Tuesday, December 23, 2008
Wednesday, December 17, 2008
Templeton Foundation hosted a forum in October/November about whether capitalism corroded individual morality. My response, which you can find in an earlier post “The Chicken or the Egg?,” was that capitalism did not corrode morality but provided an ever-present incentive to engage in corrupt or immoral behavior.
Just as Mark mentioned in the previous post, whatever morality we attribute to a system comes from the people inside the system whether it be economic, political, family, etc. One common critique of the capitalist system is that the prevalence of greed. People act in completely self referential ways that cause them to want to possess, acquire, and destroy. In other words, they act out of the dark love known as eros. That greed happens I do not believe is disputable just read the newspapers. But, I want to submit to you that government is also merely a system that can also attract greed.
One problem economists understand is the moral hazard problem. People act out of their own incentives and not the desire of the people that designed the system. For example, someone takes advantage of disability payments even though they are capable of work –or- an individual remains on medicaid despite their current support from someone they have not yet married. Sometimes economists place too much emphasis on the fact that people do game the system and not enough on those who are legitimately helped. Parenthetically, one interesting question arises, “How much does a government program need to be gamed in order for us to consider other options?”
Finally, people taking advantage of a situation and extracting resources that were not intended for them can occur in the free market and government. CEOs pay themselves exorbitant salaries during unsuccessful years and lower income people sometimes take advantage of resources that they were not supposed to receive. The root of such activity seems to be self-love and greed –which is idolatry.
Tuesday, December 16, 2008
The lesson from this is that human beings are, to steal a phrase, “totally depraved”. This does not mean that human beings are incapable of good: that’s obviously not true. What it means is that our sinfulness is capable of touching all aspects of our humanness. As an economist, I think that is particularly relevant when people insist on associating the marketplace with greed, allegedly quoting Adam Smith, but more likely channeling some
In fact, as Doug has argued in several places, the morality of an economic or political system is directly tied to the morality of the people in it. Immoral people can and do taint the market, the government, the voluntary association, the family, and the church.
Jesus called for us to repent. That is our daily charge as Christians, but it is an impossible task if we are left to our own devices. No one, no Christian, no congregation, no denomination is exempt. After all, long before Gov. Blago the pre-reformation Catholic church suffered from “simony,” the sale of church offices. In the 1970s, the Methodist Church-sponsored “Pacific Homes” group of retirement homes was ensnarled in legal problems that have been described as running a Ponzi scheme. In the 1990s, several people were convicted in the bankruptcy of the Baptist Foundation of Arizona. And, just in the past couple of years, a high ranking employee of the Presbyterian Church USA was accused of a massive embezzlement scheme. I John says:
“If we claim to be without sin, we deceive ourselves and the truth is not in us. If we confess our sins, he is faithful and just, and will forgive our sins and purify us from all unrighteousness.”
It is the forgiveness that comes from Jesus Christ and the transformation of the Holy Spirit that are our hope. I recently heard a hymn performed by
Coming up soon: how are we all, in our own way, little Blagos and Ponzis?
Thursday, December 4, 2008
Cornuelle paints a portrait of an America that has strayed from its ability to simultaneously achieve a free society and a good society. Conservatives are told they lack compassion because they do not support government welfare programs. Liberals are called failures because their programs are generally unsuccessful. These two types of societies seem to be in constant conflict, but, Cornuelle points out, that was not always the case.
"We limited government, not only because we knew its limitations and wanted it limited, but because we left little for it to do."
Cornuelle also articulates his hope for the future, but, I will write about that in a later post. I'll leave you with two final points.
For the Conservative, Cornuelle advises them not to argue in terms of philosophy because people's hearts are not won by philosophical arguments of why a free society is better. He argues that people are pragmatic and want pressing issues to be promptly pursued and tackled. To date the government has been the only one willing to raise its hand to answer the bell.
For the Liberal, Cornuelle advises them to understand the limitations of government and not be sucked into cosmetic cures. He argues that their heart and desire for a changed and better world are wonderful but he also notices that they have one prescription for any problem: government. Cornuelle says that it limits their ability to be change in the world and leaves them only hoping that the next government program will be better than the one before.
Tuesday, December 2, 2008
My last post eluded but did not elaborate on the social distance between the people at the church and the ambiguous “they” who make the decisions about what the church commits to believe. This is at the top of the issues I find most troublesome. Whenever you desire to write your Congressman or Senator the internet produces a quick search. Their contact information is upfront and available and you can write to them over email or by pen and paper. The same applies to other social figures such as University faculty. But, the information about our church officials remains distant. We write to our elected officials to commend their support, plead our case, or pique their interest about something below the radar. We need to be able to do this for our church officials too.
Many good-hearted, well meaning Christians do not know who to address their grievances to in the church. Moreover, if they did, that does not guarantee that the church would listen, albeit, the church should not merely listen to those in the pew but follow the leading of the Holy Spirit in their committee decision making. But, do these non-committee members also have access to the Holy Spirit? Possibly someone out there can articulate the role of authority and leadership, please jump in the conversation.
Many are also leaving the church or creating a sub-denominations of the church after bitter wars over two looming issues: homosexuality and abortion. They grew weary of the tension, conflict, and seeming wasted effort. And, many are going it alone. Possibly they believe they do not have an adequate voice in the matters of the church? Possibly they're saying, "enough" and focus their attention to developing ministries for the poor outside of the church. Dissension is not something new for Protestants as the root is “protest”, but does there come a time where we need to stick with our church? Are those buildings more than just construction but embassies for God? Maybe the church can provide us with the information necessary to give us a voice. I will leave you with this poetry from Christian rapper LeCrae,
They say she's on a paper chase they say she's really fake
So they go start a ministry so they can do the work
But they don't understand how Jesus feel about His church
And yeah they make disciples
They got plenty conversions
They take care of the widows and the orphans they be workin
But none of them are churchin
No church structure
No elders and no discipline
They have no conductor
And they so they don't submit
But quite a few of them baptize
People how I pray that you'd look at this thing from God's eyes
Take responsibility inside the whole council not just the area where you might have a mouthful
Who should folks submit to
Who will conduct the discipline
If excommunicated what body will they be missing then
Look at Ephesians 4 where Paul gets practical
1st Timothy and Titus if you thinking I'm irrational
Wednesday, November 26, 2008
Believe it or not, there's a lot of economics behind all of this: principal/agent problems in hierarchies, rent seeking in non-profit organizations, optimal size of organizations, public choice issues about voting rules, and (in work I have done with two of my FSU colleagues) issues about the effects of organization rules that attempt to keep members from leaving. Our research has found that these rules are really quite counterproductive, even to the home organization.
