Carpe Diem: Another Market-Based Healthcare Solution
Carpe Diem: Another Market-Based Healthcare Solution
This comes from Social Welfare and Individual Responsibility: For and Against by David Schmidtz and Robert E. Goodin. (This is Schmidtz writing.)
Schmidtz nails the most persistent challenge I face in discussing economic issues with people who have not worked to understand basic economic thought. There is obliviousness to the need to answer the societal question of how many of which things shall we make today? There is a profound tendency to view wealth and goods as pre-existing (static); they merely need to be distributed better. Because of this, markets are seen as evil. Markets are merely about some people hoarding from others what should more equally be shared. The reality that prices negotiated between buyers and sellers is a realtime dynamic information system coordinating how much of which things to produce is not understood. It truly is a "complicated dance of incentives, opportunities, evolving culture, and fragile personal values."
Last year I did a book review of an excellent book called Economics in Christian Perspective: Theory, Policy and Life Choices by Victor Claar and Robin Klay. (See my review by clicking here.) The authors are economics professors at Hope College in Holland, MI.
Well, I just learned that Victor Claar has begun his own blog called:
For a great radio interview of Claar by Brent Siddall for Trans World Radio in the U. K., click here. How I wish more Christians who are actual economists (as opposed to wannabes like me) would venture into cyberspace with their expertise.
Be sure to check out the new blog.
The Economist: Primates on Facebook
The New Yorker: Nice Work If You Can Get It
[Link to Part 7]
The Dark Side of Benevolence
Critics of market economies rightly point out that markets alone will not achieve a perfectly just society. We have investigated why this is so. We do not leave people completely at the mercy of market forces. Doing so would be an economic version of Darwin’s “survival of the fittest” determinism. You can almost hear Ebenezer Scrooge, “Are there no prisons? Are there no workhouses? If the poor are to die, better that they get on with it and decrease the surplus population.” Human beings cease to be God’s image bearers and become mere animals. They are objects. Critics of free markets like to tar and feather advocates of free markets as Social Darwinists but as we have seen, markets have been essential to our modern phenomenon of widespread affluence and economic freedom is essential to legitimately practicing stewardship. Still, the danger that we might dehumanize others with indifference to their economic plight is very real. Benevolence must be nurtured.
Yet, what many who are critics of market economies fail to appreciate is that benevolence has a dark side. Robert Lupton, writes in his excellent book Compassion, Justice, and Christian Life: Rethinking Ministry to the Poor:
Human community normally includes economic production and exchange for able bodied and able minded folks. When we are exchange-less, our dignity as God’s stewards. We were made for stewardship. We were made to be integrated into human community of stewardship.
The challenge for benevolence, private or government, is that it can become every bit as a objectifying and dehumanizing as Social Darwinism. Caring for the poor simply becomes an exercise in making sure the poor get to consume at some minimal standard. The co-creative stewardship quality, so central to our humanity, is ignored. Arthur Brooks points out in his book Who Really Cares that the demographic group that is most generous with its time and money (as a percentage of income) is the working poor. The least generous is people making the same amount as the working poor but living entirely on assistance. Social bonds become dramatically weakened. “Benevolence” of this type is really dehumanization.
Activism aimed at championing benevolence toward the poor can also become dehumanizing. Many middle class and wealthier folks are seeking to establish an identity that presents them as a caring and compassionate. The actual outcomes for the poor from the measures being championed are less consequential than the impact of A) being seen as compassionate, and B) not being seen as one of the evil greedy business people who caused poverty in the first place. It is really a form of consumerism where activists organizations market causes people can join to meet their felt need for a compassionate identity. “The poor” cease to be human beings to be restored as co-creative stewards and become objects for the identity market. Even our church mission trips too frequently fall into this. Over a summer, six different youth groups visit the same church in Mexico and repaint it six times. It serves no practical benefit to the poor but was that ever really the issue? (See Lupton’s piece on Religious Tourism.)
Market economies are tremendous advance in creating large societies with widespread affluence. They are remarkable integrators that help match people with wants and needs with those who want to supply them. They are far from perfect. They are just as effective at meeting the legitimate needs that are feed into them as they are meeting the illegitimate ones. They will not usher in the Kingdom of God and they have their dark side.
We need benevolence. It is among the highest virtues. It is the central counter-balance to injustices and misfortunes that happen in the world. But we also need to hear that benevolence has its dehumanizing dark side as well. Just as markets can be bent toward destructive ends, sometimes in spite of the intentions of the people involved, so can benevolence also result in destructive ends. We must think clearly about both markets and benevolence, not pitting one against the other as virtue versus vice.
