Not Exactly Rising to the Challenge III

I don't know if I've ever posted anything on New Year's Eve Day before, but there is a first time for everything. I hope God blesses you in the New Year. Psalm 103 is a great place to start remembering again about God's blessings.

Three Lessons for All Christians: Everyone Needs to Be A Careful Consumer of Statistical Arguments

1 ) Show me the original data. When I write blogs for “Wise As Serpents” I try to verify the context and original source of quotes, and also to be informed about original sources of data. There is wisdom in the old saw that there are “lies, damn lies, and statistics.” It’s sad to say but some people cherry pick data, selectively report results, or, unfortunately, just don’t understand what statistical data and tests actually mean.

2 ) Correlation is not causation. Wet streets don’t cause rain. My brain waves don’t actually turn out street lights as I walk my dog at night. And, it may be true that most serial killers have milk in their refrigerator, but outlawing milk probably isn’t going to end a crime wave.

3 ) Selection-bias is one of the most powerful forces for misunderstanding data known to mankind. Suppose we find that students who attend charter schools do better in math than students who attend the local public schools. This doesn’t necessarily mean that charter schools are better at education; it’s possible that students who attend charter schools are in charter schools precisely because they have parents who care more about creating an environment that is favorable to their children getting a good education.

Corollary: Economics is not art appreciation; everybody may be entitled to their own opinions, but they are not entitled to misrepresent the facts (not only even if, but especially if, they are Christians attempting to make a witness to the world).

Letter to Marco Rubio (altered for my other representatives)

Thank you for your candor during the election process. My hope, along with many others, is that you take this opportunity to lead. Like you have said, "This is a second chance." Great things cannot be accomplished unless others understand this same urgency. There are three reforms I would like to submit to you that are simple but very important:

1. No Last Minute Amendments - Last minute amendments frequently slide favors into legislation, or, distort bills before they're voted upon. Remember, the devil is always in the details and small changes matter big time.

2. Transparency with Data - There is a growing movement worldwide (and by Rep. Jeff Flake with an Investigation Subcomittee): Outcomes should be at least as considered as intentions. In order to obtain insight about outcomes we need data. Transparency allows for independent investigation with this data.

3. Filibuster Reforms (rules changes generally) - Dem. Jeff Merkeley is spearheading filibuster reform. Even though this is a blatant attempt to reduce the power of a now more balanced Republican presence I do not disagree with the need for reform. Filibusters drown out debate.

Better rules for political discourse and accountability could be a major platform for Republicans in the future. We need better rules for better governance.

What I wanted to include but didn't (the letter was getting long)
Also, this is no small task, but, repealing the massive farm subsidies which form the largest corporate welfare program in America. Economists who don't agree on everything, overwhelmingly agree that these are a drag on the economy. Moreover, every president since at least Reagan has attempted to reduce farm subsidies and been unsuccessful.


Especially with the first three reforms these are rules that would encourage debate, honesty, and responsibility. Please consider this voters suggestions for what I'm sure will be an excellent senatorial career.

Sincerely,
Doug Norton

Not Exactly Rising to the Challenge II

Three Lessons for Liberal Christians:

1 ) The economic world is not a zero sum game. People in, for example, Haiti or Zimbabweare not poor because your neighbor bought a giant HD TV. They are poor because they have corrupt, gangster governments that have kept their countries from participating in the human institutions that are known to improve standards of living and bring societies out of poverty. This is just as true and terrible as if those same governments outlawed antibiotics or modern sanitation.

2 ) It is true that markets do not operate perfectly in all situations. Noxious externalities (pollution) are an example. However, the opposite of a flawed market is not some perfectly functioning, ivory-tower model of a perfect government. Government is a human institution and it falls within the bounds of “the total depravity of mankind” --- which doesn’t mean that everything we do is sinful, but rather that there is nothing that we can do without God that isn’t, in some way, infected by sin. There is no such thing as a government of angels, and nobody --- not a reformer, not a do-gooder, not a liberal, not a conservative, not an idealist --- sheds his sinful nature at the door of City Hall. This means that we can’t compare the flawed market with a perfect government. Furthermore, at its basis government action (unless everything proceeds only with unanimous consent) requires giving some people coercive power over other people. If this doesn’t make Christians nervous, it should.

3 ) Human beings are not switches in a microprocessor or valves in a machine. People change their behavior according to the incentives they face. And, centrally planned government programs are full of changes in incentives that can and do produce “unexpected” outcomes. Tax collections often fall short of expectations when tax rates are raised, because people can change their economic decisions to account for the taxes. When ethanol is subsidized in the name of “the environment,” people will start wastefully growing corn where there is no other good reason for them to do so, with the result that the environment is actually harmed.

Corollary: Christianity is not Socialism, and Karl Marx is not a prophet of the Church.

Not Exactly Rising to the Challenge

Joel Belz of World Magazine issued an interesting challenge. Readers should create a list of key statements about economics that young Christians need to know. He's gone to compile a "top ten list" for the magazine.

I was really interested in this idea, but I'm just not very competent at two requirements for the challenge: each item has to be 30 words or less and in concepts understandable to a 4th grader. Nevertheless, I thought I would send him a list of nine key points aimed at high school or college students that are derived from a lot of the lessons that Doug and I have worked through for the courses on Compassion and Sustainability as well as for our book-length project. I divided them into three parts: Three Lessons for Conservative (or Libertarian) Christians, Three Lessons for Liberal (or Progressive) Christians, and Three Lessons for All Christians. Here is the first installment. I'll post the others over the next few days. In the meantime, I hope everyone is having a wonderful Christmas Eve. And, if you are one of those people that works to keep our hospitals, police forces, fire departments, or national defense in place so the rest of us are able to attend Christmas Eve services, thank you and God Bless You.

Three Lessons for Young Conservative (or Libertarian) Christians:

1 ) Yes, voluntary exchange makes people better off. Organized voluntary exchange (the market) together with a respect for property rights and institutions that promote long term contracting are incredibly successful innovations that promote an improved standard of living and an escape from poverty. Both Bill Gates and Mother Theresa, in their own way, help mankind. But, the market remains a human institution, and it falls within the bounds of “the total depravity of mankind” --- which doesn’t mean that everything we do is sinful, but rather that there is nothing that we can do without God that isn’t, in some way, infected by sin. Each of us exhibits some kind of sinful behavior by the decisions we make in the context of a free market.

2 ) The opposite of “government action” is not “the market,” it is “voluntary, decentralized action.” The market is one of, but not the only, non-government form of economic organization. Christians, is particular, have a long history of private, collective, voluntary action to try to bring the Kingdom “on Earth as it is in Heaven.” In fact, how can we read the Bible and not be called to this type of service?