As an economist who has studied these issues, I don't understand why Episcopal and Presbyterian leaders think it is a good idea to spend resources to make it harder for congregations to go their own way. Theologically speaking, when the world could only be made a better place by Christians putting more resources into orphanages, shelters, food relief, and so forth, the sight of us burning up such resources suing each other in (church and even secular) courts to determine who gets to keep the silver communion plates must be making Satan laugh out loud. My main hope now is that revolutions in communication and information will make these denominational lobbying groups as extinct as dinosaurs in the era of blogs and Facebook.
* I use this term specifically because it was actually used prior to the adoption of the more faith-friendly sounding term "reproductive choice".
Tuesday, November 25, 2008
Last weekend someone who I admire very much spoke on justice and the value of the
With a quick count of the General Board of Society and Religion the
Seemingly lobbies exist for every type of interest group possible in
Finally, something that troubles me very significantly is my lack of knowledge about who to contact. The United Methodist Church supports with the money received from collection plates around the country an organization called the Religious Coalition for Reproductive Choice which is yet another Washington, DC lobby for Pro-Choice. I do not want any money that I give to the church to be associated with the finance of such a lobbying organization. But, who do I contact? My search on the web has turned up no leadership on the General Board that look like they would be the right contact. This is particularly frustrating because if people in the church do have grievances who should they contact? Who are “they” that decide what the
Until this weekend I did not know that the
Wednesday, November 12, 2008
Oh Lord, won't you buy me a Mercedes Benz?
My friends all drive Porsches, I must make amends.
Worked hard all my lifetime, no help from my friends,
So Lord, won't you buy me a Mercedes Benz?
On the other hand, maybe we “frozen chosen” are missing something. It’s true that Jesus warned his followers not to worry about how they were dressed, or what they would eat, but he was by this same token obviously concerned about the fact that his followers were worried about what they had to wear and what they had to eat. Jesus was concerned, and not dismissive, about the daily life of his flock, about what they brought to God in prayer, and part of his theme of a great upheaval in which the least would become the greatest was that God cared about the petitions of his people. Jesus might be uncomfortable with a prayer for a Mercedes to compete with a Porsche, but what about a single Mom who desperately needs a better car to go to work to support her family. Why shouldn’t she pray for help? But, where do we draw the line between a reliable used Corolla and a new Porsche? What does God want us to want? This is both a religious and an economic question, as preferences are the basis for the microeconomic study of choice. If our economy responds to what people want, what does God want us to want?
In reading the Psalms recently, I have come across a cycle of seven Psalms (19 – 25, all listed as being from David) that, in addition to the many other things they talk about, seem to contain a complete cycle about our wants, or more specifically, how to pray about our wants.
PSALM 19 (“The heavens declare the glory of God…”) is a Psalm of praise to God. But it closes with a prayer for how we construct our wants. It’s a famous prayer: “May the words of my mouth and the meditation of my heart be pleasing in your sight, O Lord my Rock and my Redeemer."
PSALM 20 (“May the Lord answer you when you are in distress…”) is a petition to God, including, in verse 4, “May he give you the desire of your heart, and make all of your plans succeed.”
PSALM 21 (“O Lord, the king rejoices in your strength..”) is also a Psalm of praise, but an unusual one. David is praising God for the blessings he has given him. Specifically, we see in verse 2: “You have granted him the desire of his heart.”
PSALM 22 (“O God, My God, Why have you forsaken me…”) is the Psalm Jesus recited on the cross, and it is hard to imagine anything more different than Psalm 21. “O my God, I cry out by day, but you do not answer.”
PSALM 23 Pretty much needs no introduction.
PSALM 24 (“The Earth is the Lord’s, and everything in it…”) Is a call for us to recognize the glory and wonder of God, and to consider what it means to come into his holy place.
PSALM 25 (“To you,O Lord, I lift up my soul..”) is a complex prayer for God to forgive our sins but also to set us right.
These Psalms cover a lot of ground, but let’s isolate the cycle of what it says about what we want.
In Psalm 19, we are to told to pray that the things we desire will be acceptable to God. Psalm 20 looks the most like a Psalm of the prosperity Gospel (“may he give you the desires of your heart; may he make all of your plans succeed”). But this call to granting our wishes in prayer follows the instruction in Psalm 19 that these desires be acceptable to God.
It is Psalm 21 that the cycle begins to take on the form of a narrative, perhaps of David’s own life. Praising God is a good thing. But read Psalm 21 closely, and see if you don’t agree that David is slipping across a boundary into pride. He seems almost to be praising God because God has bought him the Mercedes chariot. We see the same language as Psalm 20, in a different context: “You have granted him [David, the king] the desire of his heart.” We hope that these desires have been formed in David’s own instructions in Psalms 19-20. But look at the list in Psalm 21: “rich blessings,” “a crown of pure gold,” “victories,” “splendor and majesties.” It must be nice to be the King. The problem of course, and we know this from the story of David, it all comes crashing down. In Psalm 22, David cries out to God, but God does not answer. The Mercedes has been totaled, the gold has been pawned, and God does not answer.
The rehabilitation of David’s relationships with the “desires of his heart” begins in Psalm 23. It is a radical transformation: simply “I shall not want.” Then, Psalm 24 follows with not a single reference to any of David’s personal wanting at all. Psalm 24 is entirely a celebration of who God is, with no reference at all of what he has done in terms of answering the desires of our heart. The only reference to the “desires of our heart” is that we are informed that only those with “a pure heart” may stand in God’s holy place. But how do we get such a pure heart? By prayers such as those in Psalm 25: “Show me your ways,” “Teach me your paths.” And finally, in Psalm 25 we get a prayer with the P word: “instruct” the man who fears the Lord, and “He will spend his days in prosperity.”
Pray that the desires of my heart are acceptable to God. Ask him for instruction. Don’t want for wants sake. Celebrate the blessings all around me, not the Mercedes chariots. Then petition God for the transformed desires of my heart. He will answer. This is the Prosperity Gospel.
Wednesday, October 22, 2008
1. Third Trimester Abortions
2. "Positive" Secondary Effects
3. Polished Names
The earliest a premature baby has ever been kept alive is 21 weeks or a little over four months. Researchers have debated over the quality of life that such a premature baby could experience and some studies have emerged claiming that mothers should seriously consider keeping the baby alive if it is born before 22 weeks old. Moreover, some studies have posited that babies lack emotion and ability to experience pain until 26 weeks. Setting aside the current debate about the future health of the baby if born before 22 weeks and the development of the child’s emotions how is it possible that a child can be born significantly under six months and be kept alive and we still allow third trimester abortions? Third trimester abortions are abortions that occur after six months of pregnancy and they have never been legalized in
The book Freakonomics by
Here are some words of wisdom from FSU's Offensive Line Coach Rick Trickett, "You can't shine a turd." Polishing the dirt from an immoral act however is exactly what many men and women have attempted to achieve; moreover, they have done so with some success. The Steve Levitt study is one example. Other examples of the beautification of an ugly reality are the labels of abortion advocates: Pro-Choice and Planned Parenthood. The fact that any woman has a choice is indisputable, so does anyone with a gun in their hand and anger in their heart. The justification of the act of abortions on the grounds of choice however rarely takes into account the fact that the baby has some free-will that can not currently be exercised because they are living in a state of dependence. Pro-Choice or infanticide? Finally, the location that women who seek an abortion go to in order to have the operation is called Planned Parenthood. The name blooms with warmness. Many parents would prefer preparation over surprise. But, the name implies that if you are not ready to be a parent, and you have not planned accordingly, abortion is okay. At least to my thinking this is another example of beautifying an ugly reality.
