In light of a recent conference and the upcoming Supreme Court case (read AEI’s take), I’ve decided it’s high time to write a little summary of my understanding of and case for school choice. I open with my inspiration for this interest, but if you’re just interested in the meat of the issue, feel free to jump ahead to the “Why Choose?” and “Who Chooses?” sections. Happy reading!
Close to Home
My debut in economic research has been centered around two causes very near and dear to my heart: school choice and easing regulations on craft breweries. (Ok, I may be joking a little on the last one.)
Due to moving around as a kid, I’ve also become an unofficial school expert by attending seven different schools prior to college–a mix of public, religious private, and secular college prep–and have tutored and taught in multiple schools myself. Simply put, I love schools and everything they symbolize. Within their sacred walls, we first taste the ever-harvested banquet of literature, music, art, science, music, history, math, and the whole spread of ideas. How can you not be passionate about that?
Furthermore, take a moment to call to mind the most influential people in your life. Chances are, a teacher (or seven) made your list. All this is to say that the importance of a good education cannot be overstated.
Finally, I don’t think that our current public school system is doing an acceptable job at this incredible task. And 79% of Americans agree with me. This isn’t to say that the other options–homeschooling and private schools– are automatically better, but we don’t direct our tax dollars to fund them. In my opinion, public schools should be held to the highest standards as our entire nation backs them with hard-earned dollars. And I very firmly believe that all children should be given the opportunity of a good education, regardless of if their family can afford homeschooling and private institutions or not.
What is School Choice?
This is precisely where the idea of school choice comes in. It’s been my experience that this contentious issue is still misunderstood:
School choice means that the tax dollars originally paid by parents, which will be distributed back to them in the form of public education, should be allowed to be spent on their child’s education at the school they see as best fitting their child’s needs.
Wealthy families can already exercise “school choice” since they can afford to pay for both their child’s seat in public schools (through their tax dollars) as well as the private tuition at a different institution. But this leaves many families unable to access these educational organizations and automatically creates an early rift between the socioeconomic groups. The policy mechanisms of school choice– vouchers, tax credit scholarships, and charter schools— are designed to allow the public tax dollars to follow the children, based upon each family’s choice of educational institution. In a diverse and expanding society such as ours, it is essential that we respect the agency of families to choose how to best educate their children.
Understanding school choice, and specifically charter schools, could not be more relevant (especially since Betsy DeVos has recently been confirmed as Secretary of Education). It could also set you apart– a recent Gallup poll revealed that only 50% of respondents were actually aware of what charter schools are. It is fitting that we begin with the definition (taken from Uncommon Schools):
“A charter school is an independently run public school granted greater flexibility in its operations, in return for greater accountability for performance. The ‘charter’ establishing each school is a performance contract detailing the school’s mission, program, students served, performance goals, and methods of assessment.”
There are three reasons that I believe school choice, in all forms, is a great thing for our states and our nation. They can be summed up in three words: care, competition, and community. By care, I mean to emphasize that low-income families will be newly empowered to chose their child’s school and thus have an incentive to care after their education more than ever. Through competition, I am confident that the schools will increasingly become better since no families are forced to attend them, but rather have a choice between more options. Finally, school choice fosters community. As I pointed out in my introduction, the current system of public vs. private schools results in an early and arguably detrimental separation of socioeconomic classes. It means that you’re more likely to learn, play sports, and go over to the houses of friends who are no different from yourself.
All three of these good things currently exist within families and schools, no doubt, but school choice significantly enables the families of your community to choose according to their deepest concern for their children.
My latest research with the Institute for Economic Inquiry delves into the “demand-side” of this issue, focusing on just charter schools. I ask: What local organizations, informal institutions, and socioeconomic characteristics do districts that are open charters have in common?
To study this question, I gathered data on every school district in the nation and compiled an estimation equation to display the impact of each important factor on how open a district is to charters, as measured by the number of charter schools and number of students attending charters within that district. You are happily invited to read last semester’s version of the working paper, but for brevity’s sake, here are my main takeaways:
- Charters are significantly more likely in districts with these types of families:
- Highly educated
- Highly diverse
- The proportion of church adherence within a district (a proxy for informal institutions, i.e. religious belief) has a negligible effect on the openness of the district to charters.