There has been a fascinating discussion over at Jesus Creed in recent days about science and scripture concerning Genesis 1-11. It is being led by RJS who is a chemistry professor at a premiere university.
A recurring topic in the comments is the historical nature of Genesis 1-11. RJS has described them as mytho-historical, a characterization I share. The stories are about historical realities and historical events but they are not literal "fact-to-fact" history. Mythical elements and patterns of communication are used to make complex realities accessible to the ancient audience.
Claiming this mytho-historical quality for these chapters disturbs some readers. If qualities in the stories are characterized as mythical, where does it end? If there really was no talking snake or magical trees, then don't we begin the slippery slope toward denying the virgin birth and even the very diety of Christ?
In reflecting on the persistent insistence for literal-historical readings of Genesis 1-11, I’ve come up with a new hermeneutic. I’m calling it the Thermian Hermenuetic.
Back 1999, there was a movie called Galaxy Quest. As Wikipedia explains:
TV broadcasts have traveled through space to Thermia, a distant planet where the inhabitants have no concept of acting or fictional stories. They simply refer to the shows as the “historical documents.” They have built their entire culture based on the “historical documents.”
When the Galaxy Quest TV crew realizes what the Thermians have done, they are in disbelief. One of the actors, Gwen DeMarco (Sigourney Weaver) has this exchange:
Acknowledging the mytho-historical qualities of Genesis 1-11 no more undercuts miracle claims in the gospels than does acknowledging the fictional qualities of Gilligan’s Island undercut the historical legitimacy of a History Channel documentary. There are different genres of books, and passages within books, in the Bible, just like there are different genres of television programs.
The reason for the insistence on the strict literal-reading of Genesis 1-11 is because of pre-determined conclusions that have been brought to the text, not because of anything the text claims for itself. The Thermian’s Giligan’s Island folly is the same folly we bring to the world with our rigid insistence on “historical documents” and it undermines the witness of the church.
Insisting that each and every document in the Bible is a literal-historical account leads to the Thermian error of mistaking Gilligan’s Island for an historical event.
Detroit News: Auto team drives imports
New York Times: Philadelphia Newspapers Seeking Bankruptcy
It Takes More Than Markets to Address Poverty
A frequent critique of market economies is that some people end up poor. Depending on your definition of “poor,” this is a truism. If “poor” means the bottom 1%, 10%, or 20% of the wealth distribution, and you aren’t going to equally distribute wealth to all members of society, then by definition you will always have poverty. There is no way to eliminate it.
But, if by “poor” we mean insufficient resources to be reasonably well fed, clothed, and sheltered, and to have basic customary amenities, then we can talk about eliminating poverty. We can compare economic systems based on incidence of poverty.
When it comes to the two dominant economic systems of the 20th Century, Winston Churchill quipped:
What he says of socialism could be expanded to most other economies prior to the rise of market economies. Across cultures and time, the historical norm has been bare subsistence living for the masses, with a very small group controlling nearly all the wealth. With market economies we see a wide continuum in the size of wealth holdings with even the vast majority of people living at the low end of the continuum better off than the subsistence level existence of masses in our ancestors’ days. Some will no doubt bring up an isolated case like Scandinavian socialism. It is an interesting comparative debate but I want to ask a more fundamental question. Is elimination of all vestiges of poverty in society a realistic measure of an economic system’s validity? Let’ apply this criteria to the Bible.
There is no systematic economic model laid out in the Bible but the Old Testament Law books are filled with instruction about economic issues. Deuteronomy is one such book. It is a long discourse on the covenant God made with Israel. Toward the end (chapters 27-30), God spells out the curses and blessings that come from not following or following the covenant. One aspect of the blessing is promises like this one:
But as we read through books like Deuteronomy and Leviticus we see specific laws pertaining to treatment of the poor as the Israelites live out this covenant. There are laws requiring farmers to leave uharvested grain at the edge of the fields so the poor can glean some food. There are laws requiring the periodic collection of offerings for the poor. There is the provision for a kinsman redeemer where Israelites could redeem a relative who had been sold into slavery.
Of course the most striking provision is the Jubilee Code in Leviticus 25. If someone fell into need, they could “sell” their land and labor to cover their need. I put “sell” in quotation marks because in the strictest sense it wasn’t a sale.
God had apportioned the land of Israel to the tribes and clans as a permanent inheritance. Every fifty years, all agreements to indentured servitude were to end and all land was to revert back to the original owners. The purchase price of labor was limited to the amount of labor that could be done between the transaction and the next jubilee. The purchase price of land was limited to the number of crops that could be harvested between the transaction and the next jubilee. These were essentially lease agreements, not sales. The labor or property eventually reverted back to the owner. Similar limitations existed for debts.