Sometimes being a defender of life is agitating and offensive to other people. Jesus knew this well when he said, "If the world hates you keep in mind that it hated me first." Any thoughts you might have are welcome.
Monday, October 20, 2008
First, let me construct a definition of capitalism:
Capitalism is the system of free trade where all economic actors involved in the trade of goods or services are able to retain the gains from those trades.
From that definition, I presume many people would say, "What's wrong with that?"--people ought to be able to keep the money they earn. After all, the people gained by their own efforts. But people make the system of capitalism into much more than a mere system of free trade. They make it a constant and ever-present incentive to reward man's depravity.
Last week a young woman decided to auction her virginity on a radio show. When asked why she would sell her virginity, she remarked, "We live in a capitalist society. Why shouldn't I be allowed to capitalize on my virginity? . . . I'm using what I have to better myself." Did the ability to sell her virginity corrode her morals or were her morals sufficiently corroded by other influences to the point she would consider such an act? The problem of immoral behavior is not rooted in capitalism but in the depravity of human preferences. There are less outlandish examples as well, like the father who trades time spent with his children for long hours at the office to buy new toys. Did capitalism corrode his moral obligation to be the father of his children? Perhaps capitalism provided an option that, because of his weakness, he did not turn away from.
That we can be rewarded for distortions that we are willing to make to our own morality does not mean that capitalism corrodes our morals. Maybe capitalism is an ever-present incentive for some people to engage in questionable behavior. But temptation and compromise of character lurk around every corner in non-capitalist institutions as well (relationships and politics). There is a common indictment that markets are evil and create evil. But evil does not need the free market--it just uses it as a vessel sometimes.
Friday, October 17, 2008
Economists looking at this wreckage might be tempted to say “I told you so” because of the highly publicized role played by “quants” whose mathematical models were behind the bad valuations --- "quants" are people with backgrounds in things like mathematics or physics or specialized finance who believed that the price of the securities could be valued almost without any reference to the economics of the actual markets supporting them. One incredible story from the Bloomberg series I referenced in my last post is of a West-cost banker, skeptical of these securities, who tried unsuccessfully to get securities industry analysts to take a “bus tour” of the actual neighborhoods and homes supporting the securities. He apparently got no takers.
However, it is incorrect to suggest that economists can shift all of the blame to the quants, because the statistical modeling of future economic valuations is our sandbox. Some of these folks had to have had some economics training along the way. And, it was a Nobel prize-winning economist who co-authored a report (appearing in “Fannie Mae Papers”) which predicted:
“The paper concludes that the risk of default of the GSEs [Fannie Mar and Freddie Mac] is extremely small.”
Or, in historical context:
“As far as it is possible to do, these two ships [the Olympic and the Titanic] are designed to be unsinkable.” ---- a White Star promotion quoted in snopes.com
“An absurd delusion” ---- Meteorologist Isaac Cline about the possibility of a major hurricane devastating
So what does the Bible say about this? Is it a sin to be wrong? I don’t think so, but there’s no doubt that anything that sets up false gods is a sin, and a pride or arrogance in which we worship our own knowledge certainly fits the bill.
The Old Testament clearly distinguishes between knowledge and wisdom (Proverbs being the most obvious, but not only, example). There was a lot of knowledge in the sub-prime mortgage industry that was not backed up by wisdom. I strongly suspect, from his many teachings about the “last” and the “least among you”, that Jesus would have not spoken kindly of anyone in love with their own intellect, particularly if they (using a very apt idiom) “lorded it over” other people. And Paul warns (in the letter to the Philippians) against vanity and conceit. Doug has always been quick to point out that these warnings are particularly important to those of us whose vocation is one in which knowledge and prediction are our stock-in-trade.
If an engineer can be wrong about a ship or a bridge, or a meteorologist can be wrong about the path or severity of a storm, how much more humble should we economists be when what we are attempting to model are not physical forces but the behavior of human beings. I’m not saying we can’t try, and I’ll be happy to stand by my predictions about what would happen if the government imposed a $1.25 price ceiling on gasoline. But I always recall my favorite part of Asimov’s Foundation series when the spectacular scientific success of the Seldon model was upended by the behavior of a single person, the aberrant Mule.
Saturday, October 11, 2008
In my second post, I mentioned that there many actions in this whole crisis that admitted of significant self-justification, the "good intentions" of the road-paving variety. I also mentioned there would possibly be some things discovered that, to reuse my favorite metaphor, could only be described as coming from the Death Star. I've been doing some reading on a highly technical and little known part of the crisis that is so disgusting that I'm calling it "Darth Rater". This is the saga of the companies (primarily S&P and Moody's) who provided ratings for the toxic waste securities. In case you didn't guess, the outrage is that these securities at least initially received very favorable ratings from the two companies.*
These "ratings" probably haven't received the notice they deserved. At one level they're not that complicated: These two organizations rate debt securities in a way that is not all that much different than two of my favorite non-profit organizations: Consumers' Union (at least their non-political arm, the magazine "Consumer Reports") and "Wall-Watchers" which rates Christian charitable agencies. Beyond these two examples, our society is full of ratings of everything from movies to software to football players for fantasy leagues. Often we treat these ratings game as a kind of parlor entertainment, with the fun of pitting our own opinions against those of the pros, and with very small long term consequences. I mean, I always check Consumer Reports, but what is the actual long term cost, if they are wrong, of getting the second best buy on a washing machine? However, the cases of S&P and Moody's have serious differences, as follows:
1 ) My reliance on Consumer Reports is a private transaction. However, the ratings of the financial instruments has been incorporated into the structure of public regulation. For example, according to Bloomberg and the Wall Street Journal, regulation on bank reserves, insurance companies and so-forth is sometimes keyed to the ranking of the securities by the two agencies. Consider the following: I can read Consumer Reports and choose to heed or ignore their ratings of new cars.... that's a purely private transaction. But if I were appointed as a trustee of the investments of a church, and the by-laws required that I only invest in securiteis of a specific quality as rated by S&P or Moody's, then I am not free to ignore that requirement. If I am a banker, and government regulations make a similar requirement, then the decision to rely on the ratings becomes explicitly a matter of public policy.
