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A NEW LOOK AT ECONOMICS





AN INTRODUCTION



This is a slightly modified version of a talk given at the Fordham University Business School in New York on October 10, 2007. 


The book I am going to talk about – Human Goods, Economic Evils: A Moral Approach to the Dismal Science – deals with two hard topics – philosophy and economics – but I hope you will find the ideas interesting. Some of them are abstract, but I think they are all relevant to actual life, to some of the daily and life-long challenges of managers, investors, factory workers, not to mention mothers and retirees. 


Before getting into the ideas, I thought it would be helpful to explain where they come from: the three parts of my life that stand behind this philosophical-spiritual-practical book about economics. 


Where this book comes from 

The first is my life as a finance professional. I spent more than 20 years deep in the business itself and have spent nearly the last four on the edge of it, writing financial analysis and commentary for Breakingviews – a great commentary service with a daily column in the Wall Street Journal: I heartily recommend it. A long series of jobs on both sides of the Atlantic has taught me a two-sided lesson. On one side, industrial economies work well. They are complex, efficient and adaptable. On the other, professional economists often seem to miss or gloss over the most salient features of industrial economies – both good and bad. 

The second relevant part of my life is that I am an intellectual, of a certain school. As an intellectual, I could never be content with merely knowing that a system works fairly well. I want a theory that explains persuasively how and why the system works. As for that ‘certain’ school, I will spare you a “True Confessions” of my close but sometimes troubled relations with Plato, Augustine and Heidegger, and only say that much about what is sometimes called the “modern turn” from the spiritual to the worldly or from the absolute and objective to the relative and oh-so-personal makes me profoundly uneasy. 

It is hard enough to be both a finance guy and an intellectual of a fairly obscure sort. But there is a further twist. I am also a Christian (Catholic, for those who care). That belief brings with it a mixed response to economic matters. Saint Paul tells us to focus on “the things that are above” and takes a dim view of all sorts of social success, including riches. But Paul also promises that “all things”, that includes the things of this world, can and should be reconciled to life in Christ. And Jesus, who is generally anti-wealth and anti-worldly, tells us that we will be judged by whether we have fed and clothed “the least of [his] brothers”. Any Christian economics should take both sides of the Christian view of the world into account. 

It took me a long time – more than a decade – to align these three aspects: financial professional, intellectual and Christian. I knew what I wanted: to get beyond, or better, to start before, the thinking of mainstream economists. I also wanted to describe economic arrangements in intellectually sound terms and come to authentically Catholic judgements. I don’t know how well I’ve managed all that, but ISI Books was at least somewhat persuaded that I was on the right track. 

The result of that work is a book that isn’t that long, but is full of ideas. Many of them will be new to any reader, unless that reader shares my knowledge of the economy, of the Western tradition and of Catholic Social Teaching. I don’t have time today to talk about everything in the book, or even to sketch out the thread of the argument. Instead, I’ll offer some of the key ideas, which I will divide into three parts: destructive, constructive and suggestive. 


Destroying the old 

I’ll start with the destructive – why economics as it is generally taught isn’t adequate. Of course, that comment raises the question – “adequate to what?” I will grant up-front that economists can discuss some issues reasonably well. I don’t just say that because I enjoy the friendship of many economists. They really do a pretty good job when it comes to industrial economics and management (MBA stuff), monetary and fiscal policy and development economics. I would say, though, that the work is generally better the further it gets from the standard neoclassical model. 

That neoclassical model is typical of the fundamental incapacity of the conventional approach. It aims at the wrong target and uses the wrong weapons. 

Wrong target. Economic activity (I’ll come to the definition in a few minutes) is a human activity, and should be considered in human terms. Men (I follow the old fashioned usage, so add “and women” if that terminology bothers you) want the good from all that they endeavour. That means that economists should dedicate a significant part of their time to thinking about what economic activity is good for. The professionals distinctly do not do that. They simply assume that people wouldn’t want something if it weren’t good for them, so that the good economy is simply one which gives people what they want, or, more accurately, what they think they want. 

