Unintended Consequences #5

I've followed the following story in several places, but I'm writing with the Wall Street Journal editorial "The Madness of Cotton" in front of me.

Students in both the Compassion and Sustainability classes have heard an earful from us about U.S. agricultural subsidies. They depress prices for farmers in developing countries, are transfers largely to wealthy Americans, and have a variety of unintended, bad environmental consequences from overproduction. Did you know that so much cotton has been grown in the Arizona desert that we used to say that Arizona's economy was dependent on the 5 C's: Copper, Citrus, Climate, Cattle, and ....Cotton? [WSJ figures regarding the total U.S. subsidy amount: $2.3 billion in 2009, with the top 10% receiving 70% of the benefits]. Of course, Congress repeatedly re-authorizes the program.

Recently, Brazil successfully protested to the WTO about our cotton subsidies, and the WTO found in favor of Brazil. The allowed Brazil to propose a list of retaliatory tariffs against the U.S.. According to the WSJ, the hits to American manufacturing would have included cars, medical equipment (way to go Brazil---make health care more expensive for your own people), pharmaceuticals, electronics, textiles, wheat, software, and intellectual property. It seems as thought the sensible thing to do would be for Congress to say, "That's a shame, I guess we'll just have to lower those cotton subsidies." Instead, the Obama administration has proposed that the United States government pay $147.3 million dollars to Brazilian cotton farmers in return for the Brazilians waiving their right to retaliate against American manufacturers.

$147.3 million paid by our government to Brazilian farmers to divert the damage done by our own cotton subsidies to our medical device and software industries....just another day in the life of Unitended Consequences.

Trash to Treasure

This video (don't mind the commercial in the beginning) shows a phenomenal example of the kind of innovation from Cheetahs that George Ayittey talks about. The entrepreneur takes an abundant material (plastic bags) at low cost and produces something that benefits others (fence posts and homes). When this happens wealth is created. Also, since this is an economic change that emerged from within the country (not from an aid agency) it's more likely to have some staying power. The video was found on the Social Enterprising Blog which is linked on our blog roll on the bottom right.

Like, Totally

This continues a deliberation that I posted after the APEE conference in April: how do we reconcile (if that is even the correct word) our callings as Christians and as economists? The current context for that is Doug’s “Theory of Moral Sentiments” readings group, which as he has discussed below, is working through the Paul Zak volume on “Moral Markets.” Given that the discussion at the group is specifically about morality and about markets, am I able to have constructive discussions with other economists who may or may not be Christians? My definitive answer is YES, KIND-OF, and NO.

YES: I don’t know of anyplace in the Bible in which it would be suggested that Christian researchers can not engage in the world of scholarly debate; Christian meteorologists or mathematicians or creative writers or economists all can have a professional calling that leads them to interact with Buddhists or agnostics or Druids. In fact, I believe that the alternative, floating around in a Christian bubble, is more problematic from a Biblical point of view---to me, that comes close to hiding the light of Christ under a bushel.

KIND-OF: However, on this particular topic, morality and markets, things are more complicated because my view of morality ---as opposed to my view of the optimal econometric technique to be used with censored data --- is directly informed by my religious beliefs. During most of the discussion, I can argue from a point of view that is informed by religion without making the discussion about religion. For example, I don’t believe that morality can de derived simply from logical deductive reasoning. There are many other people who come to the same conclusion but from an entirely different route.

On the other hand, there are times in these discussions that I hear some comments and think “That is just wrong” where my religious beliefs are a major reason that I have that opinion.

NO: The most important regard in which I cannot isolate my discussions about economics and morality from my personal faith is that I believe that I am human being and therefore subject to sin. This is sometimes called original sin or in the much more colorful Calvinist language the Total Depravity of Mankind (although I’m not sure Calvin ever used those words). A lot of people don’t like to use that language because it’s often misunderstood, but I think that properly understood it’s an important idea.

Total depravity does not mean that humans are incapable of acts of great kindness or love. It does not mean that every single action that we commit is sinful. Our sinfulness is “total” in that it affects all aspects of our life. Specifically, in Reformed Christianity it would be inappropriate to say “I sin as a glutton and I am covetous driver, but I never sin in my role as a father.” Total depravity means that there is no part of our life that we can wall off and say “I never sin here.” More to the point of the Moral Sentiments readings group, my reading of Calvin was that he was arguing against a contemporary notion that a human’s true self could be subdivided between the rational and the sensual, with sin residing only in the sensual self. Most specifically, this means that any human effort to develop and live a code of morality is itself corrupted by sin, even if that effort is guided purely by rational thinking. (Recall that the first rebellion in the Garden of Eden was eating the fruit of the tree of the knowledge of goodness and evil). Another wording, if you don’t like “Total Depravity,” is that we are unable to act in full conformity with God’s moral commandments our own …we require the assistance of the Holy Spirit. [If you are wondering if all Christians at all times have accepted this idea, the answer is “No.” Pelagius took the opposite view in his debates with Augustine.]

