Morality and economics

Economist Steven Pearlstein has published an article in the Washington Post entitled “Is capitalism moral?”  It’s balanced and nuanced, giving the views of both conservative apologists for capitalism and its liberal critics.  I’ll give you a sampling after the jump and then raise some additional issues of my own.

From Steven Pearlstein:

Free-market advocates have a stronger moral case against government “confiscating” the money earned by one person to give it to another.

The traditional liberal defense of redistribution, of course, is that a lot of what passes for economic success derives not only from hard work or ingenuity but also from good fortune — the good fortune to be born with the right genes and to the right parents, to grow up in the right community, to attend the right schools, to meet and be helped by the right people, or simply to be at the right place at the right time. A market system should reward virtue, they argue, not dumb luck. . . .

One problem with liberals’ equal­ opportunity argument is that they have yet to articulate the moral principles with which to determine how far the evening-up should go — not just with education but with child care, health care, nutrition, after-school and summer programs, training, and a host of other social services. . . .

Middle-class entitlements, which include a big chunk of programs such as Social Security, Medicare and subsidized college loans, force us to ask: How much income redistribution is enough? Must we keep redistributing until we reach the equality levels of the 1950s, which liberals seem to consider the golden years? Or until the United States matches the income distribution of other industrialized countries? Or until polls show that the middle class believes it has achieved economic security?

The common justification for middle-class entitlements is more political than moral: If we limit safety-net and opportunity-equalizing programs only to the poor and the disabled, over time these would suffer the fate of all welfare programs and gradually be starved of funding. The only way to preserve widespread political support for them, liberals argue, is to extend them to the middle class.

The interesting thing about this argument is that it effectively acknowledges what Romney and the free-market crowd have long suspected: that liberals have been able to create a welfare state only by addicting a middle-class majority to government subsidies — subsidies that now can be financed only by taking more and more money from the rich.

I don’t know if Brooks is right when he says we could reduce the cost of the safety-net and opportunity-equalizing programs by 40 percent if we limited them to the poor and the disabled. But even if he is half-right, a 20 percent reduction would provide a sizable bit of fiscal headroom to strike a different balance between the moral obligation to provide a safety net and the moral obligation to let people keep as much of their hard-earned money as possible.

There remains, however, one glaring problem with the moral case against redistribution. For implicit in the imperative to let the productive keep what they earn is an assumption that the markets distribute income in a way that accurately reflects everyone’s relative economic contribution — and therefore is fair. But is that true?

In an economy of self-sufficient farmers and ranchers, people can point to something and credibly claim, “I produced that” or “I built that.” But in a modern, complex economy, the connection between what is produced and who is responsible for producing it is not so obvious. Modern business is a team sport. . . .

A useful debate about the morality of capitalism must get beyond libertarian nostrums that greed is good, what’s mine is mine and whatever the market produces is fair. It should also acknowledge that there is no moral imperative to redistribute income and opportunity until everyone has secured a berth in a middle class free from economic worries. If our moral obligation is to provide everyone with a reasonable shot at economic success within a market system that, by its nature, thrives on unequal outcomes, then we ought to ask not just whether government is doing too much or too little, but whether it is doing the right things.

It seems to me that the moral problem of Capitalism is the conflict between self-interest, which is properly the driving force of free market economics, and the Christian imperative of self-denial for the good of others.  The moral problem of liberal and various statist theories of economics is the imperative of “Thou shalt not steal,” which is in conflict with the impulse to take and to redistribute other people’s wealth and property.

But another issue is the nature of economics.  Is a theory of economics an ideological construction that can be translated into government policies, so that we can choose between one economic theory and another, according to our values and beliefs?  Or is economics a science, an objective description of reality whether a person likes it or not?

In the former case, we can decide which of many economic systems is the most moral.  In the latter case, to question whether a law of economics is moral is like asking whether the laws of gravity are moral.

When I was living in Soviet-controlled Estonia in an academic  exchange, I noticed that  free market economics seemed to be operating even under Communism.   The command economy manufactured goods according to state-determined quotas, rather than the demands of the marketplace.  Therefore, a shop might have an overabundance of shoes all in one size, since the factory could make its quote easier if the machinery didn’t have to be set up for many different sizes.  So unless you were lucky enough to wear the size the shop carried, you were unable to buy shoes.  The state mandated that bread be sold at a specified low price to eliminate profit-taking and to make it affordable to the masses.  But that often meant that the cost of making the bread exceeded what the bread could be sold for.  When that happened, the shops had no bread.  In the meantime, the black market–which included what the government-run shops sold under the table, when they acquired products of value–functioned quite efficiently.

