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. [Read more...]

Just how messed up is our economy?

John Ransom says that our economy is so messed up that economists don’t even have tools to describe what is happening:

To give you an idea how bad the jobs report released on Friday is, consider this fact: The employment situation in the country is so bad that economists can’t accurately measure it with the existing tools they use to measure jobs. In other words, we have entered a period in our country not contemplated by economists. They simply don’t have the tools to measure what’s actually occurring in the jobs market.

Modern economists never imagined a scenario in which a country with as much wealth, power and innovation as United States could stretch out a jobs recession as long as the country has under Obama. . . .

We have a record amount of money in the system doing a record amount of nothing right now. And still the government policy wonks keep thinking that by injecting more money into a system already over-burdened by its money supply we will eventually get different results. . . .

The result is that investors today are still buying US Treasuries despite the fact that after calculating for the real inflation rate Treasury bonds are delivering net negative returns. In other words, investors choose to park money someplace where they are guaranteed to lose money. Because with Treasuries at least they know that their losses will be limited. If they invest in expanding businesses, they know they could lose their entire vig to the G-Men.

This phenomenon, where investors would rather have losses than any risk, has an effect on jobs.

As most of the commentariat is noting, the top-line unemployment number- the one that makes all the headlines- is going down not because of an improving jobs market, but rather because people are dropping out of the workforce at a record pace.

The 8.1 percent unemployment number is meaningless. It actually doesn’t exist. It’s like measuring an 8 foot board with a 12 inch ruler. Shortening the ruler doesn’t make the board smaller.

The rate at which Americans are participating in the jobs market is now 63.5 percent. More than one-third of Americans qualified to work have despaired of ever finding a job under Obama. That’s the highest number of Americans who have sat on the sidelines rather than look for work since 1981. For over a year the workforce participation rates have plunged, coinciding with expiring unemployment benefits.

And the problem is not that there is a lack of money in the system to sustain the economy. But there is a notable lack of demand. Demand comes from confidence that consumers and business feel about the health of the economy. Unlike politicians, those of us in the real world can’t spend what we don’t have. We have to manage our lives using the cash that we actually have at hand.

The problem here is not that businesses and banks don’t have money. Currently the money supply (MZM) stands at a record $11 trillion. Yet the velocity at which the money has moved through the system has plunged under Obama. Money is sitting in accounts, not contributing to GDP growth, but rather just chasing the price of hard assets up because people who make decisions fear that the worst in the economy is yet to come.

Obamacare, Dodd-Frank, Sarbanes-Oxley, TARP, public pensions, John Corzine, Solydnra and the UAW have done a fantastic job of muddying the waters for corporate America as well as small business owners and the self-employed.

These hostile acts taken by or on behalf of Big Government have our economy idling in place.

Economic conditions are so bad that the standard tools used by economists to explain current conditions can’t measure the depth of the peoples’- or the economy’s- depression. Jimmy Carter had the Misery Index. People, meet the President of the United States: Barack Hussien Obama.

The Obama Index is the new index for measuring our despair.

via The Obama Index: The Newest Index to Measure Our Despair – John Ransom – Townhall Finance Conservative Columnists and Financial Commentary.

Vocation & economic productivity

Greg Forster, in the context of a discussion about Europe’s economic woes, makes some fascinating connections between the doctrine of vocation and economic productivity:

A historically unprecedented phenomenon has been unfolding—in Europe for the past five centuries, in America for the past two, and more recently everywhere across the globe except sub-Sarahan Africa. That phenomenon is explosive economic growth. After millennia of basically stagnant wealth levels from the earliest recorded history forward, God’s world is at last beginning to flourish economically.

Just in the past two decades, the percentage of the population in the developing world that lives in dire poverty (less than $1 a day) has been cut in half. Contemplate that for a moment.

This economic flourishing was originally produced by a confluence of factors, the most important of which was Christianity. Late medieval Christianity developed an increasing emphasis on universal human dignity and (consequently) the intrinsic goodness of economic activity. The Reformation dramatically expanded these trends and added critical new dimensions—especially the idea that your daily work is a calling from God and the primary way God makes human civilizations flourish.

All this culminated in cultures that made productivity—improving the lives of others by responding to their authentic needs—central to both individual and national identity. Scriptural treatment of this topic is extensive.Everything from the image of God to the Trinity to the prophets and parables is implicated in understanding productivity.

Christians believe human beings are made in the image of a Father who creates from nothing; this explains why human work creates wealth rather than just moving it around. Christians believe in a divine Son who joined in mystical union with temporal and material humanity. Material activities like economic work are not separate from, and inferior to, “spiritual” activities. And Christians believe in a Spirit who liberates us from selfishness; this explains why life works best when people orient their daily lives around serving others.

The problem is, too many Europeans now take wealth for granted. Some have forgotten where it came from—productive work—and feel like they’re entitled to it by birthright. More to the point, the people and institutions in authority have irresponsibly indulged this attitude (for various reasons, such as vote-buying) and have thereby anointed it as culturally accepted.

Where this happens, economics is reduced to the purely material. If the proper economic goal for individuals is to enjoy leisure rather than to be productive, then of course voters should demand endless, unsustainable entitlement programs. If the fundamental purpose of business is to make money rather than to serve customers, then of course businesses should game the system to enrich themselves—and nations can try to get rich by playing games with the money supply.

The idea that policy should encourage financial rewards for productivity, and culture should set the expectation of productive work from all who are able, simply makes no sense in this context. Once you forget the Creator, you quickly forget that wealth needs to be created.

via Productive for the Glory of God, Good of Neighbors – The Gospel Coalition Blog.

