Another example of the triumph of the market mentality

What a difference fifty or sixty years makes

·         Stewardship:  in the late 1950’s and through the 1960’s

o   Emphasis was on being a steward of what God had given to you, not what you had earned

§  everything one had was a gift from God

§  this included one’s job and one’s earnings

o   A tithe or offering was a return to God, an obligation to be fulfilled

o   The focus was not to “fund” anything, it was on an individual’s  responsibility

o   it was an offering of one’s first fruits to God, an act of thanksgiving

o   The focus begins and ends looking at God

·         Pledge:  Diocesan Support Appeal as well as parish commitments– Late 1990’s to present

o   “. . . we make a difference in the lives of thousands of our brothers and sisters in faith. . . By sharing our gifts. . .”

§  The understanding of “gifts” here is different than in the earlier time period

·         one sense is “haves versus the have-nots”

·         another and probably stronger understanding is as “income”

§  Therefore, the focus shifts away from stewardship of one’s gifts and becomes a redistribution to others

§  Focus is not on a return to God, focus is on what your income can do, i.e. your income will not be wasted

o   “The financial resources generated by the DSA provide current operational funding for our Church’s educational, vocational, multicultural, and housing ministries. . .”

§  a “consumerist” focus develops

§  the effect is to show what your money “buys”

o   The focus begins looking at you and ends looking at goods and services purchased

Isn't human behavior more than maximizing utility subject to income constraints?

Of what may we be sure? 

Possible foundations for an understanding of economic behavior (and human behavior in general)

 

I.       Original Sin

 

By yielding to the tempter, Adam and Eve committed a personal sin, but this sin affected the human nature that they would then transmit in a fallen state.  It is a sin which will be transmitted by propagation to all mankind, that is, by the transmission of a human nature deprived of original holiness and justice.  And that is why original sin is call “sin” only in an analogical sense: it is a sin “contracted” and not “committed” – a state and not an act.

 

Although it is proper to each individual, original sin does not have the character of a personal fault in any of Adam’s descendants.  It is a deprivation of original holiness and justice, but human nature has not been totally corrupted: it is wounded in the natural powers proper to it; subject to ignorance, suffering, and the dominion of death; and inclined to sin – an inclination to evil that is call “concupiscence.”[1]

 

 

II.    Bernard Lonergan’s Desire to Know

 

Deep within us all, emergent when the noise of other appetites is stilled, there is a drive to know, to understand, to see why, to discover the reason, to find the cause, to explain.  Just what is wanted, has many names.  In what precisely it consists, is a matter of dispute.  But the fact of inquiry is beyond all doubt.  It can absorb a man.  It can keep him for hours, day after day, year after year, in the narrow prison of his study or his laboratory.  It can send him on dangerous voyages of exploration.  It can withdraw him from other interests, other pursuits, other pleasures, other achievements.  It can fill his waking thoughts, hide from him the world of ordinary affairs, invade the very fabric of his dreams.  It can demand endless sacrifices that are made without regret though there is only the hope, never a certain promise, of success.  What better symbol could one find for this obscure, exigent, imperious drive, than a man, naked, running excitedly crying, “I’ve got it”?[2]

 

 

III. Saint John Paul II’s Work as Vocation

 

Through work man must earn his daily bread and contribute to the continual advance of science and technology and, above all, to elevating unceasingly the cultural and moral level of the society within which he lives in community with those who belong to the same family. And work means any activity by man, whether manual or intellectual, whatever its nature or circumstances; it means any human activity that can and must be recognized as work, in the midst of all the many activities of which man is capable and to which he is predisposed by his very nature, by virtue of humanity itself. Man is made to be in the visible universe an image and likeness of God himself, and he is placed in it in order to subdue the earth. From the beginning therefore he is called to work. Work is one of the characteristics that distinguish man from the rest of creatures, whose activity for sustaining their lives cannot be called work. Only man is capable of work, and only man works, at the same time by work occupying his existence on earth. Thus work bears a particular mark of man and of humanity, the mark of a person operating within a community of persons. And this mark decides its interior characteristics; in a sense it constitutes its very nature.[3]

