Serving God and Mammon...

OpinionJournal has an interesting column about religion and capitalism. It's written by an economist who feels that the liberarian "greed is good" mentality is not compatible with Christianity, and that the free market should be tempered by frugality and charity.

As a Catholic, though not a terribly good one, the whole religion/free market thing is one of my biggest issues with the Catholic church (that, and birth control). The Catholic church has always been anti-business - it used to consider charging intrest on loans to be a sin, and one of the question that St. Thomas Aquinas grapples with in the Summa Theologica is if it is moral to sell something for more than it is worth (an economist would argue that you can never sell anything for more than it's worth, because the definition of what it's worth is what someone is willing to pay for it - it is the amount that someone is willing to pay for an item that determins it's value). More recently, the Church has backed communism and communist revolutions, advocated "weath redistribution" and otherwise been very hostile to capitalism and free markets.

I have no problem with the charity and thrift that the author advocates - if people want to give away their money rather than spend it, that's their right. I don't think such an action is inconsistant with a free market - people derive pleasure from charitable donations, from the warm fuzzy feeling they get from helping people, from gaining a reputation as a generous person, and from the belief that it will gain them salvation. Thus it is a rational decision on their part.

So Ms. McCloskey is welcome to advocate that thrift and charity can and are good things. But I think she gives too little credit to greed and the free market. This is the paragraph that I find troubling:

noneconomist is inclined to reply that, after all, the diamond bauble and the palaces and the $300 meal at Charlie Trotter's "put people to work," people like construction workers or diamond cutters or three-star cooks. This is exactly what's wrong with the paradox of thrift. Smith does not make the mistaken supposition that the social problem is to find tasks for people to do who otherwise would be idle. Noneconomists, I repeat, think that economics is about "keeping the money circulating." And so they are impressed by the claim by the owner of the local sports franchises that using tax dollars to build a new stadium will "generate" local sales and "create" new jobs. The vocabulary of generating and creating jobs out of unthrifty behavior sounds to noneconomists tough and prudential and quantitative. It is not. It is mistaken. The reply Smith would give to the noneconomist is that the diamond workers would not be idle if "thrown out" of work in the bauble-factory. They would in the long run find alternative employment, such as in growing oats for oatmeal or making thatched roofs for peasant houses. And in the short run we are all looking for the next thing to do anyway.

Well, I don't know too many true free market economists who advocate public funding of sports stadiums - it's redistribution of wealth to inefficient uses at it's worst, and thus I think it's a straw man. But I don't think people spending money on jewels or fancy meals is bad (although I would rather have a big screen TV and a Corvette). It's efficient - it is people deciding what they value most in their lives and using it for those things. She says that those things aren't good uses of money - she makes a comment that the jewel is just going to collect dust anyway - but this thinking means getting rid of one of the primary assumptions of economics - that people are inherently rational. By her reasoning, spending money on jewels is wasteful and foolish, but by most ecomomist's measure, it's rational, or it wouldn't occur at all.

Ms. McCloskey is dismissive of Keynes' "paradox of thrift" - that saving is bad because it takes money out of the economy - and I would agree. "saved" money is usually put either into banks, which allow people to buy things like houses, or into stocks and bonds, which allow people to fund business expansions. It's money being moved to it's best use.

But McCloskey also dismisses trickle-down, and I think that's a mistake. The jeweler or chef employed by the rich man's purchase can now afford to buy the oats or live in the peasant's cottage that someone else can now build, and everyone is better off.

As I said, I have no beef with charity. But when people start declaring that certain things are wasteful, that they drag on the economy, the next step is usually government restrictions - attempts to redistribute the wealth by force. While Ms. McCloskey never advocates it, it's the only way to obtain the virtuousness that she finds so ideal - by force.

I've probably butchered a ton of economics in this blog post - Ms. McCloskey has written 20 books and is a U Chicago economist, and I'm a tech support drone who took a couple econ classes in college - but I really don't think some of her points are accurate.