Follow the links.  (There is even one to something I wrote on vocation.)

HT:  Justin Taylor


Strong dollar vs. weak dollar

“Strong” usually means good, and “weak” usually means bad.  Ezra Klein says that those positive or negative connotations shouldn’t necessarily apply to the dollar:

Sometimes, of course, a strong dollar is in our best interest. And over the long run, a strong economy will produce a strong dollar. But there are moments when stronger isn’t better. Moments like, well, this one.

The dollar’s “strength” or “weakness” is relative. “A strong dollar means that when you exchange it for another currency, you get a lot of that other currency for a single dollar,” says Josh Bivens, an economist at the Economic Policy Institute. A weak dollar, of course, implies the reverse.

That’s . . . it. In practice, a strong dollar makes foreign goods cheaper and domestically produced goods more expensive. That’s a boon for American consumers, American travelers and countries that export to America. In fact, when you hear that China is manipulating its currency, that’s a reference to its efforts to keep the dollar strong and the yuan weak. As far as China is concerned, a strong dollar means a strong China.

A weak dollar, meanwhile, makes American-made goods cheaper on the world market and foreign-produced goods — including commodities, like oil — more expensive. That’s a boon for American manufacturers and people in other countries who want to buy American goods or come visit the country. The very crude way to put it is that, in the short term, a stronger dollar is good for buying stuff and a weaker dollar is good for making stuff.

What a temporarily weak dollar is particularly good for, however, is recovering from a deep recession. “If domestic demand is weak,” says Barry Eichengreen, an economist at the University of California at Berkeley, “the normal way an economy reacts to that is by substituting export demand, and a more competitive dollar is the way that happens.”

The same goes for deficit reduction, Eichengreen says. That’s because cutting government spending reduces domestic demand, and so you need to find new sources of demand to avoid a recession. The way countries customarily do that is to weaken their currencies to make their exports more competitive.

You can probably see where I’m going with this. We happen to be simultaneously trying to recover from a recession and reduce the deficit. But the value of the dollar, though low historically, is higher than you might expect: It shot up after the financial crisis, as anxious investors loaded up on Treasury bonds, and returned to its pre-crisis level only recently. But the economy is much weaker now than it was then, and America much more in need of an export boom.

The irony is that although in the long run, a healthy, productive economy will lead to a stronger dollar, getting there probably requires a temporarily weaker dollar.

via ‘Strong dollar’ doesn’t make sense – The Washington Post.

Do you think this is a correct analysis?

The Liberal Conspiracy Theories

Glen Beck has been pushing his conspiracy theories.  Now the liberals are doing it.  They are unable to imagine that there is anything wrong with their president or with their economic theories.  So many of them believe that the Republicans and their business allies,  to ensure that the president will not get re-elected, are deliberately sabotaging the economy.  From Michael Gerson:

If a president of this quality and insight has failed, it must be because his opponents are uniquely evil, coordinated and effective. The problem is not Obama but the ruthless conspiracy against him.

So Matt Yglesias warns the White House to be prepared for “deliberate economic sabotage” from the GOP – as though Chamber of Commerce SWAT teams, no doubt funded by foreigners, are preparing attacks on the electrical grid. Paul Krugman contends that “Republicans want the economy to stay weak as long as there’s a Democrat in the White House.” Steve Benen explains, “We’re talking about a major political party . . . possibly undermining the strength of the country – on purpose, in public, without apology or shame – for no other reason than to give themselves a campaign advantage in 2012.” Benen’s posting was titled “None Dare Call it Sabotage.”

So what is the proof of this charge? It seems to have something to do with Republicans criticizing quantitative easing by the Federal Reserve. And opposing federal spending. And, according to Benen, creating “massive economic uncertainty by vowing to gut the national health care system.”

One is tempted to respond that it is $1 trillion in new debt, the prospect of higher taxes and a complicated, disruptive health-reform law that have created “massive economic uncertainty.” For the purposes of this argument, however, it is sufficient to say that all these economic policy debates have two sides.

Yet this is precisely what the sabotage theorists must deny. They must assert that the case for liberal policies is so self-evident that all opposition is malevolent. But given the recent record of liberal economics, policies that seem self-evident to them now seem questionable to many. Objective conditions call for alternatives. And Republicans are advocating the conservative alternatives – monetary restraint, lower spending, lower taxes – they have embraced for 30 years.

via Michael Gerson – Liberals resort to conspiracy theories to explain Obama’s problems.

Preach about Hell to improve the economy

Here is a fascinating article on the influence of specific religious beliefs on economic growth. It’s too long to do justice with excerpts, so I will give you this teaser from The curious economic effects of religion – The Boston Globe:

A pair of Harvard researchers recently examined 40 years of data from dozens of countries, trying to sort out the economic impact of religious beliefs or practices. They found that religion has a measurable effect on developing economies – and the most powerful influence relates to how strongly people believe in hell.

The research goes into far more than this sensationalistic tidbit, finding, for example, that Protestants were involved in greater economic growth in the years after the Reformation than Catholics. Why? Some still suggest Max Weber’s hypothesis that the “Protestant work ethic” came from the need to prove one’s salvation through attaining earthly prosperity. The problem is that PROTESTANTS DIDN’T BELIEVE THAT! A more convincing reason is that “mass education was a Protestant invention.” A peasant taught to read the Bible could then read anything, giving him access to all kinds of information, and opening the door to prosperity. Even more fundamentally, I would argue, is the DOCTRINE OF VOCATION, which gave economic labor a new value and spiritual significance. The article also shows strong evidence that Christianity builds trust, honesty, and other virtues necessary for a strong economy.

HT: Joe Carter