- Districts with a high percentage of the population employed in the educational, health care, or social work services (a rough proxy for the strength of local teachers’ unions) are strongly and significantly opposed to charters.
I once heard a speaker say (pretty positive it was Arthur Brooks… but don’t quote me on this) that the social sciences exist to prove to us what we already know. For how good the empirical evidence is, the main argument in favor of school choice is one of the heart. The power of a great school isn’t that it will fix all the problems of our world, but that it has the potential to change hearts as well as minds.
This short essay finishes my present reflections on the role of the family in the realm of political economy. For Part I of this duo, inspired by Bastiat’s famous essay by the title, “Ce qu’on voit et ce qu’on ne voit pas,” I invite you to begin here. Otherwise, read on, dear reader!
I have been blessed with incredible professors who give me interesting things to read (if you think this might be you… yes, it’s you). I am also blessed with this thing called the Internet, which provides an unimaginably huge garden of information through which I can discover more interesting things to read. The following thoughts are largely based upon a few of these readings: North’s work on institutions, Hayek’s writings on knowledge, Dr. Morse’s book Love and Economics (thank you, Acton), and a healthy dash of Josef Pieper, Adam Smith, and C.S. Lewis (surprising, I’m sure).
Permit me to begin with a speedy lesson on institutional economics.
We go about our daily business within the framework of our society’s formal and informal institutions. One side is labeled formal, since it is embodied primarily in our rule of law. The complimentary side of institutions are called informal, and they refer to the cultural, religious, and societal norms that also shape our behaviors. These both can be thought of as the “rules of the game,” and one of the many things that they provide is the incentive structure for our actions. For example, you may be more willing to invest in experimentation and invention if you know that your idea can be protected by patent law, which enables you to reap the rewards from your successful risk-taking.
Who plays this game? You and I, to be sure, and mainly through the organizations we are a part of (think civil society). These organizations are the political (parties and councils), economic (firms and unions), and educational (schools and training) bodies that were founded in order to fulfill specific purposes within our community.
North (1993) writes, “It is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance” (VII). Taking enforcement as given, is there a relationship between these formal rules and informal norms? North and many others (notably going back to Smith) acknowledge this fact: Formal institutions are underpinned by the informal institutions of a society. There is much accumulated evidence (see here and here) to show that these two must fit together, otherwise the desired rule of law (one that unleashes economic prosperity) will not “stick.” In the spirit of this casual stream of consciousness, it might be fun to consider everyday examples:
- Just because it was legal for me to watch PG-13 movies at the age of 13 did not, in fact, mean that my mother’s rules were the same, and I had to abide by her rules or suffer dreadful consequences. (And now my bookishness is beginning to make sense…)
- Although it would be legal to host a business meeting in a tree-house, it simply isn’t done. (A terribly inconvenient truth.)
- There are many “forbidden fruits” in Christianity, Judaism, and Islam that are still legally and socially acceptable in our society. Nevertheless, myriads of religious individuals continue to submit to the restrictions placed by their beliefs.
If informal institutions are truly the underlying determinant of formal institutions, upon which rests the fate of economic prosperity, then it becomes important that some of us specialize in shifting our gaze toward the informal institutions of culture and religion. Religious belief and cultural norms are often accepted as givens in economic analysis, but today I propose that this is no longer a valid or necessary assumption.
Just as the rule of law is the embodiment of our formal institutions, the family is the manifestation of our informal institutions since religious and cultural beliefs are passed down within the sacred space of the home. To wander this small kingdom is to indeed wade into rich and deep waters, so I just want to focus on one thing that the family–above all–safeguards throughout generations: human dignity.
In this, there is no substitute for the role of the family. Organizations and institutions can treat a human being with dignity, and of course the best ones do, but they cannot possibly nourish human beings with the deep knowledge of their inherent dignity, moment to moment, like our family members do. Love and Economics contains a passage in which Morse reminds us of this hidden teaching, glimpsing into the rich love of the mother for her little one:
“People do things they do not fully understand, acting upon knowledge they truly possess but cannot fully express… [The mother] might tell you she folded laundry and did dishes. But she probably will not remember that she rewarded every little noise her baby made, by smiling at the baby, or imitating the baby’s sound, or having an imaginary conversation with him. Far more is going on between a normal mother and child than we would ever imagine…” (17).
