Rule by Experts: Two Approaches to Economic Development
“The conventional approach to economic development … is based on a technocratic illusion: the belief that poverty is a purely technical problem amendable to … technical solutions.” ~ William Easterly
Under significant political pressure from the left and the right, the Texas Legislature last year let expire the Chapter 313 "economic development" program that allows Texas school districts to offer property tax abatements to politically connected businesses. Now, big business interests are joining with many of those politicians to bring the program back to life, despite evidence of the great harm it has caused.
According to Dr. William Easterly, programs like Chapter 313 are economically and ethically flawed. In his book, The Tyranny of Experts, he explains there are two different approaches to economic development. One is authoritarian development, a technocracy in which “well-intentioned autocrats advised by technical experts” focus on technical solutions to economic development while ignoring the “rights of real people” (p. 5). The second approach he calls “free development,” which gives free individuals with political and economic rights “the right to choose amongst a myriad of spontaneous problem-solvers, rewarding those that solve our problems” (p. 6). Here, I'll refer to them as technocratic development and free-market development.
Read MoreViolate at Your Own Risk: The Immutability of Economic Laws
by Dr. Arthur B. Laffer
This is the first in a series of 10 papers by Dr. Art Laffer helping people to "think economically."
What Is Economics?
Economics is the scientific study of how humans adjust their behavior to seek happiness as they define it, in light of the fact that they can’t have everything they want. Unlike psychology, economics doesn’t attempt to explain the underlying preferences (tastes) that people have, but instead takes preferences as a given starting point. The economist doesn’t need to know why people act the way they do—other than to know they are individuals always trying to improve their lot in life.
Despite its apparently narrow field, the scope of economics is actually quite broad, and in fact economic laws are among the most powerful—definitely the most important!—that social scientists have discovered. Professional economists, like other scientists, do use empirical data to test particular theories, but fundamental economic laws are really just codified common sense. It’s surprising how much insight we can gain from carefully thinking through the implications of particular views on how the world works.
Read MoreThinking Economically
“In the beginning, God created the heavens and the earth” (Genesis 1:1).
As we learn at the very beginning of Scripture, God is the Creator of everything. As such, He is also the owner of everything. Which means we have to follow God's rules about how to use His property.
The good news is that He has told us everything we need to know about how to do this: "let them have dominion over ... over all the earth"; "be fruitful and multiply"; "fill the earth and subdue it"; "thou shall not steal"; "thou shall not covet"; "you have been faithful over a little, I will set you over much," etc. He also made us in His image, so we are creative and can make many things out of the earth He has given us to steward.
Another way of saying this is that God has made us and taught us to think economically. Producing, building, saving, buying, and selling is what we were made for. Even so, we still need to focus on the economic laws and principles God has given us to help us understand when we get off track--as we will in our fallen nature.
That is why several of us at the Texas Public Policy Foundation joined with economist Arthur Laffer back in 2008 to publish the 10-lesson series, Thinking Economically. Each of these short (6-7 pages) lessons are intended to cut through the raucous debates over public policy that are raging in our culture today to help us understand how God designed the world to work.
Of course, some people have agendas that make God's designs of no interest to them; they prefer to rage. Nonetheless, those of us interested in taking care of God's world according to His will would do well to read what Dr. Laffer has to say. If you don't have time to read all ten, though, I'd suggest lessons 1, 2, 3, 8, and 10.
Lesson 1 - Violate at Your Own Risk: The Immutability of Economic Laws
Lesson 2 - What's it Worth: The Value of Things
Lesson 3 - Government and Prosperity: Free Market Institutions
Lesson 4 - The Condition of Our Nation: The Press is Always Wrong
Lesson 5 - Money Makes the World Goes 'Round: And the Fed Makes Money
Lesson 6 - Trade: You Ain't Got the Frills if You Ain't Got the Skills
Lesson 7 - State's Right--to Mess Up: What Makes a State Competitive
Lesson 8 - Entrepreneurs versus Regulators: Government Intervention in the Market
Lesson 9 - When You're Right You're Right: The Laffer Curve
Lesson 10 - The Perfect as the Enemy of the Good: Market Failure of Market Opportunity?
Read MoreDespite its Many Benefits, Innovation is Not Always Embraced
When Sam Walton brought low-cost shopping to millions of American consumers by developing new, more efficient ways to deliver products to market, he had to battle entrenched political interests fighting for locally based retailers.