2 ) Requirements about trustees and bankers that I mentioned above are another example of my "... Good Intentions" thread. We want church trustees and banks to make wise decisions. But when put that expectation in terms of structured regulations, there is a huge incentive for CYA activity of relying solely on the outside raters and not on one's own independent investigations. But, according to the Wall Street Journal, these professional opinions may be less informed than what an informed layperson could "read in a newspaper." Playing if safe by relying on Moody's or S&P rather than on one's own judgment is another example of Moral Hazard.
3 ) Private reliance on raters is subject to market discipline. My wife and I once invited friends over for dinner and a DVD which a movie reviewer had labeled something like "a light-hearterd comedy". The movie turned out to be full of graphic sexual references and cannibalism. That was the last time I paid any attention to that reviewer. If Consumer Reports or movie reviewers persistently make bad recommendations, presumably they will suffer in the market place for opinions. But governments, specifically the federal government, have enshrined Moody's and S&P as a part of a tight, government sponsored oligopoly so that they are not subject to as much market discipline. If you want your securities rated, you have very little choice but to play ball with Moody's and S&P.
4 ) Consumer Reports and Wall Watchers get their money from the consumers of the rated good and organizations, in the form of donations and (for Consumer Reports) subscriptions and sales. Consumer Reports will not carry advertising. Obviously, issues of popularity factor into their decisions as to which goods and organizations to rate. There are some obscure appliances or tiny non-profits that simply can not be handled. However, securities issuers are put in a position (because of the regulatory requirements mentioned above) that their products must be rated. Therefore, it is the securities issuers who pay for the rating services. Or, to say the same thing another way, the ratings companies make their money from the issuers of the securities they are rating. I can imagine that you can see where this is going.... To Be Continued.
* See especially a two-part September series in Bloomberg and an article in the Wall Street Journal.
Thursday, September 25, 2008
I am not enthralled with the positions of either of the two major Presidential candidates on this topic. One of them appears completely clueless. The other has a better handle about the causes and potential remedies for the problem, but --- to stretch the Star Wars analogy to its breaking point --- insists upon casting his analysis as some kind of war between the Good Side versus Bad Side, with the implication that all of our present problems are the result of evil people doing evil things. I will let you, the reader, debate which candidate is which, but the one I wish to challenge today is the one who would like us to believe that these problems were entirely cooked up on the Death Star (there I go again).
There is a likelihood that, by the time that the definitive history of this episode is written, instances of actual fraud will be found. There was undoubtedly a culture of mutual reinforcement between what is now the late, lamented Wall Street and the corridors of power in
At a minimum, the following good intentions help to contribute to disastrous results:
1 ) It is a good thing to want lower income families to be able to live in dignity in a house that they own and in which they can take pride of ownership.
2 ) It is a good thing to shape public policies that might control fraudulent behavior.
3 ) It is a good thing to want to keep the economy out of a recession.
Yet from each of these good intentions came a piece of the witches’ brew that became part of the current financial mess. Let me elaborate:
1 ( home ownership). Loans to buy houses are called mortgages, and banks have traditionally been very cautious about them. “Prime” home mortgages require significant down payments and credit analysis. In the 1970s during the Carter administration, federal regulators began watching banks to insure that they followed equal processes in considering mortgages from low income areas. By the 1990s, the
2 (keeping the economy out of a recession). In 2000, part of the
3 (accounting regulatory reforms) Following the corporate scandals of the 1990s, federal regulators adopted new accounting standards that required certain types of firms to report their assets at market value, not at what the firms believed that the assets would actually return.
So how did this perfect storm of good intentions get us to where we are today? Well, when the Fed finally began to unwind their easy credit conditions, interest rates went up. This began to burst the housing price bubble. As housing price quit rising at their unsustainable levels, the next John Doe who lost his job was not able to get out from under his mortgage. More and more subprime mortgages went into default, which exacerbated the housing price slowdown, which led to more John Does having problems. All of this meant that suddenly sub-prime mortgage backed securities were not performing as advertised, and the prices of these assets began to fall. But as the prices of these securities began to fall, the new federal regulations on market pricing kicked in, and this threatened the balance sheets of many firms (including Fannie and Freddie). In order to raise cash, firms began trying to dump their toxic sludge mortgage securities, meaning that the prices began to fall faster, causing more firms to have balance sheet problems, and so forth. Companies that sold what was in essence “insurance” against such fluctuations got slammed, and their survival was threatened (AIG being the big example). When enough assets, now not just securitized sub prime mortgages but also insurance contracts, corporate debt, and equity, start crashing together, nobody can sell anything because no buyer can come up with enough liquid assets to make a purchase. This is the liquidity crisis panic that has hit the
There are plenty of lessons in humility to go around here. I suspect that a lot of people with economics training were mistaken in their analysis of six years or so of data on subprime mortgage securities. Federal accounting regulators didn’t see the broader effects of their new accounting standards. No adult in the
Tuesday, September 23, 2008
The point I wish to make today is not proven Biblically. I think it is consistent with the Biblical text, but it depends on my own interpretations. What I wish to argue is that Judas did not become evil in the sense of waking up one day and saying, “Gee, I’d really like to sell Jesus to the authorities so that I can have 30 pieces of silver and buy that vacation house on the Mediterranean that I’ve always wanted.” Instead, I believe that Judas’ sin was in pursuing his own agenda of goodness and evil. I’ve had this idea for a long time, and I was interested that a recent episode of the “Naked Archaeologist” told pretty much the same story.*
Judas was one of the Twelve, called by Jesus, and participating with as part of his inner circle. There is a debate whether the name “Iscariot” refers to a place or perhaps to an association with radical anti-Roman sects. So put yourself into Judas’ shoes. Jesus makes his triumphal entry into Jerusalem. Soon, he fires up the population with the “cleansing of the temple.” If you were interested in Jesus as a temporal, political Messiah who was going to led a real-time uprising against the Romans and the upper-class collaborators, wouldn’t this be the time to strike? Instead, “they went out of the city” (Mark 11:19), returning to Jerusalem only for Jesus to engage in less political but more spiritual teachings and debates in the temple area. For example, in Mark it is in one of these teachings that Jesus issues his “Render to Caesar…” reply, which is hardly the way to get the populace stirred up for the revolution. Can’t you just imagine Judas saying to himself: “Jesus had the city in the palm of his hand, and he’s missing a golden opportunity?” After all, this would be about the zillionth time that one of the disciples misunderstood the nature of Jesus’ ministry and calling. How natural, how much sense it might have made to Judas to say, “If Jesus isn’t willing to bring things to a head, I’ll give him some help. If I send the guards to arrest him, then he’ll have no choice but to launch the revolution.” Of course, Judas was completely mistaken about Jesus task on earth. On a more mundane level, the “Naked Archaeologist” pointed out that by betraying Jesus to the religious authorities, Judas would have had every expectation that being held by the religious council would be the extent of Jesus’ troubles --- a jailed Jesus being the perfect spark for starting a revolt. Instead the religious leaders double-crossed Judas by handing Jesus over to Pilate on sedition charges, leading to His torture and crucifixion. Thus, the motive for Judas’ suicide is obvious.
