Monday, August 30, 2010

Love is the Measure

Recently I have been reading Crazy Love by Francis Chan (the review should be up soon). The book has given me so much to reflect on. One specific exercise that Chan discusses involves this famous passage from 1 Corinthians 13:

Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It is not rude, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres. 

Since we are called to be the image-bearers of God and God is Love we should be demonstrating love in the world. Can we replace the word love in that passage with our names without feeling like liars?

Friday, August 27, 2010

Transparency for Thee But Not for Me

In the Theory of Moral Sentiments and Economics of Sustainability classes, we try to stay tethered to the economics, but there's still a lot of room for passion about various issues, and some interesting debates. It is notable, however, how much the economics and the passions coincide on one particular issue: the insanity of U.S. agricultural market interventions: tariffs, quotas, cartels, incentives to over-farm, incentives to underfarm, and so forth. From almost any angle (market efficiency, domestic income concerns, justice, aid to developing economies, environmental concerns) these programs are deficient. From a Christian perspective, they are almost indefensible under any theological lens. (BTW, we don't let the Europeans' highly protectionist trade policies off the hook by any means). One of the things we do is to call up on the classroom projector screen the U.S.D.A.'s database of who receives various types of the direct subsidies. So, THIS IS NOT GOOD NEWS. The U.S.D.A. has decided to scale back its transparency and disclosure on subsidy payments, making it harder to follow the trail of taxpayer money redistributed to the already wealthy. (Again, a disclosure: I found out about this through an editorial in the Wall Street Journal, which I don't link to because their content becomes subscriber only after a short period of time.)

Wednesday, August 25, 2010

Reciprocity, Boyo, Is the Key to All Relationships II

Overhead at Leach Rec Center:

"So we used to take turns doing the dishes. But now, every knife, fork, spoon, cup, plate, pot and pan in the apartment is filthy, and I washed them all last and I'm not going to do it now."

Indeed, there are public good problems, even at the small group level. (And yes, they could "solve" the problem by having entirely separate sets of silverware, dishes, cups, pots, and pans; but I remember how much storage space there is in an undergraduate apartment with 4 guys. That production technology just won't work.)

Friday, August 20, 2010

The Flying Flipping Finger of Fate

Why did I say in a previous post that many times when non-economists use the world "speculator" they are probably engaged in a pejorative and emotional description that has little to do with economics?

A good working definition is that speculation is a purchase (or a sale) whose motivation is for capital gains rather than for (or in addition to) a stream of consumptive benefits or for the hedging of risks. There's no moral content to the term "speculation," and the definition covers numerous activities that average Americans practice all the time. Have you ever been a collector of anything (baseball cards, campaign buttons, plates) in which you bought something because you thought it might go up in value? Then you are a speculator. Do you consider whether the funds in your IRA or 401k will go up in value and when you can cash them in? Speculation. Have you or has anyone you know ever said something like "I'll buy a townhouse for my daughter while she goes to college; it's really a good investment and I can sell it at a profit when she graduates" ? You qualify too.

My hypothesis is that we have social conventions in which some commodities (anything that can generate capital gains) are naturally thought of in a way that says that they are supposed to go "up" or "down" in price, and that anyone trading for capital gains in the opposite direction is tarred as a "speculator." Thus, this public expectation is that stocks "should" go up in price, and anybody who trades on opposite expectations (a short-seller) is a nasty speculator. On the other hand, food and energy prices are good when they go down. So, when oil price rise, we look for the speculators (but not when they go down). And, as we saw in the Graham book from my previous posts, when food prices go up during a shortage, we blame the "sinful" (quite literally, in Graham's eyes) speculator. On the other hand, if you spend any time in rural areas, you'll find that it's the evil speculators who are always driving down the prices of corn, soybeans, or wheat, but when prices are going up, that's good ole supply and demand. (To an economist, demand or supply shifts from changes in expectations about the future are correctly part of the supply and demand process).