Now keep in mind that these provisions existed as part of a world where the Israelites were living by God’s covenant and God was blessing them with “abundant prosperity.” Yet in this abundance, it is clearly assumed that some people will fall upon hard times. Whether though events out their control or through having made imprudent decisions, the economic system was assumed to result in poverty for some. The economic system did not result in equal outcomes and poverty occurred. If elimination of all vestiges of poverty in society is a realistic measure of an economic system, then the biblical system that God gave under his covenant fails. Other provisions outside the mode of economic exchange were needed.
All through the Old Testament law we see admonitions toward generosity toward the poor. Benevolence is key. The kinsman redeemer custom allowed for families to rescue less fortunate members. Leaving grain at the edge of the field was a mandated provision for the poor at large. There were mandatory offerings that were brought into a storehouse and then used to aid the poor. So there were some parallels to our present methods for assisting the poor today, including a mandatory collection of resources to assist the poor. But the Bible goes far beyond subsidizing the material needs of the poor. Just look at the jubilee.
The jubilee is frequently characterized as a redistribution of wealth. This is false. The jubilee prevented the permanent alienation of Israelites from the economic means of production (i. e., land and labor.) Real estate within cities was unaffected as was the wealth families had amassed through their own prudent behavior. God’s vision was to have each Israelite family participating with him in co-creative dominion over creation. His vision was to have each Israelite participating in his or her own material provision and in the material provision for others. This was the ultimate vision.
Thus, the covenant instructions providing for those who did not come out well in the economic system were not aimed at achieving a sub-culture of subsidized consumers, as though they were so many cattle to be fed and cared for. It was rather to restore each person to their image-bearer calling. Yet failure to grasp the limitations of economic systems (and thus solve all distribution problems by managing market outcomes) and the tendency to reduce assistance to the poor to a mere exercise in increasing their consumptive powers, is prevalent inside and outside the church. More on that in the next post.
Carpe Diem (Mark Perry): Made in USA Is Alive and Well: Manufacturing Goes High-End and the USA is Still the Global Leader
Jesus the Radical Pastor (John Frye): Creative, Emerging Theological Words
Great post. Check out the rest of the Lexicon.
The Economist: Turning their backs on the world: Globalisation
Christianity Today: Meager Harvest
Co-creators and Partners in Our Own Provision
Over the last five posts I’ve made the case that economic freedom has generated unprecedented abundance. People acting on what they believe to be in their best interests bid for goods and service, and people acting on their perceived best interest freely chose to provide goods and services to others. Without self-interest (i.e., being interested in one’s self) there would be no way for the market to coordinate the many needs people have with supplies. The market integrates us into a community.
Regrettably, there are those who pit the market economy against something called a gift economy. In theological circles, the reasoning goes something like this. God created the world with abundance. It is his gift freely given to us. Therefore, giving in expectation of return, much less profit, is counter to a godly character. Gift economy is godly, market economy bad.
But as we saw in the second post, this “gift economy” or “God’s abundance” mindset utterly ignores issues of production. How is a society to answer the questions of how much of which things to produce? In the third post I explained how markets have produced abundance through free market exchange. But is market exchange in keeping with godly character? I would answer strongly in the affirmative.
Lost in so many discussions about these matters is the commission given to humanity by God in the opening chapters of Genesis. Humans are charged with exercising dominion over the earth. They are to “work the garden.” Dominion is neither about rampant destruction nor pristine preservation. It means bringing the earth to its fullness, and that includes humanity. Theologians have understood the stewardship mandate to include the development of culture that facilitates human flourishing and community.
The scriptural narrative begins in a garden but ends, not in some ethereal immaterial spirit world, but in a new creation, the New Jerusalem, a garden city. Cities were the symbol of human achievement in ancient days, including as they did the highest expressions of government, commerce, art, education and community. The biblical narrative shows God adding that which humans have created to his created order, purging it of all impurity, and making it his new creation.
If we were made purely for relationship with God and with each other, then why would we need a material existence? Our materiality is not some peripheral quality. We were made material beings for a material world, which we are to work and exercise dominion over. This co-creative stewardship of material matters is intrinsic to out being God’s image bearers. We will be raised with new material bodies (although apparently transformed in some way) to work a new material world.
Individually and collectively, we are called to stewardship. Private property, held in trust for God, is a given among Old and New Testament Christians. One of the constant refrains of the prophets was denouncement of the failure to protect property rights (i. e., there was no justice for the poor in the "city gates," or courts, who were being deprived of their property and liberty; unjust scales were used to measure grain.) The Jubilee Code in Leviticus 25 ensured (if obeyed) that no Israelite would be permanently alienated from his land and labor. (For more, see my brief series on Leviticus 25.) Each person was to work their land in service to God and to each other. They were partners with God in their own material provision and in the provision made for their neighbors.
