Tag: economics

Does belief in God make you rich?

Posted on by Ashutosh Jogalekar

by Ashutosh Jogalekar

Religion has always had an uneasy relationship with money-making. A lot of religions, at least in principle, are about charity and self-improvement. Money does not directly figure in seeking either of these goals. Yet one has to contend with the stark fact that over the last 500 years or so, Europe and the United States in particular acquired wealth and enabled a rise in people’s standard of living to an extent that was unprecedented in human history. And during the same period, while religiosity in these countries varied there is no doubt, especially in Europe, that religion played a role in people’s everyday lives whose centrality would be hard to imagine today. Could the rise of religion in first Europe and then the United States somehow be connected with the rise of money and especially the free-market system that has brought not just prosperity but freedom to so many of these nations’ citizens? Benjamin Friedman who is a professor of political economy at Harvard explores this fascinating connection in his book “Religion and the Rise of Capitalism”. The book is a masterclass on understanding the improbable links between the most secular country in the world and the most economically developed one.

Friedman’s account starts with Adam Smith, the father of capitalism, whose “The Wealth of Nations” is one of the most important books in history. But the theme of the book really starts, as many such themes must, with The Fall. When Adam and Eve sinned, they were cast out from the Garden of Eden and they and their offspring were consigned to a life of hardship. As punishment for their deeds, all women were to deal with the pain of childbearing while all men were to deal with the pain of backbreaking manual labor – “In the sweat of thy face shalt thou eat bread, till thou return unto the ground”, God told Adam. Ever since Christianity took root in the Roman Empire and then in the rest of Europe, the Fall has been a defining lens through which Christians thought about their purpose in life and their fate in death. Read more »

Is Education Worthless?

Posted on by Fabio Tollon

by Fabio Tollon

“How do you get a philosophy major away from your front door? You pay them for the pizza.”

As a doctoral candidate in philosophy people often ask me what I am going to “do” with my degree. That is, how will I get a job and be a good, productive little bourgeoisie worker. How will I contribute to society, and how will my degree (which of course was spent thinking about the meaning of “meaning”, whether reality is real, and how rigid designation works) benefit anybody. I have heard many variations on the theme of the apparent uselessness of philosophy. Now, I think philosophy has a great many uses, both in itself and pragmatically. Of concern here, however, is whether not just philosophy, but education in general might be (mostly) useless.

If you are like me, then you think education matters. Education is important, should be funded and encouraged, and it generally improves the well-being of individuals, communities, and countries. It is with this preconception that I went head-first into Bryan Caplan’s well written (and often wonderfully irreverent) The Case Against Education, where he argues that we waste trillions in taxpayer revenue when we throw it at our mostly inefficient education system. Caplan does not take issue with education as such, but rather the very specific form that education has taken in the 21st century. Who hasn’t sat bored in a class and wondered whether circle geometry would have any bearing on one’s employability?

As the title suggests, this is not a book that is kind in its assessment of the current state of education. While standard theory in labour economics argues that education has large positive effects on human capital, Caplan claims that its effect is meagre. In contrast to “human capital purists”, Caplan argues that the function of education is to signal three things: intelligence, conscientiousness, and conformity. Education does not develop students’ skills to a great degree, but rather seeks to magnify their ability to signal the aforementioned traits to potential employers effectively. Read more »

Karl Marx’s Guiding Idea

Posted on by Emrys Westacott

by Emrys Westacott

Imgres

“Nothing human is alien to me.” This was Karl Marx's favourite maxim, taken from the Roman writer, Terrence. But I think that if Marx had lived a century later, he might have added as a second choice the famous phrase sung by Sportin' Life in Gershwin's Porgy and Bess: “It ain't necessarily so.” For together these two sayings capture a good deal of what I think of as Marx's Guiding Idea, the idea at the heart of his philosophy that remains as valuable and as relevant today as in his own time. Let me explain.

Human beings have been around for a few million years, and for most of that time most people's material and social circumstances have been quite stable. The experiences of one generation were pretty much the same as the experiences of their forbears. In this respect the lives of humans were like those of other animals. Unlike other animals, however, human beings reflect on their lives and circumstances; moreover they communicate these reflections to one another. The result is religion, mythology, philosophy, history, literature, and the performing arts (all of which can arise within a purely oral culture), and eventually the natural sciences, and social studies of various kinds, such as psychology, sociology, economics, and political theory.

These diverse forms of reflection on the human condition perform various functions. One function is to explain why things are the way they are. For instance, the bible explains why the Israelites lived in Israel (God made a promise to Abraham, and kept it, enabling Joshua's army to conquer the land); the theory of the four humours purported to explain personality differences between individuals. Another function is to justify a certain order of things. Thus, the doctrine of the divine right of kings sought to justify the institution of a powerful executive who stands above the law. The doctrine that individuals have a right to freedom of thought and expression is often cited to justify a policy of religious tolerance.

These two functions are sometimes hard to disentangle. For example, the alleged cultural inferiority of a people might be taken both to explain why they have been conquered and to justify that conquest as legitimate or even desirable. The “laws” of market competition provide an explanation of why some individuals and businesses do better than others, and these same laws are appealed to by those inclined to endorse the the outcome of the competition.