Today’s battle over innovation, as consumers fuel a new trend toward instant delivery, is more about convenience than costs. But the dynamics are the same.
Many traditional retailers are fighting instant delivery to save their businesses and jobs, just as others have done before them. Yet this latest innovation, spurred by new technology and consumer demand, is not likely to go away.
Read MoreCalvinism and von Mises on Human Action
A while back a few of us in my office were discussing Calvinism around the water cooler. Much of the talk related to the concept of free will, a mysterious concept if there ever was one. Even many of those who agree that man has free will can’t agree on what free will means.
At the same time, I was discussing economics with my office’s class of interns. One of the things we discussed is the concept of economics as a science; the regularity of human action allows economist to develop laws about the economic operation of the world in just the same way that mathematicians, for instance, can develop laws about the properties of numbers and figures.
After thinking about these things a bit, I’ve found it fascinating that these two areas of study, one championed by reformed Christians and the other by—in part—agnostic Jews, have a lot in common.
One take on this topic, Does God Desire All to be Saved?, is by John Piper. As I wrote in my Goodreads review of it:
The mystery of God is great; His infinite ways are too much for our finite minds to comprehend. Sometimes it is good to sit and marvel at these mysteries in faith. Other times it is profitable to use our God-given intellect to probe as deeply as we can into them. Piper has probed deep and well here into the seeming paradox of God's election of his people and His desire that all be saved. On the one hand, we see that God has chosen some--but not all--to be saved as His people. On the other, it appears that "God loves everyone and invites everyone to come, and wants them all to be saved." Which are we to believe? Both, according to Piper. Though we will never understand fully in our minds that which we believe in faith, we are still called to believe since this is what the Bible tells us.
Related to this is the short pamphlet, A Primer on Free Will, by John H. Gerstner. Here is an excerpt:
You, being a rational person, will always choose what seems to you to be the right thing, the wise thing, the advisable thing to do. If you choose not to do the right thing, the advisable thing, the thing you are inclined to do, you would, of course, be insane. You would be choosing something you didn’t choose. You would find something preferable, which you didn’t prefer. But you, being a rational and sane person, choose something because it seems to you to be the right, proper, good, advantageous thing to do. …
Now, you see, that sort of thing—choosing regardless of considerations, or choosing without considerations, or choosing against considerations, and so on, is precisely what 95 percent of the people mean when they talk about free will. … When I tell them that when they choose to rea this book, they could not not choose to read this book, they feel that they are in bondage. They think that I have taken their freedom away from them when I say, “You must choose according to what seems good to you.” It is the end of all freedom, when it is said that they must do something, and they cannot do something else, and it is impossible for them to do such and such a thing, and it is necessary for them to do such a thing. …
Intelligent considerations are what determine the behavior of rational human beings. As a rational human being, you don’t have the freedom to deny those considerations. You must, necessarily, act according to what you think is the right way, the proper way, the good way, the advantageous way to act.
I came to Reformed Theology later than I came to Austrian economics. Perhaps one thing that attracted me to the reformed view of Scripture is that, particularly in the case of free will, it matches up with a view of economics whose most famous modern champions are agnostic Jews. Here’s how Ludwig von Mises talks about human action:
Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life.
He further puts the concept in the context of Christianity:
The characteristic mark of ultimate ends is that they depend entirely on each individual's personal and subjective judgment, which cannot be examined, measured, still less corrected by any other person. Each individual is the only and final arbiter in matters concerning his own satisfaction and happiness. As this fundamental cognition is often considered to be incompatible with the Christian doctrine, it may be proper to illustrate its truth by examples drawn from the early history of the Christian creed. The martyrs rejected what others considered supreme delights, in order to win salvation and eternal bliss. They did not heed their well-meaning fellows who exhorted them to save their lives by bowing to the statue of the divine emperor, but chose to die for their cause rather than to preserve their lives by forfeiting everlasting happiness in heaven. What arguments could a man bring forward who wanted to dissuade his fellow from martyrdom? He could try to undermine the spiritual foundations of his faith in the message of the Gospels and their interpretation by the Church. This would have been an attempt to shake the Christian's confidence in the efficacy of his religion as a means to attain salvation and bliss. If this failed, further argument could avail nothing, for what remained was the decision between two ultimate ends, the choice between eternal bliss and eternal damnation. Then martyrdom appeared the means to attain an end which in the martyr's opinion warranted supreme and everlasting happiness.