3 ) Nothing about the free market would cease to function if Christians decided to change their preferences over consumption. The world is full of people who are hurting, many because of things they have done, a whole lot because of what other people have done to them. If all Christians decided to buy less for ourselves and spend the extra on someone else, the sun would still rise tomorrow on capitalism and the free market.

Corollary: Christianity is not Objectivism, and Ayn Rand is not a prophet of the Church

More Thoughts about Pay-What-You-Want

Our paper on Pay-What-You-Like (Pay-What-You-Want is becoming the popular term now) has been reviewed and rejected by two journals. Each time it received one excited review, one critical review, and one editor that didn't want to take the chance. The critical reviews anchored on the notion that PWYW was infeasible because it is donations-based. Their reasoning is straightforward: people would free-ride to the point that businesses would not be able to cover costs. Indeed, that has happened in the past with other PWYW businesses. However, success has also happened.


Here was an update 8 weeks after the original Panera Cares location was opened (http://blogs.reuters.com/shop-talk/2010/07/28/paneras-pick-what-you-pay-cafe-holds-its-own/). It's success has opened the door for more locations. In addition to their location in Clayton, MO Panera Cares has recently opened another location in Dearborn, MI (http://www.freep.com/article/20101123/BUSINESS06/11230328/Panera-Cares-Cafe-in-Dearborn-aims-to-help-everyone-afford-a-meal-or-a-treat ) and will be opening a location in Portland, OR (http://www.panerabread.com/pdf/pr-20101122.pdf).

Interestingly, each of the these locations have a lower median income than Clayton and they are more heterogeneous along other dimensions.For example, Dearborn is the capital of the Islamic Center for America and has a large Arabic population. Portland, Oregon is not racially diverse however they are more secular than Clayton or Dearborn. The notion of heterogeneity and secular matter because they have shown to correspond to less trusting or charitable behavior. The lower income levels of these cities also make them a very interesting experiment compared to Clayton, MO (they are homogenous and wealthy as written in an earlier post).

In our model we rely heavily on a notion called "warm glow". That is, people receive some positive utility in addition to the actual consumption of the good. We state there are three channels by which this warm glow may be activated. These arguments were not given creedence by some of our reviewers, but, each of them is intuitive and I think is receiving more support as new ideas and a renaissance of old ideas are being forged in economics.

1. Existence Support - Armen Alchian talks about how firms are not necessarily profit maximizing but motivated by a survivorship principle. If customers also realize that firms must at least be able to proceed to the next period in order to continue production is it too much of a leap to say that patrons also could operate on survivorship principles? Do you ever find yourself saying, "We should really go to that restaurant. Their food is good and I don't want them to go out of business."?

2. Charity - The evidence that PWYW is improved by charity is found in a Gneezy et al field experiment that shows revenues as Disney Land were improved by the announcement that 50% of proceeds went to charity. Additionally, Panera cares may be successful because people view part of their mission as charitable (http://yourlife.usatoday.com/mind-soul/doing-good/kindness/post/2010/11/panera-opens-doors-to-their-second-cares-cafe-charity-store/132353/1).

3. Identity - Akerlof and Kranton's book Identity Economics is making the rounds big time. Their article which the book is partially based on has already been cited 1,400+ times. Basically what they're saying is that people make decisions out of who they perceive themselves to be. Considerations of identity would yield dramatically different predictions than typical economic models.

It's good to see that the PWYW model is working for Panera as it has worked for many other stores. Recently we had a guest speaker, Paul Zak, at FSU who works in a new area called Neuroeconomics. From his research he finds that when we place trust in another person the recipient of our trust also receives a spike in Oxytocin. This Oxytocin chemical tends to improve reciprocity and other-regarding behavior. It is neat that there is a biological foundation to this notion. 

I guess the question still remains. Giving to charity seems easy, but, difficult when your stream of revenue from donations is uncertain. If warm glow can work through identity or existence value how do you generate that in your customer base?

Mark Twain and Lionel Twain: Shall the Twain Ever Meet?

Last month at the Southern Economic Association Annual Meetings, Doug and I organized a panel discussion on Christianity and Individual and Collective Action. We had some great panelists: two economists (Doug and Dan Hungerman of Notre Dame) and two "theological" representatives (Craig Blomberg of Denver Seminary and Charles McDaniel of Baylor University). Doug is going to be writing-up a summary of some of his thoughts, which we can report later. My hope is that we can report similar reactions from the other panel members. We had some great discussions about things such as American culture and religious activity and the role of wealth and material possessions for the modern Christian.

But what I wanted to talk about here is the audience. We had, by my count, about 35 people who were not panel members. If you've ever been to a convention like the SEA, with numerous parallel sessions, we couldn't help but being pleased, especially as this was not a typical topic for an economics convention. I know we had some people who just saw the title and came in. Several people from the audience brought up great questions. I've had much good feedback from people over the idea of this session attempting to bring together religious and economic thinking. I'm glad that Doug is going to circulate his thoughts from the session, I think it's a useful next step to keep the discussion going.

How Do We Best Share?

The picture in the Saturday, November 13th, Wall Street Journal of a baby with cholera was heart-rending. The text in the article, "Aid Spawns Backlash in Haiti" (by Jose de Cordoba) was ominous:

"After January's devastating earthquake, there was hope the hospital could turn things around....Ten months later, the foreign doctors and charities are gone. The intensive care unit is closed. An unused defibrillator and a cardiac monitor lie askew atop a cart. Nobody at the hospital is trained on how to use either piece of equipment."

How can this be? Has Haiti become another one of those places in which wealthy people shower the victims of a natural disaster with immediate aid, only to abandon them when the headlines a few weeks or months later turn to the next earthquake or tsunami or the next season on American Idol? Weren't we all supposed to be treating Haiti differently?

Well. after you get further into the story, you see that things are, indeed, different in the case of Hiati. The opening paragraph was a description of a large government-run hospital. Inside, you see pictures of a sparkling new obstetrics unit at another hospital, run by a private charity. The point of the article is not that private charities have abandoned Haiti, but rather that the medium-run equilibrium continues to be that foreign charities largely bypass the Haitian government facilities and concentrate on more direct avenues of provision, including their own clinics and hospitals.

The article highlights both sides of the resulting argument. de Cordoba writes: "Critics say the NGOs have put Haiti in a Catch-22: By building a parallel state that is more powerful than Haiti's own government, aid groups are insuring Haiti never develops and remains dependent on charities." For example, the moral value of the NGOs of paying employees a good wage had the side effect of hiring the most well-trained personnel away from the government hospitals.

On the other hand, the author notes that the NGOs have cured, fed, housed, and educated many people and, contrary to the fear that I expressed in the opening paragraph, many seem dedicated to remaining in Haiti for years if not decades. So a counter-argument might go something like this: Who says that Otto Von Bismarck's model of a centralized welfare state has to be the only model for compassion in a country such as Haiti? If the socialized medical system of one of the most dysfunctional governments in the world is a failing model, so be it, if (and that's and important if) the ultimate result is an improved quality of life for the people of Haiti.