I’m interested in this not just as a theological puzzle, but rather as part of a broader picture of our own moral sentiments. As mentioned above, I believe that when we substitute our own models of right and wrong for those of God it is in our misguided “good intentions” that we are capable of doing incalculable wrong.
* And if you want a retro source of a similar narrative, read the text of the songs in “Jesus Christ, Superstar”.
Monday, September 15, 2008
Since 1973 when the Supreme Court decided that restricting abortions violated the Constitutional right of Americans to privacy (under the Due Process clause of the fourteenth amendment) an estimated 50 million abortions have been carried out in the
Moreover, an estimated 97% of these 50 million abortions were reportedly obtained for the purposes of birth control, ie without the circumstances of rape, incest, or birth complications that are often repudiated as reasons for the allowance of abortion. Note also that 97% may be upward biased as there are likely significant amounts of women that obtain an abortion that do not admit to their rape. To continue the pregnancy that was built upon such a heinous act many would consider virtuous. Those particular circumstances are ones that I do not choose to expound on in this blog post. But, I would like to talk about the abortions obtained from those using abortion as birth control using the story of Cain and Abel.
The story of Cain and Abel takes place in Genesis Chapter 4. Cain is a farmer and Abel is shepherd. Both Cain and Abel produced to the Lord an offering from their occupation. Cain presented the Lord with some of his crops while Abel presented God with “the best of the firstborn lambs from his flock”. God rejected the offer Cain made but accepted the offer Abel made. Cain became jealous and later murdered Abel. When the Lord asked Cain about Abel he acted as though he was ignorant to his whereabouts. But, God told Cain that he could hear Abel’s blood cry from the ground.
The reason I convey this story is to make the point that we often commit egregious acts of violence or wrong for petty reasons, because something inconveniences our lives. Often these violent acts such as abortion are justified by an explanation that the mother would have been unable to give the child the very best care. While I cannot measure the sincerity of such a claim it appears to be a partial explanation that misses the greater scope and importance of life. Life is precious. This is not a concept easily understood. How can you convince someone that their child’s life is sacred when they do not recognize their own life as being sacred? Jesus died for every person on this earth. John 3:16 did not read, “God so loved the people in the American Suburbs that he gave his only begotten son . . .”. Instead the scripture reads, “God so love the world”.
Convenience though is king. In economics we say that “profits direct business” and many times these businesses are in the business of making our lives easier and more convenient. This is not inherently a bad thing. Increased convenience also gives us the opportunity to invest our time in other endeavors that have the possibility of increasing productivity or the quality of our relationships and community with other people as well as God (Though our free time may not often be used in this way). Instead I believe that all of this convenience has had the unintended consequence of creating a culture that does not want to -or- does not understand the concept of being inconvenienced. In that way our love of convenience may create a mindset that abhors anything that blocks our path to selfish maximization of our own happiness and goals. What is more, we do not even realize how petty these goals really are!
Wednesday, September 10, 2008
On a recent vacation, I had the opportunity to visit several public buildings such as museums, restaurants, theaters, and churches. What struck me (and maybe I have just been missing this recently) is how many of the Men’s Rooms now have both paper towel dispensers and electric hand dryers. I can recall a time when many companies put up placards saying that, in order to save the forests of the world, they were eliminating paper towel dispensers and switching to electric hand dryers. Of course, electric hand dryers run on, well, electricity, which is produced largely (in the
Fair enough, but I had this weird picture of someone wedded to bumper sticker environmental slogans washing his hands at a theater with just a couple of minutes left in the intermission….the lights are blinking, and soon he will be shut-out of the second act. He’s standing there, paralyzed with indecision, trying to figure out what is better for healing the planet.
“I if I use the paper towels, then in some small way I contribute to deforestation (this is true even if these particular towels are re-cycled, because any shift in demand is going to affect the whole market). But if I use the dryer, then I’m using electricity which adds an incremental amount of use of fossil fuels, unless of course this electricity is produced by a nuclear base-load power plant or wind-power. But there’s the same general problem as with the towels; any increase in demand is going to pass through the entire grid, so even if in Manhattan they have a contract for wind power (not generated, of course, by windmills that would harm the vistas of people living on Cape Cod or Martha’s Vineyard, but windmills that are somewhere out in flyover country where nobody cares about the vistas, except that windmills do have an unfortunate side-effect of buzz-sawing birds ) the net effect could still be an increase in load from a gas-turbine generation facility”….. Tick Tock Tick Tock, time is running out. What will you choose? Do you want the paper pill or the electricity pill?
Adam Smith is often completely misunderstood to assert that individuals are naturally greedy or uncaring towards one another. Actually, what he’s saying in the Wealth of Nations is that because of the information-decentralized and highly interconnected world of the market, it’s virtually impossible to try to squeeze virtue through society by imposing some social benefit lens on our daily market transactions. Although he wasn’t talking about “green” consumers, I think his point pretty well applies to the example I’ve given above. From reading through the Theory of Moral Sentiments, I don’t have any doubt that Smith thought that virtuous men and women might want to consider their own preferences about final consumption and whether, for example, a 24,000 square foot mansion or gold-leaf covered ice cream are marks of prudence. But I think he would have been skeptical of our current moral fascinations about paper or plastic, organic or attractive, this fair-trade organization versus the other fair-trade organization, trees or electricity, hybrid versus plug-in. And, as a final thought, as Doug often has pointed out to me and is implicit in Adam Smith, if you purchase prudently in the market, don’t you have more resources at the end of the month that you could directly contribute to solving some of society’s problems?
Monday, September 8, 2008
Maybe this has been the case in years before, but I was really struck this year by how many times the report that families moved in together (parents with adult children and grandchildren, sibling with siblings, and so forth) was mentioned. As I said, this probably meant that it happened a lot, that it was remembered, and that it was striking to my students. I know that my mother and her sister were "farmed out" (as she put it) with her aunts and uncles in another state for many summers during the Depression. My father's Dad spent some time working for his brother. My Great Grandmother and Great Grandfather moved in with my great aunt Bernice.
When I was discussing another long-lost part of the social safety net to my students (religious homes for unwed mothers) one of my students told me essentially that it was impossible to think of America ever going back to such a system. It just couldn't happen. I wonder if the same thing is true of the extended family? Social Security, Medicare, and Medicaid have not had merely economic consequences; they have had enormous social consequences, for good or ill, as well.
Tuesday, September 2, 2008
My new hero is Soren Kierkegaard. He is a tremendous writer that does not pull punches and he wrote in an environment not dissimilar to the environment of the church today,
- Intellectualism – Direct mental assent to Christ without the involvement of the heart. (Recall the first time that you accepted Jesus, was it a direct mental assent? Or, did your heart convict you of the need for a savior and then knowledge about Him was desired? Many churches today are stuck in the mode of discussing their brokenness and the intellectual ideas surrounding that without their heart saying “Yes” to the healing power of Jesus.)