While he is talking about human action in a study of economics rather than free will in a study of theology, von Mises winds up in the same place as Gerstner. It is the compulsion, if you will, of the free will of men that so orders the action of men that economics may be called a science. It is where we derive the laws of economics, like supply and demand. It is why they may be called laws. The Austrians rely heavily on this. Not so most “mainstream” economists today. They rely on, believe in, only what they observe; or more precisely, in their own interpretation of what they observe. Thus can our good friend Paul Krugman espouse his policies that defy the laws of economics; he doesn’t really believe in economic laws, or at least in economic laws constructed by the individual, free (though compelled) choices of man.
Austrians, however, know that human actions can be ordered by laws because people always act in the same way; they always choose what they desire, what they think will better their lives, and they do so only after consideration. Thus there is order to the world of humans in much the same way there is order to nature. However, unlike the order of nature, this order can be known without observation. The difference being that in nature, order is attained by particles acting under the physical laws of God, and we can see this only by our observation. In the economy, however, order is attained through the free will of human decisions and, being humans, we can know how humans will act even without observing those actions. Thus the future is not precisely predicted based on observations of the past; instead, it is predicted through the application of economic laws derived from the actions of men who always choose to act according to their free will.
I’ll close with this quote from Blaise Pascal, who I think has captured the essence of all this as well as anyone:
All men seek happiness. This is without exception. Whatever different means they employ, they all tend to this end. The cause of some going to war, and of others avoiding it, is the same desire in both, attended with different views. The will never takes the least step but to this object. This is the motive of every action of every man, even of those who hang themselves.
Except, of course, for God Himself:
Read MoreOne thing have I asked of the LORD, that will I seek after: that I may dwell in the house of the LORD all the days of my life, to gaze upon the beauty of the LORD and to inquire in his temple. (Psalm 27:4 ESV)
Jesus Warns of the Consequences of Corporate Welfare
"What the Gospel accounts showed was a Jesus who was very concerned about economic exploitation, but whose economic denunciations were not broad, to-whom-it-may-concern condemnations of all wealth. Instead, He directed His denunciations in very specific geographical and socioeconomic ways, aiming His barbs at the exploitative members of the ruling class. A close and careful reading of the Gospels allows us to fully embrace and quote the “red letters” of a Jesus who said, “Woe unto you who are rich…,” without going on to confuse Him with Che Guevara or Fidel Castro. What you will see is Jesus confronting the takers of wealth, not the makers of it. He did this with such vigor and clarity, the ruling class who lived and worked in that nation’s capital saw Him as a threat to their system of economic extraction. That’s why they instigated His judicial execution by the Roman state. Elites failed to heed Jesus’s warnings about the ways in which the capital city and its ruling political/religious elite were courting disaster. Eventually, the economic problems Jesus warned about led to an economic collapse and the destruction of the capital city, Jerusalem. You are about to meet a Jesus who really does have something to say about social justice, but not the kind of social justice people have been selling in His name. That’s the theory. Now for the evidence."
From The Maker Versus the Takers: What Jesus Really Said About Social Justice and Economics
Read MoreGet the Economics Right: An Interview with Bill Peacock
I was interviewed last year by the good folks at Lara-Murphy Reporting. We talked about economics, electricity, and public policy. I thought I'd republish it here:
Lara-Murphy Report: How did you discover Austrian economics?
Bill Peacock: Its funny that you ask because I don’t really remember the source. It was in 1989—before the Internet. We didn’t have Google searches, so we had to rely on old-fashioned sources of information like magazines, catalogs, print circulars, etc. But somehow through those mediums I discovered the Foundation for Economic Education and wound up at one of its week-long economics seminars at its old headquarters in Irvington-on-Hudson, NY.
I do remember being blown away by ideas from the Austrian School that I’d never been taught in school. My teachers that week, including Hans Sennholz, Bettina Bien Greaves, and Richard Ebeling, were likewise amazing. I was hooked. I started reading books, attended the first Austrian Scholars Conference in (I think) 1995, and later attended Mises University. I took some great courses from the old version of Mises Academy, including three from one of you (Murphy) that walked us through Murray Rothbard’s Man, Economy, and State. Even after about 20 years of studying Austrian economics, those courses—and Rothbard’s book—opened my eyes to economic truths I had never seen before.
Read MoreShaping the Culture Through Christian Economics
I've spent the last 30 years of my life trying to free Texans from government oppression.
