Showing posts with label money. Show all posts
Showing posts with label money. Show all posts

Tuesday, May 22, 2012

How Markets Crowd Out Morals

That's the name of the lead essay by Michael Sandel in the latest Boston Review. Excerpt:
This economistic view of virtue fuels the faith in markets and propels their reach into places they don’t belong. But the metaphor is misleading. Altruism, generosity, solidarity, and civic spirit are not like commodities that are depleted with use. They are more like muscles that grow stronger with exercise. One of the defects of a market-driven society is that it lets these virtues languish. To renew our public life we need to exercise them more strenuously.
I agree with Sandel, even I'm not completely sure about all of his applications. For instance, economists are in remarkable agreement, contrary to many people (like Sandel, apparently), that the selling of organs such as kidneys should be allowed. I'm not convinced that the economists are wrong on that particular issue. I am convinced, however, that the utilitarian view, in which the social good is determined by the sum total of individual subjective desires, is wrong. What's downright bizarre to me is the economist's conception of altruism and love as scarce goods.

The more libertarian I get, the more anti-market I become. That's because the market has come to be a "mere mechanism," as Sandel puts it in his criticism of the economist's view. As a mere mechanism, it then becomes a tool for technocrats to place themselves at the helm of society under the presumption that they can steer us toward economic salvation. Money is not the ultimate tool for determining behavior. Banks are not the salvation of the world. You would have thought 2008 had taught us that already.

What makes the market work, in the classical liberal conception to which I subscribe, is the fact that our morals guide us. This is the whole point of Hayek's The Fatal Conceit. If we were guided solely by instinct, we would be stuck in small hunter-gatherer societies with no grounds on which to cooperate with people outside our tribe. If we are guided solely by reason, however, we often presumptuously move to destroy the conventions and institutions which have made us successful as a species. Our morals act as a buffer between instinct and reason, guiding us through complex decisions for which our instincts are either inadequate or misleading, and for which our reason is incapable of finding a satisfactory justification even when we are making the right decision.

The market, in this view, emerged over time as a set of conventions and institutions which tend to enhance the thriving of human beings. But once we assume that the market is a product of our reason and can be given some a priori justification based on a utilitarian conception of ethics, then we tend to treat it as a system through which to organize all of society, thus "crowding out" our morals.

The way forward, in my opinion, is through what I would like to call (somewhat paradoxically) a critical respect for tradition. Our moral traditions, in particular, have made human flourishing possible. Unfortunately, we inherit these moral traditions as one big package, so to speak. When we unpack these traditions, we have to critically assess how they can fit together. Sometimes they can't, and we must abandon certain traditions altogether. Sometimes we will spend our entire lives trying to resolve our morals in ways that can't fit in any logically coherent way, but this doesn't always mean that we must choose one or the other. It is the critical struggle with our moral traditions that produces moral advances. The outright rejection of moral tradition, on the other hand, is pure folly. You can't start from nothing.

For example, there are certainly competing moral traditions which have a say in the question of selling organs as commodities. On the one hand, we have a traditional belief in the sanctity of human life, and sacred things can't simply be bought and sold. To offer up your own kidney to someone who needs it is indeed a noble sacrifice, and everyone should recognize it as such. On the other hand, there is a certain dignity to the reciprocity of a market transaction. One man needs a kidney (much) more than he needs $10,000, another man needs $10,000 more than he needs both kidneys; the trade benefits both parties. It seems to me that making such a transaction legal would not have an utterly corrosive effect on our morals. What if it saved lives? Can we really be so terribly upset by that?

On other particular examples, I mostly agree with Sandel. Should we really give each other cash presents as gifts? That seems crass, and probably for a good reason. We are not being "irrational" by attempting to put a little more thought into gift-giving than just writing a check. On the other hand, it is also quite superficial to search high and low for a "good gift" without ever truly getting to know your relatives. I'm sure Sandel understands that there are many other good reasons to be concerned with the excessive gift-giving every year at Christmas time. We have to weigh our various moral traditions, from the value of gift-giving to the dignity of simple living, from the beauty of grandiose celebrations to the virtue of thrift.

