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Is God a Macro- or Micro- Economist?

When You Lose Something You Do... Ricardo Reis on price level ta...

by G. Patrick Lynch

In an essay published in 1978 the late economist Paul Heyne grappled with the place of ethics in economics. Long before scholars such as Deirdre McCloskey had taken it upon themselves to try and awaken the economics profession to the colorless and barren depiction of human life they were presenting and in some ways promoting, Heyne noted that "Economists are accused of doing economics on the basis of analytical preconceptions that cause them to count as solutions what their critics perceive as problems that prevent them from even seeing certain social relationships as in any sense problematic." (from "Economics and Ethics: The Problem of Dialogue," in Are Economists Basically Immoral? Available in the Online Library of Liberty.)

Perhaps no recent critic has taken the economics profession to task quite as publicly as Pope Francis in his recent encyclical "Laudato Si," which received a lot of attention from journalists, environmentalists and social justice advocates when it was published last year. In this week's edition of EconTalk, host Russ Roberts and Wake Forest economist Robert Whaples discuss the Pope's work with more sophistication and care than the average economist, but one can still wonder whether members of the economics profession can ever fully divorce themselves from the perspective of utility maximization, a topic they discuss during the podcast.

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The key question raised, from my perspective, is one that Roberts himself addresses - do markets encourage human flourishing or inhibit it? As he acknowledges at one point, the tendency of economists to marvel at the ability of the unplanned coordination of markets to create wealth and, undoubtedly, enhance material well-being is pretty clear. One doesn't have to compare North Korea to Singapore to understand that fact. But where Roberts is perhaps letting his inner economist get carried away is when he describes the Pope's view of the workings of markets as "sterile", "cruel", or "heartless".

To my way of thinking the discussion over "Laudato Si" shows how Catholic thinking, like economics, is divided into macro and micro level concerns. Roberts and Whaples obviously have a lot of aggregate level data to support the notion that much of the empirics in the encyclical are not nearly rich enough to address issues as broad as environmental degradation, economic development, the morality of markets, and ultimately the nature of the good life. And from a micro perspective as they point out, people do tend to act in ways that generally, although not always, enhance their material well-being. However "Laudato Si" challenges these simplistic notions of whether growth alone is sufficient to provide for human flourishing, although it might be close to necessary, and how individuals at the micro level view work as self-affirming and relationships that are non-economic as more fundamental and profound than are market interactions.

Roberts and Whaples speculate that the Pope's dim view of capitalism might be motivated by his upbringing in Argentina with an unhappy father who Whaples describes as an "overworked accountant". Of course it's doubtless true that we are all influenced to some degree by our upbringings. However, the important question here seems to me to be what are the limits of material wealth? Or perhaps more pointedly, can "more" be bad for humanity? The two discuss the question superficially when it comes to their experiences teaching undergraduates and thinking about utility maximization, but it's a bit surprising that Roberts in particular did not refer to one of his heroes, Adam Smith.

Smith famously noted that commercial society produced lots and lots of stuff, but he had various concerns about how markets and exchange might have spill-over effects to society at large as wealth grew and influenced the incentives of markets participants. The corresponding changes were not merely relevant in markets; Smith also speculated that as wealth increased individuals would potentially lose their "martial virtues" (Book V of the Wealth of Nations) which could affect the support of classical republicanism among members of the community.

It is still important to realize here how sensitive Roberts and Whaples are in taking the encyclical's concerns in some respects quite seriously. First off, they note quite rightly, that the tendency among economists to simply accept the fact that the death of small producers as markets grow is a good thing. Net sum it probably is, but when one focuses on the poor, particularly the poorly educated and unskilled poor in parts of the world that are not easily connected to the global market, one has to acknowledge the importance of supporting the few opportunities that exist for those individuals or providing those individuals with help when market "disruptions" leave them without the means to work. Here the emphasis in the encyclical on "micro" forces is stronger. Individuals suffer during transitional periods. Additionally, the Pope's support for work as a key component to leading a full and productive life receives ample attention during the podcast and is a key element to understanding how human nature is best served by social and economic institutions.

Another key element in Heyne's essay was the difficulties that lay on the path towards scientism that economics had chosen. Setting aside for a moment the very complicated question of whether or not any social science can achieve the lofty standards applied to science in say chemistry or physics, the deeper challenge that "Laudato Si" seems to be raising is what the costs of employing such an approach have when human life always raises moral questions that need answering.

Finally, much as been made about the encyclical's emphasis on environmental concerns. Whaples himself teaches environmental economics and therefore has great sympathy for the state of the planet and ways to coordinate economic activity with preserving the condition of the earth. However, it is important to recognize, as they both do, that viewing growth as the single greatest risk to the environment is simply wrong. Whaples cites the so-called "environmental Kuznets curve" as just one example in which making human life materially richer has had a positive impact on environmental quality in many places.