Jesus and Paul make several allusions to Christians being the oikonomos, or the household manager. The wealthy Greco-Roman householder had a slave or free servant that he trusted above all others who served as his household manager. In his absence, he would place his oikonomos over the whole household. He had the same authority as the master but he was always to do his master’s will. Keep in mind that these households were not just domiciles but major business enterprises. The idea of doing economic labor in provision for one’s self and others in service to God is present throughout the biblical narrative.
Most people understand that transforming matter, energy, and knowledge from less useful states to more useful states creates something of value. As individuals we can relate to this process. But many fail to see the enormous wealth that is created through trade and it is in trade that we see communities integrated into each other’s lives and enhancing each other’s existence. Let’s take a moment to illustrate this.
There is grade-school game used to teach economics called the Trading-Game. There are three phases to this game:
Phase 1: Each member of a class, say thirty students, is given at random an item worth about $1. Each student is told to right down on a scale of 1 to 10 how much they value the item with ten being the highest value. The teacher polls the class and gets and aggregate score.
Phase 2: The class is divided into six groups of five. Each student is allowed to trade with any other student in their group. Sally got a pack of baseball cards and Joe got wrist bracelets. They make a trade. Other students do likewise. The teacher has each rate the value of what they now have. She aggregates the score and the new score is always higher.
Phase 3: Students are now allowed to trade with anyone in the class. More trades are made. The final aggregate score goes still higher.
Notice that nothing was produced here, but because people had different values and wants, trade enabled most folks to increase their wealth at no loss to anyone, thus increasing the wealth of the whole community. It was win-win (or at least break-even) for each trader and a great win for the whole community.
Personal responsibility (looking after one’s own interests), working to produce something of value so you will have something to exchange, and then exchanging the fruits of our labor creates, integrates each of us into a wealth building community. The dynamic information exchange between buyers and sellers, and the competition of people to better serve each other’s needs, drives the economy toward an ever more efficient use of resources. We individually and corporately are pressed to be good stewards of the resources in our care. Thus, a market economy where people see themselves as stewards of God’s resources is thoroughly compatible with the Genesis image of humanity exercising dominion and being co-creators with God in caring for human needs and the needs of all creation.
The operative words are, of course, “where people see themselves as stewards of God’s resources.” Without this, the powerful integrative forces of the market are bent toward creating an economic city of Babel, unifying and magnifying our distorted images of who we think we are and what we deserve.
Townhall: Economic Miracle Walter Williams
"Smoothly"? Yes. But with perfect shalom? Hardly. But as I've written elsewhere, what is the alternative?
The article goes on to give a great supermarket illustration. However, he goes on at the end of the article to misappropriate Adam Smith's "invisible hand" metaphor. See Gavin Kennedy's A Good Case for Markets Spoiled by Misuse of Quotations.
The Indispensable Role of Government
Modern market economies create an incredible abundance, due in large part to the dynamic interchange of information. People have the freedom to bid for goods and services based on their wants and needs, and people have the freedom to organize resources to meet the needs of others. Vast numbers of free people integrated by markets is an extraordinary achievement. This generally what we mean by free markets
Yet the “free” in free markets does not mean anarchy or unbridled freedom. This is a misconception, one intentionally fostered by some detractors. Markets do not exist in vacuum, but rather in relationship to host of societal institutions and traditions.
At the most elemental level, a transaction is not free unless the both parties are non-coerced, both parties have sufficient knowledge of a transaction to be able to make an informed decision, and both parties know that there are authorities who will protect their right of ownership and impartially compel compliance with contracts. In short, there must be trust and in particular the ability to trust that even anonymous people will honor their commitments. There clearly is a role for government in this regard. But there are other roles as well.
Markets don’t always allocate costs effectively. Sometimes a person who isn’t party to a transaction ends up benefiting or being harmed by the transaction. If I hire a landscaper to do some work on my front lawn, it will likely improve the value of not only my property, but my neighbor’s property. Similarly if I hire a contractor to build a pig sty in my front yard, the stench and noise will not only affect me but my neighbor who had no part in transaction.
Pollution is one of the most frequently given examples of an externality. A factory pumps pollutants into the air at no charge but diminishes the air quality for everyone else around. Either through taxation or regulation, government plays a role in trying to reallocate the cost back to those who are unfairly benefiting. Government plays a critical role in this regard.