But men’s desires are often misdirected and their feelings are often mixed. It is hard to figure out what is good. Economists generally fail even to discuss the question of goodness. They may mumble a little about “welfare”, but the concept is close to meaningless. It is little more than a cipher to be entered into mathematical models, which can be considered the true love of most professionals. Such models would only make sense if the economic good could be expressed in mathematical terms. It can’t. It makes no sense to try to reduce the rich and meaningful strivings of men to a set of impersonal equations. 

The choice of the wrong target leads to the use of the wrong weapons. I don’t just mean the use of equations, or, in the more practical sides of the discipline, the reliance on statistics. For any intellectual, the crucial weapon is the model, the framework in which whatever is being studied is actually studied. For Aristotelians and Thomists, the model of reality is based on substance and accidents, for Freudians, there are the divisions of conscious and unconscious and of ego, id and superego. For almost all economists, there is the paradigm of markets and money. 

I’m not going to try to explain everything that is wrong with the market-money model right now. There is more detail in the book, and others have done the job more thoroughly. I just want to mention the biggest underlying problem: the totally false view of human nature – as self-interested creatures with a simple drive to accumulate and a lack of interest in neighbour and heir. With a great deal of effort, the market model can be shifted to take in a more generous, and more accurate, vision. But why even start with a picture of men as economic atoms who collide in an endless series of perfectly balanced transactions? Why not start with men as they are: generous and selfish at the same time, always balancing economic with non-economic concerns, always searching for the good, the just-out-of-reach good, not for some hypothetical equilibrium that can be described in equations? 

Really, considering that economists have almost no idea of the economic good and rely on a poor model of economic activity, it is remarkable that they get anything done. They do, but these intellectual handicaps do drag down the profession in very practical ways. Take one of the questions that got me started on the long road which led to this book: what is the economic role of unpaid mothers (or unpaid fathers)? It’s not hard to see that mothers-working-as-mothers are working, just as much as so-called working mothers. Further, most children and many mothers would argue that the unpaid labour of the “non-worker” is more valuable than much of what mothers do in their non-mother jobs. There’s also a good case to be made that mother-work is a pretty basic economic activity. Men till the fields (or rewrite the software) while women raise the children: productive and re-productive labour, if you will. 

Yet, economists will have none of it. Unpaid work is a “non-market” activity. Mothers at home are often described as being outside of the economy. Unless prodded, often by some mother-working-as-mother, economists are reluctant to include this labour in their analyses. And when they do, a huge intellectual contortion is required; they have to “impute” a monetary value for the work that mothers do for free. That complex and largely arbitrary exercise seems totally out of line with the basic nature of the tasks of child-bearing and childrearing. You shouldn’t need to do intellectual acrobatics to fit this sort of women’s work into a sound economic framework. On the contrary, mothers’ work has always been found in all economies, while the wide spread of monetary exchange is a relatively recent phenomenon. 


Constructive 

So much for the destructive section of this talk. I can assure you there are many more conventional arguments I’d like to attack, but I want to move on to the work of intellectual construction, or perhaps reconstruction: how I think economics should be approached. 

The right place to start is human nature: what people should be like, want to be like, are like in reality. The words “human nature” make many modern thinkers uncomfortable. They like to think of men as blank slates, as self-defined – or indeed as anything other than moral creatures who have a nature to live up to. But some idea of human nature is implicit in any economic discussion. If the idea is wrong, the discussion is going to be flawed. 

My view of human nature starts with a basic idea: that men want to be good but often aren’t. In other words, men are good but weak (sinful, for those of you who aren’t freaked out by the traditional vocabulary). They, we, are neither simply good nor simply bad. Rather, we are first and basically good – oriented towards, desiring, striving for, the Good. And the good in question comes with a capital G. Men want, are drawn towards the highest goods, the transcendental good, the platonic form of the good, towards, if you will, the will of the good God. 

But second and simultaneously, men are also weak. They are tempted to turn away from the good, to do wrong, to sin. 

