Transcript Document

Religion, Politics, Biology, and Economics:
The Struggle of Reason with Emotion
December 2, 2010
copies of this presentation can be found at
www.antonydavies.org
1
Source of the Struggle
 Pride and prejudice
Pride
• Economic truths are opinion (relativism).
• Inability or unwillingness to admit limitations (hubris).
Prejudice
• Humans who work in private industry are greedy.
• Humans who work in public sector are altruistic.
2
How to Avoid the Struggle
 Think in terms of first principles.
First principles are not derived from other truths. They are…
• Either assumed to be true, or
• Are so self-evident as to be beyond dispute.
When thinking about economic and policy issues…
• Begin at first principles, not at outcomes, or
• End up espousing contradictory or inconsistent views.
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Example: First Principles
Debate:
We must help the poor by imposing a minimum wage.
We must help employers by removing the minimum wage.
Debate:
The rights to life and property are natural rights.
The rights to life and property are not natural rights.
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First Principles
The rights to life and property are natural rights.
Others may not take your life.
Others may not prevent you from using your property.
Others may not prevent you from selling your labor.
Others may not prevent you from paying for labor.
We should not have a minimum wage.
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Unintended Consequences
If it is true that:
the rights to life and property are natural rights,
then government policies that are inconsistent with this
truth will yield unintended consequences.
 Bad things will happen that we didn’t intend to happen.
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Unintended Consequences
• Requiring car makers to install airbags and seatbelts has
little effect on traffic fatalities.
• Requiring small children traveling in airplanes to be in car
seats increases child travel fatalities.
• Requiring ethanol in gasoline is bad for the environment.
• Promoting electric vehicles makes us more dependent on
foreign countries.
• Banning the trade in ivory reduces elephant populations.
• Raising the minimum wage reduces the income of the
poor.
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Elephant Population
Banned Ivory Trade
1989
1994
Mozambique
17,000
1,495
Somalia
2,000
130
Zimbabwe
52,000
81,855
Botswana
20,000
80,174
Did not Ban Ivory Trade
Source: McPherson, M.A. and M.L. Nieswiadomy, 2000. African Elephants: The Effect of Property Rights and
Political Stability. Contemporary Economic Policy.
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What are the first principles?
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First Principle of Catholic Social Thought
Human Dignity
People are created in God’s
image and likeness.
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Derived Principles of Catholic Social Thought
Human Dignity
People are created in God’s
image and likeness.
Solidarity
People have the responsibility to help each other live
in a manner consonant with human dignity.
Common Good
People have the responsibility to pursue conditions
that allow others to share in and respond to human
dignity more fully and more easily.
Subsidiarity
Responsibilities that lesser and subordinate
organizations can accomplish should not be assigned
to greater and higher associations.
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First Principles of Classical Liberalism
Self-Ownership
People own their own lives.
Human Motivation
People are self-interested and
have differing preferences.
Human Condition
People are volitional and
capable of rational thought.
Human Limitations
People are neither omnipotent
nor omniscient.
Equality
Principles apply to all people
equally.
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CST Subsumes Classical Liberalism
Human Dignity
People are created in God’s
image and likeness.
Solidarity
People have the responsibility to help each other live
in a manner consonant with human dignity.
Common Good
People have the responsibility to pursue conditions
that allow others to share in and respond to human
dignity more fully and more easily.
Subsidiarity
Responsibilities that lesser and subordinate
organizations can accomplish should not be assigned
to greater and higher associations.
Self-Ownership
People own their own lives.
Human Motivation
People are self-interested and
have differing preferences.
Human Condition
People are volitional and
capable of rational thought.
Human Limitations
People are neither omnipotent
nor omniscient.
Equality
Principles apply to all people
equally.
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Guide to the Relationship of Church and State
Human Dignity
People are created in God’s
image and likeness.
Solidarity
People have the responsibility to help each other live
in a manner consonant with human dignity.
Common Good
People have the responsibility to pursue conditions
that allow others to share in and respond to human
dignity more fully and more easily.
Subsidiarity
Responsibilities that lesser and subordinate
organizations can accomplish should not be assigned
to greater and higher associations.
How we should exercise our free wills.
Limits on
our free
wills.
Self-Ownership
People own their own lives.
Human Motivation
People are self-interested and
have differing preferences.
Human Condition
People are volitional and
capable of rational thought.
Human Limitations
People are neither omnipotent
nor omniscient.
Equality
Principles apply to all people
equally.
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Failure to begin with first principles can lead to false
assumptions.
Markets-As-Exploitation Assumption
Markets lead to a centralization of political and economic
power, decreased competition, and the concentration of
wealth.
Markets-As-Empowerment Assumption
Markets lead to a decentralization of political and economic
power, increased competition, and the dissemination of
wealth.
15
Globalization and Income
Market-As-Exploitation Claim
• Globalization results in a transfer of income from the less
wealthy to the more wealthy countries.
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$40,000
Greater per-capita trade is associated with greater per-capita income.