Capitalist economies, by definition, create large complex entities, an abundance of sophisticated financial instruments, and very complex market relationships between firms. There is no way most citizens can comprehend these features. Some regulation and oversight is needed, particularly to ensure transparency so that regulators and watchdog groups can scrutinize behavior. This is another critical role that government plays.
Furthermore, government plays a critical role in international trade. It helps establish the ground rules for trading with citizens and business in other nations. When other nations engage in unfair trade practices (like placing exorbitant tariffs on American goods while deeply subsidizing the production of competitor goods for export to America) the government can use a number of actions to address this problem. Government can also use trade rules as a carrot and stick to work for more just working conditions and economic freedom in emerging nations.
In many ways, the government is a critically needed referee in the economic “game.” When players can have a reasonable level of trust that the rules will be consistently and fairly enforced it facilitates the flow of economic freedom. However, when the referee begins crossing over the line into head coach, (calling plays, making decisions about personnel, and taking positions on who should be given preferential treatment) chaos ensues. Markets become distorted and buyers and sellers can no longer correctly evaluate how to engage one another. Abundance dwindles.
Finally, government must intervene to prohibit transactions that are ultimately destructive to human life or societal health. While some libertarian friends disagree, I would continue to legislate against things like prostitution. While some people who have other legitimate economic choices may freely choose to engage in prostitution, many will succumb to the pressure to debase themselves, rather than do what is needed to avail themselves of legitimate economic options. Prostitution debases human beings (buyer and seller) into a commodity and that debasement tends to engender other destructive trends.
In broad terms, many people have little problem recognizing the need for this distinction. The challenge comes at the margins of these issues. For example, when is an externality truly an externality, or merely an inconsequential annoyance to a third party? What is “enough justice” when we are talking about trading justly with emerging nations that don’t entirely share our cultural institutions and values? There is room for reasonable people to disagree. Where I part ways is with those who believe in something approaching anarchy or those that think that economy should essentially be an extension of government agendas.
Christianity Today: Centering on Poverty
For several decades the United States has been the driver of the world economy. Decoupling happens when nations economic fortunes are no longer directly driven by USA markets. Here are a couple of recent interesting stories from Mark Perry:
Back in March of 2008, this article in the Economist reported that for the first time more trade was done with China by emerging nations than with the United states. This Economist article from last month also alludes to a possible decoupling.
With the GDP of emerging nations growing at double the rate for the United States and developed world over the past decade it has seemed inevitable that decoupling would someday occur. We will see what the near future holds.
Carpe Diem: Forecasters: Economic Recovery in Q3 2009
I wonder if these forecasters figured in the impact of the disastrous stimulus bill signed today. I suspect the economy will overcome the negative consequences in the short run but the potential impact beyond this year is disconcerting.
Gruntled Center: The More Choice Women Have, the More They Diverge From Men
Interesting stuff. Beau is doing an interesting series of posts on this book.
I was one of the original business counselors back in 1994 and I've volunteered in various ways with the program ever since. It is a great program.
A more recent addition to the Fast Trac family of programs is Prison Entrepreneurship Program. The BBC just did a story (Turning crack dealers into chief executives) on Catherine Rohr who founded PEP because of calling she sensed from God. She dropped out of her Wall Street venture capital firm to teach convicts business skills. It is a truly inspiring story. Read the article. Below are a couple of clips that I believe were made in conjunction with Willow Creek's Leadership Summit program.
Imperfect Markets: Too little freedom or too much?
I ended my last post with this observation:
Market economies create incredible economic information exchange systems. Assuming everyone were perfectly virtuous, that they truly knew what was in their best interest, and that they acted upon that knowledge with every transaction, you might be able to say that we could achieve a near utopian society. In fact, some libertarian folks see the obstacle to a virtuous society as being virtually anything that impinges on personal choice. Absent government interference, they see markets acting with near perfect fairness and efficiency.
As Christians we know that all have sinned and fall short of the glory of God. No one is perfectly virtuous and the great majority of us are far from it. Furthermore, being finite beings with limited knowledge, we can’t always correctly determine what is in our best interest. Capitalist economies create large corporations and complex transactions where adequate knowledge is difficult to garner even when there is no attempt at deception, much less when there is an intention to mislead and conceal. Many libertarians esteem both human nature and human discernment too highly.
So, we know that market economies do an astounding job of integrating all our decisions (virtuous and bad, well informed and errant) into one organic feedback loop. Maybe we can just filter out the bad stuff. Enter the liberal thinkers.
One possibility for filtering out the bad is to have someone oversee everything, making sure bad stuff doesn’t happen. They can look out for the common good. The obvious candidate for the job would be a representative government.
