Morality and economics

Morality and economics March 22, 2013

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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