It may be that free market capitalism simply describes the workings of the natural order.  (Though like other scientific models, it may need refining and changing as more data presents itself.  I do acknowledge the limits of social science, though.)  If this is simply the world in which we find ourselves, we can indeed act morally in it, with the limits of fallen human beings in a fallen world.  The way Christians are to live in the world is summarized in the doctrine of vocation.   We can live in the same economy as our non-Christian peers, but it can have a different meaning.   Our economic self-interest can be turned into self-denying love and service to our neighbors as we carry out our vocations, and in the course of which, our economic self-interests can be met after all.   That is, when we work hard (denying ourselves) in a business that provides good products and services to our neighbors (thereby loving them), our business will thrive and we will, paradoxically, prosper.

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  • tODD

    Veith said:

    The moral problem of liberal and various statist theories of economics is the imperative of “Thou shalt not steal,” which is in conflict with the impulse to take and to redistribute other people’s wealth and property.

    To a degree, this is true. Certainly, some proponents of redistribution are simply motivated by greed. But all taxation is redistribution (quite simply, your money is given to someone else). And while some right-wingers will tell you that all taxation is stealing, they will find no Scriptural warrant for such an assertion. Quite the opposite. Point being, neither taxation nor redistribution (again, they are different only as to framing, not as to essence) are intrinsically evil, though like all things, they can be used for it.

    Is a theory of economics an ideological construction? … Or is economics a science?

    Likely both. There is a quantitative side to economics at the basic level, though it’s stretching things to believe it’s actually “science”. But beyond supply and demand, most of what goes by the label of “economics” is just political thought with graphs and numbers.

    Our economic self-interest can be turned into self-denying love and service to our neighbors…

    I think the passive voice is unhelpful there. Doubtless God does use our own selfishness to serve our neighbors. I don’t we get the credit for that.

    But that’s the easy framing, for a right-winger. Would someone who agrees to that also concede that taxation can likewise be turned into self-denying love and service to our neighbors? Or does God only work through right-wing greed?

  • tODD

    Sigh. Botched the blockquotes (@1). Hopefully it’s obvious who was saying what.

  • RJD

    I read this article and, as Dr. Veith did, found it quite balanced and I’m looking forward to reading some of the responses to it from a Christian perspective.

    A good friend of mine describes himself as an anarchist; that is, he beieves the state is evil and the source of all misery and that all taxation is evil and that all public works projects should be voluntarily funded. I don’t hold to this view because, with taxation, at least you are getting something in return (a road or a school) whereas with theft, you get nothing in return. Now, you may not want a road, but I still think it’s a stretch to equate taxation with theft when you live in a community/town/state.

  • T

    So Todd are you going to question Dr. Veith’s Lutheranism since he affirms that redistribution is a violation of the 7th Commandment? It’s funny how one’s view changes when it is another person making the claim. Governments are held to the Commandments too.

    I would agree taxation and redistribution could be the same if everyone pays the same, but not necessarily. If everyone is taxed the same then it’s not redistribution. It is when some people who make more pay taxes and others pay none, yet both receive the benefits. To suggest otherwise, is eliminating the nuances of various tax structures and simply say it’s a tax and there at no degrees.

  • Klasie Kraalogies

    I find that a lot of the time, folks arguing over economics are equally ignorant over what they are arguing about. I highly, highly recommend the CBC’s pod cast series “The Invisible Hand” to explore the basic tenets of the free market economy etc.

  • Steve Billingsley

    A modest thought about capitalism..

    It’s morality is directly proportionate to the morality of it’s practitioners. If a business or government is populated with good people making morally sound decisions then the system works pretty well to benefit lots of people. If, however, they are populated with greedy, self-serving people making immoral (or amoral) decisions, then it only benefits a chosen few and screws over the rest.

    Oftentimes it isn’t the system that’s the problem – it’s the people.