How many times have you sinned because you began with the idea “I’m going to go out and lie cheat and steal”? Sometimes people do sin when they give into to temptations that they “know” are wrong. But haven’t you also had the experience of sinning even when you sincerely argued to yourself “Logically, I’m the one in the right on this” ?

The implications of this “Inability” is that Christians must understand that not only even when we are discussing morality but especially when we are discussing morality that we are not God and therefore our opinions, statements, and discussions are susceptible to the sins of pride, jealousy, and so forth, just as anything else we do in our life, and thus ought to be a matter of prayer for guidance and wisdom.

Assorted Links

Here are some items that may be of interest to our readers:

This is a flow chart about a subject that has received significant attention in development news. What do you do with your stuff? Here is a flow chart from Peace Dividend that provides some wisdom about the tradeoffs of sending your stuff to a developing country. Could you sell the stuff for money that could be better used in developing countries? What are the transport costs of sending your stuff to this country? Could that money be better spent?

Trawling through the Freakonomics Blog I came across this interesting guest post by David Zetland, a post-doc at Berkley writing about the subtle nuances you might not notice in a discussion about getting "clean water" to the poor. This is an interesting account of how bureaucracies want to measure the wrong thing because at least it looks like they're doing something.

Chris Blattman explains that rebels where those pastel colored croc shoes to distinguish themselves from non-rebels. How knew crocs were the preferred footwear of rebels?

Lynn Kiesling dispels a false presentation of statistics . . . not that the statistics themselves were false, rather, what they were used to imply about how poor the U.S. record of energy consumption is relative to other more "sustainable" countries like Denmark. Always be wary of statistics and how they are presented, they can hypnotize the passive mind. She also offers some thoughts on the oil spill situation and the call for regulation.

The Empire (of Economics) Strikes Back

Yesterday I probably spent too much time doing two things: 1) playing PacMan [the other 30th Anniversary] and 2) re-reading about St. Augustine's wrestling with the doctrines of free will and election. I had kind of hoped never to jump into the free will/election tar pit on the blog, but it's Pentecost... a day for boldly following the Spirit.

It is without a doubt daunting to try to follow Augustine's evolution on these topics. But, what was clear to Augustine was that if you threw either free will or election under the bus you were also denying large parts of scripture, both the Old and the New Testament. Augustine's writings started with an emphasis on free will (and trust me, this is not from scholarly original research on my part but rather is my attempt to summarize what I have read over the years) because he was reacting to a heresy and he believed it important to argue that God was not the author of Sin: Adam and Eve were the authors of the human fall. Apparently after periods of intense study of Paul and the Old Testament, he more publicly emphasized the biblical passages supporting predestination and election. And, of course, later in life, he famously opposed Pelagius' total emphasis on free will and his (Pelagius') rejection of the idea of original sin.*

Across all of the sources I've read, the resulting summary of the Augustinian position is usually stated something like the following: "Humans have free wills, but the natural consequence of original sin is that we will inevitably (but not always) choose to sin." Or, as I have seen it described elsewhere, we are free to be slaves of sin. Or, as R.C. Sproul says in Willing to Believe,

"For Augustine, the sinner is both free and in bondage at the same time, but not in the same sense. He is free to act according to his desires, but his desires are only evil....He is a slave to his own corrupted passions, a slave to his own corrupted will." Is that clear enough? Bueller? Bueller?

Economists are often accused as being intellectual imperialists with regards to the other social sciences. Let me continue in that tradition with the following very immodest statement: if Augustine (or, for that matter, Aquinas, Luther, Calvin, Arminius or Wesley) had been trained in economics, this might not all seem so complicated.

