Were Father's Manors Best?

The following exchange took place between myself and two other DBU professors on Facebook. With both professors' permission, I'm posting it here. It began with a quotation by James K.A. Smith in my status line. What do you think, is capitalism incompatible with Christianity?

"Construing our relationship to the world as one of 'consumption' is to take a good, creational reality of dependence and the need for acquisition in a direction that runs against the grain of God's universe. In sum, consumption i...s a way of relating to the resources of the world that runs counter to shalom."--James K. A. Smith

Professor Hatcher: Absolutely. What is the opposite of shalom? That's what we have.

Doctor Collins: So, what does this say about capitalism?

Hatcher: Is capitalism the opposite of shalom? I don't see the hand of God in capitalism. Eden was agrarian.

Collins: It seems to me that capitalism is based on consumption, so whatever Smith says about consumption, I think should apply to capitalism, too. I agree with you Elaine. Whether capitalism is the opposite of shalom or not, it leads in that opposite direction.

Mitchell: Capitalism is such a big, magic word, that can be scary for some and miracle-working for others. I think there is much positive to be said about free markets, the production of goods, and the creativity that goes into investing capital. However, I'm fully in agreement that in the extreme consumerist version we live in, it's hard not to kiss the devil's hand and say you're only kidding.

Hatcher: I can't even imagine how a godly, Christ-like capitalist system would operate.

Mitchell: However, I certainly don't think socialist systems have proved themselves capable of producing long-term prosperity for a people. They tend to devolve into either utopian projects and/or totalitarian collectives. What capitalism offers at its best is the ability to people to use their creativity and drive in work and production of goods. Is radical consumption the natural end of all capitalism or only the kind we've developed in the West?

Hatcher: I certainly don't consider socialist systems a viable solution! The end result is much worse than our "radical consumerism." Due to the fallen nature of humankind, radical consumption is probably the natural end of all capitalism. We just can't seem to do anything right on a large scale although individuals might practice a godly form of ... Read more capitalism on a local scale. But I don't know of any society where either capitalism or socialism has ended well for all. I say back to the land! Maybe manorialism with benevolent landlords?

Who was Charles Ponzi

and what was his famous scheme? Wikipedia provides a solid bio and explanation.

I think it is interesting that his original scheme was legal and sought to profit from market inefficiency. He also did a decent job of defending himself while acting as his own attorney. This may tell us something about the legal profession.

Here is a short video that provides further explanation of a Ponzi and how it works.

The Nexus of the Community v. Self Debate

Germany, Like most of Western Europe and England, provides several valuable services. The Faustenburgs, residents of the German Lander (a German Lander is the same as an American state) Baden-Wurttemberg, benefit from these policies in several ways.

For example, Germany provides generous unemployment benefits and health care benefits which shelters the family from the economic crisis. Additionally, the government provides a monthly stipend to families with children. Like many other European countries, citizens can receive an education from prestigious universities at a fraction of the cost their American counter-parts endure in pursuit of higher education.

Additionally, the German government intervened as the economic crisis worsened by asking ailing companies to reduce the number of hours employees worked (which reduced their compensation) with the proviso that the government would match any lost compensation.

Of course, none of these goodies are free. Average Germans pay taxes through the nose. The article cites the number as 52% of all wages. In other words, Germans give 52 euro cents back to the government out of every earned euro. The article contrasts that number with 30 cents out of every dollar for American citizens. However, I think that number is low as I will discuss in a moment.

So, which system do you prefer, The U.S. model or the European model? While I still hold that our system is on a more solid basis fundamentally, the German model has managed to cap costs on education and health care. This would not be a major issue for me if the cost of these two institutions had not exploded recently in a manner that is beyond market fundamentals or demand in my opinion.

Additionally, the 30% number is low. How do you feel about a comparison of the two systems if our tax burden is closer to 40-45% of earnings? We are simply not getting a good bang for the buck at that point!

I think that is where I am at right now. Taxes are a necessary evil for civil society. However, the U.S. government (and many state and local governments) simply dilute the power of our tax dollars with projects and programs that serve little to no benefit for average Americans.