  • kerner

    Dr. Veith said:
    It seems to me that the moral problem of Capitalism is the conflict between self-interest, which is properly the driving force of free market economics, and the Christian imperative of self-denial for the good of others..”

    For me that poblem is resolved by the fact that paradoxically a free market creates more prosperity for everyone, whereas the attempts to control the economy and redistribute wealth on “moral” grounds only creates more poverty and misery. Paradoxically, the poor are much less actually poor in an economy based on a free market than they are in an economic system that supposedly “cares” about them.

    I disagree with Steve Billingsley. The people in a free market do not have to be morally superior for the “invisible hand” to work. , the market has to remain free, and not be transformed into “croney capitalism” by the few. But croney capitalism is just another version of collectiveism as far as I am concerned, because all versions of collectiveism a what you get when the government starts trying to control who gets what.

  • DonS

    Where to start?

    First, not all taxation is redistribution. Per capita taxation, for example, is not, to be technical. One can also argue about property taxes, since property value equates in some relationship to size, and larger properties, on balance, tend to consume more public resources than smaller ones.

    That aside, government’s primary function is, or should be, providing public accommodations. A money system, military defense, police force, public roadways and transit, port facilities, airports, schools (we can quarrel about some of these being proper public accommodations, but they traditionally are), etc. Taxing to fund these public accommodations is not direct redistribution in the same sense as taxing to fund transfer payments to others in the population is.

    The tendency of modern governments to attempt to determine what is “fair”, and then to devise schemes to redress perceived injustice has been disastrous. It is the substitution of another unjust scheme, driven by political power and considerations and fueled by the greed of those who benefit by being part of the redistributionist structure (bureaucracy, contractors, political consultants, big business, etc.), and unimaginable public debt and unfunded future obligations. The world will always be unjust, and it is a fool’s errand for a government to forsake its proper obligations to fund and maintain public accommodations to pursue a dreamer’s scheme of a just utopia, funded on the broken backs of future generations.

    Big Government has rendered a worse injustice on our children than the natural order could ever have dreamed.

  • Joe

    The reason I find capitalism the better system is that it does not pretend that we are good people nor is it dependent upon us being good people. It is a economic system that harnesses our sinful desire to accumulate wealth and uses it to drive a system that benefits society as a whole. It also is a great system for the expression of vocation. In a truly free market system, I am allowed to make a living using my talents to the best of my ability – for this I will be compensated and my neighbor will benefit from the goods or services I provide.

    (I would like to point out that I mean real free market capitalism – not the system we have in the US where large corporations harness the power of the gov’t to protect themselves from competition or the consequences of their own actions. )

    Conversely, the morality of centrally planned or highly regulated economies are by nature defendant upon the morality of the central planners and/or regulators. One good example is of this is in the area of environmental damage. See China – there is plenty of oversight of business by the gov’t yet they are systematically destroying their fresh water sources in ways that directly lead to human death. Check out the cancer rates in rural villages dependent upon rivers as a source of water.

    Within a free market system there are mechanism to protect against such abuses. First, an informed consumer class can choose to punish polluters by not buying their products. The company will be forced to change practices or forgo profits. Second, because free markets systems are, at their core, based on notions of property rights, there will be (even in the absence of regulation) private rights of action for private and/or public nuisance. These claims can impose monetary damages and force changes in practice.

  • kerner

    tODD: @1&2:

    I see your point, and I don’t doubt your sincerity, and I don’t blame you for being skeptical of right wing greed as the engine of a system that helps the poor. But socialism is not, and can never be, charity. Socialism is me, taking your money away from you by force, and giving some of it to a third, allegedly poor, person. But I don’t even give most of your money to the poor. What I do is keep most of it for myself and my fellow money takers/redistributers. There is no charity in such a system. And such a system is really a monstrous attempt to combine the left hand kingdom with the right hand kingdom.

    The purpose of the left hand kingdom is to punish evil doers and protect the (relatively) just from them. Love for ones neighbor is not the business of the left hand kingdom but the business of the Church. This is primarily true because the left hand kingdom is not really capable of loving anybody. But individuals can operate in a left hand kingdom free market, and then show their real love for their neighbors with (this is important) THEIR OWN resources. You can only love your neigbor by what you yourself do with what you have. When you take from someone else by force that is never never never loving your neighbor. Not ever.