But, probably the best example of recent memory has been U.S. housing prices. Everyone wanted on the capital gains bandwagon (unless, of course, you were a middle income young couple trying to buy your first house). So according to my hypothesis, people who traded on upward expectations were the good guys; traders who expected that the bubble would eventually burst, would be the villains. Indeed, I've talked with friends and family who can't believe how people can walk around as upstanding citizens and admit that they were shorting the housing bubble. I tell them that we would have been a lot better off if MORE people had realized that the bubble was going to burst and that, if I had could have found a convenient security to have profited from an eventual housing price drop, I probably would have done the same thing. On the other side, the speculators who were helping to drive up the price of housing took on the status of cult heroes. According to this count, we had no fewer than five cable television shows on house flippers: Flip This House, Property Ladder, Flip That House, Real Estate Pros, and Flipping Out. I think my conjecture explains why we didn't have shows called "Short This Bubble."

Tuesday, August 17, 2010

Swiss Revolutions II: French, German, and Italian

One of the marvels of the Swiss Federation is that the union growing out of the medieval city-states has produced a single nation with three different languages. I was thinking of this while continuing to read sections of the book by W. Fred Graham on Calvin, the reformed church, and economics (see the earlier posts). Unfortunately, what I was thinking about was why, it seems to me, that pastors and economists can be nominally of the same tongue and yet still seem to speak completely different languages. For someone that wants to have cross-fertilization between theology and economics, this can be a real problem.

The case in point was that I got to a section in Graham's book in which he discussed exactly the example I used in the earlier post: crop failures leading to increases in grain prices. Graham states the economic condition, then he interprets what he believes Calvin's position is, and then he produces the supporting language from Calvin. The problems are a) the economic distresses that Graham posits have little or nothing to do with the economic issues he considers, and then b) the supporting language from Calvin has little or nothing to do with how Graham frames the problem.

In the presence of a crop failure, as we have seen, prices will rise in a competitive market. This is a shift backward in the supply curve. But Graham says,"Perhaps because of the lack of abundance in basic grains, Calvin was particularly incensed at those who engaged in monopoly or speculation." Fair enough, but neither have anything in particular to do with Geneva having few farming lands in her sphere of influence. And, as we just noted, prices of grains rise and fall with agricultural conditions even if those markets are highly competitive. Graham also tags speculation, but as I will discuss in a follow-up post, while "speculation" may have a technical economic meaning, in popular discussions, where it is used negatively as here by Graham, it is almost always in an emotional and non-rigorous sense that has no real economic meaning.

Then Graham provides his quotes from Calvin's commentary on Amos. But the problem is, Calvin doesn't directly mention monopoly or speculation. Graham provides excerpts from Calvin, but to be fair I went online to an English translation of his commentaries on Amos. There's not much that Graham didn't quote, and again, there's nothing about monopolies per se nor about speculation. Instead, Calvin exposes three problems from the time of Amos. 1 ) Wealthy grain merchants were greedy. 2) Wealthy grain merchants were more than willing to allow starving people to sell themselves into slavery. 3 )Wealthy grain merchants committed fraud, selling chaff and waste mixed into the grain as the grain itself. All of these things are bad, they do match what is written in Amos, and Calvin was correct to criticize them. But they are not a general condemnation of either monopoly power or speculation.

Apple Corporation has gone through a period in which they had a type of market power on "iPods" and"iPhones" (although this is eroding).If you have bought anything from mutual fund shares to baseball cards because you hope to profit from reselling them (capital gains) then you have engaged in speculation. I don't see that either of these have anything to do with the conditions in the time of Amos, with wheat prices rising because of crop failures, or with Calvin's comments. (It goes without saying that I do see the implications in the other direction: greed, heartlessness, and fraud in any field of human endeavor are timeless, universal problems.) But maybe I'm a in a city state (Economicus?) that just doesn't speak the same language as pastors and theologians.

Sunday, August 15, 2010

Feel the Global Love

This is to continue on my discussion that, as Milton Friedman once forcefully argued, the marketplace is an institution that serves to break down tribal and kinship boundaries. Consider my Dad. Before he turned 20, he had been assigned to the U.S.S. Leutze, served in the South Pacific, been blown off of the ship into the ocean by the explosion of a Japanese kamikaze, seen his shipmates die, and witnessed the liberation of a Japanese military concentration camp for Korean women forced into sex slavery. If you want a visual of some of this, consider the picture at the top of the post. This is the U.S.S. Leutze just after the Kamikaze attack. If I understand what Dad told me correctly, he was manning the guns at the left foreground. He believes that he was the closest sailor to the explosion who wasn't killed. (Parenthetically, how awesome is it that I can type in "Leutze kamikaze attack" on Google Images and in a fraction of a second find this picture, which I don't know if my father ever saw.)