Given that Texas' biennial budget has grown from $46.4 billion in 1990-91 to the present $235.2 billion (with the government/budget being under Republican control most of those years) and with it the regulatory, confiscatory, and prosecutorial state has also grown, one might say that I have failed miserably in my effort. I prefer, though, the optimistic perspective that there is less oppression today than there would have been in my absence.
For most of this time, I have been doing my work through a biblical lens. This has required, among other things, for me to develop theologies of government and economics. They are not perhaps the best developed theologies, but they are what I have to work with.
We are focusing on economics today, but both have a similar theme, liberty:
Read MoreThe Spirit of the Lord is upon me, because he has anointed me to proclaim good news to the poor. He has sent me to proclaim liberty to the captives and recovering of sight to the blind, to set at liberty those who are oppressed, to proclaim the year of the Lord's favor.” (Luke 4:18–19 ESV)
The Trinitarian Nature of Private Property
Genesis 1:1 clearly establishes God as the owner of creation. Genesis 1:28 tells
Life works like the Trinity. Nobody is an individual without built-in relationships that cannot be discarded, no matter how much we try. It works that way with property ownership too.
Read MorePrivate Property and the Great Commission
In a recent email discussion, a friend from church recently noted, "I don’t think anyone is going to argue that government has carte blanche to take property from people."
As I told him, I don't think that is the case. For starters, I certainly would.
And so might folks like the justices on the Texas Supreme Court, who gave Texas state and local government carte blanche when they opined “Property owners do not acquire a constitutionally protected vested right in property uses.” Just like the justices of the U.S. Supreme Court did, when five of them allowed the city of New London, Connecticut, to take Susette Kelo's house in order to develop a new office park for Pfizer Pharmaceuticals. In doing so, they wrote, "For more than a century, our public use jurisprudence has wisely eschewed rigid formulas and intrusive scrutiny in favor of affording legislatures broad latitude in determining what public needs justify the use of the takings power."
I am pretty sure that the 4,200 mostly black residents of the Poletown neighborhood, in Detroit would take my side in this discussion. But I'll never know for sure since I can't find them because, well, Poletown doesn't exist anymore. The mostly black former residents' 1,400 homes were condemned and torn down to make way for a new General Motors plant, a decision supported by the all-white Michigan Supreme Court. Cart
Economics 101: Image
Then God said, “Let us make man in our image, after our likeness.” – Genesis 1:26
God thinks and acts, and does so with purpose:
- “God created the heavens and the earth.” - Genesis 1:1 ESV
- “God sent me before you to preserve life.” Genesis 45:5 ESV
- “For God so loved the world, that he gave his only Son.” John 3:16 ESV
- “even as he chose us in him before the foundation of the world, that we should be holy and blameless before him.” Ephesians 1:4 ESV
Since "God created man in his own image," man also thinks and acts with purpose:
- “for you know that the testing of your faith produces steadfastness. And let steadfastness have its full effect, that you may be perfect and complete, lacking in nothing.” - James 1:3-4 ESV
- “Sing praises to the LORD, who sits enthroned in Zion! Tell among the peoples his deeds! For he who avenges blood is mindful of them; he does not forget the cry of the afflicted.” Psalm 9:11–12 ESV
- “One thing have I asked of the LORD, that will I seek after: that I may dwell in the house of the LORD all the days of my life, to gaze upon the beauty of the LORD and to inquire in his temple.” - Psalm 27
Economics 101: Work
Be fruitful and multiply and fill the earth and subdue it, and have dominion ... Genesis 1:28
Man was created to work. The objective of that work, as seen in the cultural mandate of Genesis 1:28, was to prepare the world as a dwelling place for God and man. God provided the Garden of Eden as the starting place, but man was to take it from there, essentially turning the garden into a garden city that covered the world.
This transformation involves three related tasks that require three types of work:
- Structural: fill the earth and subdue it and have dominion through procreation
- Functional: fill the earth and subdue it and have dominion through discipleship
- Physical: fill the earth and subdue it and have dominion through the work of our hands
All of these tasks existed pre-fall and still are in place post-fall. It is the third type of work of building the garden city, spread God’s glory through the work of our hands, that most concerns us when it comes to economics.
Read MoreHow an Economy Grows and Why It Crashes by Peter and Andrew Schiff
Peter and Andrew Schiff wrote How an Economy Grows and Why It Crashes based on the book by their father, Irwin, How an Economy Grows and Why It Doesn't. It combines simple explanations and cartoon-like illustrations on almost every page to lay out clearly the effects of government intervention in the market.