  • RobC

    I’m with Steve @6.

  • fws

    don s @ 8

    It helps to know the history Don.
    The Erie Canal required radical constitutional change to be built. Why? it could not be demonstrated that it benefited everyone in the USA equally.

    The construction of the interstate highway system was constitutionally justified on military defense grounds. It would facilitate troop mobilization in the event of war.

    Strict constructionism would result in the libertarian narrow-ist view that only direct expense of governance (pay for non professional politicians and buildings and such), military and police and medical attention to easily transmittible diseases like TB would be permitted to be financed by taxes.

    This was, indeed, the original position of the founders and the constitution. Along with race-based slavery, only White male property owners having the vote, no marriage at all for persons of color, and married women ceding all legal rights as to property to their husbands in Exchange for the “right” to being supported (the last vestige of that system being alimony).

  • DonS

    Frank @ 12: I’m not clear what your point is, or how it relates to mine. I was not addressing the issue of strict constructionism. Rather, I was stating that the expansion of government at all levels, throughout the world, into the role of “equality enforcers”, has been a spectacular failure. The politically connected benefit, the poor are enslaved and continue to be poor, our children are loaded with incredible debt, and government has sorely neglected its real reason for existence — to provide public accommodations, because transfer payment programs have choked out public accommodations in the budget.

  • Steve Bauer

    I’d also like to focus on this statement: That is, when we work hard (denying ourselves) in a business that provides good products and services to our neighbors (thereby loving them), our business will thrive and we will, paradoxically, prosper.

    First of all, I question that working hard is what the Bible means by “denying ourselves” or “taking up our cross”. Work and vocation is a gift of God given in Genesis 2. Working hard is self-fulfilling endeavor. Sin, of course, turns work into toil, but that, certainly, doesn’t add up to denying ourselves. Denying ourselves comes in what we do with the fruits of our labors that God blesses us with. (I would argue that for someone to say, “I have earned this, this is mine” with no recognition that God Himself, and through many other of His “masks”, has made what your labor has produced possible, comes dangerously close to the thinking of the landowner in Jesus’ Parable (Luke 12:16-20). (That’s why “conservative” criticism of President Obama when he said, “You didn’t build this by yourself” made me want to throw up. So what is a Christian to do with the wealth he or she has been given…for what purpose did God give it to you, to keep as much for yourself as possible, to give/<strong pass on as much as possible? If we are created in the image of God, what response with our wealth reflects who God is more? If I and my family can live comfortably in a three bedroom house, why do I build a five bedroom house simply because I have enough to do it instead of passing the wealth on?

    In connection with this, I fail to see the logic in the thinking that Joe @9 puts this way: The reason I find capitalism the better system is that it does not pretend that we are good people nor is it dependent upon us being good people. It is a economic system that harnesses our sinful desire to accumulate wealth and uses it to drive a system that benefits society as a whole. It also is a great system for the expression of vocation. In a truly free market system, I am allowed to make a living using my talents to the best of my ability – for this I will be compensated and my neighbor will benefit from the goods or services I provide.

    If capitalism doesn’t pretend we are good people, then why does it pretend that “for [making a living] I will be compensated and my neighbor will benefit from the goods or servies I provide”? That was the way it was supposed to work in God’s original plan, but it sure doesn’t work this way in this fallen world. Let’s look back to how unfettered capitalism (for the most part) worked in the at the first part of the industrial age, for example. Did laborers get compensated fairly for the actual value they put into the goods they produced? Or according to how much they needed to live a decent life? Or did they get compensated based on what they were forced to accept to barely feed themselves and their family for the day? Was this not a form of stealing? Did they have the working hours or conditions or political access of their employers? There must not have been any real legitimate reason for Labor Unions to form.

  • Steve Billingsley

    Kerner @ 7
    Who exactly are the “cronies” in “crony capitalism”? People who distort the free market to their own benefit and damage others in the process. There is no “crony capitalism” without “cronies”.

    I am not in favor of socialism and I think most of the search for a “Just Third Way” ends up being nothing more than a stalking horse for socialism. But the morality of capitalism depends upon the morality of its practitioners. Adam Smith’s so-called “invisible hand” isn’t what you think it is. Smith, by the way, wasn’t an economist in the way that we think of economists today. He was a moral philosopher. He didn’t consider “Wealth of Nations” to be his most significant work. He thought his work of moral philosophy “A Theory of Moral Sentiments” was his most significant work.

