Sunday, September 19, 2010

Money, Greed, and God: Synopsis of Speech

[This is Not a Transcript, but a close Synopsis]

“Defenders of the Free Market must often contend with accusations from Christians that Capitalism is immoral despite its track record of delivering the goods.”  

Jay W. Richards author of “Money Greed and God: Why Capitalism Is The Solution And Not The Problem” says there should be no contradiction between Christianity and Capitalism.

Synopsis of the Author’s speech at the Cato Institute 2009

Most of what a person needs to be an educated citizen: to be able to evaluate public policy in economics doesn't require a degree or even a course in Macro Economics; only that you think through various issues carefully. 
Almost every intellectual mistake that Christians and others make can be boiled down into one of eight myths [from his book]. Only 3 of which will be covered here [briefly].
The Piety Myth
and the Law of Unintended Consequences
Intentions for a policy bare no relation to the effects of the policy.
City Councils’ intentions for Rent Control policy may be for the poor to have affordable housing, but the effect is a shortage of affordable housing as experience has shown.

The piety myth is especially a problem for religious people, theists believe intentions are morally relevant, particularly so with one’s status before God; who wants us to do the right thing for the right reasons. ‘We are commanded to love the Lord our God with our hearts, our souls, and our minds’. So we focus on the heart part, the problem is that while the heart is spiritually relevant, it is, in most cases, economically irrelevant.  
Henry Hazlitt, in his book “Economics in One Lesson” he defined ‘the art of economics this way:

 “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences for that policy not merely for one group but for all groups.” –Henry Hazlitt

Notice he is not talking about the ‘science’ of economics but the ‘art’; which is like an intellectual disposition that becomes intuitive so that any policy elicits the reaction “and then what will happen?” regardless of the policy or intentions of its advocates, and you trace those consequences. We can usually do this logically and in economic policies empirically with experience.

One example is the financial crisis, which is rather complicated but at its foundation was the subprime mortgage crisis; a series of good intentions [affordable housing] that influenced policy over a period of decades, one of which was encouraging private banks to lower their eligibility standards for mortgages, and similarly in ‘govt. sponsored enterprises the semi public/private banks Fannie and Freddy which changed the incentives over the years so that loan officers [who would have acted differently in a free market] made decisions leading to huge numbers of defaults on loans. Yet the Financial Crisis has been blamed on the Free Market. 

A Private loan officer who’s bank would be stuck with the loan, unable to offload it, who would be held accountable would act responsibly and hold to fiscally reasonable criteria.

But an Officer with Social and Legal pressure for lax criteria and lending to particular people with bad credit ratings, with no evidence of that they’ll be able to repay the loans; an officer with the opportunity for the loans to be offloaded & divided/securitized, their incentives are entirely different.  
This is an example of Market Incentives being subverted for ‘good intentions.

Despite good intentions, in policy we should focus on effects rather than intentions. Good intentions can lead to bad policy, bad intentions can lead to good policy. It simply doesn't matter. 
The Greed Myth
The Greed Myth is especially problematic because both critics and champions of Capitalism believe it. The Greed Myth is believe the essence of Capitalism is Greed or that Capitalism is based on Greed. Some of the most appreciated Free Marketeers like John Stossel  and Walter Williams have made this sort of argument. It has been immortalized by Oliver Stone in a 1987 movie as “Gordon Gekko” who gives a speech that goes

“Greed… is good… Greed is right. Greed works. Greed… cuts through and captures the essence of the evolutionary spirit. Greed, in all its forms… has marked the upward surge of mankind.”

[Although this is a caricature of 'the capitalist'] Some of the most prominent defenders of Capitalism of the 20th century have made something like the same argument: for instance, Ayn Rand, who’s books still sell 300,000 copies a year.

“Capitalism and altruism are incompatible… they are philosophical opposites; they cannot coexist in the same man or in the same society.”Ayn Rand

Selfishness/Greed has always been considered in the Judeo/Christian Tradition one of the 7 deadly sins. To identify it as/with a virtue is at the very least rhetorical non-starter for the religious.
George Guilder and Michael Novak make the Moral defense for Capitalism which informed Richards’ perspective.

But is Capitalism based in greed? The sort of Founder of Modern Capitalism Adam Smith made what sounds like this sort of argument. Most people don’t read “The Wealth of Nations” but rather a few select excerpts. [its available online as a free ebook]

Adam Smith
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Adam Smith
“In spite of their natural selfishness and rapacity, [business people] are led by an invisible hand… and thus without intending it, without knowing it, advance the interest of the society…”

Superficially this would seem the same thing. Even well known economists and scholars would say it is the same argument as Ayn Rand’s. It wasn’t.

Smith was a Moral Philosopher, not an Economist. His previous book was “The Theory of Moral Sentiments in which he developed ideas in which human beings in social settings, in families and communities develop natural sympathies for each other; moreover Smith had criticized the Dutchman Bernard Mandeville author of “The Fable of The Bees” where the ‘English’ Bees grumble about moral Problems, but when they become virtuous everything falls apart. Bernard Mandeville argued that “Greed Is Good”. Smith described Mandeville’s system as “Wholly Pernicious”

Also according to Smith ‘Self Interest is not Selfishness’. Self Interest is what we know and what we are responsible for IE one’s narrow purview of things. But that’s not selfishness, every time you look both ways before you cross the road, take your vitamins, breathe etc,  that is ‘self interest’. The basis of the “Golden Rule”: Do unto others as you would have them do unto you is based in a properly ordered kind of ‘self love’. So, self interest in itself is not morally problematic. ‘The genius of the market is that people can pursue their narrow self interests as an end and nevertheless because of the incentives of the market a socially beneficially order can be created. That is entirely different from saying that 'Greed Is Good'.  Notice Previously, Smith said “In spite of their natural selfishness and rapacity“ in other words a Free Market Capitalism will channel not only legitimate self interest but also pernicious greed and other vices into socially beneficial outcomes. Saying that “Capitalism Channels Greed” is not the same as saying either that “Greed is Good” or that “Capitalism is Based on Greed”.

Full Length Video of the Speech

1 comment:

  1. Thank you for your work on explaining to me the "Wealth of Nations" in an easy to understand way.