If you are familiar with Hayek at all, the first sentence may have reminded you of his “The Use of Knowledge in Society.” His main idea there, loosely paralleling the religious doctrine of human dignity, is that every single human being possesses an unique, irreplaceable knowledge of our world, equipping each to identify the best choice in surrounding situations better than anyone else. Above all, the knowledge and perspective that each of us stewards–mental models as North refers to them–have been extraordinarily shaped by our family. The understanding of our dignity or worth, and consequently that of others, can only be fully instilled by a mother and father who take it upon themselves to live out the greatness of their dignity as husband and wife and mother and father each day. And we know that dignity is the basis of institutions that support economic freedom and prosperity.
What might this mean in our current situation, when the decline of the family is hard, cold fact? In his foreword to Leisure the Basis of Culture, Fr. James Schall pulls us in with a striking sentence: “When a culture is in the process of denying its own roots, it becomes most important to know what these roots are.” This is my next task.
Morse travels back to the pioneers of political economy and posits that Adam Smith, and the subsequent family tree of classical liberal thinkers, held the rational assumption of close familial relationships when describing the workings of the free market with terms like “the invisible hand” and “spontaneous order.” Such close quarters with our kin inevitably grows mutual sympathy, the term Adam Smith uses in The Theory of Moral Sentiments to describe the way that we learn to test our perceptions against the imagined or real praise or blame of others, thus cultivating our moral sentiments. The strength and prosperity of the market operating under formal institutions was rooted in this shaping of virtue.
I invite you to read “The American Family Today” at Pew Research (or just look around) to see that tightly-knit families are no longer a safe assumption in the United States. The covenantal bonds of family are rapidly dissolving all around us.
Before proceeding, however, far be it from me to claim that families will ever be perfect. For, far be it from imperfect humans to bind ourselves perfectly in covenant. Fortunately love doesn’t need perfect. It just needs patience, kindness, and all the rest. Though imperfect, the family is the single institution within which human beings are freely bound together for the purpose of love. It is the only place in the world where “do this” equates almost directly to “this is truly in your best interest.”
If families are no longer in place to perform their fundamental role in shaping moral sentiments and religious and cultural beliefs, what will happen to our formal institutions? (Or better yet: What is happening?) Speaking from her experiences as an adoptive parent, Dr. Morse points out that we are seeing a growing number of children who have never learned of their inherent dignity (and that of others), whether parental neglect, over-spoiling, or attachment disorder is to blame. My good friend C.S. Lewis vividly paints this picture better than any other:
“In a sort of ghastly simplicity we remove the organ and demand the function. We make men without chests and expect from them virtue and enterprise. We taught at honor and are shocked to find traitors in our midst” (The Abolition of Man).
If we are left only to operate under our formal institutions, we are saying that there is no prior reality, in fact, we are shifting our identity from mother and father to worker and citizen. The agora can either serve as a strong force for building community or a vulgar replacement for it; without dignity, all the power lies in the “rules of the game.”
We inherently ache to covenant ourselves to one another because it will fulfill us, and in no small way, remind us that we are more than our production and consumption capabilities. Depending on our covenants, our contracts will either make or break us.
But, materialism only robs us of our joy if we give it permission, and a healthy family is the best counterbalance to the world of labor, scarce resources, and efficiency. As Chesterton reminds us:
“Of all modern notions, the worst is this: that domesticity is dull. Inside the home, they say, is dead decorum and routine; outside is adventure and variety. But the truth is that the home is the only place of liberty, the only spot on earth where a man can alter arrangements suddenly, make an experiment or indulge in a whim. The home is not the one tame place in a world of adventure; it is the one wild place in a world of rules and set tasks.”
In the past, I’ve told a handful of key stories to explain why I’ve complemented my main major of economics with marketing. This covers things from refining the skill of persuasive communication, learning to see from other perspectives, and understanding the incentives that drive economic exchanges. Truth is, it simply just happened. I fell in love with both marketing and economics courses– all thanks to the remarkable professors teaching them. I simply was obedient to the best advice I’ve ever heard: follow where the good people go.