$35,000
Per-capita Trade (US$)
$30,000
R2 = 0.56
$25,000
$20,000
$15,000
$10,000
$5,000
$0
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
Per-capita Income (US$)
Source: International Financial Statistics, International Monetary Fund, December 2001
17
Globalization and Income
Market-As-Exploitation Claim
• Globalization results in a transfer of income from the less
wealthy to the more wealthy countries.
Reality
• Globalization results higher incomes for rich and for poor
countries.
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Globalization and Exploitation
Market-As-Exploitation Claim
• Globalization results in an increased exploitation.
19
Per-capita Trade (US$, logarithmic scale)
$100,000
GDI measures quality of life (longevity,
education, literacy, income) for women
relative to men.
$10,000
Greater per-capita trade is associated
with
R2 = 0.80
greater gender equality.
$1,000
$100
$10
$1
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Gender Related Development Index (0 = low gender adjusted HDI, 1 = high gender
adjusted HDI)
Source: International Financial Statistics, International Monetary Fund, December 2001, and Human Development Report, United Nations Development
Programme, 2002
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$100,000
Per-capita Trade (US$, logarithmic scale)
Greater per-capita trade is associated with reduced child labor.
$10,000
$1,000
R2 = 0.54
$100
$10
$1
0
10
20
30
40
50
Children 10 to 14 in the Labor Force (as % of age group)
Source: International Financial Statistics, International Monetary Fund, December 2001, and World Development Indicators, World Bank, 2002
21
Per-capita Trade (US$, logarithmic scale)
$10,000
$1,000
$100
$10
Even among middle-lower and lower income countries, greater per-capita
trade is associated with reduced child labor.
$1
0
10
20
30
40
50
60
Children 10 to 14 in the Labor Force (as % of age group)
Source: International Financial Statistics, International Monetary Fund, December 2001, and World Development Indicators, World Bank, 2002
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Globalization and Exploitation
Market-As-Exploitation Claim
• Globalization results in an increased exploitation.
Reality
• Globalization results in higher gender equality and reduced
child labor.
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Globalization and Unemployment
Market-As-Exploitation Claim
• Globalization results in increased unemployment and lower
wages.
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January 1975 to June 2006
12%
Greater per-capita trade is associated with reduced unemployment.
Unemployment Rate
10%
8%
6%
4%
2%
0%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
Trade (imports plus exports) as % of GDP
Source: Bureau of Labor Statistics, and Bureau of Economic Analysis
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January 1975 to June 2006
Average Real Hourly Earnings (2000$)
$15.00
Greater per-capita trade is associated with increased real wages.
$14.50
$14.00
$13.50
$13.00
$12.50
$12.00
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
Trade (imports plus exports) as % of GDP
Source: Bureau of Labor Statistics, and Bureau of Economic Analysis
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Globalization and Unemployment
Market-As-Exploitation Claim
• Globalization results in increased unemployment and lower
wages.
Reality
• Globalization results in reduced unemployment and higher
wages.
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Markets and the Income Gap
Market-As-Exploitation Claim
• As markets grow, the rich get richer while the poor get
poorer.
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% of Households in Each Income Bracket (2006$)
Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.
29
% of Households in Each Income Bracket (2006$)
Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.
30
% of Households in Each Income Bracket (2006$)
Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.
31
Markets and the Income Gap
Market-As-Exploitation Claim
• As markets grow, the rich get richer while the poor get
poorer.
Reality
• As markets grow, the rich get richer and the poor get richer.
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Markets, Wages, and the Poor
Market-As-Exploitation Claim
• Minimum wage (or “living wage”) protects the working poor.
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College Education (1978-2008)
4.0%
3.5%
Unemployment Rate
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
0.3
0.32
0.34
0.36
0.38
0.4
0.42
0.44
0.46
Minimum Wage as Fraction of Average Hourly Wage
Source: Statistical Abstract of the United States, and Bureau of Labor Statistics
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HS Education (1978-2008)
12.0%
Unemployment Rate
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
0.3
0.32
0.34
0.36
0.38
0.4
0.42
0.44
0.46
Minimum Wage as Fraction of Average Hourly Wage
Source: Statistical Abstract of the United States, and Bureau of Labor Statistics
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Less than HS Education (1978-2008)
20.0%
18.0%
Unemployment Rate
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
0.3
0.32
0.34
0.36
0.38
0.4
0.42
0.44
0.46
Minimum Wage as Fraction of Average Hourly Wage
Source: Statistical Abstract of the United States, and Bureau of Labor Statistics
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Markets, Wages, and the Poor
Market-As-Exploitation Claim
• Minimum wage (or “living wage”) protects the working poor.
Reality
• Minimum wage (or “living wage”) hurts the lesser educated
and the lesser skilled.
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Conventional Wisdom versus the Data
In addition to reasoning from flawed premises, many people
simply believe things that are untrue.
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Conventional Wisdom
The Federal government has a deficit problem.
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$1,600
The Federal deficit has been rising at three times the rate of inflation.
