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The Economics of Loving Your Neighbor. Princeton University, Pace Center March 6, 2006 John D. Mueller Director, Economics and Ethics Program Ethics and Public Policy Center President, LBMC LLC Washington, DC. What is Economics About ?. What do people do all day*?
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The Economics of Loving Your Neighbor Princeton University, Pace Center March 6, 2006 John D. Mueller Director, Economics and Ethics Program Ethics and Public Policy Center President, LBMC LLC Washington, DC
What is Economics About? What do people do all day*? • “Marrying and giving in marriage”: distributing • “Eating and drinking”: using (consuming) • “Planting and building”: producing • “Buying and selling”: exchanging *Luke 18: 27-28
A Brief, Remedial History of Economics Economics has been taught continuously at highest university level since 13th Century: • Scholastic (AAA*) Economics: 1250-1776 • Classical Economic: 1776-1870 • Neoclassical Economics: 1870-c. 2000 • Neoscholastic: c.2000- ? * Aristotle and Augustine, integrated by Aquinas
Augustine’s Description of Gifts and Crimes 1. All persons are motivated by love for some person(s). 2. Love means willing some good to some person (Aristotle). 3. We express our preferences for persons (e.g., love) by distributing our goods between ourselves and others. Outer Acts toward Kind of loveInner ActSelfOthers Ordinate Benevolence Utility Beneficence (Gifts) Inordinate Malevolence Vice Maleficence (Crime)
Selfishness (assumed by Adam Smith and neoclassical economics) Gifts (express love) Crimes (express hate)
What does it mean to “love your neighbor as yourself”? Since we naturally love ourselves, the purpose of the Two Great Commandments is to make our loves “ordinate” What asyourself means depends on whether the good is “diminished by being shared,” i.e., scarce (Augustine) If good is abundant, we can and must share it equally If the good is scarce, that’s impossible: loving your neighbor asyourself cannot always mean with equallywith yourself “Since you cannot do good to all, you are to pay special regard to those who…are brought into closer connection with you” (De doctrina christiana 1,28)
Distributive Justice • Analog to personal gifts for common goods: both are “transfer payments,” determined by “geometric ratio,” practically limited by scarcity (failure of communism) • Violated by political faction (James Madison) • A faction’s ideology creates a “fictitious world” (Hannah Arendt) • Collectivists tend to reduce justice to distributive justice (as if all goods were common) • Individualists tend to reduce justice to justice in exchange (as if all goods were personal)
Justice in Exchange • Product’s value (e.g., computer) = producers’ income (labor and property compensation) • Violated by disequilibrium: general inequality of supply and demand: e.g., unemployment, inflation/deflation • Unemployment a function of labor’s after-tax, after-transfer share of total income (Rueff’s Law) • Inflation/deflation: imbalance between demand for money and money supply
Basic Principles of Successful (and Popular) Economic Policy • General government should be funded by taxing labor and property income equally • Transfers to persons (e.g., Social Security) financed by taxes on labor income; transfers to property owners (e.g., tax-free savings accounts) by taxes on property income • Borrow only to fund government-owned investments • Don’t finance government by creating money
How both parties violate the basic principles • Both fund general government with Social Security surplus (labor income): Democrats to keep spending high, Republicans to dole out tax breaks, for constituents. • Both rely on funding government with foreign dollar reserves, causing commodity inflation, chronic budget and trade deficits. • Republicans want to shift tax burden for general government from all income to only labor income (e.g., tax-free savings) • Democrats want to subsidize Social Security (benefits for workers) with income tax and/or taxes on property income.