If anyone could have a rational reason not to forgive people of another group, it would be my Dad and the Japanese. Whether he forgave Tojo, or the commander of the Kamikaze force, or the pilot of this plane, I will never know. But I do know that by the time I was old enough to understand, he didn't carry any grudge for the modern Japanese people. He admired their technology, their ingenuity, and the quality of their manufacturing. When he was searching Consumer Reports for the best buy on a TV or a DVD palyer, he never said "Oh, that's a Toshiba or a Sony, I don't want something made by the Japanese in my house." I don't know how Dad would have reacted if someone had given him a piece of paper that said "I forgive the Japanese and I am donating $200 to help them rebuild their economy." But he did essentially that every time he bought a Japanese camera or DVD player. And, those Japanese electronics items eventually represented some kind of reconciliation between the Japanese and their former victims in Singapore, Malaysia, etc..

[Even if Dad had felt that he wanted to stop at the Japanese economic boundary, the market would have made it difficult for him to engage in those preferences. If you don't like, for example, the French, how do you know what French-made items are in your car or computer or in the jet that flies you to Atlanta or San Diego?]

I don't believe that the market is a sacred institution. But I believe that objectively it has properties that I have been discussing. I think that it's important to state this kind of opinion, particularly when there seems to be a strong tendency in Christian circles to bash the market. I know that some people believe that in doing so they are prophetically "speaking truth to power." But who really knows at any one time which prophets are right and wrong. In Israel and Judah, the prophets we read in the Bible weren't speaking to a land with no other prophets; they were speaking to a land in which there were a lot of prophets. Some of them were just off base, even if what they were saying was very comfortable to the religious leaders of the time.

Saturday, August 14, 2010

My Tribe

Now that I've gotten the insert picture mode working again, I thought I'd post the four Isaac family cars I mentioned. Which two are not like the others?

(These are Googlephotos, but pretty accurate.)

Friday, August 13, 2010

Reciprocity, Boyo, Is the Key to All Relationships*

I was filled with a sense of wonder when I read P.J. O'Rourke despair that no one under the age of 30 could understand that not all that long ago boys had long discussions about which cars were the best. That brought back memories of discussions at cub scout meetings and sleepovers that I hadn't remembered in years. Back then, families had automobile loyalties that led to Seminole/Gator type discussions. It went without comment that the Byrons (across the street, over one house) were Episcoplians; the fact the they were Democrats was the source of some whispering. But what really got the juices flowing was they were a fudamentalist Ford family (Fix or Repair Daily). The Halsteads drove Oldsmobiles. Neither of my grandfathers, to my knowledge, ever drove anything but a Chrysler product (Grandad Mobbs insisted that only a Plymouth Fury had a trunk worth talking about). I was always disadvantaged by my parents awkward selection of Ramblers, until in 1967 they purchased a GM-patented metal-flaked green Pontiac Catalina, to my mind the second most awesome car they ever owned (the copper and creme 1957 Chevy Bel-Air hard-top convertible still takes the prize).

Nostalgia isn't what it used to be, but I'm sure that 10 year old boys today have something similar to argue about. There's nothing inherently wrong with any of this, but it's a reflection of some basic human tendency towards kinship or tribal identities. Several of the authors in Moral Markets discussed so-called "evolutionary" tendencies towards reciprocity and cooperation in small groups. One stumbling block that we kept having in the discussions was the transition to market values when you aren't trading just with people who live in the same elementary school district or have the same tatoos.

Another problem with kinship and tribal reciprocity is there is no doubt that Biblically it is, standing alone, morally insufficient. Tribal cooperation and reciprocity can be the source of great evil. Warfare is an example of a massive success of in-group cooperation and the suppression of free-riding. Unfortunately, I find that I still have a knee-jerk reaction to stereotype people by the kind of cars they drive. But, reaping what I sow, what if everyone judged me by the boring, practical un-trendy Hyundai that I drive? (OK, even a stopped clock is correct twice a day). If it isn't cars, don't Americans still have a propensity to judge people by their jobs, their cell phones, their clothes, their zip-code? If morality is merely reciprocity among our kin group, it's not enough. (One of the features of the marketplace is that it tends to dampen tribal identities and cooperation that stops at the village gate. Think of that the next time someone makes the argument that we have a moral obligation to "Buy Locally." What would Jesus have said about a Judean campaign to establish justice by refusing to "import" food from the Samaritans?)