Sorry, I left the philosophical aspect of this post behind in my rant!!

Socialism Saves the Commerical Real Estate Market!!!

A provocative title always attracts attention!!!

As the posted article mentions, our country seems to be in the eye of the economic hurricane. Of course, the eye of a hurricane is temporary and means you will soon feel the full fury of the storm. At least this is what my friends and family (none of whom possess meteorological training) tell me. Plus, that helps illuminate my point so I am sticking with it!!

I spent some time in my pre-DBU life in the commercial real estate world. I also have many friends in the industry. It is not for the faint of heart. Additionally, the M.O. for real estate investors typically follows the Smalera's explanation to the letter. Investors acquire or develop property with maximized leverage on short term (5 year) note. Eventually, they will re-finance and take cash out of the deal which means they will be 100% levered with a bank account full of tax-free cash.

As Smalera points out, this is a great plan as long as properties continue to appreciate in value and cash flow exists to service the debt. However, what happens when tenants leave and values plunge? Who do you trust, the Flowrider or the federal government?? The author chooses the latter.


http://www.thebigmoney.com/articles/judgments/2009/04/24/next-financial-explosion?page=0,0

I was perusing a report from a Federal Reserve Conference that Jekabs and I both attended last November. The topic was the state of the economy and how the fed planned on intervening in the future. In reality, this conference played more like a horror movie convention rife with gloom and doom.

Here is a little nugget filled to the brim with a dash of gloom and a heaping tablespoon of doom:

•75-year unfunded liabilities from entitlement programs sum to $40.3T.
–Social Security $4.3T
–Medicare Part A $12.4T
–Medicare Part B $15.7T
–Medicare Part D $7.9T
–Medicare represents almost 90% of the problem. Privatizing SSN will not work-reduce deficit.

To summarize, projected revenues for Social Security and Medicare falls short of expected budget needs by $40.3 trillion over the next 75 years. Again, that figure does not represent the total amount required to fund the programs through 2084. The programs will be in the red by that amount.

So, how do we as a country close the gap? Here are two viable options. I use the term "viable" very loosely:
•Total per-capita entitlement debt of $330K –to close gap.
•Could raise indiv. Income tax rates by 85%.– (Relative to current 8.9% of GDP)
–This is a static estimate•
could cut discretionary spending by 97%.– (Relative to current 7.8% of GDP)

•could make no tax or spending changes.

Your eyes do not deceive. We would need to either raise individual income tax rates by 85% or reduce discretionary government spending by 97%.

Have a good weekend!!

Distributism--The Basics

Neither a capitalism nor a socialism, distributism was inspired by the teachings of Leo XIII in encyclicals such as Rerum Novarum and in the 1930's by Pius XI in Quadragesimo Anno. While not all distributists were Roman Catholics, the position was most often associated with Catholic thinkers and activists, such as G.K. Chesterton, Hiliare Belloc, Eric Gill, Vincent McNabb, and Dorothy Day. Its key teachings included:

1. The distribution of property across the widest possible number of people. This was thought to be maximized by small farms, independent shopkeepers, craft guilds, and so on.
2. The principle of subsidiarity, which holds that all power and action should be carried out at the lowest level of organization necessary. Big government should be strictly limited to matters of national concern. Not all distributists were anti-monarchical.
3. Centralization is the least efficient way to take care of things--"Small is beautiful." Act locally.
4. The Napoleonic division of property among all heirs is best.
5. Workers should all have disposable shares in a business.
6. House and homeland are more important values than race and empire. Family is at the center of production and social life.
7. Economic and political arrangements should maximize human freedom and its responsibilities.
8. All human beings are equal and made in the image of God. All the above follows from this truth.
9. Distributists were divided over the role of machinery in work and common life.
10. Likewise, not all distributists were agrarian in their ideals. Some were more comfortable in town life.

Where else could this happen?

Where else but in a capitalist society could this happen? I wake up today and find, much to my delight, that some firm I have never heard of, located in a place I don't know about, with workers I've never met, has created a product that is very useful to me, and is free for me! 