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Adventure Capital: Condos, Groupon, and Big Pharma

Posted on by Nick Werle

By Nick Werle

The late economist Hyman Minsky wrote that after fortunes inflate on the back of a speculative bubble, and after investors’ irrational optimism and overvalued assets inevitably collapse, an economy enters a “period of revulsion,” when people remember that it’s risky to bet big on an uncertain future. Likewise, it’s always during the depths of a hangover that a drinker remembers how whiskey invites its own overconsumption and swears that the only way to avoid another descent into this purgatory is to never touch the stuff again. But after the fog leaves and with a clear head regained, he forgets the pain after the party and declares another Manhattan to be an eminently reasonable investment. Of course, the trick is to recall at just that moment how miserable you’ll be after another three. A pessimistic economist faces the same cyclical popularity as a tee-totaling friend; a consoling voice the morning after becomes a buzz killer as soon as night falls again.

For economists focused on capitalism’s tendency to foment crisis, it’s important to make the most of investors’ revulsion. Indeed, if there’s ever a time for Marxists to find an eager audience for their theories of capitalist overaccumulation, it’s in the wake of a financial crisis. The moment is particularly ripe for David Harvey, a Marxist trained as a geographer, who has made a career of explaining why surplus capital has such an affinity for real estate and describing how overproduction regularly reconfigures the spaces in which we live. Both Ben Bernanke and a slew of Neo-Keynesians led by Paul Krugman have pointed to a “global savings glut” – originating in the current-account surpluses of net exporters such as China, Japan, and Germany and flowing to the bloated real estate markets of the United States and Western Europe – as the fundamental imbalance responsible for the latest boom and bust. To Harvey and his fellow Marxists, the global savings glut is not a historical fluke but an instance of an intrinsic tendency for capitalist economies to overproduce, and the great North Atlantic real estate bubble is but another temporary answer to their perpetual problem: What can absorb the great mass of overaccumulated capital?

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Football, Finance, and Surprises

Posted on by Nick Werle

As the New Orleans Saints lined up to kick off the second half of Super Bowl XLIV, CBS Sports color commentator and former Super Bowl MVP Phil Simms was explaining why the Saints should have deferred getting the ball after winning the pregame coin toss. Simms suggested that the Saints, 4½-point underdogs to the Indianapolis Colts, would be in a better position were they not giving the ball to future Hall of Fame quarterback Peyton Manning, who already enjoyed a four-point lead and had had 30 minutes to study the Saints’ defensive strategy. Simms had barely finished this thought when Saints’ place kicker Thomas Morstead surprised everyone – the 153.4 million television viewers, the 74,059 fans in attendance, and most importantly the Indianapolis Colts – with an onside kick. The ball went 15 yards, bounced off the facemask of an unprepared Colt, and was recovered by the Saints, who took possession of the ball and marched 58 yards down the field to score a touchdown and gain their first lead of the game, 13-10. The Saints would go on to win the championship in an upset, 31-17.

Although Saints quarterback Drew Brees played an outstanding game and the defense was able to hold a dangerous Indianapolis team to only 17 points, Head Coach Sean Payton received the bulk of the credit for the win, in large part because of his daring call to open the second half. Onside kicks are considered risky plays and usually appear only when a team is desperate, near the end of a game. In fact the Saints’ play, code named “Ambush,” was the first onside kick attempted before the fourth quarter in Super Bowl history. And this is precisely why it worked. The Colts were completely surprised by Payton’s aggressive play call. Football is awash in historical statistics, and these probabilities guide coaches’ risk assessments and game planning. On that basis, didn’t Indianapolis Head Coach Jim Caldwell have zero reason to prepare his team for an onside kick, since the probability of the Saints’ ambush was zero (0 onside kicks ÷ 43 Super Bowl second halves)? But if the ambush’s probability was zero, then how did it happen? The answer is that our common notion of probability – as a ratio of the frequency of a given event to the total number of events – is poorly suited to the psychology of decision making in advance of a one-time-only situation. And this problem is not confined to football. Indeed, the same misunderstanding of probability plagues mainstream economics, which is stuck in a mathematical rut best suited to modeling dice rolls.

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To Spend or Not To Spend: The Austerity vs. Stimulus Debate

Posted on by Nick Werle

Greek unions protest

Public sector austerity has come back to the West in a big way. Governments throughout the European Union are wrestling against striking civil servants, a stagnant private sector, and an entrenched public welfare system to drastically reduce spending. The budget cuts are broad, and they run deep. Under pressure from global financial markets and the European Central Bank to reduce public deficits, Spain, Italy, Portugal, and Greece have issued “austere” budgets for the coming year that simultaneously raise taxes and slash government spending. David Cameron’s new Conservative government has violated its campaign pledge to spare Britain’s generous middle class subsidies in an attempt to close a budget gap that is among the world’s largest, at 11 percent of GDP. Supposedly confirming the wisdom of austerity, the financial press has trumpeted the re-election of Latvia’s center-right government, which passed an IMF-endorsed budget with austerity reductions equal to 6.2 percent of GDP. Prime Minister Valdis Dombrovskis won his “increased mandate” – “an inspiration for his colleagues in the EU” – against a backdrop of 20 percent unemployment and a cumulative economic contraction of 25 percent in 2008 and 2009, the most severe collapse in the world.

Latvian electoral politics notwithstanding, austerity has been a tough sell worldwide. Both the protests that broke out across Europe at the end of September and the general strikes mounted against Socialist governments in Portugal, Spain, and Greece attest to the resistance all governments face in cutting public spending. And opposition has not been confined to the streets. At a G20 summit in Washington DC on April 23, the finance ministers and central bank governors of the world’s 20 largest economies agreed that extraordinary levels of public spending should be maintained until “the recovery is firmly driven by the private sector and becomes more entrenched.” Indeed, Larry Summers, the departing Director of the White House National Economic Council, still argues that the United States must continue its policy of economic stimulus in the form of deficit spending on infrastructure rather than pull back public resources, lest it cede the small gains of the nascent recovery.

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