Babies as Consumer Products

By Kate Bluett

Correct me if I'm wrong, but isn't this the United States of America? In the twenty-first century? Aren't we first in the first world? So why is our rate of women dying in childbirth rising again?

It's not a huge increase, but it is cause for concern. We also have one of the worst infant mortality rates in the developed world. And surprisingly, no one blames these rates on a corrupt health care system turning patients away. Rather, the rising maternal mortality rate is blamed on higher rates of obesity and C-sections; one-third of the infant deaths are the result of prematurity.

Obesity contributes to the rise in C-sections: an overweight mother is more likely to have a bigger baby. The difference between birthing a 7-pound baby and a 10-pound one is significant; it can cause serious complications. These complications may require a C-section birth. High-risk pregnancies are also more likely to require C-sections; they're also the ones more like to end prematurely, especially if the high-risk qualification is due to the presence of multiple babies in the womb. And our rates of multiple births have been skyrocketing for decades, ever since in vitro fertilization was introduced, in fact.

In vitro fertilization, as practiced in the US, often results in multiple-baby pregnancies. That's because American doctors usually implant four or more embryos into the womb, a procedure that's illegal in other developed countries. But embryos tend to implant in batches or not at all, and parents want the most children they can get out of one second-mortgage-inducing round of treatment. So in go the embryos and out, if they're lucky, come the babies.

Many do not survive—the female body is built to bear only one baby at a time. Doctors know this, well in advance of performing any assisted reproductive procedures, but they do them anyway. In vitro fertilization, egg donation, and fertility drugs all carry the risk of this outcome, but they're all getting more common by the day. And even if only one embryo "takes," the results are not good: even singleton babies manually implanted in the womb are more prone to prematurity, low birth weight, and birth defects. But doctors implant them day after day after day.

We the people are raising our infant and maternal mortality rates deliberately. People want babies, of course, but they are now demanding them on their own terms in greater and greater numbers. They think their terms do not include deformity and early death—why else would they screen embryos for genetic abnormalities and hereditary diseases before implantation? Their terms include timing, gender, number, and health; IVF parents are not so unreasonable as to demand certain eye colors (unless they're using donor gametes, in which cases donor appearance can be a factor). But the terms of the deal are the terms of the deal. The cost of IVF doesn't begin to cover the external costs to children's health and well-being. But in a consumerist culture, the costs to a future generation don't matter. What matters is the consumers of today being able to demand—and get—whatever they can pay for. No matter who foots the real bill.


The "Economic Expansion" that Wasn't

Census bureau reported yesterday that the median household income rose in 2006 by 0.7%. This sounds like good news, but it isn't. When you look more closely at the numbers, there are some disturbing trends:

  • The earnings of men and women working full time actually fell by 1%.
  • The increase in household earnings was due, apparently, to having more family members working.
  • The median income of working-age households (those headed by someone less than 65 years old) is lower by 2% than what it was in 2000, the year before the last recession.
  • The only group whose income in 2006 exceeded their income in 2000 were the those in the top 5%; for everybody else, incomes were lower.
  • Despite a small improvement in the poverty rate, 5 million more Americans were living in poverty than 6 years earlier.
  • The GINI coefficient, the standard measure of income inequality reached .47, a number approaching third world levels. (The the higher the number, the greater the level of income inequality. The U.S. has the highest level in the industrialized world.)
But the worst part is that, as the New York Times reported, this is as good as its going to get for some time. The economic party is over, "and most working Americans never got near the punch bowl." The rewards went to those at the top. How did this happen? Simple. The expansion wasn't really an expansion at all. A real expansion is when you increase the output of goods and services AND provide the income to purchase them. But what actually happened is that we increased our imports of goods and services, and financed their purchase with credit. This mimics an expansion, but isn't actually one; its just living on credit cards. People maxed out their lines of credit, both with plastic and by re-financing their homes to convert the equity to spendable cash. But in truth, a nation can only produce its way to real wealth; it cannot borrow to become rich.