- Formalism – Those in the aisle practiced a kind of silent atheism, unbelieving believers. (Those who attend church out of habit or for the purpose of taking something away from the church. For example, that the church would provide them with a social platform or a good moral foundation for their children. Lost in the formalism is the radical love for the person of Jesus Christ. Finally in formalism we almost never ask what we can contribute to the church because habit does not actively consider the needs of other members of the church)
- Pharisaism – Hypocritical Clergy serve themselves rather than the flock they promised to tend and keep. (Leaders with alternative motivations that benefit them and not necessarily the Kingdom are as prevalent today as they were then. Hunger for power and wealth derails many well meaning men and women in leadership)
Those dominated Kierkegaard’s contemporary church and we can hear it in the tone that Kierkegaard writes. I actually found the book Provocations on Jason Upton’s recommended reading page for following Jesus. It is a survey of his writings and is an excellent alternative to his normally dense and difficult essays. Likely, many of my upcoming posts will contain seeds from his thoughts and so here I will leave you with three of my favorite Kierkegaard quotes thus far (the first twenty pages or so),
“The path of an honest fighter is a difficult one. And when the fighter grows cool in the evening of his life this is still no excuse to retire into games and amusement. Whoever remains faithful to his decision will realize that his whole life is a struggle. Such a person does not proudly fall into the temptation of telling others of what he has done with his life. Nor will he talk about the “great decisions” he has made. He knows full well that at decisive moments you have to renew your resolve again and again and that this alone makes good the decision and the decision good.”
“He who says, “No,” becomes almost afraid of himself. But, he who says “Yes, I will,” is all too pleased with himself. The world is quite inclined- even eager- to make promises, for a promise appears very fine at the moment- it inspires! Yet, this is the very reason the eternal is suspicious of promises.”
“The greatest danger of Christianity is, I contend, not heresies, heterodoxies, not atheists, not profane secularism – no, but the kind of orthodoxy which is cordial drivel, mediocrity served up sweet.”
Wednesday, August 27, 2008
"Government is simply the name we give to the things we choose to do together."
This is a logical fallacy. Government is one of the things we choose to do together, but not everything that we choose to do together is government. America has long been known as a nation that does a lot of non-government things together: everything from churches to Boys and Girls Clubs to bowling leagues are things we do together that are not "government." For that matter, when you or I engage in a market exchange, it is not something we are doing something by ourselves. When I bought a rug online, it isn't as though the rug sprang fully formed out of some primitive goo. There was a seller, and we both thought we were better off because of that exchange.
Sunday, August 24, 2008
Like the economist says, "We are worth what somebody is willing to pay." We did not determine our own worth, but, when Jesus died upon the cross the Father determined our value and worth. The Father was saying that we are worth the sacrifice of his only son. What is more is that He does not have buyer's remorse. We may not be able to fathom the sentiment that produces such grace . . . and that is exactly what makes it so scandalous. We do not merit such grace and that makes us believe that we are not worth it; but, if you come to a place of stillness with the Father you will hear the voice of God calling you His beloved.
The truth is that we are His beloved and also that we did nothing to merit that title. It is by grace alone that we heard the call of eternity and inherited such a position. Remember, we did not determine our value, the Father did, and there is no higher price He could have paid.
Thursday, August 21, 2008
As we reached a particularly meaty section near the end of the book, and over lunch discussed areas for future study such as corporate governance and "social" versus "fiduciary" responsibility, we had a lively discussion over how the concept of "equality" enters into economic policy. With apologies to the other members of the group for any over-simplifications or omissions, here's a laundry list of interesting ideas that catapulted around the room.
1 ) Is there or should there be any difference on how we view corporate executives who earn large compensation because the company they manage is doing very well (through, for example, incentives aligned through stock ownership) versus corporate executives who are paid large bonuses when the company they manage is going into the tank?
2 ) While question number 1 ) above has apparently entered the political radar screen from both political parties, why is this viewed a political issue instead of, above all, a shareholder issue? If I'm upset as a voter about Mr. or Ms. X getting a fat golden parachute to leave a company that's been run into the ground, why shouldn't I be even more upset as a shareholder? Corporations are, after all, voluntary associations of capital providers, operating under a great deal of government oversight in return for various liability limitations. As someone who has helped to incorporate a non-profit corporation, I know that the bylaws of a corporation --- the rules of governance --- aren't just incidental trivia to the incorporation process. Why don't we have more discussions about the public choice issues to shareholders of corporate bylaws?
3 ) "Equality" is by itself a loosely defined and extremely fluid concept. Equality between whom, and upon what dimensions?
4 ) Following up on 3 ) how many Americans actually believe in equality of either income or wealth as something that has a prior claim in it's own right? To make this concrete, what proportion of Americans would favor the force power of government being used to take either income or wealth from the "wealthy" and destroy it, simply for the purpose of making the gap between the "rich" and the "poor" smaller? Before you, the reader, argue that this is a silly scenario, consider the ongoing debate over the appropriate level of the tax on capital gains tax. The tax on capital gains appears to be one of the best examples of a tax that can actually provide less income to the government when the tax rate is raised by a modest amount. The reason is that it is relatively easy for stockholders to avoid making positive capital gains by rearranging their decisions about when to sell stock. One of the two major party Presidential candidates has already indicated that, for fairness reasons, he might favor an increase in the capital gains tax rate even if it meant that the government received less money.
5 ) Do Americans' views on this issue change when the abstract idea of "the rich" is replaced with a specific person from the world of sports or entertainment (Tiger Woods, Michael Phelps, Christian Bale, Brett Favre, Buster Posey)? We apparently crave inequality on the field and on the screen. No one seriously has argued that Michael Phelps ought to swim with weights attached. What about when these talented individuals earn CEO-like salaries, signing bonuses, or endorsement contracts?
6 ) Do the views of Europeans on questions 4 ) and 5 ) differ from the views of Americans?
7 ) Is there any support for an alignment of the Biblical concepts of justice with an outcomes-based rule of equality if it is the government that is supposed to (attempt) to enforce the required redistribution? I can't find a lot of support for that proposition. I just went to BibleGateway and searched on "equality" in several different translations. The only resource-based reference that repeatedly arose was Paul's exhortation for private assistance between the more well and less well off churches, with the explicit idea that the flow would reverse if the situations were reversed. "Then there will be equality" (2 Corinthians 8:14, NIV).
What I see in the Bible is a whole lot of discussion of:
A ) Unjust means of acquiring wealth, with particular emphasis on deceit, cheating, stealing, and corruption of legal and religious institutions.
B ) Unjust insensitivity of those who have wealth in ignoring those "marker" members of society who need assistance: orphans, widows, invalids, prisoners, aliens, those living through natural disasters, and so forth.