It might be because the brains of economics majors are finely tuned to pick up on economic insights everywhere, or it might merely be narrative bias, but a recent class assignment has led me to appreciate yet another aspect of the relationship between marketing and economics.
In Econ 101, you may have learned that markets coordinate self-interested exchanges for the good of society, generally solving the economic problem of allocating scarce resources to their highest valued use. This is often referred to as the phenomena of the “invisible hand,” as explained by Adam Smith (link if you’re interested in remedying my poor simplification.) I say that marketing is the wrist of this invisible hand, as it directs the flow of information which usually provides the basis by which individuals and firms decide which things to exchange, how to price them, and where to next innovate.
In “Marketing’s Contributions to Society,” Wilkie and Moore summarize that:
“In a market-based system, consumers’ response to marketers’ offerings drive supply allocations and prices. Depending on society’s decisions on public versus private ownership, the aggregate marketing system plays a greater or lesser role in allocating national resources” (205).
In a sense, marketers act as the ambassadors between the individual and the firm. Goods and services will be provided as are communicated by the individual and interpreted by the marketer. The health of this essential relationship will determine the overall success of the economy, as if it were guided toward prosperity by a benevolent invisible hand. For me, the practical takeaway is this: if I don’t like how the “invisible hand” is functioning, maybe it’s time to assess the signals I give to marketing departments through my consumption choices.
In my studies, a sort of chicken-and-egg situation has been presented when it comes to determining whether marketing forms culture or whether culture forms marketing. Or even, if the individual has wants that marketers address or if marketers create those wants in the individual. This is nonsense. In my four years of courses and two years of work as the Director of Marketing for a local publisher, it is clear to me that marketing responds to signals from the consumer. The goal is to create value for the consumer; entrepreneurs introducing new products or services are still connecting it to some inherent desire on the part of the potential buyers. Thus, the consumption decisions that you and I engage in (or not) are what determine the commercials we see, billboards we drive by, and the products that are created. In our marketplace (not so much in government), individuals always have the power to say no.
The higher builds upon the lower, but the two must not be confused. The fulfillment of marketing’s promises, which is concrete and true in a sense, is obviously limited to the visible material world. While my wonderful little laptop has greatly augmented my search for knowledge and joy (hello Pinterest home decor ideas), it’s consequently my daily task to remember that I do not need it. Arthur Brooks explains this point well in Abundance Without Attachment. Finally, I’ve shared this before but it merits frequent repetition:
“It is not wrong to want to live better; what is wrong is a style of life which is presumed to be better when it is directed towards “having” rather than being”…It is therefore necessary to create life-styles in which the quest for truth, beauty, goodness and communion with others for the sake of common growth are the factors which determine consumer choices, savings and investments” (Centesimus Annus, John Paul II).
A quality that I’ve always admired is purposefulness. Time is something we can never get back (and who knows how much we even have left!), so there’s a real power in being able to confidently answer the question, “Why am I doing this?”
The great majority of my next few days will be consumed with studying for the GRE. (Joy of joys!) I’ve been joking to a few friends that I’ll be cafe-hopping through Omaha over my Fall Break. Except I’m not joking… And I may even hit up Council Bluffs if I’m feeling especially adventurous one day. But though I “just kinda know” this is something I need to do, I looked in the mirror this morning and understood that I needed to articulate my purpose more clearly. My lovely journal began to catch the words, but then I realized that was not nearly honest or humble enough. This was also something that I wanted to own up to publicly.
Therefore, let it be asked, “Why am I doing this”?
Starting with the least important reason, I’m doing this for myself. I’m doing this for the part of Clara that wants to know she can persistently pour herself out into a goal and reap the fruits of her hard labor. Theres’s definitely a dose of the stuff those cheesy motivational quotes are made of running through my veins. It’s invigorating, actually.
Secondly, I’m doing it for my friends, at home and abroad. The amount of support and encouragement I’ve received from my dear friends lately has taken my breath away. If you’re reading this, please know that I cherish those hugs and kind words when the going gets tough. I cannot wait to be there for you when you need the same strength! On a deeper level, I’m doing it for my friends abroad– especially holding in mind my little brothers and sisters whom I taught during Encuentro. I know there are multitudes who do not have as many doors open as I do; I’ve danced bachata with them and been humbled to live amongst them. That is why I embrace whatever small things I’ll have to give up these next few days. What an honor to be in these shoes! May I never forget the joyful charge: to whom much is given, much is expected.
