1 religion, politics, biology, and economics: the struggle of reason with emotion december 2, 2010...
TRANSCRIPT
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Religion, Politics, Biology, and Economics:
The Struggle of Reason with Emotion
December 2, 2010
copies of this presentation can be found atwww.antonydavies.org
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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.
Source of the Struggle
Pride and prejudice
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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.
F A I L
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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Banned Ivory Trade 1989 1994
Mozambique 17,000 1,495
Somalia 2,000 130
Did not Ban Ivory Trade
Zimbabwe 52,000 81,855
Botswana 20,000 80,174
Source: McPherson, M.A. and M.L. Nieswiadomy, 2000. African Elephants: The Effect of Property Rights and Political Stability. Contemporary Economic Policy.
Elephant Population
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What are the first principles?
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First Principle of Catholic Social ThoughtHuman DignityPeople are created in God’s
image and likeness.
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Derived Principles of Catholic Social Thought
SolidarityPeople 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.
SubsidiarityResponsibilities that lesser and subordinate
organizations can accomplish should not be assigned to greater and higher associations.
Human DignityPeople are created in God’s
image and likeness.
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First Principles of Classical Liberalism
Human MotivationPeople are self-interested
and have differing preferences.
EqualityPrinciples apply to all
people equally.
Self-OwnershipPeople own their own lives.
Human ConditionPeople are volitional and
capable of rational thought.
Human LimitationsPeople are neither
omnipotent nor omniscient.
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CST Subsumes Classical Liberalism
SolidarityPeople have the responsibility to help each other live in a manner consonant with human dignity.
Common GoodPeople have the responsibility to pursue conditions that allow others to share in and respond to human dignity more fully and more easily.
SubsidiarityResponsibilities that lesser and subordinate organizations can accomplish should not be assigned to greater and higher associations.
Human MotivationPeople are self-interested
and have differing preferences.
EqualityPrinciples apply to all
people equally.
Self-OwnershipPeople own their own lives.
Human ConditionPeople are volitional and
capable of rational thought.
Human LimitationsPeople are neither
omnipotent nor omniscient.
Human DignityPeople are created in God’s
image and likeness.
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Guide to the Relationship of Church and State
SolidarityPeople have the responsibility to help each other live in a manner consonant with human dignity.
Common GoodPeople have the responsibility to pursue conditions that allow others to share in and respond to human dignity more fully and more easily.
SubsidiarityResponsibilities that lesser and subordinate organizations can accomplish should not be assigned to greater and higher associations.
Human MotivationPeople are self-interested and have differing preferences.
EqualityPrinciples apply to all people equally.
Self-OwnershipPeople own their own lives.
Human ConditionPeople are volitional and capable of rational thought.
Human LimitationsPeople are neither omnipotent nor omniscient.
Human DignityPeople are created in God’s
image and likeness.
How we should exercise our free wills.
Limits on our free wills.
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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.
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Globalization and Income
Market-As-Exploitation Claim
•Globalization results in a transfer of income from the less wealthy to the more wealthy countries.
17
R2 = 0.56
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000
Per-capita Income (US$)
Per
-cap
ita
Tra
de
(US
$)
Source: International Financial Statistics, International Monetary Fund, December 2001
Greater per-capita trade is associated with greater per-capita income.
18
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.
19
Globalization and Exploitation
Market-As-Exploitation Claim
•Globalization results in an increased exploitation.
20
R2 = 0.80
$1
$10
$100
$1,000
$10,000
$100,000
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00
Gender Related Development Index (0 = low gender adjusted HDI, 1 = high gender adjusted HDI)
Pe
r-c
ap
ita
Tra
de
(U
S$
, lo
ga
rith
mic
sc
ale
)
Source: International Financial Statistics, International Monetary Fund, December 2001, and Human Development Report, United Nations Development Programme, 2002
GDI measures quality of life (longevity, education, literacy, income) for women relative to men.
Greater per-capita trade is associated with greater gender equality.
21
R2 = 0.54
$1
$10
$100
$1,000
$10,000
$100,000
0 10 20 30 40 50
Children 10 to 14 in the Labor Force (as % of age group)
Per
-cap
ita
Tra
de
(US
$, l
og
arit
hm
ic s
cale
)
Source: International Financial Statistics, International Monetary Fund, December 2001, and World Development Indicators, World Bank, 2002
Greater per-capita trade is associated with reduced child labor.
22
Source: International Financial Statistics, International Monetary Fund, December 2001, and World Development Indicators, World Bank, 2002
$1
$10
$100
$1,000
$10,000
0 10 20 30 40 50 60
Children 10 to 14 in the Labor Force (as % of age group)
Per
-cap
ita
Trad
e (U
S$,
lo
gar
ith
mic
sca
le)
Even among middle-lower and lower income countries, greater per-capita trade is associated with reduced child labor.
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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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Source: Bureau of Labor Statistics, and Bureau of Economic Analysis
January 1975 to June 2006
0%
2%
4%
6%
8%
10%
12%
12% 14% 16% 18% 20% 22% 24% 26% 28% 30%
Trade (imports plus exports) as % of GDP
Un
emp
loym
ent
Rat
e
Greater per-capita trade is associated with reduced unemployment.