It seems to me that there is an important argument about finding a path so that the people of Haiti are eventually not perpetually dependent on "the kindness of strangers," especially when that means the kindness of non-Haitians. But nothing says that has to be through a return to a traditional government owned and operated health care system. Therein lies the uncertain path for NGOs and those of us who support them.

Joyful, Joyful, We Adore Thee

My friend Brad Hansen once preached on the difference between happiness and joy. I think the following is an example.

I'm happy that the FSU Seminoles came from behind to beat the Clemson Tigers last night.

On the other hand, I would like to thank the Clemson marching band for making it such a joyful evening. First, they not only traveled to support their team and fans, but they prepared a halftime show for their guests. Secondly, their halftime show, a tribute to great music of the past, opened with the classic hymn "All Creatures of Our God and King." The second tune was the theme from Beethoven's symphonic ode to joy, which of course became the adapted tune for the hymn "Joyful, Joyful, We Adore Thee."

So, in the midst of this 80,000 person secular worship that we call American College Football, there were at least four people on their cellphones dialing up the lyrics, authors, and stories of Great Hymns of the Church.

Awesome.

Of Interest

One of the most repeated prohibitions in the various laws of the Old Testament is the prohibition against usury? But what is usury? Is it the charging of any interest? The charging of discount points? The charging of interest on loans to the poor? The charging of any loan terms that are disadvantageous to the poor?

At this link is a very well done, even handed, look at attempts to regulate out of existence the modern institution of payday loans. Here are two fundamental points for debate. First is: "Are payday loans usury?" My initial reaction was "of course" until I considered the matter further. Now I'm not so sure. It appears that the usurious interest rates estimates come from taking the total fee for a short term loan (say two weeks) and annualizing that amount. But how much of that fee represents the time value of money (the pure rate of interest), how much of it represents a fee for the direct costs of the business, and how much of it represents a risk premium for the very real threat of borrowers skipping out on the loans? Apparently, the overall return to payday loan companies is a rather unspectacular 10%.

Secondly, if we do conclude that payday loans are usury, should Christians be in favor of banning them, much like the height of the social gospel movement when Christian voters banned drinking, dancing, and shopping on Sunday? Should we consider the evidence that when payday loans are put out of business, poor people turn to other avenues such as over-drawing their checking accounts and paying penalties, or worse? What are the parallels (or not) between the arguments for governmental prohibitions against payday loans and governmental restrictions against abortion. I hear some Christians say "I am anti-abortion but pro-choice." Should the same standard apply to payday loans: "I believe that payday loans are immoral but I believe that poor people ought to have that choice." But, if we argue against banning payday loans, what can we do, as Christians, to help poor people have other options when, as the video spot asks, the transmission in the car breaks down and they need that car to get to their job?

Person vs. Structure

I've been delinquent in my promised posts about what happens to the displaced people if they could no longer afford their homes due to capped housing subsidies; however, with good reason. Yesterday I finished up my monster linear algebra test, which hopefully turned out well. Anyway, a couple of weeks ago Mark handed me an article from the NY Times titled Culture of Poverty Makes a Comeback.

This reading spurred the Economics and Moral Sentiments Readings Group to take on the classic Moynihan Report which has been a very controversial article since it was written in 1965 by then Under Secretary of Labor for LBJ. The Moynihan Report acknowledged that Black Americans had a long history of oppression through slavery and "separate but equal" and their new freedoms afforded through the Civil Rights Act would be challenged by residual prejudice. However, that was not controversial. The controversial part of the report was that the greatest challenge to Black Americans would be the disadvantages they were creating for themselves because of the deterioration of their family structure.

There is no one Negro problem. There is no one solution. Nontheless, at the center of the tangle of pathology is the weakness of the family structure

At the time nearly one-quarter of all Black Americans were born out of wed-lock. This disadvantaged them because that meant less purchasing power in the family. This also meant the children were less likely to attend a quality school or have parents that were actively involved in their lives. The statistics are still high amongst Black Americans at 72% (this recent report from Yahoo! News speaks to that); however, children born out of wedlock now exceed 40% of all children born in the United States ---this is a post for another time.

What is driving what Moynihan called "The Tangle of Pathology"? Moynihan spoke of poverty as a cultural problem. In poverty, he wrote that children are, "Constantly exposed to the pathology of the disturbed group and constantly in danger of being drawn into it."

This is where the article about the culture of poverty comes in. Recently the sociology profession has come under fire for falling in love with structuralist explanations of human behavior. See Jonathon Imber's article here. And, the people at OrgTheory blog provide some nice links and background explanation) Structuralism looks at social organization and says that decisions people make are mostly a function of their environment and situation. In fact, people might make these decisions because they have poor values and priorities -not a just a bad environment.

The Protestant Ethic

I want to elaborate on a point that Doug raised below, namely, about whether we value people in society less when they earn a low wage. Recently, I've been doing some reading on the issue of the "Protestant Ethic" which comes up repeatedly in the "culture and values" readings we've been doing in the Theory of Moral Sentiments Readings Group. There are a lot of people who use the term "Protestant Ethic," but what ethics about economic life did the Protestant Reformers really have?

This is a large topic, because there's no doubt that the Reformers thought a lot about issues in what we might call today the marriage of ethics and economics. Typical is John Calvin, who tackles the ethics of personal consumption in his Institutes on the Christian Religion. In the part of his book dedicated to the life of the Christian, Calvin offered rapid-fire the following analysis. I'm going to summarize his ideas, but not offer a lot of commentary here.

From Book III, Chapter X :"How to use the present life, and the comforts of it."

1 ) Calvin rejects the extremes of asceticism on the one hand and of unbridled license to excess on the other.

2 ) He asserts that God has given tastes and smells and colors for our enjoyment.

3 ) "Where is the gratitude if you gorge yourself with feasting and wine as to be unfit for offices of piety, or the duties of your calling? Where recognition of God if the felsh, boiling forth in lust through excessive indulgence infects the mind with impurity?... Where thankfulness to God for clothing, if on account of sumptuous raiment we both admire ourselves and disdain others?"

4 ) "He who makes it his rule to use this world as if he used it not, not only cuts off all gluttony in regards to meat and drink, and all effeminacy, ambition, pride, excessive show, and austerity in regards to his table, his house, and his clothes, but removes every care and affection which might withdraw or hinder him from aspiring to the heavenly life, and cultivating the interests of his soul."

5 ) Christian liberty admits of no strict laws, but it must be our constant aim "not only to curb luxury but to cut off all show of superfluous abundance, and carefully beware of converting a help into a hindrance."