At first blush this looks quite encouraging but it does not bear up under scrutiny. First, government is drawn from the same less than virtuous pool of folks as the ones who are behaving less than virtuously in the marketplace. While many people enter politics with noble motives, the opportunity to wield power also draws in those he seek power for less than noble reasons.
Second, let’s assume we do have a government of only noble servants. I demonstrated in the previous post the incomprehensibly complex nature of the market. What makes these government officials specially qualified to comprehend how their decisions will reverberate through the market and to know that any given policy is going to be an improvement on the common good over what the market delivers?
We know that some well-intentioned government interventions have had perverse consequences that harm the common good. For example, a city has a homeless problem so it institutes rent controls in order to keep housing affordable. The city tells landlords how much rent they can charge and how much they can increase rent each year. Housing demand rises so fast that it drives the amount renters are willing to pay to a level beyond that which landlords can charge. Renters have an incentive not to surrender their leases. Instead, when they decide to live elsewhere, they keep the lease and sublet the apartment. They charge the new tenant the rent they owe the landlord plus a premium above the landlord’s rent that the landlord is forbidden to charge. People already with apartments are less inclined to move because usually the one time the landlord can bump up the rent is when a new renter moves in. It is cheaper for the renter to stay put so turnover comes to a halt.
As a consequence of these actions, developers stop building new dwellings because they know they won’t be able to collect the full value of the rental property. Existing landlords began to skimp on maintenance because they can’t collect what the market dictates should be paid. As the situation deteriorates, some landlords go bankrupt, others turn to nefarious strategies like arson in order to collect insurance, while others just walk away. The net result is greater homelessness from a dwindling housing supply. The shortage drives prices still higher, freezing up turnover even more and the cycle continues.
We don’t have to look farther than today’s headlines to see evidence. The present financial crisis was brought on in part by good intentions of both Democrats and Republicans to expand home ownership. One theory also has it that just as multiple uncoordinated intelligence gathering entities led to mistakes prior to 9/11, multiple uncoordinated financial regulatory entities led to failure to detect problems in financial markets. Now congressional Democrats are on the populist bandwagon of protectionism, which 90% of economists of all stripes deem to be a bad idea. Politicians are just like the rest of us, prone to do corrupt things and fallible finite human beings.
Third, politics nearly always generates less than optimal solutions. Political solutions usually factor in the impact on the intended targets of legislation, but political solutions are always a product of appeasing and balancing competing groups with an interest in the legislation. Thus, political solutions are nearly always skewed one way or the other from optimal solutions.
So to summarize, the ability of people to feed their wants and needs into the real-time complex information system called the markets has created an unprecedented (and that is an understatement) ability of the economy to function as a dynamic generator of abundance, meeting a wider portion of the population’s basic needs than ever before. But because people do not always correctly evaluate what is in their best interests with regard to wants and needs, either due to corrupt minds or the simple finitude of our faculties, the market economy is also a prodigious producer of bad things as well.
Getting more freedom into the system isn’t going to bring us into some quasi-utopian new age. Neither are government control and regulation. The Right is persuaded that government is a bigger obstacle to a better world than is economic freedom. The Left is persuaded that economic freedom is a greater threat than government intervention. While greater freedom might lessen some dysfunctions of government and more government might lessen some dysfunctions of destructive decisions in the market, neither deal with the underlying character of the participants in the market and the government. From a Christian perspective, both agendas are quibbling at some important margins of the fundamental problem, but they are still only at the margins. That problem is human nature.
Greg Mankiw: News Flash: Economists Agree (Mankiw is the author of the leading college textbooks on economics. )
I suspect the low numbers in Turkey are due to Islamic beliefs. The low numbers in the United States are likely due the persistent residual impact of Scottish Common Sense Realism, which so heavily influenced American Christianity in the 18th and 19th Centuries, with its insistence of a "fact-to-fact" utterly historical reading of the early chapter of Genesis.
So let me get this straight. Obama's administration and the Democrats in congress are opposed to protectionism ... except for the part where they mandate American businesses will buy only American.
Reminds me a little of this exchange from Casa Blanca:
Rick: How can you close me up? On what grounds?
Captain Renault: I'm shocked, shocked to find that gambling is going on in here!
[a croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.
Our congregation has been without a pastor for a few months. We've been conducting small group listening sessions to determine what the congregation thinks we need in terms of a new pastor. I've led two of these groups. This information will be put into a PCUSA Church Information Form as the first step in trying to match a pastor with our congregation.
After two listening sessions, and hearing what is going on in other groups, I've already been able to synthesize the new pastor's job description:
Any other qualifications you would add?
