Fiscal Cliff Notes

Some of my (somewhat well-educated) thoughts on the fiscal cliff:

1) The fiscal cliff is NOT the point at which the government runs out of money. Somehow this has become the widespread notion of what the Fiscal Cliff is, descriptively. Remember, the issuer of a currency cannot run out of that currency. The U.S. government, as issuer of the dollar cannot run out of dollars.

2) The fiscal cliff IS the point at which spending cuts kick in and tax cuts expire so that the deficit closes. That is, (G - T) becomes smaller. Every economist understands that this will hurt the economy because it contracts overall spending in the economy. GDP = C + I + G + (X-M). So if Taxes go up, our spending (Consumption and Investment) will go down and if government spending goes down, overall GDP will drop unless somehow we miraculously become a large net exporting nation.

3) Knowing this, we still think we have to shrink the deficit. I detailed this a couple of weeks ago, so I recommend reading that piece. IF we let the fiscal cliff happen, the economy will shrink quickly. If we reach a deal, the economy will sputter and will likely fall some if not a lot--it depends on the magnitude of the deal.

4) We need a larger deficit! This can be accomplished through spending increases or tax cuts, but the only way to actually shrink the deficit is to increase GDP. The private sector is still deleveraging, the foreign sector--our trading partners--is in poor shape, and so the only institution that can help is the government. Otherwise we're in for a long, slow deleveraging period--see The Great Depression. This is needless because the government has policy tools to prevent it, and it doesn't necessarily have to mean a concentration of government power.

5) What we spend money on matters! Some spending has a higher multiplier effect or employs more workers. Much spending is extremely wasteful and so wouldn't do much to help our society or our economy. All spending will benefit some more than others. Some spending is immoral. We need to make these decisions as a society in the political arena, but note these decisions have economic effects--see my most recent post on this.

6) We have a particular duty to look out for those left behind or trampled on by the system. We can do this personally and through institutions--including Churches, non-profit organizations, local governments, and the federal government. All have advantages and disadvantages, but all are needed according to the principle of subsidiarity, which is not a limiting principle (thinking of it solely as a principle that limits the size of government), but is rather a cooperative principle (thinking of it in terms of all institutions of all sizes working together to accomplish the common good).

Demand Signals

Economics, in some sense, is the study of choices. The study of how your choices and my choices affect economic variables and economic outcomes. This is, in part, why economics cannot be completely separated from other social science disciplines concerned with human behavior, such as history, psychology, sociology, political science, and anthropology.

One advantage of capitalist economies over other modes of production is the freedom it gives to its citizens to participate in economic life--to make choices mostly free from constraints. This freedom isn't without necessary prerequisites, qualifications, or undesirable results, however.

Instead of being organized around a central planner, our economy is organized around 'demand signals'. Production decisions aren't made by the state, but by producers usually thought of as capitalists but are really more likely small business owners, CEOs, Boards of governors, etc. They obtain funds, at least initially, from banks through loans or from the public through sales of stock. In order to obtain those funds, they must have some prospects for selling their proposed product. This puts production decisions largely in the hands of bankers, who estimate the expected rate of return on the proposed investment, or stockbrokers who do the same. For the former it means getting the loan paid back, the latter a rise in the share price.

Yet both are looking at expected rate of return, a hard to gauge variable that because it is based on uncertain expectations of the future depends more on current sales or current demand. This is where our choices come in, or our demand signals.

You see, we demand with our money and the purchase of a good or service sends a signal to the producer or to the bankers making lending decisions. That signal is usually to invest more in that product or service--to increase investment, or to raise the price of that good or service to obtain more profits with which they too use to purchase goods and services to send signals to their suppliers. It is this interconnected web of demand signals using paper money (or money from bank accounts) that organizes real output in our economy.

We don't have a central organizer or planner who has to guess how much to produce, or to guess how much we want or need of any one product or service. We send signals through 'the market' and 'it' organizes production along those signals.

There are many implication or conclusions to be drawn from this.

Fiscally Insane

The recent elections kept in place the gridlock we've seen in recent years in Washington. One issue they have continually kicked down the road was the issue of the growing government debt due to recent high deficits. The gridlock is no doubt a serious problem, but the insane part is the premise upon which both parties are acting: the need to reduce the deficit. I have written much about this, but I thought it seemed appropriate and pertinent to review why reducing the deficit now is insane.

Many people forget that government debt is someone else's asset. That is, every government bond or treasury security out there is the government's IOU, but the holder's asset. So increasing government debt is increasing the non-government sector's assets or net savings. The non-government sector can't net save on IOUs/assets held against each other, so it relies on the government's securities to net save.

This means that the $16 trillion+ government debt is the world's net savings in the U.S. dollar of account. Since savings are good and since we would expect the economy to continue to grow, we should expect that savings and thus the debt will go up forever. This means 17, 18, 19 trillion and counting and that's a good thing! Not something to be worried about! So why are people worried about it?

Here are the usual arguments:

1) Bankruptcy

We know this is false and is easy to prove or show. The government can simply print more money to pay any debts it has promised to anyone. Now in practice they don't print much money to pay their bills, they just change numbers in bank accounts, but the basic idea is the same. They are the monopoly issuer of the U.S. dollar and can thus pay any debts denominated in U.S. dollars. In this way we are not like Greece. Greece's debts are payable in the Euro. They are not the monopoly issuer of the Euro. They cannot pay debts without accruing Euros first through taxing or borrowing. They can go bankrupt. They, again, are a currency USER.

The U.S. does not face those same difficulties as the ISSUER of the currency. They do NOT need to tax or borrow in order to spend. The only reason they do so is to limit the private sector's purchasing power in order to prevent inflation. If they didn't tax or issue bonds to drain the private sector's purchasing power, and spent the way they did, then we would likely have the third thing everyone is concerned about (see below).

2) Interest rates

Many are worried that the bond markets will turn on U.S. bonds by refusing to buy the U.S.'s debt and so interest rates will go up, like they did in Greece or Spain. This is a more hairy explanation, but the simple answer is that as a currency ISSUER, the U.S. doesn't face that possibility, that Japan is a better comparison, who is also a currency ISSUER and has had very low interest rates for over a decade.

The U.S. has had record high deficit spending and record low interest rates. The theory that makes people worry is that high deficits cause high interest rates because fear will grow over whether or not the government will be able to make good on its debts. After #1, we know it can always make good on its debts, bankruptcy is not a concern. It is possible that fear would still grow anyway, despite this most basic fact, but it is wholly unlikely and still has not come to fruition despite repeated warnings it will for several years now. Those who spend their life trading in markets know that U.S. debt is a safe asset to hold so long as they don't threaten to voluntarily declare bankruptcy (or stop making payments on IOUs it has promised), which they are doing unfortunately.