6 ) He argues that envy and sumptuousness are two sides of the same coin...that it is the same value system that causes us to be annoyed when our clothes are frayed as when we are vain that we are wearing a splendid garment.

7 ) Scripture declares that all of our gifts come from God, and are appointed for our use as under a kind of trusteeship. "We must therefore administer them as if we constantly here these words sounding in our ears: 'Give an account of your stewardship.'"

8 ) Calvin, like Martin Luther, put a great deal of emphasis on the idea of a "calling" from God. We should constantly remember that "in everything the call of the Lord is the foundation and beginning of right action....In all our cares, toils, annoyances and other burdens, it will be no small alleviation to know that all of these are under the superintendence of God."

Check This Out

We link to Mark D. Robert's blog over at the right. If you have some extra time, check out his recent series on Jesus as Savior, Wisdom of God, and Son of Man. Mark Roberts always seems to have knack to write about Christianity in a straightforward, easy to understand style.

Death to Conservativism?

The front page of the New York Times on Wednesday read, "Obama Received Rebuke". On the various election websites the United States was painted red with small islands of blue in all races. Yet, there are real frictions within the Republican Party. This this linked article from Politico reveals the friction. Rather than riding a wave of success the article suggests many Republicans are stewing over the victories that could have been.

The argument is that conservatives lost races in Delaware, Colorado, Nevada, and (are currently losing) Washington because the candidates were not centrist enough. Strategists say that the Republicans should not put forth candidates so conservative in the future. They will have no chance at the White House unless they become less conservative. My question is, "What does this imply?"

If, in fact, the sentiment is that these candidates were too conservative and unable to win that must mean one of two things. First, the Republican party believes that the whole nation has become more leftist. That is, a candidate with more traditional conservative values would not be able to garner enough votes to be viable. Second, the strategists do not accurately understand people's beliefs.

The burning question is whether traditional conservative values such as small government and lower taxes dead?  

Low Income Workers: How Dependent are We?

Earlier today my wife sent me a link to an article on the BBC News website titled, "Do the Poor Have a Right to Live in Expensive Areas?".  The British Parliament will soon vote on a bill to limit housing support money transferred to low income Britons to £21,000.The title of the article struck me as an absurd question because it represents actions far beyond securing basic living standards; but, uses taxpayer dollars to fulfill a desire to live in a nicer location. However, some of the questions raised within the article are worth some consideration because they are common mistakes made by non-economists. I will address the first question today and the second one later on.
1. How much do we depend upon lower income workers? How much do we value low income workers?

Below is quote from Lynsey Hanley regarding the value of low income workers.

"We need these people to do many of the minimum-wage jobs on which we depend - cleaning, catering, retail and so on," she says. "If you take away housing benefit and shift them out, this country's high transport costs mean they'll have no incentive to come into our cities to work.What I'd say to David Cameron is: come back to me when the minimum wage is £12 an hour." -Lynsey Hanley

What Ms. Hanley is saying is that a lack of housing benefits will cause these low income workers, some of whom I depend upon, to leave and not come back to the community.  This is completely possible. If the costs of transportation push their spending beyond the total wages received these workers will not maintain their current job but may find work closer to home.However, the notion that minimum wage would need to increase in order to entice people to work in these low wage jobs is suspect because it acts as though there is no labor market. I've included two diagrams below to illustrate this point.

Labor Demand: All employers seeking to hire workers

Labor Supply: All workers seeking to supply their labor

Story #1: The first diagram drawn in black shows that employers really depend on low wage workers. Note that the employer's quantity demanded does not change very much as price increases or decreases.  This means that the employer needs these workers for the success of their operation.  The labor supply curve shifts to the left because the increased transportation costs increase their cost to providing labor.This is the story Ms. Hanley sets forth, and if it's true then the market will respond with a high wage because businesses must have these employees to maintain a viable operation.

Story #2: The second diagram written in red sets forth employer's that do not think these low wage workers are critical to their operation. That is, if the price needed to entice their workers increased (because the cost of transportation increased) they would replace them with technology or ask current workers to multitask.

Notice that the wage increases much more when the demand curve is steeper, that is the case where the low income worker is vital to the operation of business. Both of these diagrams assume that the costs for all the low income workers will increase. In fact, this is not likely the case. Many of the low income jobs would be filled by middle income teenagers living in London that do not face increased costs to supply their labor.

Also, there are many times where it seems that people intimate that because people are paid a low wage, their dignity is lessened. If I were paid a low wage would I think that my life was less meaningful? If I didn't have access to a nice apartment would I begin to think that God and my family loved me less? This was not in the statement posed by Ms. Hanley but I think deep down that it is the thought process that occurs in many people's minds.

The second question (that I will tackle on Monday) is this, "What happens to the displaced people in a gentrified area? Also, normatively, is it really important for the rich and poor to be intermixed in the same neighborhood like this article suggests?"

Seeing God

I chanced upon this article this morning. (In case the link doesn't work, try finding it as "What Does God Really Look Like" by Marcia Morrissey). I don't know why but it really caught my attention. It's neither long nor scholarly. It's not tied to a season or festival. It's not trying to pound a point home. (I often read posts by her husband Ed). I hope you have the time to click on it and read it.

As the Sun Sets Lazily Over the Jersey Shore....

I can be a hard person to be around watching a movie because I love to jump on goofs. Some of the most infamous goofs are things like showing the characters sitting on a beach watching the sun set....over the Atlantic ocean. In that regard, it would be hard to find a worse headline than a recent article in the Tallahassee Democrat. (Yes, I know, you're wondering what it's like to live in a town where that's the name of the local paper, but I digress).

"Park it: Rate increase has no effect on demand."

That headline is about the City of Tallahassee raising rates on traffic meters from 25 cents per hour to 50 cents per hour. If doubling the price of parking had "no effect on demand" then revenue, which is 25*x cents (where x is the amount of parking), should double to 50*x cents. And yet, the revenue estimates from the meters are $270,157 before the increase and $275,000 after the increase. Ignoring the slight offset between the fiscal year date and the revenue reporting date, if the price per park has gone from 25 cents to 50 cents an hour, doesn't that suggest that the number of hours parked has dropped from 1,080,628 to 550,000? That's a pretty big hit on demand. And, the switchover being in late 2009 suggests that the drop probably isn't related to the recession. In fact, the text of the article even quotes city officials as saying that one of the effects of the price increase has been to shift parking from the metered spots to the downtown parking garages. (I checked with my nephew Nick Heynen who works at the Madison, Wisconsin, newspaper and he told me that it is still the case that the reporter who writes the story may not write the headline for the story).

This is Econ 101. A monopolist (the city) cannot raise prices without limit because at some point the effect from the lost demand outweighs the increase in the per-unit price. It's called the monopolist's demand elasticity. Some government monopolies have found that they've raised rates (or taxes) so much that their revenue has actually gone down. In Tallahassee, it appears that the fee increase had a big effect on demand, with the result that it had little effect on city revenue.