Thirdly, I’m doing this for my family, my rock. There’s something sublime in knowing you are prayed for. There’s something empowering in knowing you are loved no matter what. (There’s also something really appealing about not living on your couch next year, mom and dad!)
And finally, I’m doing it for Him. I’m doing it because it was His Hands that set me in this place, and His Love that placed these burning desires within my heart. We each have a mission, or as I like to think of it, a heavenly, beautiful story that He writes through us as we journey home. So, even should this next chapter not quite work out according to my plans, I know I’m not the one who knows best (thank goodness!) and I truly believe that there is a peace that surpasses all understanding.
It’s pretty simple, really, this is just me answering Your call with “yes.”
(Confession: I had to google “manifesto” before publishing this to make sure using the word wouldn’t make me a comrade…).
I’ve been personally wrestling with the proper conceptualization of freedom for some time now (don’t worry…I have friends and a job too), ever since becoming uncomfortably aware that I enjoy a much greater degree of freedom (freedom from, as I’ll explain) than many of my friends around the world. Three recent experiences have spurred this present public-journal entry: attending World Youth Day in Poland on pilgrimage, reading Pope John Paul II’s inspired book, Love and Responsibility, and spending these last two weekends listening-in on meaningful conversations about “Markets & Morality” and “Economics & the Pursuit of Happiness” at respective conferences. May you enjoy the haphazard thoughts to follow 🙂
There is a short tale that I was once told, regarding a certain historic encounter:
Years ago, when Pope John Paul II landed in the United States for his visit, President Reagan greeted him with a hearty, “Welcome to the land of the free!” The Pope then smiled and spoke with his usual wise and glimmering eyes, “Free, yes. But free for what?”
For what? Herein lies the paradox of this self-evident right which we rightly hold so dear, precious almost as life itself. Here, I think, is why we from the land of the free are surprised when we meet those who do not have as much explicit freedom in their lives and yet mysteriously still radiate dignity, strength, and even happiness. Here is why, although we currently enjoy greater freedom than ever before in the history of humanity, we still suffer at the hands of things like the paradox of choice.
Our understanding of freedom–as a broader nation but primarily in our intimate lives–is not whole.
The protection of freedom that we are blessed by cannot be the telos, end in and of itself, since it only can protect our pursuit of happiness, not guarantee it. This is necessary on a state level, but I think that we forgot the other half of the equation. We commit to protect one anothers’ freedom through our governments, so that we can then come home and freely choose to sacrifice that very freedom in our work, school, and play. In other words, I don’t think we experience the fullness of freedom until we use our freedom from unjust restriction as freedom for an end that is true, good, and beautiful. Paradoxically, echoing the secret of Mother Teresa, I’ve found the greatest happiness and freedom in giving it up to fulfill my responsibilities as a daughter, sister, and friend. Given our abundance of choices, we must be even more careful that our daily movements are taking us closer to the person we want to become and not further.
We must remember that freedom from is always completed by freedom for.
In the framework of the state, we encounter freedom as freedom from. From the outset, I want to be clear that I am in no way disparaging the freedom that we enjoy in the United States. In fact, I want to echo the words in an excellent article by our very own Nebraskan Senator Sasse, as he clearly articulates what freedom looks like in the political and economic lens:
The American Founders saw that denying people their freedom is fundamentally wrong because it doesn’t comport with the dignity of people who are created in the image of God. People have been endowed with certain inalienable rights. God gives us those rights; government does not.
Government is merely a tool. It provides a framework for ordered liberty so that free people can live fully flowering lives.
In the sacred space of the home and heart, freedom is perfected as the freedom for. What makes freedom so immensely precious is our power to relinquish our personal freedom in the service of a greater good. We sense this instinctively, for example, when we are moved to deep admiration for those who give up their comfortable lives to fight for our country, or even as we see married couples sacrifice their individual independence for the good of their family. I have found, that through a passage in Love and Responsibility, St. John Paul the Great clarifies this mysterious and paradoxical relationship:
Freedom exists for the sake of love. If freedom is not used, is not
taken advantage of by love, it becomes a negative thing and
gives human beings a feeling of emptiness and unfulfillment.