(I will leave for a future post a discussion of what the Biblical authors meant when they used the term "the poor". The original language words translated as "poor" apparently have meaning beyond "very low income individuals".)
Tuesday, August 19, 2008
My conjecture from the previous post was that successful boycotts possessed the common strand of sacrifice. In the history of boycotts often times banding together and enduring extended periods of suffering was necessary to push the opposition to the point of fatigue. Boycotts that did not do accomplish this likely did not accomplish their objectives (counter examples are welcome). Martin Luther King once said that he was sure that his capacity for suffering was greater than the ability of others to inflict pain upon him.
About a year ago my Grandmother sent me a package that contained a photo album of some boyhood pictures. It was filled with aunts and uncles in their youth and other relatives that had since passed into eternity. And, among those pictures my Grandma included a World War Two ration book that belonged to my Great Grandmother. Holding this small slice of history I was somewhat in awe. But, I’ll never forget what a friend of mine said about the ration book that really troubled me, “That will never happen again.” What he was saying was that sacrifice is a foreign word and/or action to our generation. Nobody likes to hear “sacrifice”, it is politically unpopular and so it made me wonder if Americans could bring themselves to sacrifice or if my small slice of history was really just that –history.
Then again, it is not likely that Americans are the only strangers to the word. Europeans often champion nonviolent action; but, dialogue often does not lead to the desired outcome. Only two weeks ago Nicolas Sarkozy, Prime Minister of France, waved a truce agreement between
Eventually something will need to happen and it will require some kind of sacrifice. The nature of that sacrifice is still in question. Will it be non violent, perhaps a boycott of
Sure it is easy to talk about boycotting the opening ceremonies of the Olympics; but, when human rights violations are happening via conquest in your backyard reluctance grows. In such a situation real cost is involved and those without the resolve to endure suffering wilt and allow injustice to persist.
Friday, August 15, 2008
Despite the possibility for a platform opposed to
Recall that when I last posted, EU Vice President stated that the very least the EU would do was to protest the opening ceremonies. However, when looking for news reports about who boycotted the opening ceremonies the only major world leader absent from the opening ceremonies for the purpose of boycott was the Prime Minister of Poland, Donald Tusk. Something must have happened because Mr. Tusk was not the only world leader talking boycott.
Similarly, an excellent piece was done recently on Outside the Lines piece where Lebron James and Kobe Bryant were questioned about their sudden retreat from a previously position of no-toleration with respect to China’s human rights record. And, the consensus was, “This is sport –not politics.” That sentiment was echoed by the recent release of Boycott: Stolen Dreams of the 1980 Moscow Olympics that profiles 21 athletes that had once-in-a-lifetime dreams slip from their hands because the
Returning to Mr. Tusk, did his being absent have a significant effect on
The reason this post was such a long time coming is that I could not find any literature regarding boycotts and their historical effectiveness. However, if I am to play armchair historian it seems that the only protests that were impactful were those joined with sacrifice and suffering on the part of the protesters. Even then this conjecture is weak. Consider the Civil Rights Movement and Apartheid where both groups of protesters were subject to brutal police beatings that stirred the fence riders around them and throughout their country. But, the question of whether somebody else opting not to go the Olympic ceremonies has an impact --- the answer seems to be no.
Wednesday, August 13, 2008
The "third payer" problem is not unique to health insurance. It occurs with other kinds of insurance, and even other types of economic activity. Consider automobile insurance. If you are rear-ended, suppose the payment for repairs falls to the other person's insurance. What typically occurs in the negotiations over the repairs? Because you are not paying the bill for the repair, you have every incentive to instruct the paint and body shop to provide for essentially a gold-plated repair job, perhaps even beyond what is needed to return your car to its pre-crash condition: brand new own-brand replacement parts, possibly repairing damage or wear that existed before the accident, and so forth. The insurance company which is footing the bill naturally has an incentive to resist at every turn. Anyone who has ever been involved in one of these disputes knows they can be unpleasant. For a more mundane non-insurance example, suppose you told your teenager "I will buy you five new shirts for back-to-school." If nothing else transpires, the person who chooses the clothes is not the person who pays the bill. This "third party payment problem" is endemic in health care, where the people who choose the level of services are typically not the ones who pay the bill.
But this is where the tie to the employer comes in, with what I call the "fourth party payment problem." In the automobile insurance example, the consumer does have some long-run choices to be made. If it is your insurance company that is balking, you can shop around for companies with better reputations. Some even advertise how they help you get what you are entitled to from the other companies. Certainly through advertisements, word of mouth reputations, and well-respected independent ratings sources (such as Consumer Reports) a consumer may obtain information that allows him to exercise competitive pressure before the "third party" problem is an issue. In health care, however, even that minimal level of competitive pressure is distorted because we employees often don't have any choice (or only very limited choices) over our health carriers. Very few employers offer a full "cafeteria" plan of all available health insurers and HMOs, many provide a small set, some simply make a single choice for all employees. And, the criteria that employers use to choose health plans may not be the ones that employees would wish. Taken at the limit, an insurance or HMO plan that held down costs by being aggressive in fighting health-customer wishes might be the one favored by a cost-conscious employer. Many times, employers use their employer contributions to distort the underlying rate structure. How many automobile insurance companies that you know of simply have two rate levels: one for individuals, and one for "family" coverage, where "family coverage" could mean anything from you plus one spouse, or you and one non-spouse partner, or you and one spouse and four teenage drivers? Furthermore, if you don't like those rate classifications, you can always go shop around. That's almost never the case with employee-provided health insurance. With the fourth party payment problem, at best you incur the incredible transactions costs of switching employers, and that supposes that your new employer doesn't alter its plan after one year. Trying to argue with your human resources department that you and your spouse shouldn't pay the same "family" premium as a family of eight is just spitting in the wind. Can you imagine if we paid for restaurant food under this same system? (In Florida, the system is even worse. As an employee of Florida State University, I pay money to Florida State, Florida State has its own rules and bureaucracy and pays money to an independent contractor for the State of Florida, the independent contractor for the State of Florida has its own rules and bureaucracy and then pays the insurance company, which has its own rules and bureaucracy. I effectively have "fifth party" payer problems! I have three different health care ID numbers: one at Florida State, another for the State of Florida, and a third for the insurance company. I can't threaten even to move to a different employer if that other university is also a part of the Florida system. And, when as has happened to me repeatedly, a computer error threatens to cancel my health insurance, I end up with three bureaucracies pointing fingers at one another.)
All of this is a reason that I believe that the most important part of health insurance reform is to pry apart the welding of the employment relationship and the individual's decisions about health insurance coverage. This involves moving the tax deduction for health insurance away from the employer and to return some competitive pressure to the employee.* Employees could buy individual policies, or, for favorable group ratings, continue to associate with the other employees of their current firms. We might see a return to non-employee based group ratings that existed long before our current system. Group ratings could be available for fraternal organizations, affiliation groups (AARP hosts various types of independent insurance plans), churches, trade associations (the American Economics Associational already hosts group rates from outside life insurance companies for its members) and so forth. Something very much like this was the model for many years for membership in credit unions. With this reform, I believe that a major anxiety about health insurance ("If I lose my job, I lose my employer-provided health benefits") would be significantly attenuated.