After Further Review, The Ruling on the Field is Overturned

This article provides incontrovertible evidence that the minimum wage can lead to job destruction. In this case, the, "review in the booth" affected only some American territories. How long will it be before we get to analyze the destructive effects on all of the United States of raising the minimum wage in the midst of a severe recession?

Suppose Three Professors Were Working on A Railroad Track....

This is one of those references I will make with only a little comment. In today's Wall Street Journal, Peter Berkowitz of the Hoover Institution at Stanford wrote about why academics seem to be so out of touch with Main Street. He writes, in part:

"Neither professors of political science nor of history have made a priority of instructing students in the founding principles of American constitutional government. Nor have they taught about the contest between the progressive vision and the conservative vision that has characterized American politics since Woodrow Wilson (then a political scientist at Princeton) helped launch the progressive movement in the late 19th century by arguing that the Constitution had become obsolete and hindered democratic reform.

Then there are the proliferating classes in practical ethics and moral reasoning. These expose students to hypothetical conundrums involving individuals in surreal circumstances suddenly facing life and death decisions.... Such exercises may sharpen students' ability to argue. They do little to teach about self-government."

The Wisdom of Objectives

Lately a variety of interactions from reading the newspaper to offering advice about a friends future plans have led me to a simple piece of wisdom: Consider your objectives. If a person can identify their objective they can easily build a plan of action towards that goal.

For example, the City of Tallahassee is currently discussing peak and off-peak pricing of utilities. There are serious questions about their objectives. What will the peak and off-peak pricing accomplish? Traditionally peak and off-peak pricing have been utilized to reduce the strain on the power generators, which is more wasteful in terms of energy production when it needs to ramp up so quickly . .  . like when everybody flips the light switch at hom following the 5 o'clock rush hour. However, the pilot program the city is considering would be applicable to the first 2,000 residents to sign up. The likely outcome? People who will benefit from leaving the flat $.12 per kw/hr for the $.08 (7pm-7am) and $.22 (7am-7pm) rate structure will be the people who sign up. Will this reduce energy consumption by those households during peak hours? Probably not since most of them would say, "I don't use energy during that time anyway!"

Either the City of Tallahassee utilities has a different objective than I'm considering. For example, after the pilot they could use the data to convince people of the likely saving they would receive. But, in terms of strain on the power generator I'm not convinced this is going to have the impact you would get from a randomized pilot (is that legal?). In any case, I would need data to make such a claim about Talgov not seeing a change in energy usage from the pilot program.
  

My Phantom, It's Sir Charles God, the Notorious Litton*

In a recent issue, First Things magazine ran an article by Ron Rosenbaum that discussed moral sense and evil. The focus was on sociopaths, serial killers, Hitler, Mao, Stalin, and the like. The central question seemed to be whether or not a person who was a true sociopath could be consider to be evil if he had no conception that what he was doing was wrong.

I enjoyed reading the article but I found the discussion somewhat confusing because the question drifted from the one above to one more like "Do I commit evil if I think I am doing good?" I believe that this is a distinct question. Genesis says that mankind obtained a sense of the difference of good and evil by disobeying God and eating of the fruit of the tree of the knowledge of goodness and evil. If there indeed is such a thing as a sociopath who can not process any concept of good and evil (either in his own thoughts or in reference to society's norms) then such a person has a remarkable cognitive mutation that sets him apart from the normal model of humanity described in Genesis. (I'm not an expert on the topic of whether such people do or don't exist). But, it's an entirely different matter to talk about doing evil because we convince ourselves that what we are doing is moral and right. Indeed, this self-rationalization is all too human.

When we ate of the fruit of the tree of the knowledge of good and evil, we disobeyed God and sin came into humanity. No part of our being is separated from that sinfulness, not even our post-Fall sense of goodness and evil. Thus while we all (perhaps except sociopaths) have a moral sensibility, that sensibility is not God's; it is our own and it is corrupted. Certainly people sometime make choices that they are aware (correctly) are or may be morally suspect. Dietrich Bonhoeffer wrestled with this very clearly when he decided to join the murder plot against Adolf Hitler. But, how many more times do we sin when (because?) we have convinced ourselves that we have the moral high ground? We see that Jesus knew that addressing this self-rationalization was part of his message of salvation: Yes, you believe that your brother has wronged you. Forgive him anyway. Or, as interpreted by Paul: Yes, this other person has wronged you not once but many times. Don't keep track of those wrongs. Sometimes it will the case that the other guy HAS wronged me; maybe in other cases it is self-deception. But it is all a warning that it is God, not we, who knows the true measure of good and evil.

The paradox of this is that our moral sense may be imperfect when compared to God, but it is not nothing. Most of us are not sociopaths, nor do we live in the amoral surroundings of the kill or be-killed struggle for survival in the animal kingdom. But I believe that among the actions of the Holy Spirit are: 1) Changing our utility function (what we want to do), and 2 ) refining our moral sense to give us a better idea of what God things is right and wrong. Maybe these are the same thing, but I think that they may be different.

In the year in which Inception became such a big hit, I realized in all the media discussions that I have a strong tendency to what is called lucid dreaming. I tend to remember many of my dreams, and when I wake up and I realize I've been dreaming I can sometimes decide whether to rejoin that dream as I go back to sleep. Last night, perhaps because I was thinking about writing this post, I had the strangest continuing dream in which I was an international forger of rare documents, on the run from INTERPOL. What the authorities didn't know was that I enjoyed the chase for for its own sake, and after I pulled off the forgery job, I always returned the originals, so I never profited directly and there would never be any evidence to stand up in court. In reality I don't even draw well, much less have any conscious desire to forge rare documents. I don't even know what documents would be rare, and I think I would enjoy being a fugitive from INETRPOL less than almost anyone I know. What this dream made me think about is this jumble of what we are capable of doing, what we may be inclined to do, and how this interacts with our imperfect sense of right and wrong. This is why the Bible tells us that we are different than other animals, and why the Bible is a story that tells us how God wants this strange interplay to turn out in the end.

*Today's title reference is to that famous movie villain who enjoyed the thrill of being chased by the bumbling Inspector Clouseau: Sir Charles Litton, the notorious Phantom of the Pink Panther series.

Economics and Moral Sentiments Group Yesterday

We read and discussed the two papers about culture by sociologists Richard Peterson and nobody came at me with a pitchfork . . . yesterday was a victory! I thought other people would be troubled by my reading selections. Much of what Peterson writes about is information important to sociologists but not as relevant to the economic conversation. For example, is writing about the evolution of country music radio really that important for growth and economic development? No. But, what emerged from our conversation that could prove helpful?