Looking at a map of say Zimbabwe, where economic growth is stunted and backwards and property rights not respected, we can see the consequences of deforestation and wide spread environmental degradation. No one points to Cuba or the former Soviet Union as examples of good stewards of the environment. Here the encyclical needed more emphasis on alternative viewpoints and data to make a better case of how economic freedom and progress are frequently friends of the environment and planet, and could very well make a growing population, a key point for the Roman Catholic Church, more feasible and sustainable for all.

Dr. G. Patrick Lynch is a Senior Fellow at Liberty Fund. He is currently working on a book length manuscript focusing on the "state of nature" in political theory. He also contributes at the Library of Law and Liberty.

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COMMENTS (8 to date)
Jonathan writes:

Maybe I haven't spent enough time on econlog lately to notice whether or not these sorts of issues are front and center, but surely economists realize there are many people discussing the moral and political implications of their views. Unfortunately, I think economists reliance on the expansive abilities of their 18th century fore-bearers have inoculated them against engaging seriously with philosophers. It's as if because there was at least some discussion political economy and ethics by the first set of economists, even if just obliquely, modern theorists don't have to ask around about the state of normative or meta-ethical views.

The scientism you mention plays a significant role (, but I think intellectual humility plays a bigger role.

Thaomas writes:
Economists are accused of doing economics on the basis of analytical preconceptions that cause them to count as solutions what their critics perceive as problems that prevent them from even seeing certain social relationships as in any sense problematic.

This is an excellent observation, but applicable mainly to “free-market” economists. To a large extent, I think the dim views of Capitalism that the Pope expresses are based on the mistaken belief that Capitalism is and must be, in approximate fact, based on those "free-market" principles, a mistake that "free market" economists seem to share.

Student writes:

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Andrew_FL writes:

Mater si, Magistra no.

Jonathan Coronel writes:

Did Smith propose any sort of solution to his stated fear that commercialism/materialism/increased wealth would soften man and erode the martial virtues necessary for a republic? I am curious because this is a tension I have felt for quite some time, I am completely pro-free markets and clearly capitalism is the most moral and effective system, but it does seem that that mass society it has wrought brings with it a "softening" effect on man and that perhaps this ongoing softening could leave the republic vulnerable to a threat from within or without. Of course the counter to this is that we are also arguably living in the safest time period ever and thus martial virtues are less necessary. I'm not sure, this has puzzled me for quite some time.

Gordon Johnson writes:

In thinking about how to answer your title’s question, I would suggest that God is not an economist at all, neither micro nor macro. In earlier times, people thought of God as Creator, as Father, as Shepherd, as Land Owner, as Master of the Household. In our time, it may help to think of God as Entrepreneur. An entrepreneur is a risk taker, and God took the biggest risk of all time when He/She created man with free will.

From that starting point, one then has to wonder why an All-Powerful God would give up power so completely. The answer has to be, “Because things will work best that way.” God thus trusts and empowers us somehow to work His will here on earth on our own, making mistakes and hopefully learning from them. God leaves it to us to decide what laws are needed to deal with those who threaten others and we are still working those out. Thus God is neither economist nor lawyer, though there have been some clues to what we should do to govern ourselves.

For Judeo/Christians, the ten commandments call for love (your God and your neighbor) and offer a number of “thou-shalt-nots” to protect people from each other. Our Founders worked out a Bill of Rights with “thou-shalt-nots” to protect people from their government. That leaves us in real need of good economists to predict how man will use his God-given Free Will to respond to those laws and all that goes on around him and lawyers to devise laws that maximize free will decisions and minimize top-down authoritarian decisions.

Lawyers and politicians need to start from the premise already known to economists: Things work better when people do what they do because they want to do them, rather than when they are told or mandated to do them.

Thaomas writes:

@Gordon Johnson,

Lawyers and politicians need to start from the premise already known to economists: Things work better when people do what they do because they want to do them, rather than when they are told or mandated to do them.

But that is no what economists "know." Even in Econ 101 they learn about such things as externalities, public goods, imperfect competition and such things have afflicted the economy since The Fall and we were cast out of the Libertarian Paradise. :)

Roger McKinney writes:

Smith also speculated that as wealth increased individuals would potentially lose their "martial virtues"

The US doesn't seem to have lost any of its martial values. Smith was merely parroting Aristotle's disgust for merchants. Both were wrong, as the US and UK have demonstrated.

Mainstream econ doesn't have the tools to even discuss the issue. What can AD/AG analysis offer?

Austrian econ offers many more tools for analysis, but we need to include sociology, history and institutional economics.

I have written a book I call God is a Capitalist: Markets from Moses to Marx that pulls together scholars from several disciplines to respond to much of the Pope's concerns among others. I have posted a PDF copy at my blog under the tab "God is a Capitalist." I'm inviting anyone to read and post comments to improve the book.

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