As most of you know, I am a fan of free markets. Adam Smith is up there with Abraham Lincoln as one of my heroes. I will admit that I have been brainwashed (at least I'm aware) by a few of my University of Chicago educated econ professors. Markets do a remarkable job of delivering the most goods in the most efficient manner. They encourage creativity and invention. They create wealth like no other system (excluding Consecration, but that will require a huge change in human nature). But markets are also amoral.
Because of recent discussions in my American Heritage* labs, I have been thinking about what it means to be amoral. Markets do only what is efficient, without regard to what is moral. It's not that they're IMmoral, it's just that in determining prices, production or consumption, the market does what is efficient (meaning satisfying the most people possible given the scarcity of time and resources). So really, markets are driven upon societies' tastes and preferences. For example, despite our greatest attempts at gender equality, the NBA is much more successful than the WNBA, because people enjoy watching men play basketball more. Unfortunately, the filth we call pornography is in abundance. So you could say the market may be more of a reflection of our morality rather than a means to a certain moral outcome (in contrast with socialist or communist economies which have a greater focus on the outcome of equality). If people stopped demanding pornography, it would stopped being produced.
So although market economies are based upon people pursuing their self-interest (shout out to Adam Smith), taking this to the extreme is, in my opinion, quite devastating. Because the market itself has no moral outcome, it requires some level of morality in the public to be successful– which leads me to the current financial crisis. It seems to me that people (both producers and consumers) were so focused on short term gratification and profits, that the system could not sustain itself and collapsed. In that way, the 1920's were much like the past decade. Although I disagree with him on a number of issues, I appreciate that President Obama has focused on responsibility. Hopefully it rings true with the public, and that he pursues policy that encourages responsibility.
*For those of you not in the BYU loop, American Heritage is a dreaded general education class that I think is fabulous. It is an interdisciplinary course with economics, political science and history, seeking to explain the founding and development of the United States. I am currently in my 8th semester of being a TA for the course.
You're smart Jen! I mean it, no sarcasm and very good explanation. I can see why they liked you so much during your student teaching phase.
ReplyDeletelove, kirst
I didn't know we shared an interest in economics. This is a nice, thoughtful post, and you raise an issue for which the free market does not have an answer. You do allude to consecration, which of course could ameliorate the morality problem, as well as expand the production possibility frontier.
ReplyDeleteA friend and I came up with the term "whole interest" to discuss a similar concept to consecration. It is this: if every participant in the economy acted to maximize aggregate utility, the economy would produce the maximum amount of utility. This economic idea is nicely summed up in the Golden Rule, of course. Under a whole-interest worldview, we may pursue utility using the free market, but we treat others like ourselves; i.e., we value the marginal utility of those we interact with as highly as we value our own.
The best part about whole interest is it is easier to implement than consecration. Economic consecration requires a coordinated effort by a large group of people. But whole interest can be practiced right now by me, without anyone else knowing or caring. If I value your interest as much as my own, I may diminish my own utility to further the goal of total utility maximization, by, say, giving you something I have that you would derive more benefit from. You are better off, the economy is better off, and to the extent I derive utility from your utility, I am better off. And, it doesn't matter if you are only self-interested in the transaction.
Whole interest can also be implemented a little at a time, as we become less selfish and more Christian in our actions. And our actions will usually tend to produce more moral outcomes than a purely self-interested series of transactions.
Anyway, sorry if I hijacked your post and tried to dump a lot of my thinking on the subject into one hastily written comment; I'm just not used to seeing relatives post on economic theory, and I got overly excited.
-Daniel
Thanks for the thoughts, Daniel. It's a really interesting idea, whole interest. We were just discussing welfare economics in my class. In theory, a perfectly competitive market in equilibrium will maximize overall utility. However, just because overall utility is maximized, it doesn't mean that the distribution is very even. In fact, there are a number of pareto efficient outcomes, and if redistribution were possible without any cost, they might be more equal. The biggest problem, however is redistributing goods without any cost to the economy. It would be nearly impossible, UNLESS there was some sort of benefit that a person derived from redistributing his or her goods.
ReplyDeleteI'm not sure if any economist has come up with models including the utility that one gets by increasing the utility of others, but it would certainly be interesting. Doug (my beau) always reminds me that he gets utility from increasing my utility (which I think is really sweet, reminding me why we're so good for each other). I really do get utility out of donating to various causes, because it makes me feel good. Interestingly, I don't get much utility out of the government taking money from me and redistributing it (another topic for another post).
I think a lot of people take the whole utility view, and really do quite well themselves. Last year I was reading W. W. Clyde's biography and was very impressed by stories of times he helped competitors who were struggling. I actually read one account in a talk in church (without mentioning that it was my great-grandpa), and the stake high councilor that was there came up to me and told me afterwards that his daughter worked for Clyde Companies. He told me how wonderful they are still, and that they have built upon the foundation that W. W. Clyde left. I think of that often when I hear about companies that do dishonest or illegal things in order get ahead. It is refreshing to me to know that you can be honest and kind and still do quite well.
I hope this made sense, and I'm very glad that you are also interested in economics.
Good post Jen. I agree with what you're saying, we must have taken some of the same classes or something. I wish I still remembered some fancy economic words, but maybe if I ever take that last Econ class for my minor... How is your class going?
ReplyDeleteI loved this post Jen and appreciated reading something more intellectual than my usual reading of the daily doings of children. You are right that the market follows the morality of the people, and given the current state of people today, that is definitely scary. I agree that Obama is doing the right thing stressing responsibility, but I don't think that I want his morality governing the market either. Interesting observation with no real easy answer.
ReplyDelete