There are values in a culture that are conducive to economic growth: integrity, thrift, and trust. Trust and integrity are important aspects of trade. When making trades it is possible that one person is put in a vulnerable position, especially in the absence of a solid legal system. Therefore, people lacking trust in others may never seek to make certain trades which results in unrealized gains from exchange.

Thrift is important because savings is the real engine of growth. Savings provides capital for entrepreneurs and other large important purchases that spur innovation, improve efficiency and jolt other sectors in the economy. We know that savings does happen even in less developed countries where people live on $1 or $2 a day; but, there isn't much room for disposable income.

Now, how do we cultivate (ie produce) such values that we think are important? How could people come to have greater integrity and trust? Where will they learn the merits of thrift? We've entered the realm of belief systems. Why do people choose certain beliefs? How are those beliefs acted out in difficult circumstances?

The article about how culture is produced had some very interesting thoughts about what helps to spread culture: television can help spread culture (recent economic studies have linked soap operas to decreased fertility in Brazil and television shows in India have been linked to attitudinal changes toward women). I'm still thinking about how the other ideas that Peterson discusses might help propagate values and produce culture. More on this later.

The Consumption of Culture

Economists say things like, "There's no accounting for taste". Indeed, Nobel Laureate Gary Becker once wrote an article dubbed, "De Gustibus Non Est Disputandum". On the other hand, Richard Peterson writes towards the end of his article "The Patterns of Cultural Choice", "Much exciting work remains to be done in accounting for the patterns of taste that have been identified." This desire to answer questions many of our brightest economists dismiss leads me to read these kinds of sociology papers, even when they are quite difficult to understand.

This paper seems to be a discussion about how sociologists might begin to understand the patterns of cultural choice. Peterson wants to use the words "patterns" and "choice" to explicitly state that there can be multiple paths to how culture comes into existence and that ultimately there is an "open voluntaristic element to patterns of cultural choice."

How can we begin to understand cultural choice? We must understand how people spend their time and money. Also, we can ask them subjective questions about their values. These research methods amount to surveys and diaries in an effort to obtain a glimpse into the details of other people's lives.

Ultimately Peterson states that we want to know four things from these surveys:

1. Specifics - Peterson critiques past surveys and diaries that may not have asked for specifics. For example, rather than asking people to write down whether they watched television, we might also want to know what they watched. Also, there may be differences in values, consumption, or time allocation between people who are deep sea fishermen versus bass fishermen. The details matter!

2. Significance - Which of the specifics of people's choices seem to be highly predictive of their other choices? That is, what are the leading indicators for other choices made in their life?

3. Distribution - What is the distribution of people into certain cultures? Say that there were five possible cultural choices and people were evenly distributed. That would say that people are selecting into different cultures. But, if people grouped with greater frequency in one or two of the cultures then determining cultural choice is quite difficult.

4. Type -We need to know the characteristics of the people selecting into the culture to see if there are significant traits beyond consumption choice and time allocation that determine which culture a person selects into.

The use of diaries and other methods seems to be a neat and interesting way to go about understanding the decisions people make. I've been reading an interesting book called "Portfolios of the Poor" which utilizes a diary method for household expenditures amongst the poor in Bangladesh, India, and South Africa. They then constructed income and consumption flow charts for the people and were able to gain a thick description of financial instruments used and major life events through explanation in the diaries. Through seeing how people spend their money they discovered numerous items of cultural interest. For example, it is not uncommon for a poor household in India to spend more than 50% of their meager total annual income on a wedding to help improve their status in the community. Also, people in South Africa spend enormous amounts of money on funerals. These can be very important things to know if we're trying to build financial instruments to help people financially who live on $2 a day.

But, my final question is the following: Are these sociologists doing marketing, or, are marketing people doing sociology?

The Production of Culture

Since we are interested in the idea of how culture shapes economic outcomes it seemed natural to ask the questions, "How is culture produced?" and "Why is some culture consumed, while other culture is not?" Because I lead the Economics and Moral Sentiments group I felt tasked to dig up two papers that might help answer these questions and found two articles by the late Richard Peterson who was a prominent sociologist at Vanderbilt. On Tuesday our group will discuss

"Revitalizing the Culture Concept" (1979) and "Patterns of Cultural Choice" (1983).The former is the focus of this blog post: How is culture produced? (I will compose a post on the latter before the group on Tuesday) Peterson suggests that his approach to answering this question will be somewhat different. He writes,

"Many social scientists have insisted that the elements of culture fit together in patterns, so that a certain set of norms are compatible with a given set of values, beliefs, and expressive symbols. The exception and variation to this rule have been so numerous, however, that . . . the four perspectives reviewed here take a different tack by not starting with norms or values but with expressive symbols."

Peterson views that expressive symbols hold more promise in explaining the production of culture because they serve as visible focal points for the various elements of culture: values, beliefs, and customs. This has an interesting connection with economics because economists desire to understand individual preferences but can only do so by observing choice. Thus, the material like visible action attempts to reveal something we can’t see. The four major perspectives Peterson reviews follow (with brief description and examples):

CULTURE MIRRORS SOCIAL STRUCTURE - Sociologists holding this view utilize expressive symbols as gateways to deeper and less visible aspects of culture. For example, a person studying how culture mirrors society would ask questions about how the special powers of comic book characters have might reflect what our society values. Another example given in the text is how different musical styles in a culture reflect other traits about the society.

HOMO PICTOR - Sociologists holding this view maintain that a key feature of our humanity is our ability to create symbols. These symbols represent greater ideas and have some hidden code that creates and could re-create society from generation to generation. Something like the crucifix does indeed transmit all kinds of information about a story, my own nature, and my aspirations. And, we know that the symbol for the early church for the resurrection was the empty tomb. If the symbol had been the empty tomb rather than the cross, would our faith be different? Perhaps, our focus would be different. But, honestly, this notion of master hidden symbols sounds somewhat odd to me.

MANIPULATED CODE - This idea follows from HOMO PICTOR in the sense that expressive symbols represent ideas and hidden code. However, this view focuses more upon how those expressive symbols are used to perpetuate the place of the dominant culture over other cultures. This makes more intuitive sense that if a symbol is meaningful to people and represents an ideal, then it can be used to persuade people towards certain action. In the paper Peterson cites a situation in which RCA was facing investigation for monopolistic practices in the Justice Department and RCA started holding a special orchestral program directed by Toscanini. Apparently this increased the overall prestige and status of RCA and people viewed them as providing a cultural public good rather than as a greedy monopolist.

CULTURE PRODUCED – Peterson seems to be the foremost champion of this view. He does not view symbols as spontaneous processes, but, rather they are produced by someone with intent. Which culture is produced is based on certain contingencies he outlines. For example, he discusses how competition influences musical culture. He notes, “In periods of intense competition musical styles are diverse, while in periods of oligopoly the music is much more nearly homogenous. What is more, they show that changes in market structure precede changes in musical style.”