 

 

IV. Thorstein Veblen’s Instinct

 

Like other animals, man is an agent that acts in response to stimuli afforded by the environment in which he lives. Like other species, he is a creature of habit and propensity. But in a higher degree than other species, man mentally digests the content of the habits under whose guidance he acts, and appreciates the trend of these habits and propensities. He is in an eminent sense an intelligent agent. By selective necessity he is endowed with a proclivity for purposeful action. He is possessed of a discriminating sense of purpose, by force of which all futility of life or of action is distasteful to him.[4]

 

 

V.    Adam Smith’s Propensity

 

This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion.  It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.

 

Whether this propensity be one of those original principles in human nature, of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire.  It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any species of contracts.[5]

 

 

VI. Abram Maslow’s Hierarchy

 

These basic goals are related to each other, being arranged in a hierarchy of prepotency. This means that the most prepotent goal will monopolize consciousness and will tend of itself to organize the recruitment of the various capacities of the organism. The less prepotent needs are minimized, even forgotten or denied. But when a need is fairly well satisfied, the next prepotent ('higher') need emerges, in turn to dominate the conscious life and to serve as the center of organization of behavior, since gratified needs are not active motivators.

Thus man is a perpetually wanting animal.[6]  (Maslow, 1943 394-5)

 

VII.    St. Augustine of Hippo

Our hearts are restless until they rest in you.

---

[1] Catechism of the Catholic Church, Libreria Editrice Vaticana ed. (Mahwah, NJ: Paulist Press, 1994), 404-5.

[2] Insight: A Study of Human Understanding, Bernard Lonergan, (New York: Longmans, 1957), p. 4.

[3] John Paul II, "Laborenm Exercens: On Human Work," in Catholic Social Thought: The Documentary Heritage, ed. David J. O'Brien and Thomas A. Shannon (Maryknoll, NY: Orbis Books, 1992), 352, Apostolic Blessing.

[4] Thorstein Veblen, "The Instinct of Workmanship and the Irksomeness of Labor," American Journal of Sociology 4, no. 2 (1898): 188-9.

[5] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Cannan ed. (New York: The Modern Library, 1937), 13.

[6] Abram Maslow, “A Theory of Human Motivation”, Psychological Review, 50, no. 4, (1943). pp. 394-5.

Economics - Science?

 I have been questioning lately the idea of "science", especially with respect to the idea of "social science".  Economics is supposedly a social science.  The behavior of large groups is such that regularities and be observed, regularities that have seemingly antecedent causes and which can have predictable effects upon other groups.  In a sense, then, economics becomes the study of a system, a system with observable regularities that can properly be called "laws": the law of demand, the law of supply, and such. 

Where is free will if "laws" govern our behavior?  Now the answer that I can feel coming back is that individuals have free will, we are talking about the interactions of large numbers of people.  It is in those interactions that we see observable, regular behavior that can be labeled as "laws".  However, do large numbers of people, societies, have a collective free-will or are societies locked into an economic way of acting described by economic theory?  Can societies change or are societies merely subsets of economies?

Is economics all there is?

Pope John Paul II wrote, in Centesimus Annus:

The economy in fact is only one aspect and one dimension of the whole of human activity.  If economic life is absolutized, if the production and consumption of goods become the center of social life and society's only value, not subject to any other value, the reason is to be found not so much in the economic system itself as in the fact that the entire sociocultural system, by ignoring the ethical and religious dimension, has been weakened, and ends by limiting itself to the production of goods and services alone. (section 39 of CA)

What is it to ignore the "ethical and religious dimension"?  Has the entire sociocultural system been weakened?   The argument is so often made that society is getting better the more we throw off the shackles of Christianity, and especially of Catholicism and Catholic thinking.  If society can be studied as a subset set of the economy, indeed if microeconomics can be studied as a subset, or public choice theory as a subset, or any of the various sub-disciplines of economics can be studied in a manner comparable to studying Mars or Jupiter as a planet of the solar system, as "objects" which behave in a known or least discoverable manner, then there is no need for ethics or religion.  Just study the events and look for repeated patterns which can be used to verify economic theory. 