Love commits freedom and imbues it with that to which
the will is naturally attracted — goodness. (p. 135)
Which is Greater?
Who’s to say? I certainly have not seen enough depth and breadth of life to even pretend a wise response, but I can relay the wisdom of a man who was challenged to live out his philosophy, rather than comfortably preach it in a lecture hall his entire life. That man is Viktor Frankl, and the repository of his insight is found in his book Man’s Search for Meaning. Through his experience in the concentration camps, Frankl made the courageous challenge to his fellow prisoners and now to his future generations of readers (a challenge which he lived up to):
We who lived, in concentration camps can remember the men who walked through the huts comforting others, giving away their last piece of bread. They may have been few in number, but they offer sufficient proof that everything can be taken from a man but one thing: the last of the human freedoms — to choose one’s attitude in any given set of circumstances, to choose one’s own way.
Though our freedom from may be taken away by others, our freedom for can never be completely extinguished. Freedom for, since it is not only the crown of freedom from but in fact can exist independently, is the greater, the fuller, the more perfecting. And to bring it full circle, lest we forgot it all too quickly (I know I do), the wisdom of St. John Paul II the Great:
Man longs for love more than for freedom — freedom is the
means and love the end. (p. 136)
Love is the end? Just think about this one. In both our frivolous and fundamental pursuits of happiness, when are you the truly happiest? When you focus on doing what you want every day, or when you focus on loving others and letting them love you?* For me, the answer is self-evident.
*Even apart from religious understanding– everything that the social sciences can measure points to this fact as well. I’d highly suggest a follow-up video about the longest study on human happiness.
I had told myself that I would not write (save the nightly journal of course) until I had completed my weeks of vigorous GRE prep (hey there, un-missed pal of high school math). But… give a girl a delayed flight home from Texas, and she’ll take an essay. Prudence did convince me to divide this train of thought into halves, however, and so here lies part one.
It is the tale of two Frenchmen and a common feature in the mirrors their writings held up to society. The contemporary American continuation of this motif will likely follow in a few days. If you are interested in history, economics, politics, America, love, or the French– read on!
Ce qu’on voit et ce qu’on ne voit pas (Frédéric Bastiat)
In 1850, the French economist Bastiat penned a famous essay with the above title: “That which is seen and that which is not seen.” By way of straightforward reflection, he explicates many foundational (though admittedly counter-intuitive) economic lessons. See The Broken Window for a taste of this famous dish. However, the theme of each parable is simple, hinging upon his opening argument:
Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil… It is only in the long run that it learns to take account of the others. (emphasis added)
Such foresight, in my humble opinion, convicts a lot of policies that we have today: from welfare reform to environmental policy to education debates. But that’s not what I found so compelling about Bastiat’s lesson. I think that there is a deeper “that which is not seen” that we are currently ignoring to our peril. In fact, I think it can truthfully be said that this economic lesson–small present sacrifices for a greater future good–is only a phantom of the original lesson. It lies beyond the orb of economics and contracts, rather, it is the bedrock of our society.
We call it covenant.
And here, I switch to another Frenchman who had deliberately studied our nation ten years prior. His name is Alexis de Tocqueville, and his Democracy in America explores the fruitful garden of political, social, and familial associations that make our familiar (even “taken for granted”) national identity what it is. His insight is compelling:
In Europe almost all the disturbances of society arise from the irregularities of domestic life… But when the American retires from the turmoil of public life to the bosom of his family, he finds in it the image of order and of peace. There his pleasures are simple and natural, his joys are innocent and calm; and as he finds that an orderly life is the surest path to happiness, he accustoms himself without difficulty to moderate his opinions as well as his tastes. Whilst the European endeavors to forget his domestic troubles by agitating society, the American derives from his own home that love of order which he afterwards carries with him into public affairs. (emphasis added)
This “that which is not seen” is the family, whose sacred cathedral is the visible home. In that space, costs infused with love become benefits and the familial covenant is carried out in daily acts of mercy.