Please do not misunderstand me. Moving health care choices to individuals and away from employers is not a win-win situation. Employee-provided health care insurance packages have served as a social vehicle to force comprehensive ratings pools that avoid, to a large but not complete degree, the problem of "individual rating." In car insurance, we tend to accept individual rating. Young male drivers with a lot of speeding tickets tend to pay much higher premiums, and sometimes getting any insurance may be a problem. I believe that we accept this because many of the rate disparities are tied either directly to individual behavior (lots of crashes and tickets) or indirectly to unseen attributes that have obvious basis in statistical reality. Every parent may believe that their 16 year old son drives more safely than 95 percent of the 16 year old girls they see around town, but the aggregate statistics are pretty compelling. With health care, if we re-boot the system to tie health insurer choice to individuals, what do we do with the people who already have cancer, heart disease, MS, Cystic Fibrosis, and so forth? How do we handle the incredible advances for genetic screening, even probabilistic genetic screening? This is the Achilee's Heel of such a switchover, and I will consider some possible solutions in a later post.
*Because about half of all American pay very little in income tax, we might have to move to a refundable tax credit system.
Thursday, August 7, 2008
In particular, I think it is necessary to distinguish between the concepts of voluntary action and markets. For one thing, both "liberals" and "conservatives" sometimes launch a government vs. markets debate that can be both incomplete and inaccurate. In the 1960s, Richard Cornuelle popularized the term the "independent sector" in his book Reclaiming the American Dream. The important point he made was that a lot goes on in American society that is not summed up by an artificial polarity of government action versus for-profit-enterprises. In this indepedent realm we find religious, charitable, philanthropic, and non-profit activity. Furthermore, this important sector need not be insulated from the concepts of government and/or markets. Doug is really the expert on this area, so I hope he can expand on this in the future.
Instead I'd like to consider the discussion of the sub-prime mortgage market. It's important to remember that this is a particular economic institution with particular economic features. Just because it is a "market" does not mean it should be immune from criticism by economists who recognize that government, also, can fail, nor is our choice simply between this market and some undefined "government" alternative that might or might not have made things better. Consider, for example, how most consumer loans, including many mortgages, used to be made. The customer would approach a bank loan officer, fill out some forms, and have a discussion with the loan officer. The loan officer either could make the decision regarding the loan or had, at the very least, a great deal of input in that decision. Banks kept track of the performance history of loans made by their loan officers. A loan officer could be rated down for a portfolio of loans that was either a ) so cautious that there were few problems but not enough returns, or b) a history of making too many bad loans.
The process I've just described may or may not look like a modern definition of a "market." There is no organized central location, nor a thick shelf of formal bids and offers. The loan officer may or may not have much leeway over some of the loan's terms, but might have some flexibility on others. A good loan officer might be one who relied upon everything from instinct to long-term experiences to refinement of those parts of the loan agreement over which she had some control. Nevertheless, I consider this system a "market" system, or, more specfically, one of private, voluntary exchange. (Of course, the mortgage could have been an FHA mortgage, and thus the entire transaction might have simultaneously been a market transaction in the context of government activity).
As has been widely discussed, the changes in the mortgage "markets" over the last several years include the significant increase in practices such as re-selling and bundling mortgages into mortgage backed securities traded in national and even international markets. ALL OTHER THINGS BEING EQUAL, these advancements had the theoretically advantageous properties of increasing liquidity and diversifying risk. A portfolio of one-ten-thousandth of 10,000 loans diversifies risk more than a full share of a single one of the loans.
But, are ALL OTHER THINGS EQUAL? One obvious change was that loans were typically originated and processed differently. The importance of the local loan officer down at the local branch diminished considerably. I have a colleague in financial economics who, in addition to calling the housing market a bubble long before anyone else I know, has plausibly argued that all other things were not equal. Specifically, he points out that the older practice of individual loan officers having responsibility for the performance for a small group of loans with "their names on them" is very different than when 10,000 people each share in 10,000 loans. Namely, the old system created an evaluation process with a loan officer having a strong incentive to balance all available information in making a decision about the loan and to keep watch on the loan as it was being paid. Much of this may have been lost in a "Here, fill out this form" mentality in which mortgages were quickly resold and then bundled and resold again as diversified securities.
If we have found that there are advantages to moving back to the older system, and if the older system seems less "market-like" in some kind of Bonfire of the Vanities sense, then so be it. Not all forms of private, decentralized, voluntary exchange look like eBay auctions or trade-sports markets. Of course, the real kicker to the sub-prime mortgage mess is that the newer, more sophisticated "markets" had a Big-Government six-ton elephant in the living room anyway: Fannie Mae and Freddie Mac were creatures of the federal government designed to look like private entities with a maybe-we-do-and-maybe-we-don't role for the U.S. taxpayer. Many officials of these firms had resumes that were more political than financial. That doesn't exactly look like a "free market" in any sense that I'm used to talking about.
Let me close with another example. My wife and I many years ago used a heating and air-conditioning contractor I'll call "Company E." Over the years, we have found Company E to perform high quality work and to provide exceptional customer service. When we decided that it was time to replace a unit, we had Company E secure bids across manufacturers, but we did not ourselves structure a formal competition between Company E and other contractors. Company E had won our trust and our loyalty. Our decision to go directly to Company E may not have looked much like a market-based decision. But I think that it is a good example about why economists should talk in terms of the whole scope of voluntary actions. I think our decision is just as much a "free-market" decision as a formal and highly centralized market that is whirring away under some vague assumption that the government will step in if the outcomes get too uncomfortable. Too many people think that notions of trust, commitment, loyalty, reciprocity, discernment of intentions, monitoring and so forth are concepts that exist in opposition to markets. I believe, instead, that they are integral to the notion of markets as voluntary action. Too many people also believe that government intervention somehow is a perfect antidote to bad faith dealings and moral hazard problems, when as we have seen they can actually make things worse. I think it's instructive how much the prophets of the Old Testament disliked the hybrid of economic and political power acting together for unjust purposes.
The universe of voluntary exchange structures is vast, and no economist should confuse that universe with any specific manifestation. Human society is capable of vast feats of physical engineering, but we still have bridges that collapse and door handles that break and computers that overheat. The subprime mortgage market may not have worked well, but we may yet decide that it worked better than the current hysteria suggests that it did. (I can make an argument that a lot of responsible people were able to purchase homes under this system that might have been shut out by our hypothetical local loan officer.) But we can also talk about other market processes that might do things better. We can talk about whether the fact that there was an active role of government influence made things better or made things worse