So, in sum, this hasn't been an issue and won't be so long as the US doesn't voluntarily declare bankruptcy, something it does not have to do, or otherwise threaten to not make promised payments. Unfortunately, this might be a tool used by either side to get their way on the new budget deal. And again, Japan has paved the way:

Japan Debt-to-GDP

Japan Interest Rates

Debt goes up, but interest rates go down in both.

U.S. Debt-to-GDP

U.S. Interest Rates

The proof is in the pudding. Interest rates are not going to go up without the voluntary and unnecessary threat to not pay its debts.

China has all our debt!

OH NO! But not really.

A lot of people are concerned with China owning so much of our country's debt. What if they make us pay it back all at once? Well they can't do that, and frankly, they don't want to. But there is reason to be concerned, or at least, to understand what it means that China owns so much of our debt.

First we must ask, how did they get that debt?

This is partially tied in with 'globalization' or cheaper labor costs in developing nations and relatively cheap transportation costs. China can manufacture goods more cheaply the United States can because China has been taking advantage of lower labor costs and labor standards to grow its economy, but it needs someone to sell it goods to. Domestic demand in China isn't enough to help it grow as much as it has, it needs a buyer abroad. That's where we come in. The U.S. has run a trade deficit (imports>exports) for a few decades now, and recently much of those exports have been coming from China.

When the U.S. gets goods from China, it sends its dollar to China. We get the goods we want, they get the dollars they want. Now they have excess dollars that they can either: A) convert to Renminbi (the Chinese currency), B) leave as US dollar cash, C) buy goods for sale in Dollars, or D) buy US bonds or other financial assets.

(A) causes appreciation of the Renminbi which China doesn't want, because it makes their goods more expensive relative to the rest of the world causing a decrease in their exports. They really want and need to be an exporting nation to grow fast enough to catch up to the US and Europe.

The Value of Money

A couple weeks ago I wrote a post addressing the question 'why does money matter?'. I hope I laid out a clear explanation of the role of money in our economy and how many mainstream economists misunderstand just what it is at its most fundamental level.

The basic insight is that money is credit or an IOU, and not a commodity nor a representation of a commodity (or commodities). So if money is credit, then what gives it value?

The metallists, those who believe money is like a commodity or a 'fiat' representation of commodities, believe money gets its value from that commodity or commodities. That is, they believe money gets its value from gold or in more modern times, from the bundles of goods a currency area produces.

I wondered about this question long ago, why is gold so valuable? I just didn't get why a mostly useless shiny metal would be so coveted by the Egyptians, Romans, or Europeans. Then I took a money and banking course in college that provided me with an explanation. Gold and other precious metals were used as money because they were easily molded into small, transportable coins. And because of its moldability, it could be divided into larger and smaller coins with varying values with markings to protect against counterfeiting. This mostly satisfied my curiosity. I though, 'oh, the people of Egypt (or wherever) were smart enough to figure out that this commodity, of all the commodities available to them, would serve best as money because of its inherent properties'.

Later in the course, however, I learned of an alternative approach to money that completely flips this view on its head. This is the Chartalist view that regards money as credit. To them, all money is an IOU or credit and anyone can then create money as long as someone is willing to accept it. Monies fall into a sort of hierarchy of acceptance with the most worthy creditors (or debtors) at the top and the worst at the bottom.

And it is here were we find the key to money's value. It isn't anything based on intrinsic worth of the commodity used to represent the IOU, it is rather the acceptability of the IOU. The most acceptable IOUs have more value!

Monopoly and Modern Money Theory

This is a brilliant post by J.D. Alt on how the economy is like the game of monopoly. It is kind of long, but really understands how the economy works, particularly from a MMT perspective.

Full Post: Playing Monopolis Monopoly

Highlights:

Why does it seem like there isn’t enough money to pay for the things we really need? The headlines are filled with stories about our nation’s “debt problem” and dire warnings about our impending “bankruptcy.” As an architect who fills his waking hours thinking up all kinds of wonderful things we could be building, I’m alarmed by the idea there isn’t enough money to pay for any of them. Before wasting more time dreaming, I had to find out: Is it really true? Are we really too poor to put America back to work making and building the things we need to maintain a prosperous nation?

Searching for an answer, I discovered a small (but growing) group of economists (see here, here, here, here, here, here) who represent an emerging school of thought known as “modern monetary theory” (MMT). These men and women are valiantly trying to make us all understand a paradigm shift that occurred some forty years ago, when the world abandoned the gold standard. Their key insight shocked me: A sovereign government is never revenue constrained when it is the Monopoly issuer of its own pure fiat currency; it has all the money that’s needed to put its citizens to work building anything—and providing any service—that is desired by the public (provided the real resources are available). Even more remarkable, sovereign “deficits” in the fiat currency are just the accounting record of the surpluses that have been injected into the private economy. Eliminating the sovereign currency deficit by imposing austerity will not make the economy healthier; it will, in effect, bankrupt the citizens!

If this seems to defy logic, stay with me for just a few minutes. I’m going to propose a simple exercise that will help you “see” this reality for yourself. The exercise is simply that everyone join me in a familiar game of Monopoly. By the end of the game, I hope to convince you that MMT is correct
and that we could be doing better, much better – for ourselves and future generations—if we just understood and took ad vantage of our modern monetary system.

Let’s begin.

Playing Monopolis Monopoly

We’ll play by the normal rules (I’ll suggest some added features as we go along) except this time we’ll pay special attention to certain things that are happening. For example, you’ll recall that before the game can begin, one player has to agree to be the “banker” (a tedious task, but someonehas to do it.) But now choosing this person has a special importance: it must be done democratically, with the players voting to determine who will manage the game’s money. We’ll do this little exercise because we want to pay special attention to the fact that the Monopoly “bank” is an entity created by the players themselves for their mutual benefit. In fact, we won’t refer to it as the “bank” anymore, but instead will call it our “currency issuing government” (CIG). In a real sense, we all “own” CIG together, and taking a minute to democratically choose who will manage it heightens our awareness of this key fact.

To reinforce this awareness, the next thing we’ll think about, as we set up the Monopoly board, organize the Deed Cards, shuffle the Chance Cards and choose our tokens, is that what we are really doing is setting up, and getting ready to operate, a miniature nation-state. Let’s even give it a name: Monopolis. We, the players, are the new citizens of Monopolis. We have just established, through democratic consensus, our currency issuing government, and we are now getting ready to operate our economy. That’s what the game is about.