Christians among you should recognise this psychological paradigm. It is what Paul describes in his letter to the Romans. It has been developed in the Christian intellectual tradition as the theory of original sin – men created in the image of the good God, men fallen away from that image through sin, men now striving to be what they should be and in some deep sense really are. 

What does this high-sounding philosophy have to do with economics? Pretty much everything. It provides a standard for judgement. Here are some basic examples. First, life is good, because men are good. So economic activity that supports life – say the production and consumption of food – is very good. Second, love is good, because we are, that is we are supposed to be, loving. So labours of love are also good. Third, on the other hand, comforts and luxuries support much more modest goods, as can be seen by the way that desiring or having them rarely make men virtuous. So the parts of the economy that are concerned with such matters – say holidays for pleasure or ostentatious jewellery – are less good. 

One other feature of human nature is particularly relevant to economics. That is the desire to get more out of the world. This desire can be seen in economic history, for example in the move from the Bronze to the Iron Age or from 2G to 3G cell phones. I would argue that from a Christian perspective this desire is good. Men were created to cultivate the rest of the created world. The more they cultivate, the better they live up to their created nature. 

Still, this worldly drive for more must be a pretty weak one. You might not make that judgement if your historical perspective was limited to the US since the 1930s, when economists started measuring the total Gross Domestic Product and thinking that higher GDP was a good index of economic success, and indeed of historical success, period. But for most of human history, and in almost all cultures, the good of getting more from the world was largely considered very minor indeed. It was less important than, and easily sacrificed for the sake of, a long list of supposed goods: glory in war, grandeur in culture, wisdom, worship, justice, even the maintenance of a divinely approved or merely traditionally endorsed social order. 

The big historical change from pre-modern disdain for economics to modern near-worship – the upgrade of the worldly desire for more from secondary or even tertiary to primary – challenges the Christian economist. He should not endorse unquestioningly the pre-modern judgement that economic gains are worth very little social pain, but neither should he rush to the other extreme, to the contemporary judgement that economic gains are what it is all about. He must take human nature, take the economy, take what we have learned about our economic ability in the last two centuries of industrialisation and globalisation, and then come to ethically sound conclusions about what we should expect economic activity to do for us. 

But in order to know what economic activity is good for, it is first necessary to know what economic activity is. It is, I would argue, more than the conventional view of “truck and barter”, of men’s “rational choices” in a condition of scarcity. Such descriptions can only be the foundation for a “dismal science”, as Thomas Carlyle called the then fairly new field of economics in 1849. 

In high philosophical terms, I define economics as the study of men’s efforts to humanise the physical world. More practically, I can give a list of five economic activities: labour, consumption, production, allocation and the care of creation. The last three - allocation, production and the care of creation - are not discussed extensively in the book. For allocation, the search for justice in the distribution of things consumed and labour accomplished, the economist on his own is nearly at a loss. He needs the help of political philosophers and sociologists. For production, business economists already do a pretty good job. For creation or environmental economics, I can only offer platitudes. 

That leaves consumption and labour. I should point out that this division isn’t exactly new, but it has fallen almost entirely out of use, largely thanks to Marx’s peculiar invention – an impersonal force he called capital. But something like this distinction of labour and consumption is reflected in everyday language, for example in the differentiation between prices and wages. Prices are the kind of money that facilitates consumption (although of course not all the stuff we consume is paid for). Wages are the kind of money that rewards labour (although again, as I have said, not all labour is paid). 

Let me start with consumption. The basic idea is familiar enough; we consume stuff: food, clothing, housing, cars, central heat, software, downloaded pornography and so forth. I’m too much of a philosopher, though, just to say “so forth” or “you know what I mean”. There is a common theme to all this consuming: they are all ways that men make the world human. With the consumption of food, the humanisation is literal – the steak becomes my muscle power. With most other types of stuff, it is more a matter of arrangement. The hair on the sheep can’t do man any good, but arrange it correctly and it becomes a nice wool sweater. Arrange the electrons and some other stuff the right way, and you have a telephone conversation. Arrange the earth the right way and you have a village or a city which makes human sense of raw nature. We consume the sweater, the phone call and the streets. 