We are creating a two-tiered society, a society of the type more commonly seen in undeveloped and economically backward countries. The United States lives on the generosity of foreign lenders, a situation that can not be indefinitely prolonged. Of course, this is bad for working people, but its not even good for investors. Why? When you have an increasingly large concentration of wealth at the top, you suffer a loss of purchasing power at the middle and lower ends of the economic spectrum. But a healthy market depends on the majority of the people having enough income to "clear the markets," that is, to purchase all the goods and services. But our middle and lower income groups can no longer do this. This means that there are fewer good investment opportunities, but a larger amount of wealth chasing them. And, by the laws of supply and demand, the price of good investments rises, and the yield falls. This means it gets harder and harder to find good investments and decent returns.

The problem can be solved temporarily by having those with excess incomes lend to those with deficient incomes. This keeps up demand, but only delays the problem and in fact makes it worse with each passing day. The high rates of interest for consumer loans means that even more wealth gets transferred to the top, which further shrinks the market, which further makes getting a good return difficult, and which forces investors to grant more consumer loans. When you finance an economy on credit cards, you set up a house of cards that must collapse.

The problem for investors is that as yields fall, risk premiums get flattened or disappear entirely. That is, a dubious loan pays little more than a good loan. But while risk premiums may disappear, risk does not. Loans go bad and lenders go broke. And when they do, the assets underneath the loans come to market at the same time, meaning there are excess inventories, which drives down the price of all other assets, making all other loans less secure (it gets complex, doesn't it?)

A two-tiered market is the sign of an economy in decline. For the last five years, this economy has benefited from enormous amounts of fiscal stimulus: tax cuts, high deficits, foreign borrowing, consumer loans, all count as stimulus. Yet despite such hugh amounts of money being pumped into the economy, the results have been comparitively anemic. Now they may be coming to an end entirely.


Socialism for the Rich--Capitalism for the Rest of Us

James Grant, the editor of Grant's Interest Rate Observer, writes today in the New York Times:

Why does the Fed feel the need to intervene at the drop of a market? The reasons have to do with an idea set firmly in place in the 1930s and expanded at every crisis up to the present. This is the notion that, while the risks inherent in the business of lending and borrowing should be finally borne by the public, the profits of that line of work should mainly accrue to the lenders and borrowers.

The Fed intervention was to print-up $78 Billion in new crisp dollars bills, and lend them to the banks in exchange for their bad mortgages. Not a bad deal--for the banks. For the public, who has to bear the expense, it is a different matter. However, since they lack representation at the Fed and have no lobbyists in Congress, the public may be safely ignored. Of course, the bankers who borrow this money to cover their losses are the same one's who pound the table about "free enterprise" and "get the govmint off our backs." At the first sign of trouble, they become instant socialists, so long as they are the beneficiaries.

But I am not ranting on that question today so much as asking how we got into this situation. Or rather, why we keep getting into this situation, since this is a recurring pattern in capitalist economies. Grant traces this corporate socialism back to the 1930's, but in fact it is much older than that. Adam Smith offers much the same analysis of corporate welfare in The Wealth of Nations, first published in 1776. Why does capitalism seem to depend on socialism for the rich and "free" markets for the rest of us? Why do we see the pattern over and over again? There is indeed a reason. Capitalism tends to concentrate wealth at the top of the social scale. However, this excess concentration creates a problem that even the founders of standard neoclassical economics noted. As wealth concentrates, it has more and more difficulty in finding profitable investments. Indeed, the concentration of wealth all by itself narrows the markets. Markets depend on a broad base of consumers with sufficient purchasing power to clear the markets of all the goods and services produced. But concentration narrows this base and hence makes investments more risky.

In order to get a decent return on their money, investors must accept higher and higher levels of risk. That is, loans become riskier as credit is extended to a broad public that has reduced means for repaying its debts. It is not that bankers and others are simply foolish men; by and large they are shrewd men. Rather, it is that they have no choice. The narrowing of the broad base of the market increases the risks of investment, and the excess capital has to go somewhere. As the investments get riskier, the risk premium itself disappears, and there is less and less difference between the rates for a risky loan and a sound one. But while the risk premium disappears, the risks do not. Eventually, the risks come home to roost: loans default and fortunes are lost.