Issuing the Currency

As we get ready to play, we immediately discover an odd dilemma: CIG has all the money! We, the players, are ready to go but we can’t start the game until we have some of CIG’s money. This is an awkward moment, which is dispensed with so quickly in regular Monopoly we hardly notice it. (The “banker” is instructed to make initial cash distributions in the amount of $1500 to each player). If we pay attention, we can see that this moment raises some interesting and crucial questions.

Approaching the 'Fiscal Cliff'

My comments in red:

Congress May Toss the Economy over the Fiscal Cliff

We are barreling towards the year end “fiscal cliff” Federal Reserve Board Chairman Ben Bernanke has warned about.

Unless lawmakers and the President can agree on a slew of confounding budget and tax issues before the end of the year, a double whammy of sharp tax increases and deep cuts in domestic and defense spending will jolt the struggling economy beginning in early January. That’s because two Bush era tax cuts and a raft of other tax relief measures are set to expire by the end of the year, and Congress must implement the first installment of $1.2 trillion of long-term deficit reduction that lawmakers and the White House agreed to last summer.

While an abrupt surge in tax revenues of about $500 billion, and a steep cut in government spending of about $110 billion early next year would certainly put a big dent in next year’s deficit, many budget experts fear it would also undercut the economic recovery in the short run. It would be extremely detrimental to the economy and would have no impact on solvency of the government budget.

Boehner said this week that Congress will be inviting a legislative “train wreck” if it leaves all these big- ticket fiscal issues to a lame duck session of Congress after the November presidential and congressional elections. He revealed plans to schedule a vote on the House floor before the fall election to extend the two Bush-era tax cuts that are very popular with his members. I'm not opposed to extending tax cuts, but I think extending the FICA tax cuts will be much more helpful to the economy and those who are in need then will extending cuts for those who are doing just fine.

Preferential Option for the Rich

Here is yet another great post from Catholic Moral Theology. Charles Camosy points out the apparently missing preferential option for the rich from Catholic Social Teaching which has in many places written about the preferential option for the poor. CST has, I think, danced around the 'preferential option for the rich' but certainly hasn't explicitly named any such principle as it has the preferential option for the poor. For example one can find this passage in Populorum Progressio:

We must repeat that the superfluous goods of wealthier nations ought to be placed at the disposal of poorer nations. The rule, by virtue of which in times past those nearest us were to be helped in time of need, applies today to all the needy throughout the world. And the prospering peoples will be the first to benefit from this. Continuing avarice on their part will arouse the judgment of God and the wrath of the poor, with consequences no one can foresee. If prosperous nations continue to be jealous of their own advantage alone, they will jeopardize their highest values, sacrificing the pursuit of excellence to the acquisition of possessions. We might well apply to them the parable of the rich man. His fields yielded an abundant harvest and he did not know where to store it: "But God said to him, 'Fool, this very night your soul will be demanded from you . . .' "

I agree with Charles, that there should indeed be an explicit preferential option for the rich, particularly in our wealthy society. We should at once emphasize not only the need to help those who suffer from materially poverty, but all forms of poverty, including the poverty in virtue and faith that materialism or consumerism causes as Pope John Paul II makes clear in Centesimus Annus:

Today more than ever, the Church is aware that her social message will gain credibility more immediately from the witness of actions than as a result of its internal logic and consistency. This awareness is also a source of her preferential option for the poor, which is never exclusive or discriminatory towards other groups. This option is not limited to material poverty, since it is well known that there are many other forms of poverty, especially in modern society—not only economic but cultural and spiritual poverty as well. The Church's love for the poor, which is essential for her and a part of her constant tradition, impels her to give attention to a world in which poverty is threatening to assume massive proportions in spite of technological and economic progress.

Pope Quotes 5-8-12

Sorry for the interruption in my series on Pope Quotes. There are still so many great quotes from the CST encyclicals to share, so let's get to it!

The socialist, capitalist debate is always a fierce one and so I always find the many quotes on this topic to be a good read. This debate is still largely and understandably emotionally charged and unfortunately the Church's stance is widely misunderstood. Many seem to know the Church condemned socialism, but less seem to know exactly why or that it is nearly as critical of capitalism/liberalism. Many take the Popes's quotes out of context, (which I understand I also run the risk of doing with this series and is why I recommend a full reading of the encyclicals!), or even use them to support a position they hold. Much of the debate has centered over the issue of private property versus state socialization of property.

Today I chose this excerpt from Laborem Exercens, which was written by Pope John Paul II in 1981, marking the 90th anniversary of Rerum Novarum. It is an encyclical that addresses the question of 'work' and the issue of private property. I'd like to draw your attention to a few things:

1) CST is critical of both capitalism and socialism;
2) Though defending the right to private property, CST makes clear that the right to common use, also known as the universal destination of goods, supersedes this right;
3) Possession of goods, particularly capital goods, is only okay if it serves labor and is never okay simply for possession's sake;
4) Socialization of means of production is not excluded completely, there is some legitimation for it;
5) State socialization of means of production (capital goods) does not guarantee true socialization of those goods, that is, the state may use them for purposes opposed to the good of society;
6) Rigid capitalism needs revision, particularly with profit-sharing or joint ownership forms of cooperation so that workers may share in the produce and not be pitted against the owners of the capital goods;
7) Work is not only a means for material goods, but is more importantly a means for personal development and fulfillment and private or personal initiative is a key component of this developmental side of work;

Here is the excerpt from Laborem Exercens with highlights in bold/purple:

The above principle [on private property], as it was then stated and as it is still taught by the Church, diverges radically from the programme of collectivism as proclaimed by Marxism and put into practice in various countries in the decades following the time of Leo XIII's Encyclical. At the same time it differs from the programme of capitalism practised by liberalism and by the political systems inspired by it.

Why Does Money Matter?

You may have noticed that I post a lot about money, particularly this "modern money" stuff and you may be wondering why I care so much about money. I have long been fascinated with money, particularly with what gives it its value. I remember way back in middle school wondering why green pieces of paper had value, or why gold was so valuable (a topic I wish to explore more in a follow up post). I never really got what I thought were adequate answers nor did I seek it further until my interest turned toward economics in college. Now after four years of undergrad and a couple years in grad school, I understand why money matters and I think you should too.