Catching up on my economics blog readings I noticed that one of the blogs was using a "Listen Now" link, that allowed the readers to download the post as an Mp3 file on their players, and listen to the post while driving to work. I checked into it, and it turns out that service is free for any blogger to use. How cool is that? (Try the Listen Now above any post!) 

I was so impressed I sent them a thank you note!

Where else but in a capitalist society could this happen? That is a serious question, actually.

In defense of private property

Friend, I am not being unfair to you. Didn't you agree to work for [this amount]? Take your pay and go. ... Don't I have the right to do what I want with my own money?

Who said these words? The CEO of Goldman Sachs after being asked why this worker got less than that one? Think again!

These words actually come from the mouth of the vineyard owner in Jesus' parable in Matthew 20:1-16. Workers grumble when some are paid more than others and the owner says "Don't I have the right to do what I want with my own money? Take your pay and go!" Is this an outright endorsement of private property rights from Jesus himself?

Now, I know that the parable doesn't say - this is how employers should behave. Instead, the parable begins "For the kingdom of heaven is like a landowner who went ... to hire men to work in his vineyard..." So you might say, this parable merely describes the kingdom of God and has nothing to do with earthly property rights. It is merely telling believers not to begrudge those who, having lived sinful lives, were saved at death's doorstep. This may well be, however, I am not sure that the one interpretation necessarily excludes the other. 

If the landowner in the parable is meant to represent God, and the workers are meant to represent believers coming to know God at various stages in their lives, then the implication is surely still that God is treating the people in a morally proper way; a good way, the right way. The landowner clearly honors the contract with each worker, even though the pay comes out different in each case. The landowner reprimands the workers for being envious. Are the Christians not called to emulate Christ (God) in their actions? If honoring contracts and deciding to reward each worker according to how he sees fit is good enough for God, then why would it not be good enough for an earlthy employer? Instead of decrying inequality of wages, perhaps we should start defending the landowner's right to determine what wages he wants to pay to whom, as long as he is honoring contracts signed with each worker? The successful Christian employer, would still be subject to all the important personal exhortations to help the poor and the widows, to thank God for his income, to voluntarily give a coat to him who has none etc. but he would be saved from the call to give equal pay for equal work, and - ultimately - saved from the common judgement that he has no right to control his property by deciding how much to pay to whom.

I often find myself arguing for private property rights (as an extension of individual's right to life) from moral philosophical or utilitarian grounds. Can a defense of private property be argued forcefully from a Christian perspective?

Back to the discussion of democracy and socialism

To hearken back to our discussion on Thursday about democracy and the role of the government - I think Frederic Bastiat's thought can be rather clarifying in this arena.

From Paul A Cleveland's The Life and Work of Frederic Bastiat: One Man's Call for Liberty:

"...Given this understanding of the proper function of the law [the purpose of government is to punish wrongdoers; that is, it is the collective use of force to protect the endowed natural rights of each individual] Bastiat explored the reasons why unconstrained democracy tended toward socialistic policies, as was the case in France during his life. He gave two reasons for this situation: greed and false philanthropy. The first reason is easy to understand. Greed is a powerful passion in the human heart. It leads people bound by its grip to participate in the act of stealing the property of others. Using the power of government to plunder one's neighbor is a very effective means of theft. When an individual is successful at gaining political power so that the collective force is used to seize his neighbor's property he no longer need fear retribution. That is, the thief no longer need worry about being punished for his crime for it has been artificially legitimized. As a result, stealing goes on with impunity. Unfortunately, this situation tends to blur people's vision of the true meaning of justice.

The second reason for the rise of democratic socialism is more subtle. It flows from the individual's desire to have compassion on others. As such, there is an abiding temptation to use the resources one voluntarily controls to lobby legislatures so as to tap into the larger means available in the public treasury. If the efforts are successful, then the individual will be able to control the flow of far more resources for his "good" cause. Ruinously though, such efforts will be at the expense of justice since it perverts the very basis and purpose of the law and allows people to seize property from others by the use of force."