This, of course, is sweeping verbiage for doing the dishes even when it’s not my turn, making you soup when you’re sick, and carrying home armfuls of farmers market flowers “just because.” This daily exchange of love-labors for a more perfect home is the foundation and fulfillment of the true economist who takes all persons into account and “pursues a great good to come” in the contractual realm.
I have a little theory that the greatest purpose of economic trade is to enable this somehow more fully human trade to take place.
Yet, here’s the rub: when we forget that our identity is first found as sisters, brothers, brides, husbands, and children, then we carry that same disordered priority list into the public square. Something tells me that this is what a little nun in India had in mind when she once said:
The poverty of being unwanted, unloved and uncared for is the greatest poverty. We must start in our own homes to remedy this kind of poverty.
Scottish philosopher Adam Smith is well-known and well-loved for founding the study of political economy with of his famous work, The Wealth of Nations. However, he had in fact authored another book before it that is foundational to that foundation. It’s called The Theory of Moral Sentiments, and I would argue that it’s currently a more important read– especially as the culture of developed countries slumps towards moral relativism. Blatant evidence of the divorce of economics from its moral moorings is found in “the Adam Smith problem,” which encapsulates how economists (and experts alike) find it hard to understand that the same individual who wrote about becoming a good person and the origins of morality in a community was also fervently curious about the nature and causes of the wealth of nations. For a man of his time, and a moral philosopher at that, the real question is how did he get so many things right about economics? The key is that he approached human behavior with an integral view of the human person. He understood the totality of visible and invisible incentives for our actions. In The Theory of Moral Sentiments, he writes in the second chapter:
Man naturally desires, not only to be loved, but to be lovely, or to be that thing which is the natural and proper object of love. He naturally dreads, not only to be hated, but to be hateful; or to be that thing which is the natural and proper object of hatred. He desires, not only praise, but praiseworthiness; or to be that thing which, though it should be praised by nobody, is, however, the natural and proper object of praise.
This is the crux of the intersection of economics and morality. Applied economics is a tool by which we achieve ends, and it is true that we do not necessarily need to judge those ends as worthy or unworthy of achievement when the models are used to determine whether they are achievable. From this it has been said that economics is an amoral science. Questions can clearly be formatted: Should Whole Foods make 300 more salads or 100 more cupcakes to increase profit? Should our family invest in real estate or bonds to save for our child’s college education? Should the federal government cut the income tax rate to raise revenue and increase growth?
But the interesting thing is that tool shapes not only outcomes but the craftsman himself.
With each fresh economic decision, we are also changed (the littlest bit) into someone either more lovely or more dreadful. The outcomes and outside standards of our life will determine whether we are praised, loved, and admired by our fellow man or not– but it is the inner, deep life and moment-to-moment orientation of our being that determines whether we are lovely to the core.
Thus, I would argue that economics is not merely amoral because the invisible moral reality underpinning our visible economic reality cannot be divorced from one another. The man who gives money at church is the same man who decides to pay private school tuition, is the same man who pays taxes and votes for officials. Later while describing vanity, Smith touches upon the problem that arises when they are. In contrast to doing things because they are inherently praiseworthy, oftentimes we act only for the praise and esteem of our fellow humans. The reality of “good choice” vs. “bad choice” are replaced with “makes-me-look-good choice” vs. “makes-me-look-bad choice.” Smith writes:
They look upon themselves, not in that light in which, they know, they ought to appear to their companions, but in that in which they believe their companions actually look upon them.
In the United States, this extensive phenomenon has been labeled with the highly technical term “keeping up with the Joneses” and can be observed in every neighborhood, office building, and church. If you ask around (college kids do that kind of thing) that kind of life seems to be unfulfilling and just plain boring after awhile.
The good news is that many people, from professors to Popes, are writing about this essential relationship between morality and economics again. In “Rethinking Morality,” Professor McRorie discusses a few key texts to highlight the strengthening link between morality and behavioral economics. EconTalk and Intelligence Squared (podcasts I just gleefully stumbled upon) wrestles with these topics in refreshingly open discourse. And of course, there seems to be no subject on which the light of St. Pope John Paul II the Great has not shone:
It is not wrong to want to live better; what is wrong is a style of life which is presumed to be better when it is directed towards “having” rather than “being”, and which wants to have more, not in order to be more but in order to spend life in enjoyment as an end in itself. It is therefore necessary to create life-styles in which the quest for truth, beauty, goodness and communion with others for the sake of common growth are the factors which determine consumer choices, savings and investments (Centesimus Annus).