To be clear, I am not saying love of money (greed) is a good thing...it isn't, but rather understanding just what money is and how it affects our economy is crucial to achieving our economic, political, and social objectives.

So what is money? The most often told story is that money is a commodity that evolved out of a barter economy. For example, tradespeople in small villages started using seashells or gold or whatever to exchange for goods that each made so as to avoid the problem of barter economies. The butcher wants shoes, but the shoemaker doesn't want meat, so the butcher would have to trade meat to someone for something that the shoemaker wanted in order to obtain shoes. This problem is called the 'double coincidence of wants' and money is thought to have sprung up as a medium of exchange to eliminate this problem. All could exchange their goods for seashells or gold or whatever which could then be exchanged for any other commodity one wanted.

This story seemed plausible to me at first, it does seem logical, but as I learned more I quickly became unsatisfied with this explanation. This view hinges precariously on everyone accepting the commodity to be used as money. It also assumes barter economies existed and doesn't translate well to today's fiat money system because the commodity used as money is thought to be intrinsically valuable (gold) which also poses a problem for those who used seashells.

Another view believes that money is a social unit of account tracking credits and debts, just like an inch measures distance, or a gallon measures volume. One dollar is a unit of account, a measurement of credits/debts. Thus money is always a two-sided affair, it is an IOU, with a creditor and a debtor. Having money means that one has claims to another's goods/labor/cup of sugar/whatever that other gave in the IOU. From this view, one can see that anyone can create money, it is the matter of acceptance that is key. I can issue IOUs all I want, but in order for them to become 'money', someone must accept them. Which means they must accept that my word is good. If I don't my 'money' defaults.

Missing the Point on Poverty

Another great post by Meghan Clark from over at Catholic Moral Theology, which has become my favorite Catholic blog.

She has a very good understanding of the economy and of Catholic Social Teaching and I continually find myself in overall agreement with what she writes.

Full post here.

Highlights:

There has been a lot of discussion this week about the morality of the Ryan Budget. Since Paul Ryan’s statement on subsidiarity, the media and blogs have been full of posts either supporting or correcting Paul Ryan’s use of Catholic social teaching.

This week’s discussion heated up as the USCCB Committee on Domestic Justice and Human Development released 4 key statements/press releases pleading with Congress to “to draw a circle of protection around the programs that serve “the least among us.” when dealing with housing programs, SNAP/food stamps, agriculture and the Child Tax Credit.

There is a beautiful coherence and symmetry to the four statements – they all have one clear message – protect the poor and vulnerable. While they acknowledge (as do we all) that we live in difficult and complex economic times, we cannot in good conscience balance the budget or protect the economy through sacrificing the poor and vulnerable within our communities. In the Letter on Snap, Bishop Blaire reiterates the three key moral guidelines for evaluating the morality of a budget:

1. Every budget decision should be assessed by whether it protects or threatens human life and dignity.
2. A central moral measure of any budget proposal is how it affects “the least of these” (Matthew 25). The needs of those who are hungry and homeless, without work or in poverty should come first.
3. Government and other institutions have a shared responsibility to promote the common good of all, especially ordinary workers and families who struggle to live in dignity in difficult economic times.

Now the Bishop’s letters have gotten quite the response.

Sectoral Balances

Phew! After a tough April I am back in action! I hope to be blogging more regularly now, and I have a lot of ideas I am excited to share with all of you.

One area I will continue posting about is the still common misunderstandings surrounding government debt. At the heart of it is a misunderstanding of money. If we can understand money, then we can better understand government debt. I hope to make this more clear in the coming weeks, but for now I thought this video might prove to be helpful.

It was made by undergraduates at Lewis and Clark college in Portland, Oregon. The video explains sectoral balances using accounting identities and principles. It shows why the government cannot go bankrupt like a household or business can and subsequently that sound, responsible government finance means something different than sound, responsible household finance.

Enjoy!

Healthcare Debate

I am not saying I agree with 'Morning's Minion' over at Vox Nova, but I think this post he wrote is something worth thinking about. CST does teach the universal right to healthcare and the duty of society to provide it. It is our role as the laity to come up with effective solutions to the problem of the uninsured members of society. I think Morning's Minion could open up to other possibilities other than the single payer system and regulated private provision, but doing nothing to help the uninsured receive healthcare is not acceptable in the eyes of CST.

We do need healthcare for everyone. We do need to debate what our options are. And so I think his post is something worth thinking about. Full post here.

Highlights:

Let me begin with a simple assertion: the Catholic Church views access to healthcare as a basic human right. To the extent possible, societies are obligated to provide healthcare for all people who live under their jurisdiction. This is a fundamental principle of justice. Consider some evidence for this:

Catechism: “Concern for the health of its citizens requires that society help in the attainment of living-conditions that allow them to grow and reach maturity: food and clothing, housing, health care, basic education, employment, and social assistance”.

John XXIII: “Man has the right to live. He has the right to bodily integrity and to the means necessary for the proper development of life, particularly food, clothing, shelter, medical care, rest, and, finally, the necessary social services. In consequence, he has the right to be looked after in the event of ill-health; disability stemming from his work; widowhood; old age; enforced unemployment; or whenever through no fault of his own he is deprived of the means of livelihood”.

Subsidiarity and Cooperation

Here is another post I really enjoyed from Catholic Moral Theology.

The principle of subsidiarity may be among the most controversial topics of the doctrine of Catholic Social Teaching because it is often used by both the left and the right to justify either small government or big government.

I prefer Meghan Clark's interpretation, that it is a two-sided coin. We need a system of governance that allows for the common good with multiple levels of institutions and associations working together for that common good. We cannot rely only on big government, nor can we rely only on small government. It is clear that there are proper functions belonging to each, but that most functions necessary for the common good require cooperation from all levels--individuals, families, local governments and private associations all the way to national government and international associations.

Here is Meghan's full article: Subsidiarity is a Two-sided Coin

Here are some highlights:

As a Catholic moral theologian, I must confess that the principle of subsidiarity is perhaps one of the most crucial and most misunderstood in Catholic social teaching. According to the principle of subsidiarity, decisions should be made at the lowest level possible and the highest level necessary. Subsidiarity is crucial because it has applications in just about every aspect of moral life. In medical ethics, subsidiarity helps guide decision-making. In social ethics, subsidiarity helps us prudentially judge not only decision-making but allocation of resources. Subsidiarity is an effort at balancing the many necessary levels of society – and at its best, the principle of subsidiarity navigates the allocation of resources by higher levels of society to support engagement and decision making by the lower levels. Despite how often it is stated – subsidiarity does NOT mean smaller is better.