    One can’t understand economics without morality. Aristotle thought justice was the foundation for all economics. Capitalism only works well for the biggest portion of society when it is practiced by a moral people. Greed and theft distorts it.

  • Joe

    Steve Bauer – First, no where do I claim capitalism is perfect.

    Second, your going to have to do better than rhetorical questions. Show me facts to demonstrate that wages were artificially low in the industrial age. Here are my rhetoricals: If the wages were so unjust exactly what was it that caused people to leave the farm and head to the factory? Why did immigrants come here to find a better life? Is it perhaps because even in America’s infant industrialization the quality of life and the opportunity to better one’s self was better here than elsewhere? Or where some greedy capitalists engaged in kidnapping people and shipping them to factories?

    But on the marco level, find me a system that has raised more people out of poverty, made social mobility more available or increased the overall standard of living of a society more than free market capitalism and I’ll reconsider my position.

    Also, you seem to posit the notion that labor unions are somehow antithetical to, or apart from, free market capitalism. They are not, and your reference to them only suggests that you don’t understand what the free market really is. There is no tenant of market based capitalism that says unions must go away or disband. Labor is a market itself. Wages fluctuate based on the availability of workers. And, labor can organize to attempt to push wages up, but it won’t change the formula much. Wages go up when workers are few and wages go down when workers are plentiful. Any, employer who agrees to a formula that departs too much from this does so at his own risk. Unions (at least private sector unions) for all their self promotion don’t really alter this pattern very often. And, when they do have a significant impact that takes wages outside the influence of normal market forces it usually leads to the workers detriment as their employer becomes noncompetitive and jobs are lost to shutdowns or out sourcing.

    If wages would actually be left to their natural market forces, consumer prices would follow suit because they have too. I can’t sell you something at a price point you can’t afford. So, the market will force me to find a way to make the product or deliver the service for less. If not, I’ll go out of business. When unfettered, the market coordinates wages, prices and interest in such a way that it makes goods/services available to people at the price that they can afford.

  • Patrick Kyle

    Discussion or critique of capitalism in the US is often a straw man argument because we do not have a truly capitalist system. It is a hybrid of business and government on every level. If you don’t believe me, then start a business of your own and deal with all the regulations, licenses and ‘fees.’ Making matters worse is the government’s favoring of certain industries over others. ( Think coal miners vs. Solyndra) and our system that allows our legislators to be bought by the highest bidders. (lobbying)
    It is illegal in most cases to even start a business without government permission especially if it earns more than $600 in any given year. Try operating without a business license from the city or county. Also be sure you are up on all the laws governing your particular industry, and I can assure you that there are literally books of them.

    The idea that we have unfettered capitalism is a lie. We are closer to National Socialism, where there is private ownership of business, but it is highly controlled and regulated by the state.

  • Steve Bauer

    I didn’t say you were saying capitalism was a perfect system. I quoted you saying that capitalism is better because it doesn’t depend on us being being good people. I am sayingthat this argument assumes that employers have to be acting as good people for employees or customers to get a fair deal. It seems to me capitalist principles such as “charge what the market will bear” (as opposed to what the item is really worth) or “reducing costs of production” militate against the idea that the worker benefits in proportion to the wealth he/she provides to the employer. As for me documenting facts, I didn’t see any of that in your original comments, so it seemed to me that you weren’t so interested in documenting your own arguments.

    Neither did I put forward (or even imply, in my opinion) that Labor Unions are not of the free market. I said that the rise of Labor Unions are evidence that unfettered capitalism does not benefit all participants proportionately. The degree to which labor unions have not been successful in acheiving their goals is immaterial to the fact that they exist because workers were being exploited.

    @17 Discussion of unfettered capitalism in the US now is a straw man. If you would read what I actually wrote, I was referring to Capitalism as it was practiced in the past when it was (almost) unfettered. Nor did I ever say the US was my focus.

  • brianh

    Economics=Law. Free market: carrot. Central Planning: stick. Either way, sin abounds.

  • fws

    brian h @ 19

    +1 nice!