Economics separates the act of choosing from a) preferences, and b) the constraint set. In this light, the debate about free will is a red herring. As Augustine realized, but we find difficult to accept: the Bible emphasizes both free will and predestination because, contrary to what we so often hear, there is no conflict between free will and predestination. Of course people have free will. God made us that way, and the exercise thereof is what got Adam and Eve into so much trouble. (Cue the Wesleyan hymns.) The real story about election is not about our free will but rather about our preferences. The "election" thread of scripture is all about the fact that human preferences will naturally lead us to choose to sin, and that it is only through the calling of the Holy Spirit that our preferences are changed, not the presence or absence of our free will. (Cue the Calvinist hymns).

Two final thoughts. 1 ) I may have lost my membership in the Calvinist Economists' Society for the discussion above; and 2 ) Economists run like crazy from any questions about how our preferences are changed (in fact Becker and Stigler argue forcefully that they don't). The discussion above more or less kicks that whole can of worms (what does it mean for our preferences to change) down the road for a later post. In the meantime, read Romans 7:15-25 for the potholes that lie ahead for the economics empire.

* A great expression of the Pelagian idea of sin and redemption can be found in the book A Clockwork Orange by Anthony Burgess (provided that you read the original, full length, British edition and not the American edition---- or the Kubrick movie).

Consumed by Comfort?

In the Economics of Compassion class, Doug has asked students to prepare a consumption bundle for a single Mom working at a minimum wage job (but taking account of all of the appropriate government transfer programs). In the Sustainability class, we ask the question "Are We Consuming Too Much" from the point of view of an academic paper by Kenneth Arrow, et al. "Lifestyle" sustainability was a popular topic with the students. And at the Southern Economic Association Meetings this Fall Doug and I will be on a panel with, among others, Prof. Craig Blomberg of Denver Seminary, who studies issues of materialism.

These questions came to mind this morning from an unexpected place: one of my routine e-mails from automobile rating agencies and services (MyRide). In today's article, the reviewer drove for a week one of the least expensive cars available in the United States: the base-level Nissan Versa. Some of the discussions I expected: the car has a small engine, no radio, a small trunk, and the reviewer, Thom Blackett, wasn't even able to get a test car without air conditioning, so he ignored it in the early Spring Maine weather. But what really caught my eye was that Mr. Blackett particularly noticed a portfolio of creature comforts that middle class American didn't take as "standard" until, in my mind, the 1980s (he suggests the 1970s, but not on the cars I was driving then). The things he noted that he really missed include: power windows, power outside mirror adjusters, the inside latch that snaps your trunk open, rear cup holders, and remote key access. Again, I think that it was well into the 1980s or maybe even the 1990s before I owned a car that had all of these features. This raises the question, does our list of necessities change across time? What can we live without? This is important not only for issues of personal Christian discipleship, but also for public policy issues like "What constitutes poverty?" I think that the Reformers in Geneva were on the right track by emphasizing the Christian virtues of modesty in consumption. I think they got really off track by trying to define it: How many sets of dishes could a family own? How much jewelry could a woman wear? One of the virtues of a tithe is that it causes each person or family to live withing inside the envelope of their budget set, with different implications for different people.

(Disclosure: the car that I currently drive exhibits this paradox fully. It has all of the bells and whistles that Mr. Blackett misses, although as a Hyundai it pretty well defines "Reliable, Middle-Class, Basic +" transportation. And, for purely self-interested reasons I deliberately didn't seek out many of the "packaged" features that I had on my previous car: dual sun roof, multiple disk-CD changers, etc.. These tend to need [expensive] repair much earlier than the drive train.)

Pay What You Like Pricing Scheme

The pay-what-you-like pricing scheme allows for patrons of a good/service to donate what they feel that good/service is worth. There are many examples such as Radiohead's album In Rainbows. Also, various local restaurants, soccer clubs, and rental accomodations have tried this pricing scheme with varying success. And, our readers may remember that Calvin's Coffee (which Mark and I were instrumental in opening) had to adopt this model because of expensive Tallahassee Government regulations on business. We are happy to report that Calvin's is increasingly successful. Moreover, our opening of Calvin's led us to write a theory paper about pay-what-you-like (PWYL).

BUT, a bigger fish just entered the pond: Panera. Here is an article from USA Today on Panera's decision to adopt this new pricing scheme. One question I have is that they have located the business in Clayton, Missouri. The original Panera was also in the St. Louis area so the company has ties. A very interesting economic/psychology argument can be made about why they choose Clayton: homogenous population. Clayton is 85% white with a median family income of $107,000. This homogeneity could help the stability of the norm to contribute. If I am right about homogeneity being such a big issue then Panera has given themselves the best opportunity to succeed. Only time will tell.