Fishy Fridays

I came across this blogpost at Catholic Moral Theology today and thought it was worth sharing.

Full post by Jason King here: Fishy Fridays

Highlights:

When I was in graduate school, I made the off hand comment to my roommate about how McDonald’s runs Filet-o-Fish specials every year during Lent. My roommate, a life long Methodist, was totally surprised by this revelation. He had never noticed it. (He recently used this tidbit to amaze his high school students by predicting an upcoming Filet-O-Fish special.)

This year I have noticed that even more places have taken to fish during Lent. My grocery store was the first place I noticed this phenomenon.

'Rule' for a Good Life

I have had the good fortune of a strong Benedictine influence in my life. I have a Benedictine education and spent a few summers at St. Meinrad Archabbey learning from and making friends with people who have dedicated themselves to live by St. Benedict's teaching.

The Rule of St. Benedict offers a great guide for a monastic way of life, but its applicability reaches far into our own lives. In particular the prologue and chapter 4 offer us teachings or 'tools for good works' to live Catholic Social Teaching in our everyday life.

Here are some of the teachings of St. Benedict that if we take to heart and practice frequently will make for a happier life not only for us but those we encounter on our journey:

P.4 - First of all, every time you begin a good work, you must pray to Him most earnestly to bring it to perfection.

P.17 - If you desire true and eternal life, keep your tongue free from vicious talk and your lips from all deceit; turn away from evil and do good; let peace be your quest and aim.

4.11-13 - Discipline you body, do not pamper yourself, but love fasting.

4.14-19 - You must relieve the lot of the poor, clothe the naked, visit the sick, and bury the dead. Go to help the troubled and console the sorrowing.

4.20-21 - Your way of acting should be different from the world's way; the love of Christ must come before all else;

4.22-26 - You are not to act in anger or nurse a grudge. Rid you heart of all deceit; Never give a hollow greeting of peace or turn away when someone needs your love.

Pope Quotes 3-7-12

This is the second installment of my series entitled "Pope Quotes".

In commemorating Populorum Progressio, Pope John Paul II re-emphasized the concept of authentic human development as consisting of more than economic well-being or technological gain and that over-emphasized the 'economic' can lead to a society of consumerism which I think is still very prevalent today. He also distinguished "having" from "being" by reminding us that "having" must be directed toward and subordinated to "being" and that the reversal of these inhibits our development and leads quickly to dissatisfaction:

At the same time, however, the "economic" concept itself, linked to the word development, has entered into crisis. In fact there is a better understanding today that the mere accumulation of goods and services, even for the benefit of the majority, is not enough for the realization of human happiness. Nor, in consequence, does the availability of the many real benefits provided in recent times by science and technology, including the computer sciences, bring freedom from every form of slavery. On the contrary, the experience of recent years shows that unless all the considerable body of resources and potential at man's disposal is guided by a moral understanding and by an orientation towards the true good of the human race, it easily turns against man to oppress him.

A disconcerting conclusion about the most recent period should serve to enlighten us: side-by-side with the miseries of underdevelopment, themselves unacceptable, we find ourselves up against a form of superdevelopment, equally inadmissible, because like the former it is contrary to what is good and to true happiness.

This super-development, which consists in an excessive availability of every kind of material goods for the benefit of certain social groups, easily makes people slaves of "possession" and of immediate gratification, with no other horizon than the multiplication or continual replacement of the things already owned with others still better. This is the so-called civilization of "consumption" or " consumerism ," which involves so much "throwing-away" and "waste." An object already owned but now superseded by something better is discarded, with no thought of its possible lasting value in itself, nor of some other human being who is poorer.

All of us experience firsthand the sad effects of this blind submission to pure consumerism: in the first place a crass materialism, and at the same time a radical dissatisfaction, because one quickly learns that the more one possesses the more one wants, while deeper aspirations remain unsatisfied and perhaps even stifled.

Pope Quotes 3-1-12

I have been as busy as ever, so I apologize for little posting lately. I also feel I have tended to emphasize economics more than Catholic Social Teaching lately, so strapped for time and desiring to spread the Church's teaching on economics and other social issues I decided to start a new series called "Pope Quotes". I hope you find the series informative and helpful!

On food shortages or famine, as has been occurring in East Africa and happens elsewhere around the world even outside of weather/climate-induced famines:

"Life in many poor countries is still extremely insecure as a consequence of food shortages, and the situation could become worse: hunger still reaps enormous numbers of victims among those who, like Lazarus, are not permitted to take their place at the rich man's table, contrary to the hopes expressed by Paul VI. Feed the hungry (cf. Mt 25: 35, 37, 42) is an ethical imperative for the universal Church, as she responds to the teachings of her Founder, the Lord Jesus, concerning solidarity and the sharing of goods. Moreover, the elimination of world hunger has also, in the global era, become a requirement for safeguarding the peace and stability of the planet.

Hunger is not so much dependent on lack of material things as on shortage of social resources, the most important of which are institutional. What is missing, in other words, is a network of economic institutions capable of guaranteeing regular access to sufficient food and water for nutritional needs, and also capable of addressing the primary needs and necessities ensuing from genuine food crises, whether due to natural causes or political irresponsibility, nationally and internationally." -- Pope Benedict XVI, Caritas in Veritate, pp. 27 (emphasis added)

On inequality and protection of the working class for the good of society:

"But although all citizens, without exception, can and ought to contribute to that common good in which individuals share so advantageously to themselves, yet it should not be supposed that all can contribute in the like way and to the same extent. No matter what changes may occur in forms of government, there will ever be differences and inequalities of condition in the State. Society cannot exist or be conceived of without them... We have insisted, it is true, that, since the end of society is to make men better, the chief good that society can possess is virtue. Nevertheless, it is the business of a well-constituted body politic to see to the provision of those material and external helps 'the use of which is necessary to virtuous action.'"

Scary? Facts about the Debt

Saying these are facts about the debt is one thing, but to call them 'scary' is to put needless fear into Americans. My comments are in red.

As President Obama unveiled the 2013 fiscal year budget, the nation's financial situation came back into sharp focus. Experts say partisan gridlock in Washington means the budget will probably go nowhere.

Considering this is an election year, however, expect politicians to harp on facts, figures and terms that most Americans weren't taught in high school. To help out, it's time to dredge up lots of scary facts to make you pay attention.

