would I work in a warehouse for minimum wage? The enjoyment those spectators would receive clearly outstrips how much good I can do by pulling boxes off the shelves with a forklift.

    But if there is a minimum wage, society is saying that it is better that I have no job than one that pays less than X. In other words, if I can’t produce more value per hour than X (plus payroll taxes, benefits, etc.), then I won’t have a job, even if that job is the highest and best use of my talents. So is it more moral that I can not work, at least not at any legal job?

    That may seem to be very abstract, theoretical economic theory. I assure you that it is not.
    I serve on the board of directors of a Catholic charity that hires people with disabilities. We have a variety of jobs to fill. The top people make minimum wage, most do not. You do not have to be around them very long before you obtain a profound understanding of the meaning of the phrase “the dignity of work.” You discover that it isn’t some Labor Day politician boiler plate phrase. They love their job, they love feeling that they have worth because they are able to do things.

    Why do we pay less than minimum wage? Because that’s all the value they can produce. If we had to pay at least minimum wage, we would have to close the doors, because our employees would not be able to produce as much value as our competition (which does not hire people with disabilities.) [For the record, the minimum wage laws allow an exemption for those who hire people with disabilities, subject to certain requirements that we meet.] We wrote over 2,000 W-2′s last year to people with disabilities. Few of them would have a job if we had to pay minimum wage.

    At the same time, in our state, only 10% of people with certified disabilities have a job. I see the life of the other 90% as a terrible waste of the talents of good people, people who would love to have a job, people that “the system” says aren’t good enough to work, because their work, the value they can produce doesn’t come up to the minimum wage. How can you, in good conscience, say “It’s better that you stay home and watch TV all day, every day, than you go to a job that only pays $5 an hour?”

    Now lets take that a little farther. We, for the most part, deal with people with certified disabilities. A doctor has looked at them and said “Yes, you do have what we call Downs syndrome.” But there are quite a few people that are, frankly, marginal. They may not quite slide over into a government defined certifiable disability, but they’re close. Maybe their disability is that there has been so much trauma in their lives that they just can’t “keep it together.” Maybe they came to this country without ever having any schooling and their spoken language isn’t English. Is it better that these people can not work?

    Unfortunately, I hear too many people who think of jobs and pay as if all employers were some kind of charity, that can just dole out “living wage” jobs to people if their hearts were just in the right place. Without the ability to produce value, however, there won’t be jobs for anyone.

  • Donald R. McClarey says:

    Actually Joe in regard to Allende I rather think this is an example of a would be totalitarian, Allende, Castro’s chum, helping to cause a reaction to relative economic freedom. I would note that the democratic governments that peacefully succeeded the Pinochet dictatorship have largely left his economic legacy intact.

  • Joe Hargrave says:

    “Would you consider expanding on the topic in a comment or post?”

    On class conflict? Sure. But I think I may as well say in advance that I’m just not going to reply to comments.

  • e. says:

    …or, better yet, do yourself some service and read Thomas Sowell.

    DarwinCatholic seems to me very much correct in his assessment:

    Looking at history, I very seldom see a class conflict dynamic at work. And the example you give (class struggle between employers and workers) is again something that I just don’t see.

  • Patrick,

    I get your point. (I have one of those “margin” people in the family — probably diagnosable, actually, but doesn’t want to be. And as a result, he’s never been able to hold a job though I try to find stuff he can do from time to time freelance.)

    At the overall level, it seems to me that the minimum wage we have doesn’t increase unemployment much since only a few percent of workers actually make minimum wage. But in that same sense, I don’t see that it helps at all either.

  • Joe Hargrave says:

    Darwin,

    Let me just say right now, for the night, that it sounds like you’re talking about a small or medium business in present-day America. I’m talking about a historical phenomenon that covers many more times and places than that. And it isn’t as if we haven’t seen strikes, unionization drives, protests, even a factory occupation, and other signs of class conflict in America, especially since the economic crisis.

    The American experience is indeed unique with regard to class conflict. But it would be a mistake to assume it isn’t there.

  • Well, in part I’m thinking of my own experience, which is in small (under thirty employees) and very large (Fortune 100) companies in the modern US. But I’m also trying to understand more widely what you’re talking about in terms of class conflict.

    Certainly, it seems uncontroversial that there is at times conflict between some people who are of one class and some people who are of another. However, it doesn’t seem to me that classes really exist as a fixed entity which one can say to be at war with another. Some people find it to their benefit to join some sort of movement or action, but others find it to their benefit to break ranks.

    For instance, in the grocery workers strike in Southern California back when I was leaving (2003) you had grocery workers on strike and grocery chains holding out — but you also had lots of people happy to cross the lines and take the open jobs at the available terms, and as I recall one of the grocery chains made a separate deal with the union.

    In ancient Rome, you had the Roman mob, which could often be bought off to behave as a group in demanding political action, but among the aristocrats you had the Optimates who supported the old institutions and the Populares who gained power by claiming to support the interests of the mob.

    Looking at various events in history, it seems to me that people act the most like a “class” when some group with power uses coercion to try to force them to be interchangeable and expendable, rather than allowing them to make their ways as best they can. For instance, one of the major root causes of Wat Tyler’s peasant rebellion in late medieval England was the Statute of Labourers, which sought to force peasants and craftsmen to work for the same hours and wages as before the black death — rolling back the gains which labourers had made in the wake of the labor supply dearth after the Black Death. This combined with a heavy flat per capita tax (which thus hit the poor much harder than the rich) caused peasants to band together and revolt, despite the likely eventuality of their massacre.

    However, outside of the most egregious abuses such as that, it seems to me that people end up acting as individuals much of the time rather than acting as if they belong to a monolithic class. Poorer workers happily snap up jobs that better off workers won’t take; employers bid each others employees away from each other, etc. There doesn’t seem to me to be a unified class dynamic at play much of the time, and when it is, it’s mainly because people have been forced into a “class” artificially. So for instance, I’d see there as being an actual class conflict between employers and workers only a small minority of the time.

    When you talk about class struggle, are you just observing the tendency to people to band together when collectively forced into a corner like that, or are you talking about some sort of more general dynamic?

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