I would go a little further. Consumption represents not merely a humanisation of the world, but also and more fundamentally men accepting the world’s gifts. There is a generosity in Nature, the physical world, which men are, in their human nature, meant to discover. Consumption, looked at in this way, becomes a spiritual activity, a symbol and a representation of the human wonder at the divine gift of the world. That may sound a bit mystical, but it is certainly not dismal. 

Conversely, and perhaps this will seem a little less mystical, labour is men’s effort to make the world human. Some labours, the productive labours, are exactly the converse of consumption. The world in some sense wants to give itself to us for consumption. Our striving to take it in is labour. In a sense, productive labour helps make the world do one of the things that it is supposed to do: to serve men. 

Taking these two sides of the cycle together, consumption is the world’s gift to men, while productive labour, the labour of production, is men’s gift to the world, the offering of our uniquely human abilities – intelligence, co-ordination, cooperation, culture – to the otherwise unhelpful physical world. It is a beautiful and dignified cycle. 

Note that I have just been talking about the labour of production. That is an important qualification. Most labour is not in fact productive. Most labour is not dedicated to making things for men, but to making the world human in a different, and ultimately more important way – by building up the human community. The list of non-productive labours is long. I should perhaps mention the labours of government, of knowledge and of religion. 

The most significant, however, at least in terms of numbers or hours dedicated to it, are the labours of love, or more prosaically, the labours of care. I already mentioned parental labour, but children are not the only humans who need care. One of the finest aspects of industrial prosperity is the care that is taken of the ill, handicapped and otherwise weak. 

Labour and consumption, then, are not fully symmetrical. The field of labour is wider than the field of consumption, since labour includes so much that does not lead to consumption. On the other hand, consumption is vital is a way that non-productive labour is not. A life without meaningful labour may be spiritually impoverished, but a life without meaningful amounts of consumption simply ends. 

You may remember that I described human nature as “good but weak”. There is a moral tension in such a description – you might think that we are either good or bad, but in fact we are both simultaneously. The tension is painfully apparent in men’s approach to labour. Indeed, this labour tension is described in the Bible, in the account of the creation and fall. The first man and woman are told to take charge of the physical world and to go forth and multiply. So their labour must be good. But then they sin, and they are told that labour will be, well, laborious. The Bible talks of the sweat of the man’s brow in productive labour and the pains of birth in the woman’s reproductive labour. 

The story may be primitive, but it expresses a deep truth. On one side, and this is the predominant side, labour is good. We strive for excellence in whatever tasks we have chosen or been assigned. We may be a bit confused about the nature of that excellence. But we cannot help wanting to do our job well, even if failure leads to nothing worse than a mediocre performance review. In the book, I call this labour excellence an “internal good”. One of the great challenges of economic management, at both the tiniest and grandest scale, is to orient this internal good of wanting to do a good a good job to the “external goods” of making the job good. I’ll talk about those goods in a minute. 

First, though, I should mention the other side of labour, the weakness. Thanks to modern technology, the biblical toil of the farmer has been mightily reduced in rich societies – I’m told there is a lot of time spent in air-conditioned tractors with fine sound systems. Anaesthesia has sharply cut into the pains of giving birth. But in even the most attractive jobs, there remains something hard about labour – it is boring, oppressive, frustrating, painful. This woe, this sense of toil, leads people to cut corners, take Friday off, crave vacations, ignore the children. Another of the great challenges of economic management is to find ways to minimise the damage that the labour-pain inflicts, a task that involves both punishment and rewards. 

So far, I’ve looked at economics from mostly from the inside – what labour and consumption should be as human activities. That sort of solipsism is common in the profession – to assume that the goal of production is simply to produce more and the goal of consumption is to consume more. The self-referential approach provides a sort of intellectual self-sufficiency, but at a huge intellectual cost. It’s good for labour to be excellent in itself, but it is better – a higher good – for labour to contribute to something more important than itself. In other words, economists should focus on what economic activity can contribute to the Good – that is to the transcendental good. 