Reading this paper was extremely difficult. I felt stuck in a whirlwind of jargon and a frail understanding of how sociologists rigorously acquire knowledge and subject that knowledge to the scientific process. However, the importance of trying to understand how culture is produced is clear when we consider the quality of life in developing countries. The World Bank has spent multi-millions in various economic strategies; however, if culture is not amenable, various "good" economic reforms may not stick. Is there a way that culture might become more receptive to different economic reforms that would likely prove helpful?

There are a couple questions I have in reading this paper:

1.) Peterson and other sociologists often discuss this idea of someone "setting the norms" or manipulating the codes of a culture through expressive symbols. But, isn't this somewhat neglectful of the demand-side? Really what these symbol entrepreneurs are doing is "attempting to set the norms". Peterson does outline "contingencies" which seem to hint at the demand-side of culture. He suggests factors such as reward, evaluation, organizational dynamics, market structure, and technology shape the likelihood that any cultural product will hit the mark.

2.) Peterson writes, "That process of symbol-generation and change in each of the areas can be described using the same model, whose parameters may vary from situation to situation." How would we even begin the parameterization of such models? Would we start with trying to model the contingencies?

Opportunity Costs, Boyo, Are the Key to All Economic Decisions

This article is one of the best, most balanced, and most economically insightful articles I've read regarding the status of wind power. My only disagreement is on the "beautiful." I think the pictures of the windmills on the grainfields are indeed beautiful. I still think that the windfarms destroyed the gorgeous San Giorgonia vista (below) in California.

Does Culture Affect Economic Outcomes?

At our last Economics and Moral Sentiments Group we engaged a 2006 article in the Journal of Economic Perspectives titled, “Does Culture Affect Economic Outcomes?” The article represents a summary of a recent swell in research conducted about how culture influences the economy. First, the authors begin with their definition of culture:

“Those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation.”

Compare that definition with other common definitions of culture in sociology. In 1871 Edward B. Tylor described culture as, “That complex whole which includes knowledge, beliefs, art, morals, law, customs and other capabilities and habits acquired by man as a member of society.” Moreover, Richard A. Peterson describes the views of his contemporaries when he writes, “Culture consists of four sorts of elements: norms, values, beliefs, and expressive symbols.”

This latter view is consistent with major sociological textbooks such as the “Essentials of Sociology” by Brinkerhoff et al which sets on my bookshelf. The important distinction between the economists’ definition and the sociologists is the part about “unchanged from generation to generation.” The economic researchers believe that since this part of culture is unchanged the economic structure is not influencing those elements of life. Therefore, if they attempt to explain economic outcomes by culture they can be sure that is the appropriate causal direction.


There are two other strategies that the authors summarize that have been employed by economic scholars: natural experiments and experimental economics. The natural experiments can best be summarized as some outside shock to culture. The authors discuss the 2nd Vatican Council as an example that drastically changed many elements of culture in the Catholic Church. Presumably, this shock would allow a researcher to exploit any variation in economic activity as emerging from these new cultural patterns. On the other hand, experiments can be conducted in different people groups to detect cultural differences. These detect cultural difference because the underlying strategy (derived from math) of the games do not change; but, perceptions about the games do change.

The problems with these last two approaches is in assuming that the outside shock really represented an outside shock and not just a representation of what was already happening in the Catholic Culture. Also, with experiments the variation in playing the game acts as a signpost to a possible set of reasons that different people groups play the game differently. It does not tell us exactly why.

Nevertheless, the paper was a neat paper to read and discuss in our readings group. If you believed everything the authors wrote about strategy for testing cultural impacts on economics and you liked their use of the World Values Survey Data then you would come to the following conclusions:

1. Culture Influences Saving Rates via Religious Teaching
2. Culture Influences Levels of Trust which in turn increase trade and entrepreneurship
3. Judeo-Christian Religions are opposed to re-distribution relative to non-religious/atheists

What does this add up to? Religious people are more likely to save. Trustworthy and trusting people are more likely to engage in entrepreneurship and trade with each other. Sounds a lot like these regressions are pointing to Max Weber.

The Significance of Rules

Two years ago when teaching the Economics of Compassion class (for the first time)  I delivered my lecture on the Ten Principles of Economics. When Principle #8 in Common Sense Economics popped up about institutions and technology leading to economic progress my explanation was glossy. Obviously technology would increase the economic possibilities: computer, cell phones, transportation and shipping advances all work to make business easier to conduct. When business is easy to conduct we can trade more (which is good since trade creates value . . . a positive sum game). Lately my thoughts have been focused on technology's less tangible brethren: rules.

Rules, you ask? Rules are the constraints on human interaction and they can either be legal or social. The significance of rules can be seen with the failure and success of micro-loans. When Muhammed Yunus believed that the poor in Indonesia were not bad credit risks and simply needed access to money to improve their irrigation systems he determined to offer them loans. The people defaulted on the loans. Then, he decided to change the rules. First, small groups were formed. Second, loans were given to each person in the small group. Future loans to any individual in the small group were contingent on everyone in the small group paying back their loan. The social pressure generated a strong incentive for each person to responsibly payback their debt. That change in the rule meant a lot to the overall success of Yunus' vision.

There are many other examples of how rules are really important to improved economic activity. Here are a list of rules that could potentially improve economic activity:

1. Is productivity increased when employees are paid in a piece-rate or relative pay scheme?
2. What kinds of covenants will help us avoid the Tragedy of the Commons problem?
3. Do patents stifle innovation since permission must be granted on so many patents for each new invention?
4. What kinds of rules on eBay protect people from retaliation for rating another user in a negative way?
5. What kinds of auditing rules are more likely to deter cheating?
6. Similar question, what kinds of rules about punishment deters criminal behavior? What rules help reform?
7. What kinds of monitoring is needed to ensure welfare recipients are in fact needy?
8. What kinds of monitoring is needed to ensure welfare recipients spend money on the right things? (Food Stamps in Florida now uses plastic cards with picture id that have money placed on them, so that people can't simply trade food stamp dollars)
9. Assembly lines

There are many more examples of the kinds of rules that people develop to help improve economic activity. If you have any other ideas post them up!  

Holding Out for NIMBY?

By chance this article from the New York Times showcases, in the context of the development of wind power in Texas, two issues that Doug, Svetlana Pevnitskaya (also at FSU), Sean Collins (now at Fordham University) and I have been studying: the Not In My Back Yard (NIMBY) problem and the problems arising from assembling large numbers of different parcels of land for industrial development (the "hold out" problem). Wind power is particularly vulnerable to both of these. First, despite the numerous TV commercials showing pretty little girls bouncing through green fields with birds, butterflies, and windmills, industrial windmills are ugly, noisy, irritating to live around (light and shadow flicker), and potentially dangerous to wildlife (although this problem is being mitigated). And, as wind often blows the strongest far from where people live, there are concurrent requirements for long distance transmission lines, which are ugly, scary to some people (although that is apparently overblown) and require a bundle of property rights with no gaps: a situation ripe for hold-out issues.