Before we get going, a quick primer on the number TRILLION:

$1 trillion = $1,000 billion or $1,000,000,000,000 (that's 12 zeros) very true

How hard is it to spend a trillion dollars? If you spent one dollar every second, you would have spent a million dollars in 12 days. At that same rate, it would take you 32 years to spend a billion dollars. But it would take you more than 31,000 years to spend a trillion dollars.

And now, some scary (She still hasn't said why it is scary) facts about the debt and the deficit -- some basics:

Deficit = money government takes in -- money government spends very true

2012 US deficit = $1.33 trillion still see no problem here, it is not causing inflation and our economy is still not doing that well

2013 Proposed budget deficit = $901 billion this may actually not be enough to grow our economy, still too far away to tell for sure

National debt = Total amount borrowed over time to fund the annual deficit sort of true, the debt is meant to 'fund' the deficit, but isn't necessary to do so. Issuing debt is a way for the Fed to maintain interest rate targets, not a necessary means for raising funds. The government can spend without taxes or issuing debt.

Current national debt = $15.3 trillion (or $49,030 per every man, woman and child in the US or $135,773 per taxpayer) True, but thinking of it this way is misleading. We will never have to fork over $49,000 to pay it off. Most of it isn't due for years to come and doesn't ever have to paid off at anyone one moment. Plus, the national debt=national savings. That means there is $15.3 trillion dollars of US bonds in the hands of the private sector, of which they are earning interest on.


OK, let's get started! Here is her official list of "scary" facts

Are we leaving our debt to our children?

I think this article by Dean Baker at Truthout explains fairly well how our national debt isn't a transfer of stuff now for debt later. Our lack of using all our productive capability is a real cost to our future generations. The (federal) debt only becomes a burden to future generations if paying the interest on that debt leads to inflation, where too much money is flooding the markets to compete for real goods and resources. The US debt clock is, to the penny, the amount of savings in bonds that the private sector holds and is not something we have to pay off out of our own pockets or that has to be taxed from us to pay off because the government doesn't need tax dollars to spend. The threat is inflation, not insolvency. We should focus on full employment growth and stable prices, not the mythical 'burden' of our debt.

Here are some highlights:

It's budget time, again. This means that the deficit hawks will be out in force warning us about the devastating debt burden that we are passing on to our children. So that this Halloween fright gang doesn't needlessly cause any kids to lose sleep, here's what parents can tell their children.

First, it is important to tell your kids that the national debt is not in any way a measure of intergenerational transfers from the young to the old. Debt is also an asset to the people who own the bonds. At some point, everyone who is alive today will be dead, which means that the bonds they own will be passed on to their or someone else's children and grandchildren.

Our children and grandchildren might owe the debt, but they will also be receiving the interest paid on the debt. There can be an issue of distribution within future generations (e.g. Bill Gates' descendants own all the debt), but that is a question of inequality within generations, not between generations. So, when you hear the deficit hawks ranting about the $15 trillion debt that we are passing on to our kids, you can tell your children that we are passing on $15 trillion in government bonds to our children.

Safety Net full of Holes

Looks like our safety net has some holes in it and could use some repair:

From this article at the NY Times:

"...across the nation, the government now provides almost $1 in benefits for every $4 in other income. Older people get most of the benefits, primarily through Social Security and Medicare, but aid for the rest of the population has increased about as quickly through programs for the disabled, the unemployed, veterans and children.

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.

And from this article also in the NY Times via Yahoo:

"...the new study suggests that the recent recession did not cause any significant increase in the share of benefits flowing to the poor, as might once have been expected.

The study found that older people received slightly more than half of government benefits, while the nonelderly with disabilities received an additional 20 percent. These benefits are not means-tested - indeed, better-paid workers get more in Social Security.

Functional Finance: Govt ≠ Household

This post probably explains better than I can why the government is not like a household and what good finance really means for the government. Full post here.

Highlights:

FUNCTIONAL FINANCE: Monetary and Fiscal Policy for Sovereign Currencies
By L. Randall Wray

This week we begin a new topic: functional finance. This will occupy us for the next several blogs. Today we will lay out Abba Lerner’s approach to policy. In the 1940s he came up with what he called the functional finance approach to policy. In one of those amazing historical coincidences, Lerner happened to teach at UMKC when he published one of his most famous papers, laying out the approach. Maybe there is something special in the air in Kansas City?

Lerner posed two principles:

First Principle: if domestic income is too low, government needs to spend more. Unemployment is sufficient evidence of this condition, so if there is unemployment it means government spending is too low.

Second Principle: if the domestic interest rate is too high, it means government needs to provide more “money”, mostly in the form of bank reserves.

The idea is pretty simple. A government that issues its own currency has the fiscal and monetary policy space to spend enough to get the economy to full employment and to set its interest rate target where it wants. (We will address exchange rate regimes later; a fixed exchange rate system requires a modification to this claim.) For a sovereign nation, “affordability” is not an issue—it spends by crediting bank accounts with its own IOUs, something it can never run out of. If there is unemployed labor, government can always afford to hire it—and by definition, unemployed labor is willing to work for money.

Interesting Video

I think this is an interesting video and is a pretty good understanding of our current situation, both in Europe and in the U.S.:

Hijacking Christianity

This article was written by Aryeh Spero a few days ago in the Wall Street Journal. These types of articles really bother me, particularly because I feel that he is hijacking Christianity to justify a position he feels strongly about rather than critically analyzing society in light of the teaching of the Bible in order to make it better. Capitalism has its strengths, but it isn't without weaknesses, and to say that Christianity or the Bible endorses it, I think, is very wrong-headed if not out-right ridiculous. This doesn't mean that I think Christianity endorses socialism, but I certainly don't think our brand of capitalism is the best we can come up with to follow the teachings of Bible. To say that Christianity specifically endorses capitalism, is, I think, to be like one of the Pharisees and is extremely dangerous because people can come away from reading this thinking that this is indeed what Christ told us.

Spero's article can be read here (and below): What the Bible Teaches About Capitalism. My comments are in red.



Who would have expected that in a Republican primary campaign the single biggest complaint among candidates would be that the front-runner has taken capitalism too far? As if his success and achievement were evidence of something unethical and immoral? President Obama and other redistributionists must be rejoicing that their assumptions about rugged capitalism and the 1% have been given such legitimacy.

More than any other nation, the United States was founded on broad themes of morality rooted in a specific religious perspective. We call this the Judeo-Christian ethos, and within it resides a ringing endorsement of capitalism as a moral endeavor.