Jesus' preachings are a repeated warning against cooperation that is merely reciprocity or love that stops that the zip code boundary. And left to our own devices we are very good at defining and observing group boundaries. My friend Brad Hansen has been posting portions of his sermons on Jonah, which is a screed against tribal restrictions on God's mercy. It's right there in the middle of the prophets of the God who was, in so many ways, defined as the God of Israel. Once again, we see that Jesus came not to overturn the Law and the Prophets, but to complete them.

* The title is from the movie L. A. Confidential. The speaker is inspector Dudley Smith as he is beating information out of Sid Hudgens.

Monday, August 9, 2010

Seeking Dependency

Cleaning my office I came across this note scribbled down, I must have been rushed,

"It is as though I turn to God in my moments of need. Where it was once me asking for a laundry list of prayer requests, now it is me asking for comfort and healing in moments of despair.

The issue however is that while God blesses me with comfort my praises are only temporary and lack longevity. What I have done is made God a safety net to restore me to self sufficiency. He is not my first love.

For people that don't understand, maybe you soon will. Learning to live in dependency is not easy."

This must have been written at least a year ago. How do you live in dependency and grow in faithfulness when independence seems so automatic? And, how is it that God might say, "Sure. One more time around the block on your own steam. If that makes you feel good. I'll still be here when you come back."? His love is greater than my stupidity.

Sunday, August 8, 2010

As If By An Invisible Hand...

Right on schedule.

Saturday's Wall Street Journal:

"Wheat Drops More than 7%: Big Exporters Release Grains in Storage to Shore Up Supply, Deflating Price."

"Wheat prices plummeted...." "Farmers across the U.S. released millions of bushels from storage into the global supply chain..."

(I don't publish links to the Wall Street Journal because they are blockaded to non-subscribers.)

Saturday, August 7, 2010

Review of Moral Markets

Economists gravitate toward explanation by incentives; but, values also constitute motivations for action. The premise of this book was to investigate the values-based explanations and demonstrate the “Critical Role of Values in the Economy”. Sadly, if that was the aim of this book it was a disappointment. While the diversity of disciplines provides alternative perspective on values (their transmission, acceptance, evolutionary basis) the feel of the whole book is disjointed. There were, however, a few bright spots amidst several misguided articles. The particulars of the basis for my critique are below, but, overall I would still recommend the book as a first cut at a discussion about morality and markets.

Paul Zak’s introduction and chapter “Values and Value” as well as Schwab and Ostrom’s article “The Vital Role of Norms and Rules in Maintaining Open Public and Private Economies” come the closest to integrating values. Particularly, Schwab and Ostrom explain the need for values when they discuss the infinite regress problem, “Thus, at some point, we must cease to rely upon institutional corrections and place our faith in a citizenry well educated in virtue. Ultimately we must guard the guardians. It is our hope that, by keeping our rules for institutional design in mind, we can guard them well.

That is, good institutions help; however, when there is always an incentive to defect for personal gain (from each guardian), at least one guardian must say, “I will not defect because of that’s not part of my value system.” That there is a necessary critical mass of pre-existing values is important. Now, how those values come about is another story.

Zak’s discussion of the importance of empathy is a phenomenal starting point to consider where those other values (fairness, trustworthiness, honesty, etc) emerge. As Solomon tells us in the book empathy is the basis of Adam Smith’s Theory of Moral Sentiments (since empathy was not yet invented as a word Smith used “sympathy”). Our ability to feel for another person is central to personal exchange and speaks towards the kinds of policies we desire to impose on impersonal exchange.

Other excellent articles included Casebeer’s “The Stories Markets Tell”, Kimbrough et al “Building a Market”, and Erin O’Hara’s “Trustworthiness and Contract”. In particular Casebeer offers an interesting take on how markets fail to win people’s hearts and how fallacies about the market persist. The middle of the book contained a variety of stories about monkies (which did not really tell us very much that we didn’t already know from experimental economics) and macro-cultural evolution which attempts to tackle a very large problem rather than focusing on devices that coordinate large-scale identity.