Texas has become a leader in this area, for a number of logical reasons. There are wide open, relatively empty spaces where you don't have to look at a windmill if you don't want to. And, as the article reminds us, Texans traditionally have been accustomed to accepting the public face of productive activity: pumpjacks, refineries, etc.. But now, the transmission lines raise new problems. It's an interesting case study. As a colleague of ours from the FSU School of Law said last year, "green" industrial facilities are nevertheless industrial facilities. And, as I read someplace on the web, it raises the question as to whether wind and solar energy are really "renewable" energy, because you can't "renew" the land occupied or the vista destoyed. There's no such thing as a free lunch, nor free electricity to make your lunch, either.

Love is Positive Sum: I

Marvin Olasky wrote a short piece in World magazine that I almost glossed over because the content was so predictable. He briefly reviewed two books on development and poverty. One by economists Arnold Kling and Nick Schulz is called From Poverty to Prosperity. Olasky notes that this book extensively expounds on economists’ recent interest in the influence of social institutions on wealth and poverty and yet (quite predictably among economists) more or less ignores the role of human sin. The second book was Power and Poverty by Dewi Hughes, which painfully seems like yet another “trendy evangelical” (apologies to Os Guinness) book which discusses economics without any idea of what are the root causes of wealth and poverty. The quote from Hughes’ book is “Poverty is fundamentally a matter of distribution of the adequate provision that has always been there.” I don’t have a copy of his book, but I have read one interview with and two other profiles of Hughes online to confirm that this appears to be an accurate representation of Hughes’ argument.

Sigh. Here we are again. The same “ships crossing in the night” dialogue between a ) economists who believe either that culture and values are largely irrelevant, or, if they do believe that culture and values matter, seem to want to talk about anything other than human sinfulness, a concept which is at the core of two of the major religions of mankind, and b ) theologians with apparently impeccable theological and compassionate credentials (Hughes works with a Christian aid organization and his book is published by IVP) whose knowledge of economics would get them failed out of most of the economics classes I know about. It reminds me of Paul Collier’s passionate narrative in the Bottom Billion of his trying to find out why a major Christian aid group in Britain was promoting what was economic misinformation on international trade.

The usual reaction to this state of affairs is that if there is a dialogue between economists and theologians on issues of wealth and poverty it probably means that we need either to a ) open the moral sensitivities of the economist who works in a bubble of moral neutrality, or b ) help the theologian from making the worst of economics errors while maintaining his appropriately Christian moral arguments. However, with great presumption I would like to take a different tack here. This post is the first of three that will argue the following: 1 ) The “zero-sum” economic worldview of many Christians (of a variety of political persuasions) is not merely economically deficient, it is at odds with the moral view of both the Old and the New Testament. That is, I am challenging their position on both Christian and economic grounds. 2 ) The “zero-sum” worldview leads to political outcomes that perpetuate rather than cure poverty. Finally, 3 ) What we need from theologians is not just a high-school AP knowledge of economics, but rather a concerted effort to create a Christian theology on poverty in a positive-sum world. I’ll begin today with the first proposition.

What is forbidden points towards what is perfected. Suppose that a theologian argued that all manifestations of sex were sinful. That makes no sense, because why then would there be a Biblical distinction between a picture of love, fidelity, and marriage on the one hand and sexual immorality on the other? Why would we have a commandment against adultery? Why would Jesus honor marriage with the miracle at Cana? Why would he preach on the completion of the commands against adultery through his calls to love and purity of heart? Why would the early church confront its culture with models of chaste love? Obviously, this is because the initial assertion (“all manifestations of sex are sinful”) is incorrect, and Jews and Christians, the Old and the New Testament, provide a picture of human relationships that are whole and within God’s plan. The same point can be said about the creation of wealth. If any attempt by an individual to better his lot or that of his family occurs in the context of a zero-sum world, then all such activity is theft. But if all economic activity is theft, then why do we have two commandments which serve, just as in sexual relationships, to point to the distinctions between sinful abuse and conformance to God’s will? If any economic activity is theft and covetousness, then the human economic condition is not just depraved but depraved without any hope from God and there would be no point for God to say “Thou shalt not steal.” The prohibition against stealing implies that there is a better way to improve one’s lot in life, one that is not stealing. Theologians who insist that there is a fixed pool of wealth and that all that matters is the division of the spoils are not only ignorant of basic economics but they also fail in their duty as theologians to help Christians define modes of economic love in the midst of positive sum economic possibilities. I realize that these are strong words as I type them, but I believe that in whatever small way I am able I need to move this discussion off of the same old parameters.

The Bible is full of good sermon material on wealth creation and just distribution. There’s no indication that the Mosaic law saw all property or economic activity as redistribution or theft. There are actually some quite interesting economic discussions that fit into what I am talking about: the requirements for leaving part of a field un-harvested, the prohibitions against dishonest weights, scales, and boundary markers; the bankruptcy provisions. In the New Testament, Jesus actively shows us some specific examples of the completion of the Law through love: healing on the Sabbath and the restatement of the divorce and adultery codes. How can we transfer these models that Jesus has given us to an economically-relevant context of gains from trade, technological innovation, consumer preferences, and so forth? Finally many of the figures of the early church were involved in trade and/or commerce (e.g. tent-making; trade in purple cloth). How did they model their economic life?

A further problem for theology of economics when growth is possible: the world has fundamentally changed. Theologians may not realize what an astonishing event in human history is the discovery of how to create economic growth. It is an essential parallel to the astonishing rise of the medieval cathedrals over lands that, for hundreds of years, had produced mostly huts and fortifications. Jesus discussed the ordinary aspects of life in his teachings, and they clearly included buying and selling, planting and harvesting, and even some kind of simple investing. Even at this basic level, a Christian theology of a positive sum world is not one that eliminates discussions of justice, but acknowledges exchange and choice. But, no Christian theologian that I know of would talk about healing and ignore the fact that our stock of knowledge about medicine and health is radically different than in Biblical times. A theology of healing needs to incorporate both what Jesus was saying in his healing messages and what know now about medicine. There should be an exact parallel with how we weave Jesus’ message and what we know now, but didn’t know in 30 A.D., about economic betterment. No Christian theologian that I know of would develop a theology of healing that ignored our new knowledge people could be sick for reasons other than the indwelling of demons. I fear that if we cannot have a dialogue about poverty in which it is acknowledged that Paul may be poor for reasons other than that Peter is wealthy, then we may be at an intellectual dead end.

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?

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.)

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.)

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."

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.

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.

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.)