Or at least, that is the way it works for you and me. We can lose our fortunes, our homes, our livelihoods, and that will be regarded as nothing but the normal risks of living in a capitalist country. However, for the rich who created the problem, it is otherwise; they have the power to command the government to absorb their losses, while they themselves get to keep the gains. The truth, however, is that this cycle cannot go on forever. Sooner or later, the whole house of cards collapses, with catastrophic results. We have come to the belief that such collapses cannot happen here, that the bad old days of the Great Depression cannot again come.

I hope they are correct. But I suspect this is a fantasy. While the govmint may make small changes to correct small problems, I suspect that this merely builds up pressure to create a problem not even the omnipotent govmint can handle. What it mainly does is convince the rich that there is no more risk, or rather no risk that the govmint won't take off their hands. This was somewhat effective in the day when the United States was a creditor nation, the dollar strong, and we produced most of the goods that we consumed. But it is no longer true. We live on borrowed money, and the nation that lives by borrowing lives on borrowed time.


The Stone Mirror

I have just returned from Washington, D. C. While there, I visited the Viet Nam War Memorial with my son. It is a remarkable monument, more poignant because we had just been through the rather bombastic World War II memorial at the other end of the reflecting pond. But the Vietnam memorial is quite another thing. One particular feature is that the names of the dead are inscribed on stone, but not alphabetically, but historically; that is, in the order in which they died, and next to the soldiers that died with them: comrades in arms, comrades in the roll call of the dead. As we walked the grim roll of shattered youth, I could not avoid talking with my son about that war and this one, and wondering were they would put the panels, and how many more panels it would take to count the dead from Baghdad and Anbar.

The monument has another peculiar feature: it is made of black marble polished to a mirror-like finish. And when you lose focus on the seemingly unending roll of names, you suddenly see yourself standing among the dead. For a veteran of the war like myself, this means standing with old and lost comrades, and it is an intense experience. But I do not write of that experience, but of another, of an experience I can only imagine but cannot know. And it is the experience of one who has no connection with the war, who wasn't there and lost no son, no lover, no brother, no father, to the terrible hell's gate of the war. What must they think seeing themselves in the stone mirror among names they do not know? Since I do not know (I cannot divorce myself from my own experience) I can only speculate. Or rather, I can only hope. And what I hope is that they really will see themselves among these dead, and see these unknown dead, these lost boys, as what they are: their own brothers, their own sons, their own lovers. And I hope that their grief cannot be less then those who knew the names, and know the faces behind the names.
As it turns out, at nearly the very time that I was musing on the Vietnam and Iraqi wars, our President was doing the same thing. But he was drawing some rather peculiar and, in my humble opinion, erroneous and damaging conclusions. He was repeating the Myth of the Premature Withdrawal That Lost us the War We Had Won. In this mythical world, a victorious nation, at the behest of Jane Fonda, resigned its victory and embraced defeat; "If only," they say, "if only we had held out a little longer!" Never mind that we held out ten years and 55,000 American deaths (the Vietnamese deaths will never be properly counted). Never mind that we had more than half-a-million men in a country half the size of Iraq, and had trained and equipped dozens of Vietnamese divisions. The myth says we lost because of what is possibly the stupidest woman on earth, hankering as we were, no doubt, for more of her pointless movies and useless exercise tapes.

But in truth, we did not lose this serious business because of a stupid woman; rather we lost it because serious men made the business stupid. The same bodyguard of lies that marched us into Saigon was redeployed to Iraq. The same tales of terror, of beating them "there" so they wouldn't come "here." And America was patient; for 10 years, mothers watched their sons die, and young girls reached out in longing for lost lovers. And still they stayed with the war until they could stay no longer. In the end, it was not the antics of Jane Fonda but the real grief of real women that brought the troops home, home from a contest that could not be won.

Or rather, it could not be won by us. Such wars are not won by foreigners. As outsiders, we can help one side or the other. But the wars must be won and lost by the people in the country. If Iraq really is a country, and not merely an abstraction of the British Colonial Office, then the Iraqis must by their own arms decide their own fate. We can place arms into their arms, and what can be accomplished by training, or logistics, or the like, we can accomplish for them. But they themselves must win their own battles. And ever was it thus. This has happened in Iraqi Kurdistan, a prosperous and free corner of Iraq, free because they freed themselves. There are but 60 American soldiers in the whole province, and even they have little to do. That's six-zero; not 600, not 6,000. SIX-ZERO. I suspect that if there were a similar number in Baghdad, Baghdad would sort itself out in short order. and if they will have problems, as they certainly will, they are problems they will learn to deal with by means they will have to choose.