There are two short critiques followed by two longer critiques:

1. This book on “the critical role of values” pursues only evolutionary explanations of values and disregards the role of religion in values formation. Sometimes this disregard is not merely from absence but is rather flippant. For example, Goodenough writes, “Where does the capacity for such internal commitments come from? Some look to religion, and indeed a divine, designing power would have good reason as a matter of mechanism design to put such a capacity into humans, a gift as essential to their eventual well-being as sight and locomotion. But such a divine gift is not the province of science; we rely on that wonderful mechanism for bootstrapping adaptive design: evolution.” Not a peep about religion and the formation of values. What makes this more interesting is that this project was funded by the Templeton Foundation!

2. There should have been a concluding chapter. With all of the disjointedness of content there should have been a chapter that sought to tie the disparate units together for the reader.

3. There is a sense that some of the authors begrudgingly admit that markets are overall a “good thing”. This is captured well in Charles Handy’s final chapter “. . . the urgent question now is how best to retain the energy produced by the old model without its flaws.”

The authors are willing to admit that capitalism provides a dynamic environment in which innovation is allowed with greater incentive, but, they seem reluctant to embrace the outcomes of capitalism. One might think that the authors would say, “Yes, indeed we are reluctant to embrace capitalism ---look at all the cowboys out there screwing everything up!” (this book was being written in the midst of all the financial scandals). But, what is the alternative? More regulation?

The reliance of government would present plenty of public choice problems. Then, we must point to the importance of values in the political process! The critique is meant to elucidate the fact that human beings are flawed people and since humans comprise government, business, and other organizational structures those same problems will persist in all contexts unless values are strong.

4. Many of the other articles are based either on straw men, or, they are a commentary about how non-cooperative game theory has overtaken the economics profession. Let me explain. A number of the articles begin by discussing Homo Economicus –“the cartoon character”- and proceed to bash the model of rational calculation and self-interested agents as though it were a piƱata. Their mistake however is that the Homo Economicus they portray is not part of the neoclassical vernacular, but, rather an invention of non-cooperative game theorists.

While it is true that the “economic man” (a term given to JS Mill’s theoretical abstraction) was part of neoclassical economic history “economic man” was always embedded in an environment of property rights and other social institutions. This can even be clearly seen at the dawn of game theory with Morgenstern and von Neuman, “Theory of Games and Economic Behavior” where they assume norm adherence as important for a cooperative solution.

Why is this important? This questions the ability of many of the authors to use this model as a platform for stating the obvious, “humans care about things other than monetary payment.” But, ever since the marginalists, neoclassical theory has used utility space which can include a variety of arguments outside of financial payment (see Blaug). I know the authors know this because they cite people like Bolton and Ockenfels and Fehr and Schmidt. But, their insistence leads me to believe that they are just raging against the perception that economists only care about self-interest.

In the end, this book has a dual identity. I believe the book was supposed to be about the “critical role of values in the economy”, but, some of the authors merely saw it as an opportunity to bludgeon a wrongly labeled neoclassical model of self-interest. For example, authors in this volume, Boyd and Richerson state, “Challenging the emphasis of selfish rationality in conventional economic theory is the main theme of this book.”

Friday, August 6, 2010

The Swiss Revolutions I

I've been reading a book with the unattractive title "The Constructive Revolutionary: John Calvin and his Socio-Economic Impact," by W. Fred Graham from the early 1970s. Despite it's dry title, it's one of the most engaging accounts I have read of the economic thoughts of the reformers in the Swiss city states of the 16th Century. I've wanted for a long time to find out more about the economics of that period, and now I'm particularly interested as Doug has been talking about charter cities, and also as we are finding out about the importance of political contestability in our on-going work on corruption in the LAPD. One of the notable features of this part of the Protestant revolution was it's concentration in the autonomous city-states of the time and region.

Graham documents that that Calvin and the Swiss reformers made two breaks with the traditional European/Christian view towards markets. First, following the earlier breakthroughs of the Italian merchant cities, Calvin and the Reformers (in contrast to Western values going back through Luther, the Catholic Church, and ancient Rome) taught that commerce and manufacturing were not "second class" occupations. This aligns well with Calvin's idea of the priesthood of all believers, and that everyone can find their calling from God in their life.