$1,400
$1,200
Federal Deficit (billions 2009$)
$1,000
$800
$600
$400
$200
-$200
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$0
-$400
-$600
Source: Bureau of Economic Analysis
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$12,000
Although Federal revenues per person have been growing faster than
inflation, Federal spending per person has been rising faster than that.
Federal Deficit per Person (2009$)
$10,000
Federal spending per person (2009$)
$8,000
$6,000
Federal revenue per person (2009$)
$4,000
$2,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$0
Source: Bureau of Economic Analysis
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Conventional Wisdom
The Federal government has a deficit problem.
Data
The Federal government has a spending problem.
42
Conventional Wisdom
The government needs to raise taxes to balance the budget.
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90%
75%
60%
45%
30%
15%
Since 1969, the top income tax bracket has ranged from a
high of 77% to a low of 28%.
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
0%
Top Marginal Income Tax Rate
Source: Bureau of Labor Statistics, National Taxpayers Union
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80%
70%
60%
50%
40%
30%
20%
10%
But, over that same period, Federal tax revenue has averaged a constant
18% of GDP (plus/minus 2.3%).
Federal Tax Revenue as % of GDP
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
0%
Top Marginal Income Tax Rate
Source: Bureau of Labor Statistics, National Taxpayers Union
45
Conventional Wisdom
The government needs to raise taxes to balance the budget.
Data
Regardless of tax rates, the government collects tax revenue
that is a fixed 18% of GDP.
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Conventional Wisdom
We need stimulus spending to jump-start the economy.
47
A 1% increase in the size of the Federal government reduces
per-capita GDP by $4,000 (in 2008 dollars).
Source: U.S. Census Bureau
48
Conventional Wisdom
We need stimulus spending to jump-start the economy.
Data
Stimulus spending causes the economy to contract.
49
Conventional Wisdom
Corporations spend a lot of money lobbying Congress.
50
Millions
Top Donors to Political Candidates and Parties (1989-2009)
$600
$500
Labor unions have given twice as
much money to politicians as the
Telecommunications, Insurance,
Tobacco, Pharmaceuticals, and
Real Estate industries combined.
$400
$300
$200
$100
$0
Source: www.opensecrets.org
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Millions
Top Donors to Political Candidates and Parties (1989-2009)
$600
$500
Labor unions and lawyers give more than
90% of their donations to Democrats.
$400
$300
The investment, telecommunications,
insurance, and real estate industries split their
donations evenly between the two parties.
$200
Tobacco, pharmaceuticals, and oil give
75% of their donations to Republicans.
$100
$0
Donations to Democrats
Donations to Republicans
Source: www.opensecrets.org
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Conventional Wisdom
Corporations spend a lot of money lobbying Congress.
Data
Labor unions significantly outspend corporations.
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Conventional Wisdom
Something is wrong about the rising cost of health care.
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400.0
350.0
The price of medical care has increased 350% since
1980 versus 135% for other consumer prices.
300.0
250.0
200.0
150.0
100.0
50.0
Price of Medical Care
2006
2003
2004
2005
2001
2002
1998
1999
2000
1996
1997
1993
1994
1995
1991
1992
1988
1989
1990
1986
1987
1983
1984
1985
1981
1982
1980
0.0
Consumer Prices Excluding Medical Care
Source: Bureau of Labor Statistics (www.economy.com)
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Millions
2.9
2.7
2.5
If we had the same mortality rates today that we had
in 1960, 400,000 more people would die each year.
These 400,000 lives (annually) is what the higher
cost of health care buys.
2.3
400,000 lives saved annually
2.1
1.9
1.7
Actual Deaths in the Current Year
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1960
1.5
Deaths at the 1960 Mortality Rate
Source: Derived from Statistical Abstract of the United States, and the Bureau of Economic Analysis.
56
Conventional Wisdom
Something is wrong about the rising cost of health care.
Data
The rising cost of health care is the price we pay for living
ever longer lives.
57
Conventional Wisdom
Many people are uninsured.
58
Uninsured (15% of the population)
Insured
Source: Bureau of Labor Statistics, Census Bureau
59
Uninsured (12% of the population)
Medicaid or
SCHIP Eligible
Claim to be
Uninsured but
Aren't
Insured
Source: Bureau of Labor Statistics, Census Bureau
60
Uninsured Less
Than 4 Months
18 to 34 and
Childless
Uninsured (4% of the population)
Medicaid or
SCHIP Eligible
Claim to be
Uninsured but
Aren't
If we count one-third of this group, the uninsured
are between 6% and 8% of the population
depending on whether or not we count this group.
Insured
Source: Bureau of Labor Statistics, Census Bureau
61
Conventional Wisdom
Many people are uninsured.
Data
Some people are uninsured, but not nearly as many as people
claim.
62
How to Think Constructively
• When thinking about economic policy, start from first
principles and let the principles guide you to conclusions.
• Avoid making assumptions about “the way the world
works”.
• Avoid accepting statement of facts without recourse to
data.
63
Religion, Politics, Biology, and Economics:
The Struggle of Reason with Emotion
December 2, 2010
copies of this presentation can be found at
www.antonydavies.org
64