But what happens to the people in such a study?  What happens to our freedom, our sense of self-determination?  Are we truly just small, atomistic, independent agents carried along in a system of relations and behavior that shape us? 

Live Stream Video | Economics Teaching Conference | South-Western

Live Stream Video | Economics Teaching Conference | South-Western

Do we really need the SEC?

You know, every time I have to teach about the Efficient Market Hypothesis, I cannot help but wonder why we still have the Securities and Exchange Commission.  After all, the strong form of the EMH pretty convincingly demonstrates that there is no long term advantage or possibility to "beat the market" even with insider trading.
So, if insider trading does not give one a long-term ability to beat the market, why bother with rules against it?  If no one can beat the market on a consistent basis, which is what the EMH states, then why regulate the market?  If insider trading does not give an advantage, then why have Reg FD? 
If it works in theory, then should it not be that case that it works in life?
Or could it be that economists and the theories they create rely a little too much on abstractions and not enough upon how the world really works?
Consider that Greenspan fought against increasing regulation in the financial markets for years because the economic theories to which he held said that no one would act as they did (and continue to do).  Remember too that Greenspan later admitted he was wrong (see the New York Times, 10/23/2008; http://www.nytimes.com/2008/10/24/business/economy/24panel.html).
The problem is that economics is not the science or study of choice under conditions of scarcity, as one textbook proclaims.  Economics is not "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses," as Lionel Robbins so famously declared in 1932.  To meet either of these two, to even come close, economics would have to be much more an inductive science, proceeding from observation and study to theory, rather than the deductive science it currently is.
Economics is not the study of human behavior as a relationship between ends and scarce means which have alternative uses.  Economics is the building of models not from observation of reality but of building models that arise from clearly stated fundamental assumptions.  Instead of extensive, in-depth surveys of manufacturing companies as done by Gardiner Means (and as continues to be done by many Post Keynesian economists and economists in the Kansas City tradition), economists simply state fundamental premises which allow them to build, by way of axiomatic set theory, rigorous models. Or as some would say, puzzles.  If the models are build particularly well, then empirical tests may be run to validate the model.  The only problem with this is that if the model is not verified by empirical testing, it is not because the model was wrong, it is because the empirical test was mis-specified.  Reality lies, not models.
Rather than being capable of bringing the fruit of careful observation to the table of policy, economics strives to illuminate the understanding as did Newton's revelation of gravity and planetary motion.  The problem for economics is that human beings, even when dealing with large numbers and groups of human being, just refuse to act like planets.  Human beings sometimes act arbitrarily, even when it is to their disadvantage.
Economics, by being built upon models which are assumed to be predictive, becomes social physics, a means to control more than aid.  Economics, by being built upon models that are mathematically rigorous, imparts to itself a respectability reserved for "real" scientists.  Economics, by being built upon models are that are supported by numbers which are twisted until they say what economists want to hear, becomes an unassailable scientific fortress against which no politician or layman can prevail.  Economics, by being built upon models, transforms PhD economists  into a noble priesthood which cannot be questioned.


Economics, by being built upon models, needs a new definition:

Economics is the deliberate obfuscation of common sense by egoists seeking to justify their being paid to solve puzzles of their own design.

Should the healthcare sector be based upon a free market model?

The quest has been for the medical care sector to be based upon a market model. 