It begins with three men on a Pacific-style island who work all day to catch one fish with their bare hands--just enough to survive. One of them, Abel, finally gets tired of sustenance living and his desire for more leads him to invent a net. Abel has to go without eating for an entire day (since it usually takes him all day to catch his food supply) to have the time needed to build his net. But his efforts paid off, as he netted two fish in just a matter of hours the next day with his new invention.
Read MoreChristian Economics 101
Economics often gets overlooked by Christians.
From one perspective, this makes sense. Economics is not the gospel. Understanding biblical economics won't save our souls.
On the other hand, economics is at the very heart of the Christian life. God commanded Adam and Eve to "Be fruitful and multiply and fill the earth and subdue it, and have dominion ..." Even before the Fall, God had provided economic means built around private property to enable mankind to carry out the cultural mandate. Resources were scarce (meaning work was required to obtain them) and man's knowledge was limited (even perfect man was not omniscient), so production utilizing natural resources through the division of labor and voluntary trade through markets with prices would have been required to increase the capital stock needed to feed, clothe, and house mankind.
Read MoreEliminating Renewable Energy Subsidies is Key to Boosting Prosperity
Residential electricity prices have steadily increased for years, up more than 15 percent in the United States (not including Texas) since 2004. A newly released U.S. Department of Energy report on electricity markets and reliability makes it clear that renewable energy subsidies are contributing significantly to the increasing cost—and the decreasing reliability—of the national electric grid.
Yet the report stops short of making the most obvious recommendations to address this challenge—eliminating the subsidies and forcing renewable energy generators to pay for the costs they impose on the grid because of their intermittency and unreliability.
Unless the federal government and the states eliminates these policies, we will find ourselves suffering through energy poverty—a sharply reduced standard of living caused by high energy costs—in the future.
Read MoreQuote of the Week - Mises on the Religion of Government Spending and Credit Expansion
"No one should expect that any logical argument or any experience could ever shake the almost religious fervor of those who believe in salvation through spending and credit expansion." – Ludwig von Mises, in his book, Planning for Freedom: Let the Market System Work : a Collection of Essays and Addresses.
Read MoreLet’s Break Up Tiger Woods
In the aftermath of Tiger Woods’ dominant victory in the recent American Express Championship golf tournament, a number of Wood’s competitors announced they will be asking the U.S. Department of Justice to file suit seeking the breakup of Woods for violating federal antitrust laws.
“He’s dominating the game,” said Adam Scott, who finished second, eight shots back of Woods. “It’s not the first time he’s done it, either. We need to take steps now to ensure that the game remains competitive.”
After finishing in fifth place, Ernie Els, one of golf’s top players, joined in with those who said something must be done.
“Tiger just doesn’t understand how abusive he is of his monopoly position,” said Els. “He unduly pressures and intimidates competitors and potential competitors.”
Read MoreInflation, Money Creation, and the Gold Standard
“In a social order that is entirely founded on the use of money and in which all accounting is done in terms of money, the destruction of the monetary system means nothing less than the destruction of the basis of all exchange.” – Ludwig von Mises, The Theory of Money and Credit, p. 202.
In a recent email chain, some of my friends said the gold standard was crazy and wrote of the need for the Federal Reserve to manage our money supply—relying on appeals to “experts” to make their case. I wrote the following to try explain the problem with central banking. I hope you find it informative:
The fact that most economists and "experts" think returning to the gold standard to be crazy should be another reason to support such a move, given the competence of most economists these days.
But lest I rely too heavily on ad hominem attacks against them to make my case, let's look at the facts.
Read MoreEconomic Freedom and Quality of Life
http://www.youtube.com/watch?v=v1U1Jzdghjk&feature=player_embedded
Read MoreToday's Digest
The Right Kind of Bright in Your Eyes
Doug Wilson gave the commencement speech to the graduating class of New Covenant Schools. Lots of good stuff, here is a sample:
Scripture teaches us that to the pure all things are pure. To the defiled, all things are defiled. The principle can and should be extended. To the dullard all things are dull. One of the central reasons why G.K. Chesterton is such a wonderful thinker and writer is that he had the gift of making us see how extraordinary all ordinary things are. He would cock his head sideways and describe the living room from that vantage, and all of us would learn new things about a place where we had lived for years. The simpleton thinks that ordinary things are ordinary. The faux-mystic drops some acid—a weird custom you may have heard about in your history classes—in order to find out that extraordinary visions are extraordinary. But only a healthy soul can see how remarkable every unremarkable thing actually is.
Read More