Sandel's major contribution to the discussion is not in the particulars, but rather in the general principle which he states so well: "our capacity for love and benevolence is enlarged with practice." I couldn't agree more. Aside from strange utilitarian assumptions made by economists, the real problem of modern society is the ease with which we are able to think only of ourselves. With as much affluence as we have, it is difficult to find in ourselves the desire and the discipline to make lasting commitments which are not reducible to mere transactions. Yet without such commitments, the human race would never have flourished as it has. Moreover, I'm not sure it's even possible to understand individual happiness as an idea completely independent of committed relationships. Relationships to one another give us identity, which in turn gives us meaning, which in turn gives us happiness, provided those relationships are healthy.

Of course, this makes us ask which commitments are good. Considering this is an article about the corrupting influence of money, I would have to say that governments stand out as particularly poor candidates for our allegiance. Is there any doubt that the coercive power of government is a magnet for political crony capitalists and special interests? Sandel cites an instance in which a small Swiss town was asked to host a nuclear waste site. I, for one, do not yearn for a world in which men's hearts swell with patriotic pride at the thought of storing nuclear waste for the sake of the greater good. In fact, I'm not sure I really sympathize with the Swiss townspeople for being more willing to cooperate under the condition of not receiving compensation. But perhaps the Swiss feel a greater sense of solidarity, given that they live in such a small country which has allowed itself to be relatively isolated from conflict. The United States is not such a country.

In my opinion, the commitments we ought to foster the most are those which we can see and know personally: our families, our friends, our neighbors in our communities, our colleagues, our churches, etc. I am very skeptical of people calling for commitments to large institutions such as our national government, except insofar as it is required to provide a basic social cohesion in which a variety of communities and institutions can flourish. It is pointless to love people in general and no one in particular. I think it is therefore misguided to put the interests of country before the interests of people you actually know. If your nation begins to trample the rights of your community, then loyalty to country is no longer a virtue.

Sandel doesn't really delve into politics per se, but I think he means to go there, and I'd be curious to hear what his political philosophy is. In any case, he has given us some important things to think about, and I look forward to seeing what kind of influence he has on the intellectual community. The economists, in particular, should have some interesting things to say.

Sunday, November 6, 2011

Jesus and the 1%

From the Gospel according to Luke:

"Blessed are you who are poor, for yours is the kingdom of God.
"Blessed are you who are hungry now, for you will be filled.
"Blessed are you who weep now, for you will laugh. ...
"But woe to you who are rich, for you have received your consolation.
"Woe to you who are full now, for you will be hungry.
"Woe to you who are laughing now, for you will mourn and weep. ...
"But I say to you that listen, Love your enemies, do good to those who hate you, bless those who curse you, pray for those who abuse you." (6:21-28)

...

"Which one of you, having a hundred hseep and losing one of them, does not leave the ninety-nine in the wilderness and go after the one that is lost until he finds it? When he has found it, he lays it on his shoulders and rejoices. And when he comes home, he calls together his friends and neighbors, saying to them, 'Rejoice with me, for I have found my sheep that was lost.' Just so, I tell you, there will be more joy in heaven over one sinner who repents than over ninety-nine righteous persons who need no repentance." (15:4-7)

...

"There is still one thing lacking. Sell all that you own and distribute the money to the poor, and you will have treasure in heaven; then come, follow me." But when he heard this, he became sad; for he was very rich. Jesus looked at him and said, "How hard it is for those who have wealth to enter the kingdom of God! Indeed, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God."

Those who heard it said, "Then who can be saved?" He replied, "What is impossible for mortals is possible for God." (18:22-27)

...

A man was there named Zacchaeus; he was a chief tax collector and was rich. He was trying to see who Jesus was, but on account of the crowd he could not, because he was short in stature. So he ran ahead and climbed a sycamore tree to see him, because he was going to pass that way. When Jesus came to the place, he looked up and said to him, "Zacchaeus, hurry and come down; for I must stay at your house today." So he hurried down and was happy to welcome him. All who saw it began to grumble and said, "He has gone to be the guest of one who is a sinner." Zacchaeus stood there and said to the Lord, "Look, half of my possessions, Lord, I will give to the poor; and if I have defrauded anyone of anything, I will pay back four times as much." Then Jesus said to him, "Today salvation has come to this house, because he too is a son of Abraham. For the Son of Man came to seek out and to save the lost."