Back to Adam Smith– a real trap of free market cultures seems to be the ability to look praiseworthy without becoming praiseworthy. And here’s the real rub: there will be choices that will not gain us love, praise, and admiration by our fellow human beings. In fact, truly praiseworthy choices may even earn us hatred, blame, and suffering.
We must choose them anyway.
It is not wrong to to want to live better; what is wrong is a style of life that is presumed to be better when it is directed toward ‘having’ rather than toward ‘being’, and which wants to have more not in order to be more, but in order to spend life in enjoyment as an end in itself. It is therefore necessary to create lifestyles in which the quest for truth, beauty, goodness, and communion with others for the sake of common growth are the factors which determine consumer choices, savings, and investments. —Centesimus Annus
Especially trailing the Great Recession, many individuals are tempted to hold onto their savings in the form of cash or cash equivalents in an attempt to preserve their value. There’s no risk in this, right? In reality, this may not be the wisest decision to preserve your wealth, as the average inflation rate has traditionally hovered around 3%. This means that the dollar in your hand will lose 3% of its purchasing power within the next year; you will be able to buy 3% less stuff with your money a year from now. Yet, though it may seem counter-intuitive, this situation is highly preferable to the alternative—deflation—and nicely aligns with the Fed’s goals of stable prices. Investing the majority of your assets where you feel comfortable (whether that be bonds, ETFs, equities, etc.) and especially seeking a financial advisor’s advice is by far your best shot at preserving and growing your wealth.
Why is slight inflation preferable? Inflation is “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling,” as the wonderful Investopedia explains. In order to facilitate this inflation, the Fed exercises an “elastic” currency, meaning that they print money out of thin air (the value of money is not tied down to a gold standard.) Although it may seem counterintuitive, this allows the Fed to rapidly react to changes in the economy and prevent the dollar from deflation, which is the worst case scenario. Deflation, which occurs when there is a shortage of money resulting in an overall fall in prices, is dangerous since it “results in lower prices being forced upon the market which are not the result of normal market forces” (“Why Deflation Is Bad And Inflation Is Good: Monetary Policy 101.”) This is really bad for people looking to borrow money, so essentially all of us if we someday wish to make a big purchase, because lenders will definitely want to hold onto their cash since it will be worth more in the future than it is currently. As you can deduce, deflation spells disaster for interest rates. If inflation goes up, interest rates can go up as well to naturally lower demand for borrowing money and keep the economy from hyper-inflation. But, interest rates are not able to go below 0%, thus deflation, and the economy is stuck in a downward spiral where no one wants to spend, much less loan out, money. To quote the previous article, “once an economy slips into a deflationary spiral, there is little the Fed can do, and that is why they deliberately error on the side of caution and generate a bit of inflation. It is simply an insurance policy against the destructive consequences of deflation.”
How do I beat inflation? Unfortunately, since most bank accounts offer really low interest rates for savings, usually around 1%, holding the primary amount of your wealth in cash means that since it’s not growing past 3% to make up for inflation, it’s shrinking. The Forbes article, “Why It’s A Bad Idea to Keep Your Retirement Savings in Cash,” highlights the reality that “in a sense you’re actually losing money every year. ‘The cost of goods and services goes up every year by about 3% on average, as inflation,” says David Blaylock, a LearnVest certified financial planner™ in Fort Worth, Texas. “If you’re earning 1% on your money in a savings account, you’re arguably losing purchasing power every year due to inflation. Growth isn’t even a possibility.’” To begin handling your assets with greater diligence, a good rule of thumb is to look at keeping about six to nine months of savings liquid in case of emergency. From there, assess your personal risk tolerance and look outward to investing and safeguarding your savings through slowly investing it back into the market where you feel comfortable. Luckily, in our developed society we have access to many great financial resources to guide us in this process, the foremost being a personal wealth advisor.
In conclusion, investing does not have to be a risky gamble embarked upon by the ambitious wealthy, rather it is a great way to safe guard against inflation risk while providing the opportunity to gain additional value on your savings.