I disagree that within Christianity resides a "ringing endorsement of capitalism as a moral endeavor". The Bible does not endorse 'self-interested' individuals, nor does it endorse the accumulation of riches, and both are hallmarks of capitalism.

Preferential Option for the Poor(est)

A few weeks ago I went to a presentation at a group called the "Community of Reason" held on Sunday afternoons at UMKC. The main presenter was a 'pastor' (not sure of her credentials, i.e., which denomination) from St. Louis who ran a pro-abortion, or from their point of view a pro-women's rights, clinic that offered support to pregnant women considering abortion but concerned about their faith. I went to get an idea of what 'the other side' thought about abortion. In particular, I wanted to see what they thought about human rights and just when they thought human life began. I don't feel I got a clear answer from the group, but they felt attacked when I brought it up peacefully and told me that we pro-lifers frame the issue as a human rights/human nature issue and that they don't see it that way. I believe their main concern was for women's reproductive 'rights' and the abuse of women by men who take away her 'right to choose'. They also were concerned about legal rights and legal issues from a practicality standpoint (e.g. if a fetus has rights then can we prosecute women who drink alcohol or even accidentally 'mistreat' the womb somehow).

I think the biggest thing I took away from the presentation was how attacked she (the pastor) felt she and other women were by pro-lifers. She felt the pro-life community were verbally attacking women considering abortion through staged protests of Planned Parenthood. That the pro-life community was engaged in terrorism or warfare.

I don't believe these sort of actions are true of all pro-lifers, but it is something we should be conscious of. Conversions of heart or mind will not happen if we make those we wish to convert an enemy and treat them as such. Abortion is a very emotionally-charged subject, but we need to remember that charity will prevail. Ostracizing or alienating the other side in whatever the debate may be over is never an effective means of conversion.

The preferential option for the poor is a main principle of Catholic Social teaching which is based on Jesus's teaching in the Gospel of Matthew 25:31-46: '...whatever you did for one of these least brothers of mine, you did for me.’

The poorest in our society are those without the basic necessities of a good life, material and immaterial, and though we usually think of the homeless and hungry in Africa, we must not forget the unloved more locally, including the unborn.

I wrote this piece last year after the March for Life:


A major theme in Catholic Social Teaching is the preferential option the poor. In its simplest this means giving of one's time, talent, and treasure to those with the greatest and most basic human needs. Usually this means the hungry, homeless, and ill members of our society. Most often people picture the citizens of Africa, Central America, or Southeast Asia. One can certainly find the hungry, homeless, and ill prevalent in these places, but our Bishops remind us constantly that the poorest, most defenseless members of our society are also in our own society. They are the unborn:

Abortion and euthanasia have become preeminent threats to human dignity because they directly attack life itself, the most fundamental human good and the condition for all others. They are committed against those who are weakest and most defenseless, those who are genuinely "the poorest of the poor." -- U.S. Bishops, Living the Gospel of Life

Our desire to help the poor should culminate in the eradication of abortion and euthanasia from our society. None of the poor should be neglected, but the poorest must come first. Any violation against the most primary right to life must command our attention before all other violations.

Blood in the Streets

What Europe is doing to its own people is insane and senseless and its all completely unnecessary.

When the EU nations formed a currency union they gave up the right to be the issuer of their own currency. They thought it would unify Europe (not a bad motive) and provide for a strong currency and robust economy. What they did was send themselves back to the gold standard days leading up to the Great Depression, by greatly restricting their fiscal and monetary policy options by foregoing their right to issue their own currency.

They made themselves like Kansas or Missouri. They couldn't issue 'Marks' (Germany) or 'Drachmas' (Greece) anymore, they had to collect Euros, either by taxing their people or borrowing them from banks.

When the crisis hit, overall spending dropped which then reduced tax revenues. Greece could no longer meets its obligations, it had to borrow. Interest rates on bonds went up making borrowing more costly. With very high interest rates Greece couldn't raise the funds through borrowing to meet its obligations and if it tries to raise more tax revenue it will only further the downward spiral by reducing spending even more. The only option left is to abandon the Euro.

However, the European Central Bank (controlled largely by Germany and France) has been stepping in to 'write the check', that is, lend funds at really low interest rates to Greece so it can meet its obligations, but with the stipulation that Greece 'balance its budget' or move to austerity. For some reason, they don't realize that doing so only contracts the economy further. This cycle has been going on for some time now and its leaving a most horrifying scenario for Greece and other nations on the Euro such as Italy, Portugal, Ireland, and Spain: "Children abandoned by Greek parents as cuts also sees country running out of medicine".

I did not coin this phrase, and can't remember where I heard it, but Greece and these other nations are heading for a 'Blood in the Streets' scenario so long as the ECB keeps writing the check but insisting on austerity. Things will get worse until the people revolt violently.

The U.S. will end up like Greece if we try to balance the budget. We will not end up like Greece if we spend more than we take it, because our government is the issuer of the currency. It is not a household or a state or member of the EU or nation on a gold standard which are users of currency. The message should be clear, but many are confounding it because they misunderstand the nature of 'modern money' (money without fixed exchange rates or gold standards).

If you hear that the U.S. must not spend beyond its means just like a household can't spend beyond its means, ask yourself, "just how exactly is the government like a household?".

The WPA

I have argued for a Job Guarantee (or Employer of Last Resort) program here on this blog in the past and one of the arguments against such a program is finding useful jobs that aren't just "make-work" jobs (digging ditches is generally the example used). One of my professors who specializes in Economic History and the History of Economic Thought (yes they are different) recently wrote a post on the Works Progress Administration (WPA), a government funded program to employ the unemployed during the Great Depression. You can read the full post here.

Here are some highlights:

In the current debates surrounding various job guarantee programs (in association with the Chartalist or Modern Money perspectives), it might prove helpful to review some aspects of the Works Progress Administration (renamed in 1939 as Work Projects Administration). While the WPA was not a “job guarantee” program, it nevertheless points to a number of issues that are under current discussion, including those of the nature of the projects undertaken, impact on the larger economy, concerns surrounding bureaucratic impediments, etc.

Roosevelt was not a progressive. He ran on a balanced budget platform, and initially attempted to fulfill his campaign promise of reducing the federal budget by slashing military spending from $752 million in 1932 to $531 million in 1934, including a 40% reduction in spending for veteran’s benefits which eliminated the pensions of half-a-million veterans and widows and reduced the benefits for those remaining on the rolls. As well, federal spending on research and education was slashed and salaries of federal employees were reduced. Such programs were reversed after 1935. And one might recall that Roosevelt attempted to return to a balanced budget program in 1937, just as the economy appeared to be slowly recovering. The result was a renewed depression that began in the fall of that year and ran through 1938.