In my opinion it is wise to let Jesus' words speak more than our own, but perhaps I should comment on what I see in these passages. Two observations. First, it is a fact that Jesus said that wealthy people are in real spiritual danger. Christians of a conservative persuasion should not be blithe about this. Note that Jesus doesn't proclaim the salvation has come to Zacchaeus on account of his personal statement of faith, but rather on account of his promised generosity to the poor and repentance from fraud. Greed might be normal, but that doesn't mean we are justified in growing callous towards it. Economic success has a very real dark side.

Second, Jesus did not come to start a crusade against the wealthy, nor did he give in to popular prejudice against tax collectors. Popular dislike of the wealthy is nothing new. Those who are not seen as paying their fair share to society are always treated as outsiders. But just as Jesus welcomes the prostitutes, he also welcomes the tax collectors. Christians on the left are unjustified in viewing the world in terms of class warfare. "Love your enemies," Jesus said. In fact, the ones who actually get accused in the gospels of loving money are the scribes and Pharisees, who make a show of how much they give charitably.

No matter who you are or what side you think you're on, Jesus has something challenging to say to you. It's just always a struggle to get ourselves to realize this.

Tuesday, July 19, 2011

A financial thought experiment

So let's say one year I take out a loan for $50,000. I agree to pay it all back in one year, with interest. Only problem is, by the end of the year, I don't have enough money to pay it off. Let's say I still owe the full $50,000, plus, I don't know, 10% interest; so that's $55,000.

I decide I'll just take out another loan to pay off my debt. Only I start to get clever. I take out a loan for $110,000, and agree to pay it all back by the end of the year, again with 10% interest. I take half of it and pay off the $55,000 I owe. Then for the next year I live on my $55,000 which I have left over. By the end of the year, I owe $110,000 plus 10%, or $121,000.

Perhaps you already know what comes next. I take out a loan for $242,000. Half of it pays off the debt I owe, and half of it pays for what by now is a pretty sweet apartment. By the end of the year, I owe around $266,000. So then I take out a new loan for $532,000, and the next year a loan for about $1.2 million, the next year about $2.6 million, and so on.

Each year, not only am I getting rid of all my past debt, I'm actually getting richer. Twice as rich, as you can see. And I'm not even doing any work. Seriously. I'm living like a king on someone else's money, and I don't even have to produce anything.

The thought experiment assumes that there is no limit on the size of the loan for which I can get approved. It does not assume, however, that interest rates have to be reasonable; it doesn't matter whether I'm paying 10% or 50% at the end of the year. All that matters is that each year I can take out a new loan to pay for past debt and give me something to live on for the next year. If I don't want to be so greedy, I can just keep living on $50,000 a year (for instance); the amount I have to borrow each year will still increase, just not so dramatically.

Question: what's wrong with this? In the real world, I'd never get approved, blah blah blah. But let's just think about it in the abstract. Assume I can always get approved for another loan for as high an amount as I need. What's wrong with this scheme? Each lender I deal with is actually making money off me through interest, so he should have nothing to complain about. I may not be producing anything tangible, but I must be doing something right if I'm happy and people are making money off of me. Right?

Oh, well, I did forget one little thing. Eventually I'm dead. And then the last lender who gave me money won't ever get his money back, unless of course my children after me are able to give it to him. But that's not my problem, right? I mean, after I'm dead, I don't have to worry about money any more.

And maybe I can actually avoid that, anyway. Instead of just spending all the money I borrow each year, I'll actually invest some of it. Putting it in the bank would obviously not get me interest fast enough to keep up with my exponentially increasing loans. So I'll invest in the stock market. Who knows? Maybe I'll get lucky enough on the stock market that my investment will outgrow my debt, and when I'm ready to retire from my life of doing nothing but push money around, I'll be able to pay off all my debt entirely and still have a nice little nest egg so I can spend the rest of my days in peace.

So what's wrong with this? Accepting the assumption that I can always get that new loan, is there anything to be said against this scheme?

Other than, you know, morals and everything. But you know, in the long run we're all dead, anyway.

Addendum: Note well that this thought experiment could easily be modified to say that, instead of looking for larger and larger loans, I'll just look for more and more loans, that is, I'll spread the amount over more and more lenders. The scheme would last as long as I could find enough lenders out there to make it work.