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January 1975 to June 2006
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
12% 14% 16% 18% 20% 22% 24% 26% 28% 30%
Trade (imports plus exports) as % of GDP
Av
era
ge
Re
al H
ou
rly
Ea
rnin
gs
(2
00
0$
)
Source: Bureau of Labor Statistics, and Bureau of Economic Analysis
Greater per-capita trade is associated with increased real wages.
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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.
29
Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.
% of Households in Each Income Bracket (2006$)
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% of Households in Each Income Bracket (2006$)
Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.
31
% of Households in Each Income Bracket (2006$)
Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.
32
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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0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0.3 0.32 0.34 0.36 0.38 0.4 0.42 0.44 0.46
Une
mpl
oym
ent R
ate
Minimum Wage as Fraction of Average Hourly Wage
College Education (1978-2008)
Source: Statistical Abstract of the United States, and Bureau of Labor Statistics
35
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0.3 0.32 0.34 0.36 0.38 0.4 0.42 0.44 0.46
Une
mpl
oym
ent R
ate
Minimum Wage as Fraction of Average Hourly Wage
HS Education (1978-2008)
Source: Statistical Abstract of the United States, and Bureau of Labor Statistics
36
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0.3 0.32 0.34 0.36 0.38 0.4 0.42 0.44 0.46
Une
mpl
oym
ent R
ate
Minimum Wage as Fraction of Average Hourly Wage
Less than HS Education (1978-2008)
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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-$600
-$400
-$200
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Fede
ral D
efici
t (bi
llion
s 20
09$)
Source: Bureau of Economic Analysis
The Federal deficit has been rising at three times the rate of inflation.
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$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Fede
ral D
efici
t per
Per
son
(200
9$)
Source: Bureau of Economic Analysis
Although Federal revenues per person have been growing faster than inflation, Federal spending per person has been rising faster than that.
Federal spending per person (2009$)
Federal revenue per person (2009$)
42
Conventional Wisdom
The Federal government has a deficit problem.
Data
The Federal government has a spending problem.
43
Conventional Wisdom
The government needs to raise taxes to balance the budget.
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0%
15%
30%
45%
60%
75%
90%
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Top Marginal Income Tax Rate
Since 1969, the top income tax bracket has ranged from a high of 77% to a low of 28%.
Source: Bureau of Labor Statistics, National Taxpayers Union
45
0%
10%
20%
30%
40%
50%
60%
70%
80%
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Federal Tax Revenue as % of GDP Top Marginal Income Tax Rate
But, over that same period, Federal tax revenue has averaged a constant 18% of GDP (plus/minus 2.3%).
Source: Bureau of Labor Statistics, National Taxpayers Union
46
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.
47
Conventional Wisdom
We need stimulus spending to jump-start the economy.
48
Source: U.S. Census Bureau
A 1% increase in the size of the Federal government reduces per-capita GDP by $4,000 (in 2008 dollars).
49
Conventional Wisdom
We need stimulus spending to jump-start the economy.
Data
Stimulus spending causes the economy to contract.
50
Conventional Wisdom
Corporations spend a lot of money lobbying Congress.
51
$0
$100
$200
$300
$400
$500
$600
Mill
ions
Top Donors to Political Candidates and Parties (1989-2009)
Source: www.opensecrets.org
Labor unions have given twice as much money to politicians as the Telecommunications, Insurance, Tobacco, Pharmaceuticals, and Real Estate industries combined.
52
$0
$100
$200
$300
$400
$500
$600
Mill
ions
Top Donors to Political Candidates and Parties (1989-2009)
Donations to Democrats Donations to Republicans
Source: www.opensecrets.org
Labor unions and lawyers give more than 90% of their donations to Democrats.
Tobacco, pharmaceuticals, and oil give 75% of their donations to Republicans.
The investment, telecommunications, insurance, and real estate industries split their donations evenly between the two parties.
53
Conventional Wisdom
Corporations spend a lot of money lobbying Congress.
Data
Labor unions significantly outspend corporations.
54
Conventional Wisdom
Something is wrong about the rising cost of health care.
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0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
19
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
06
Price of Medical Care Consumer Prices Excluding Medical Care
Source: Bureau of Labor Statistics (www.economy.com)
The price of medical care has increased 350% since 1980 versus 135% for other consumer prices.
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1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
1960
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Mill
ions
Actual Deaths in the Current Year Deaths at the 1960 Mortality Rate
Source: Derived from Statistical Abstract of the United States, and the Bureau of Economic Analysis.
400,000 lives saved annually
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.
57
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.
58
Conventional Wisdom
Many people are uninsured.
59
Source: Bureau of Labor Statistics, Census Bureau
Insured
Uninsured (15% of the population)
60
Insured
Claim to be Uninsured but
Aren't
Medicaid or SCHIP Eligible
Uninsured (12% of the population)
Source: Bureau of Labor Statistics, Census Bureau
61
Insured
Claim to be Uninsured but
Aren't
Medicaid or SCHIP Eligible
Uninsured Less Than 4 Months
18 to 34 and Childless
Uninsured (4% of the population)
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.
Source: Bureau of Labor Statistics, Census Bureau
62
Conventional Wisdom
Many people are uninsured.
Data
Some people are uninsured, but not nearly as many as people claim.
63
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.
64
Religion, Politics, Biology, and Economics:
The Struggle of Reason with Emotion
December 2, 2010
copies of this presentation can be found atwww.antonydavies.org