Friday, July 18, 2014

Faith and Economics

The new issue of the Association of Christian Economists' journal came yesterday, and I would like to comment on a couple of the pieces in it.

Tony Waterman offers a review essay on Wilkinson and Pickett's The Spirit Level, a good five years after its publication in the UK, and four years after it appeared here. Tony's comments are thoughtful, as they always are. But in his section on theological issues, I have some doubts. He notices that inequality is "a fertile breeding ground for four of the seven deadly sins," namely, avarice, pride, envy, and anger. But he finds that classical (and neoclassical) economics explains the remedy: God uses our sinful desires and acts to make us prosperous through the miracle of the market economy. I suppose the proper conclusion is, let us sin more so that grace may abound!

By no means. Avarice and pride particularly have led to the wave of business scandals that began in the late 1990s. The widespread corruption of American business has led to a loss of confidence, lack of trust, increased inequality, and poor economic performance, culminating in the 2008 financial crisis and its disastrous aftermath. When the economy prospers, it is in spite of our sins, not because of them. The market will not save us from our sins. Only God can.

Quoting Pope John Paul II and Anglican Archbishop William Temple in support, Waterman argues that "human beings need incentives to be good." Apparently a place in Heaven is not enough. But for sure people will not be virtuous if you "punish" them with high taxes.

Injustice by definition means that some people get benefits to which they are not entitled. For justice to be achieved, those people have to give up those benefits. To insist that they must come out whole undermines the remedy. The reward is the knowledge that they have contributed to a more just society, and have helped achieve God's purposes in the world. We count it joy to suffer for our Savior's sake. That has to be enough.

In the opening article, John Lunn explores the distinction between value in use and value in exchange. He concludes that "exchange value is a social construct and is not based on some kind of ontological reality." Therefore, it not helpful to look to anchor an evaluation of market functioning in a relationship between market prices and some objectively determined use values.

I agree with John that the Aristotelian line of thought is not productive as a way to derive a theory of objectively right or just prices, or as a way to justify the outcomes of market processes. But I think there is a much more interesting contemporary question about prices that should be addressed. The virtue of markets is supposed to be that market prices convey information about the relative scarcities of goods, an objective measure of the production costs of the goods to be bought. This results in good decisions by buyers about how to best steward or conserve or economize on resources. But in contemporary America, this connection has been broken. Price discrimination is rampant, breaking the connection between prices and costs, and undermining the efficiency of markets. In the business community, this is now everyday practice, and it is increasingly accepted by consumers. But pricing has become just an exercise in naked power by increasingly monopolistic sellers. This undercuts any serious moral defense of a market system.

I have written about price discrimination before, and the essay appears as chapter 8 in my book, Stories Economists Tell.

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