Secondly, Calvin did an extensive amount of work on an actual New Testament theology (although, given that it is Calvin, it's really more of a sermon) of borrowing and lending. The most famous part of this theology was the rehabilitation of commercial lending at interest. However, when I read Calvin's words as quoted in the book, I was struck by the forcefulness in which Calvin concluded that it was a positive responsibility of Christians to help those in need, and this might frequently involve lending to them at no interest. Nevertheless, Graham paints a picture of a Christian worldview in which lending to a poor person to buy seed was different than lending to a wealthy manufacturer to buy a new machine, and this worldview would have major consequences for Western and Northern European civilization.

However, it appears that the Pastors of Switzerland (including Calvin) could not get past the centuries old idea* of a "natural" or "just" price. The problem, according to Graham, was that the price level in Europe was inflating because of the influx of gold and silver from the New World, and the Reformers (like almost everyone else in Europe at the time) seemed to try to do everything in their power to stop it with wage and price controls. (Of course, they failed, as even church workers began to rebel). I was thinking of this when reading about the recent 40 percent increases in world wheat prices due to the drought in Russia. All over the world, bakers, chefs, and industrial cooks will be thinking about using other grains rather than wheat. Shoppers will move to corn or potato chips from wheat crackers for their football parties this fall. Farmers will move land from other crops to wheat (perhaps, one might hope, getting past the outrageous government-driven bubble in corn cultivation put into place to satisfy the American ethanol lobby). This is the invisible hand at work. It's not that extraordinary that a city planner in Geneva or Zurich or Bern in the 1500s could abstractly see the need to "deal with" a drought in wheat production. But today, all across the world, tens of millions of people will be doing the right thing (conserving on wheat consumption, increasing wheat production) because of the pricing system.

*One needs to note, however, that early church father Lactantius correctly criticized the price control efforts of the Roman Emperors. His critique reads like a modern economics textbook. It's too bad that his insight didn't spread to all Christian moral philosophers.

Sunday, August 1, 2010

Forest and Trees 2: American Idols

Return with me to the old question about whether there are any coincidences with God. I’ve been thinking for a couple of days about the next post on the Forest and the Trees, and then the lectionary readings today (and Bill’s sermon) were on exactly one of the points I’ve been turning around. The readings were Ecclesiastes’ commentary on the vanity of material things (various), Paul’s direct equation of covetousness with idolatry (Col 3:5) and Jesus’ parable of the foolish man who wanted to build bigger barns, explaining the folly of laying up treasure with ourselves rather than with the Father (Lk 12:13-21).

So, can we metaphorically replace in our minds the picture of the sins of Israel and Judah in worshipping Baal in our reading of the Minor Prophets with the both ancient and contemporary sin of worshipping “stuff” ?

I guess I’m too much of an economist to give any other answer other than, “Well, Yes and No.”

The “Yes” comes straight from all three readings today, particularly from Paul. Anything other than God that we center into our lives to provide ultimate meaning is a replacement for God. If we make money or cars or status or success or clothes or beauty or youthfulness the source of meaning in our lives, making them the source of greed for more and more and ever more, then we are in every sense worshiping that substitute god as an idol.

The “No” part comes from our relationship with Christ as imperfect disciples. “If we say we have no sin, we deceive ourselves and the truth is not in us.” (I John 1:8). Each and every one of our brothers and sisters in the community are with some sin, so it’s not unlikely that many of us will struggle with the covetousness Paul has warned us about. But this is not the end of John’s message. He continues “If we confess our sins, he is faithful and just to forgive us our sins and to cleanse us from all unrighteousness. (I John 1: 9). But many of the people in the time of the prophets had actually abandoned Yahweh for Baal. The metaphor of “Us” and “Israel” fits from Paul to Amos or Hosea via our sin if we are sinning and rejecting the Love of God and redemption of Christ, but it does not fit if we remain the children of God and ask him to forgive and change us. I believe that sin plus the rejection of God the Father, Son and Holy Spirit may be the “unpardonable” sin Jesus describes in Mark 3:28-30, but there are undoubtedly many people more knowledgeable than I am on this passage.