Now aren't you glad you read the Kronicle. Where else could you be pointed to such vital information?
Slate: The Money Liberal Conspiracy At Work Mickey Kaus
National Review: The Shrine of FDR
Greg Mankiw: Deflation Fears Subside
The Miracle of the Market
For the first time in human history, we’ve seen societies emerge with widespread material abundance. Innovations in economic production have far outpaced the Malthusian scarcity trap. There are many reasons for this. Advances in technology, radically improved infrastructure for communication and transportation, improvement in food production and storage, investments in human capital, and ever expanding trade have all played roles. But at the core of it all is a dynamic economic information system.
In the previous post I said that the biggest macro-economic questions a society faces are how much of which things should be produced and how to achieve a just distribution. The production question requires that we have some way of determining how much people need of a particular item, determine how much capacity we need to allocate to meet the need, and find the resources required to produce it. The problem is that in any given nano-second, some needs are met while others emerge. In the next nano-second, it shifts again. And this is just one product. Multiply this by millions, if not billions, of individual items. There is simply no way to monitor what level of need exists at any precise moment in time and assuming we could know it would be obsolete a nano-second later. We need a real-time dynamic feedback loop. Fortunately, we have one. It is called the market.
Let’s take a practical example. Who should determines how many number 2 wooden pencils I need right now? I should. I’m the one best positioned to weigh competing demands and opportunities in my life. I’m best positioned to know my self-interest. For whatever reason, I’ve decided I need a box of two dozen pencils.
Off I go to the business-supply store. I find a box of number 2 pencils. If they’re priced higher then I think they should be, I might look elsewhere or I might rethink my need. If they are lower than I expected, I might be enticed to buy more than I thought. They cost about what I expected them to, so I buy them.
The business-supply store’s computer tracks how many boxes of pencils have been sold. When it falls to a certain level, the store determines that it is in their self-interest to buy more pencils from pencil manufactures, likely tracking multiple suppliers to see who is offering the best deal at the moment. The store orders the pencils.
The pencil manufacturer takes the order from the business-supply stoare, along with orders from other buyers, and determines how many pencils are going to be needed to fill the orders at the agreed upon price. She then determines that it is in her self-interest to fill this order. She determines how much of the following are required: The wood and the lead, the paint that goes on the pencil, the metal tip that goes on the end of the pencil to hold an eraser, the eraser, the cardboard box to hold the pencils, the shrink wrap material to wrap the boxes, the number of lager boxes to hold the smaller boxes, the number of pallets to hold the larger boxes …. you get the picture.
Then the lumber mill, the lead mine, the paint manufacturer, the tin seller, the eraser producer, the box manufacturer, the shrink wrap supplier, the pallet company, etc., take the order they got from the pencil manufacturer and combine it with others they have received from other businesses and decide if it is in their self-interest to supply their goods at the price the pencil manufacturer is offering. They place their orders with their many suppliers and the whole process becomes incomprehensibly complex. The pencil is a very simple product and I’ve way oversimplified things here. (See I Pencil for a more intriguing essay.) Now multiply this scenario times millions and millions of products and there is no way to appreciate the magnitude of what is happening across the economy.
At any point in these transactions buyers and suppliers can bid prices in either direction depending on what they think is in their self-interest. Each bid causes a ripple to hit the market and requires players to adjust. Our economy has no pencil Czar to oversee that an adequate supply of pencils are made and distributed. Yet day after day a sufficient number of pencils are produced and sold at a reasonable price. Pencil production is achieved by a massively complex information system with a real-time feedback loop communicated through bids and sells. Those bids and sells are a product of each individual player weighing what is in their self-interest. And, assuming no deception or coercion, if both parties agree that a transaction is in their self-interests, then it is a win-win situation.
People being responsible for themselves and then acting on their self-interest in the marketplace is the most effective way to manage the production and distribution of goods in an unfathomably complex economy like ours. To the degree that economies move more to this economic communication system (supported by things like communication and transportation infrastructure, and appropriate legal structures), they create an economy that produces material abundance and meets basic needs well. In historical terms, it is something truly to be marveled at.
Therefore, if we just get out of the way and let people freely act on their self-interest we can achieve a Utopian world approaching the coming shalom of the Kingdom of God, right? Categorically and unequivocally wrong! Earlier I said the individual is the one who is in the best position to know what is in his or her self-interest. Clearly we know we need food, shelter, and clothing, but when we get much beyond that, how many of truly know what our self-interest ultimately is? It is one thing to acknowledge that we are each best positioned to know what is in our self-interest but it is profoundly another to say that we truly do know our ultimate self-interest, much less that we act on it.