This discussion runs into a historical-philosophical roadblock. The thinkers who were more concerned with this Good with a capital ‘G’ thought that economic activity had almost nothing to contribute. That was the virtually unanimous judgement in every culture and every level of economic development until about 1850. But then the world changed, and thinkers stood history “on its head”, as Karl Marx, one of great reversers, put it. But the Marxists – and anyone who thinks, “It’s the economy, stupid” – merely went to the opposite extreme, and denied that there is a Good with a capital G to strive for, in economic activity or anything else. 

At this point in the argument, the Christian strand of my thinking enters in. I’ve already mentioned one part of the Christian worldview: the dignity of labour and the spiritual meaning of consumption. That, however, is not the whole Christian story. Christians, along with most pre-modern philosophers, say to Marxists, “It’s man’s transcendental calling, stupid”. The best thing that economic activity can do is to serve the transcendental – the True, the Good, the Beautiful, the One, in one traditional list, or the glorious, the eternal, the divine, the purity of love, to choose some other manifestations. 

The Christian economist should pay particular attention to the transcendental good of human life itself. I am in danger of heading into theology here, so suffice it to say that Christians consider men to have a spark (or, to use the biblical imagery, the breath) of the divine in them. That belief leads to my placement of life as the highest of the external economic goods. Life is not by any means the highest good accessible to men – there are many goods worth dying for. But life is the good which is most directly connected to economic activity. Both productive and reproductive labours are necessary for life to continue over the years and over the generations. 

Life is followed by health. Then there are other goods, some of which may be worth more than life itself, but for which economic activity plays only a supporting role: knowledge, community (from family to nation) and beauty. I provide a fairly long list in the book with some analysis. Even sympathetic readers will probably disagree with the details, but what I consider most important is the technique of analysis. I don’t think we can talk seriously about economics as a human activity without providing a reasonable outline of the purpose, the goal, the good (the telos, if you like Greek philosophical words), of this activity described as economic. 

Along with the good, there is also the evil. In Christian philosophy, the bad is the absence, not the opposite, of the good, but I’ve probably already provided you with too much philosophy. In any case, the great external evil of economics, as I see it, is mis-valuation – expecting either too little or too much from labour, consumption and the rest. 

Broadly speaking, before the modern age societies generally asked for “too little”. They vastly underestimated how much the world could give men, if only men directed their labour in this worldly direction. In particular, they did not think that men could ever produce enough food to banish famine and malnutrition. Such evils were considered inevitable — wrongly. At least for the rich of the world, there is now too much to eat. Even the poor are much better off, in terms of consumption – there are more of them, and they live longer and healthier lives with more education and greater access to all sorts of culture. 

If the pre-modern age underestimated what economic activity could do, we moderns succumb to the opposite evil, of over-estimation. For anyone with a philosophical disposition (old-school philosophy), the emphasis on economic gains in already rich societies is almost comical, in a black way. Didn’t they ever hear that stuff cannot give life meaning, cannot buy happiness? What can a mansion do for us that a more modest house cannot, Halo-3 that Halo-2 cannot? I think this overestimation of the economic contribution to the good is part of a big modern trend, the exaggerated turn to the world, so it cannot really be understood in isolation from some other modern ideas – about love, family, religion and so forth. But wherever the economic overvaluation comes from, it is an error. 


Suggestions 

OK, that is enough construction for now. My concluding comments are suggestive of some elements of an economic agenda in accord with this moral economics. 

My first piece of economic advice is for residents of rich countries. It is to worry less about economic issues. The big problems in the US or in Europe are not economic. They are spiritual, sociological and political: the decline of faith and organised religion, the increase in family breakdowns and mental health problems, the clash of civilisations, the sclerosis of democracy. Cultural observers talk about alienation and anomie, poets talk about despair. 