Thus, the Roosevelt Administration was forced into progressive activism because of massive—and organized—popular discontent based mainly in working class and small farmer organizations.

The WPA was one of several programs developed to respond to this supposed threat. Initially, the Roosevelt Administration authorized the Federal Emergency Administration of Public Works in 1933 (renamed in 1939 as the Public Works Administration). The PWA allocated over $6 billion to private firms that actually undertook the large scale projects ordered by government. Dams, including Grand Coulee, hospitals, bridges (the Triborough Bridge and Lincoln Tunnel in New York City), etc.

The WPA was not intended as a “full employment” program. Only one household member could be employed under the program (it was usually males), though one does find female heads of households so employed. It should also be noted that state and local governments were required to contribute 10-30% of the costs of the various projects undertaken. Over its life, total spending on WPA projects amounted to about $13.4 billion, roughly 2% of GDP over those years.

And what were those projects? Was this simply a “make work” program that made little difference in the long run? Or, was the WPA integral to the larger economy and its contributions socially useful? A truncated tally follows:

560,000 miles of roads built or improved
20,000 miles of water mains, sewers constructed
417 dams built
325 firehouses built; 2384 renovated
5,000 schools constructed or renovated
143 new hospitals, 1,700 improved
2,000 stadiums, grandstands built
500 landing fields; 1,800 runways (including participation in the construction of LaGuardia Airport, NYC)
State and municipal parks, including the foundation of the extensive California state park system.
100 million trees planted
6,000 miles of fire and forest trails created
Libraries were built. These were especially directed toward poor and rural communities.
Zoo buildings constructed

In addition to the above, one should note the WPA’s contribution to the cultural life of the country. Under the direction of Hallie Flanagan, the Federal Theatre Project mounted 1,200 productions including 300 new plays. Audiences were estimated at 25 million in forty states, many of whom had never before seen a play. As well, WPA programs included Federal Music, Federal Arts, and Federal Writers’ Projects. This latter program produced the most notable “Slave Narrative Collection,” consisting of 10,000 pages of interviews with former slaves, a continuing treasure-trove for researchers. Last, let us not forget the famous murals that were produced by artists hired by the WPA. These dot the country from post offices (though these were mainly funded by the Treasury Department through a grant from the government) to college buildings, to government buildings. Included in this array were those painted by Diego Rivera for the City College of San Francisco, Anton Refregier in the Rincon Annex Post Office, San Francisco, and Thomas Hart Benton in the Missouri State Capitol rotunda.

I think that we could accomplish many useful projects just like the WPA was able to do with a similar program today and I most certainly think it would be better than the waste of resources that comes from unemployment and un-utilized capital goods.

We aren't subject to the economy, it is subject to us

I wrote this piece recently for a radio program on the public radio station in Kansas City. My main point is that the economy is something we can make into what we want it to be, but that requires us to think about what we want our economy to look like and then to do something about it. For example, if you want a more just income distribution, then what exactly do you think our income distribution should look like? who should redistribute it? and how should they do it? We aren't stuck with what we got; we don't have to live with falling wages, increasing income inequality, or 9% unemployment; we can do something about it.

Here's what I wrote:

Nearly all of the economists you see on TV and who hold all the advisory positions in government come from the Neoclassical tradition, a tradition that thinks economics is a science like physics or chemistry. These economists construct models and test them using data to determine ahistorical laws or tendencies in the economy. They often test numerous models going through each one of them until they finally find one that best fits the data and will make as many assumptions as needed for their mathematical models to work nicely even if that model doesn’t make any sense.

Many of you have probably heard of the law of supply and the law of demand which supposedly work together to set an equilibrium price at which point the market is efficient (the point at which there is no surplus or shortage). These laws of supply and demand are regarded much the same as the law of gravity, something that is always working, has more or less always existed, and that we cannot do anything about.

Because these economists treat economics like physics, they believe that the laws of supply and demand acting in this way will bring about the socially optimal outcome. Workers will be paid according to how hard they work or how much value they create, there won’t be any unemployment unless it is because those workers simply won’t work for a lower wage, and consumers and businesses will bring about the good for everyone with self-serving actions because the market coordinates economic activity in such a way to produce the best outcome. To make these bold statements, they require that markets are perfectly competitive and that human persons are perfectly rational, and by rational they mean self-serving maximizers of utility. They insist that this is free of values, that it is simply how persons behave and how the economy works and that if we tried to do anything about it, we would just make it worse.

Yet, these economists ignore or simply disregard the fact that economics is not a science like physics or chemistry, but is a social science concerned with what ought to be or with what is best for society. Economics is a social science studying the choices of persons and institutions regarding economic phenomena (such as the production, consumption, and distribution of goods and services). Because the subjects of the science of economics are human persons who are social and whose decisions are moral, the content of economics is inherently social and inherently moral. No explanation of economic phenomena can be totally free of value statements. For example, to say that the economy will work best if we just leave it alone is a moral statement often supporting those who have power in the market, like corporations and banks.

Furthermore, economics cannot be completely separated from other social sciences, such as psychology, sociology, politics, history, anthropology, and philosophy. Yet, economists from the neoclassical tradition largely ignore the findings from these sciences. For example, they largely disregard the findings in psychology and sociology about human behavior, particularly group behavior, and instead insist that we act rationally and selfishly so as to maximize utility. Greg Mankiw, a well-known professor of economics at Harvard and an economic advisor under the Bush administration, once said that it would be irrational for bank managers or owners not to commit fraud or loot their own banks to make more money. This sort of sociopathic person who acts in total disregard for others is taken as the model for how all people act and is often used as a justification for behavior that serves the pockets of the wealthy.

The point is that we are not subject to the so called laws of the economy nor are we stuck with the economic outcomes we are experiencing today. The economy is subject to us, we are not subject to it like we are subject to the law of gravity. We can manipulate it and change it to fit our desirable social outcomes. If we are unhappy with 9% unemployment, terrible and growing income inequality, a 15% poverty rate, corporations dominating government, and banks being bailed out while people lose their homes then we can and should do something to change that. That is what is so admirable about the Occupy movement. They have gathered for a cause recognizing that a good society is much better than this and are demanding change from our political leaders, and I urge you to do the same.

Back in Action

Sorry for the long hiatus. I hope to be back in action with regular posting for a while. I hope you all had a wonderful Christmas and have had a great start to your new year. Thanks for reading!