That would mean that patients ought to be treated as customers involved in a market-based transaction.  However, society does not (as evidenced by the passage of the health care bill) think anyone should be denied the ability to obtain the product if they cannot afford it, i.e. the customers (i.e. patients) should be subsidized.  Customer subsidies, in a market-model, cause an increase in demand which, against a fixed supply, will result in a rise in price.

In a market-based model, hospitals would compete for their customers.  Now since the product is something like a successful surgery or recovery from a deadly virus, there is not really much product improvement that can occur.  So how do hospitals compete? Hospitals increasingly compete by differentiating the environment in which the product is sold - differentiating that environment in ways that actually lead the customer to have to pay more for a product that is still the same: plasma TV’s in carpeted rooms, lobbies that rival the best hotels, gourmet foods, etc.  But, if the customer cannot afford the product that is now more expensive because it is wrapped in a better package, society seems to think that the hospitals ought to provide it at a reduced rate.

In a free market system, providers offer to work for a price that they consider fair.  If no one is willing to pay that price, the provider either changes jobs or lowers their price.  The market-based solution for the medical care sector will work best only when doctors, nurses, techs, hospitals, pharmaceutical companies, and medical supply companies are allowed to charge what they think is right, not what society thinks is fair.  I have heard PhD's complain that MD's have no more education that they have, so why should MD's get paid so much more than a PhD?  A constant lament is that drug companies make too much money.  Why is Apple praised when it earns large returns to its owners, why is McDonald’s criticized if profits are not larger than the previous quarter, but drug companies are acting unethically when they earn a positive return on invested capital?

If doctors cannot earn an income that they, not society, thinks is appropriate to the costs of becoming and the risks of remaining a doctor, then the number of doctors will decrease.  If hospitals and drug companies cannot earn a return that satisfies their owners, those owners will pull their money out of the hospital and drug sectors, decrease the number of hospitals available and diminish the pipeline of new drugs, and open up something more profitable, like a McDonald's franchise or microbrewery.

Will we, as a society, in our efforts to force the healthcare sector into a market-model, be forced into requiring people to become doctors and refusing to let doctors retire? 

Or will we wise up and realize that the market-model is not always the best for all industries?

The "Law" of Demand?

Has anyone really stopped to critically examine the idea of the "Law of Demand"?  Now we are not asking about questioning that there seems to exist an inverse relationship between price and quantity, ceteris paribus.  No, we are asking about the axiomatic foundations from which the "Law of Demand" arises.
For example, one of the more fundamental assumptions about human behavior is that of the independence of economic agents.  The independence assumption states, basically, that economic agents are not influenced by other economic agents; there is never any behavior in which a person buys something simply because someone else has that same thing, there is no "keeping up with the Jones".  To have economic agents who are socially embedded, who exhibit relational behavior violates the independence assumption which is fundamental to the "Law of Demand" having any validity.
Consider also how economists view the preferences of economic agents.  The "preference ordering" of a set of consumption possibilities is assumed to be

1. complete: i.e. consumers can rank all possible combinations of all possible goods, 
2. transitive: that is, if A is preferred to B and B is preferred to C, then it must always hold that A is preferred to C, and
3. convex: this is a mathematical concept that says, more or less, that a consumer is willing to obtain more and more of good A if and only if it involves giving up less and less of some other good.

A fourth assumption exists that deals with how much an economic agent wants of any good, and that assumption is that more is always preferred to less, that non-satiation is the rule.  There is never a time when an economic agent can have enough of any good.

Now the "Law of Demand" exists as a scientific law only if all four of these assumptions are met.  Should any one of these assumptions not be true, the law of demand collapses and loses its scientific creditability. 

So if the general behavior of people is such that they make their purchases based upon habit because they cannot really take the time to evaluate and rank all possibilities, if there are some goods which they purchase even if required to give up more and more of other desirable goods, it there are individuals out there who are happy with what they have and simply do not care to buy more of something they like and can afford, then the idea that there is a "Law of Demand" has to be seriously questioned.  Or even discarded. 

Think on these things.