In comparison, the economic problems of rich countries are minor. Faster GDP growth isn’t going to do much good. Neither will lower unemployment rates or more extravagant stuff. Even lesser income inequality would hardly change anything when the poor already have access to almost all the most important consumption goods and labour opportunities. For the poor as for the rich, the main problems are social and spiritual, not economic. So almost everyone in rich countries, from future MBAs to campaigners for fairer taxes, would probably do well to calm down their economic ambitions. 

The economic suggestion to de-emphasise economic goals may seem a little subversive. I think it is relevant and even to some extent practical. But I do have some more conventional suggestions. I’ll mention two. 

The first is to work harder to help the billion or two people in the world who still live in absolute poverty – those who are not sure to have enough to live, who are without clean water or basic health care. It’s a much smaller proportion of the world’s population than ever before, but the scandal is greater than ever before, because the path to industrial prosperity is by now so well-worn. All it takes is the work ethic, once thought to be Protestant but now known to be universally available. 

But no one really knows how to encourage people to do the work – as much social as directly economic – necessary for prosperity. Development economists have suggested everything from good monetary policy to the education of women. There is clearly no magic recipe. Politicians and rock stars like to suggest aid, but no amount of generosity will make the poor sustainably wealthy. Only a local industrial economy can do that, and that has to be developed from within. 

I do have a suggestion of how to help the poor that makes pretty good economic sense, but seems to be politically subversive. I would encourage massive immigration from poor to rich countries. New immigrants learn industrial practices, send back money and sometimes go back in person. It’s a slow process, but it seems to work. And if the newly arrived poor people make rich cities poorer, that is basically a good sort of social levelling. It reduces the scandalous gap between rich and poor in the world. 

My final piece of advice is more directly related to mainstream business. We should try to reduce the amount of pointless labour, or in my fancier phrase, instrumentally neutral labour. By instrumental neutrality I mean jobs which involve lots of action (that’s the instrumental part) but produce little or no good (that’s the neutral part). 

It’s an old idea: in the 18th century, Adam Smith thought that priests and purveyors of fripperies for the rich were useless. I’d certainly defend the value of the priests’ labour, but by even the broadest definition of uselessness, most labourers were pretty obviously productive in the 18th century; they were farmers or mothers and housekeepers. Now, however, the massive productivity of industrial economies has allowed instrumentally neutral labour to become widespread. 

The problem is that the productive part of the economy requires relatively few workers – perhaps 20-30% of the adult population. And that includes the production of a lot of stuff which provides little good. Think of advances in video games. There is a similar story in domestic production (or housework). Keeping a big house used to be a full time job for several servants. Now it is usually a part-time job for one person, often a mother with full-time employment. 

So we have moved from a society where almost everyone had to toil in order to keep hunger away to one in which there is not enough meaningful work to go around. Industrial societies have dealt with this challenge in various ways – more years of education, earlier retirement, longer vacations. But within the workforce, the main strategy has been to create vast amounts of instrumentally neutral labour. Just as Adam Smith and I wouldn’t agree on what counts as pointless, you might disagree with some or all of my list, but I would include the following: wide swathes of finance, marketing and product development; a big part of the leisure industry; much of the travel trade; a chunk of the administrative labour of the welfare state; and the productive labour that goes to making stuff which produces little of the good, for example those video games. 

I have a few ideas of how to address the problem of instrumental neutrality in labour, but the most important first step is to recognise that there is a problem. The problem doesn’t show up in the employment statistics, but it does emerge from conversations with workers. Too many people feel quite correctly that their jobs are basically meaningless. 

I am happy to close this talk with a reference to meaninglessness. Like the unpaid labour of mothers, my wonder at the well-paid but near-meaningless labours of finance was one of the starting points of this book. Just as I wanted an economics that was not prejudiced against labours of love, I wanted an approach that could analyse finance in non-financial, indeed in philosophical terms. The effort to find that approach was to a large extent a labour of love, and I am grateful for the opportunity to present the fruits of that labour to you today.



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