Market economies are creating unprecedented abundance and that can be celebrated. But tremendous evil and mischief is also done by people having the freedom to act on their perceived self-interest. The dilemma is that economies without this freedom do not create abundance and still tend to create just as much, if not more, evil and mischief. Trusting to self-interest alone is not enough.
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Scarcity and Abundance
I ended the previous post noting that free and virtuous pursuit of self-interest is absolutely essential to just economic production and to human flourishing, but I also noted self-interest alone is insufficient. We will deal with the latter qualification in due time but first we need to look at economic production.
Most economics textbooks will tell you that economics studies how societies manage scare resources. Two key aspects of economics are production and distribution. Each society must determine how much of any good or service is to be produced and each society must decide on what basis goods and services will be distributed.
Yet when intellectuals, theologians, and activists turn their attention to economic issues, there is a pervasive tendency to focus on economic distribution to the near exclusion of economic production. Particular aim is taken at the notion of scarcity, claiming instead that we live in abundance. Read these selections from Douglass Meeks’ God the Economist: The Doctrine of God and Political Economy, a popular theological text on economics written twenty years ago and still used in some seminaries and colleges today:
Either by ignorance or by design, this line reasoning is oblivious to economic production. One might be forgiven for thinking, based on this reasoning above, that cars, cell phones, loaves of bread, clothes, and all other goods we buy simply exist somewhere. All we need is a better distribution mechanism to make sure everyone has some.
Assuming you live to be eighty years old, and assuming you had the aptitude for all the following, why would you not learn to be a concert pianist, a physicist, a lawyer, an expert auto mechanic, a professional athlete, a business mogul, a senator, and a movie star? Because even with an aptitude for each of these, you would not have the time to pursue all them in one lifetime.
Let’s bring the lens in even tighter. When you awoke this morning you likely charted out a set of activities you would do today. In choosing to arise at 6:00 a.m. you chose not to arise at 5:00 or 7:00. In eating your Cheerios, you chose not to fix scrambled eggs or make waffles. In choosing to go to work you chose not to play golf, go shopping, or rob a bank. We can’t everything all at once. We have a limited number of hours in each day and a limited number of days in our lives. Scarcity is inescapable. The fundamental reality of human existence is that time is a scarce resource. We must choose some things and not others.
Furthermore, as we take a global view we can observe that on any given day there is a relatively fixed number of people with a fixed set of skills and knowledge, a fixed amount of productive capacity (technology and infrastructure), and a fixed amount of raw materials that can be accessed in a 24 hour period. Each day our world collectively decides how it will allocate limited labor, limited productive capacity, and limited raw materials. In short, we manage scarcity.
When Meeks writes, “Nothing is deeper in the spirit of capitalism, and of socialism as well, than the belief that there is not enough to go around,” the “enough” seems to imply the basic goods to sustain life. This is just plain silly. Within capitalism or socialism there is the belief that there is not enough of everything everyone might conceivably want to go around. Both ideologies presume that basic needs can be met with their systems. Meeks’ pejorative misrepresentation of economics is really inexcusable yet I find it regularly reflected in the mindsets of people who identify with progressive Christianity (and even some who aren’t progressive.)
Now if by scarcity we simply mean everyone not having enough to sustain life at some basic level, then only in recent years have some societies found ways to eliminate scarcity. But societies around the world have also been mired in the Malthusian Trap. Thomas Malthus, writing 200 years ago, noticed that across history societal prosperity tended to lead toward population growth. Population would eventually outstrip the resources to sustain itself (i.e., scarcity), causing famine and disease (sometimes conflict and war.) Population would decline back to manageable levels, prosperity would again take root, and the whole process would endlessly repeat itself.
Only in the past two or three centuries have some societies broken through the Malthusian trap. How did they escape? They found a way to produce an abundance that outstripped Malthus’ scarcity trap, not a better way to allocate some mythical pre-existing abundance that some had kept away from others. Contrary to Meeks’ notion that abundance is the norm and scarcity an illusion, scarcity is the inescapable human condition and abundance is the product of human beings transforming matter, energy, and knowledge from less useful states into more useful ones. Without sufficient economic production, there is no abundance to distribute. Critical to achieving sufficient economic production has been the freedom of individuals to act on their own self-interest in the marketplace. We turn to the importance of this in the next post.
Some Kronicle readers will notice that my original posts are somewhat erratic lately. There are multiple reasons for this. One is that I do my best blogging sitting in my recliner in my office but unfortunately, sometimes after I get up to do some chores, I come back and this has happened:
What's a blogger to do?
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Amen to this article!