Kurdistan is successful because we left it alone, Iraq is unsuccessful because we cannot leave it alone, and Vietnam successful since we have left it alone. The problems that will arise are not problems that can be solved by inscribing more names on a stone wall. They are problems caused by men who largely have no comrades on the stone mirror, and who cannot see themselves or their sons among the dead; they avoided the last war ("I had other priorities," says Dick Cheney, chief of the war party) and will let no one avoid this one. But mostly, it is a war of men who cannot admit a mistake, a tragic mistake. That is to say, the problem is not a stony wall, but stony hearts. I would hope such hearts could be softened in the stone mirror, by a grief that identifies with weeping mothers. As I walked the wall with my son, I imagined for one terrible instant, and without attempting to do so, seeing his name on such a wall. And for one terrible moment, all I could feel was grief, and all I could think of is "What will I tell his mother?"


Pyramids, Christmas Trees, and Cathedrals

The following was written by Dawie Coetzee, an architect from Cape Town, South Africa.

It occurred to me a while ago that the predominant movement of mind involved in
modernist design is that of magnification; that is, of conceptualizing
a very small object and then proposing that it be produced at a much
bigger size. The modernist preoccupation with simplicity really lends
itself to the practice of building scale models, especially models at
a very small scale; except that the model itself becomes the end
product of the design process, and the final building a mere
representation thereof. The modernist designer strives to produce
buildings that are magnified-scale models of architectural maquettes.
I might conjecture that the unwitting cause of this tendency is the
association of the maquette with the design professions, and the
consequent implication that a building that looks like a big model
does so because it was designed by an architect rather than a farmer
or military engineer, and moreover by the sort of architect who is
conscious enough of design to take the trouble to build scale models.

The result of this quest for glamour and prestige is that it
transfers the product from the realm of practical (or indeed any
other) consideration to that of the aesthetic. The more obvious the
hand of the designer, the greater the demand that the work be judged
as art and only as art. It is an effect that lies at the root of
current "designerism", with all its implications of labels and the
commodification of thought, through to third-world labour conditions,
etc., in that the intellectual or "artistic" origins are emphasized
to the exclusion of the physical or practical origins of things. (It
is as if physicians were invited to consider their patients' coughs
only in terms of timing, cadence, delivery, finish, and not in terms
of what might be diagnosed from them. I can see a circle of doctors
at a bedside, politely applauding every so often and trying to appear
very suave to one another.) It goes far in explaining the elaborate
chronolatrous shrug that is the characteristic gesture of the design
professions, ludicrously fashion-conscious as they are, today.

It arises, of course, from the desire of people to be thought
superior to their neighbours, that is, from the Deadly Sin of Pride.
It is therefore not surprising that we find the most graphic example
of the magnification so typical of modernist design, though
historically removed from modernism, in the Great Pyramids of Egypt.
It is quite reasonable to say that no tomb has any business being
that big, not even the tomb of an extremely important person; but
that is not quite the point. The point is that a pyramid is really
much too small to serve as a tomb for anything larger than a Jelly-
Baby (I trust that the rest of the world also knows that disturbingly
sarcophagus-shaped sweetmeat). In fact, divorced from any empirical
experience of scale, a pyramid is barely big enough to serve as a
coffin for a Jelly-Baby. Think about a pyramid, and it should be
quite obvious that it ought to be about two and a half inches tall.
What heinousness of pride did it not require to build pyramids of the
size the Pharaohs built?

The result of this inflated simplicity is a sort of inscrutability,
the implication that the Pharaohs were up to something far
too "advanced" for common folk to understand, an implication that
should be familiar to anyone exposed to architecture-as-art. As
cultural artifact or, if you wish, as cultural artifact roughly
triangular in elevation, I am wont to contrast to the pyramid the
Christmas tree. As inscrutable as is the pyramid, so immediately is a
Christmas tree understandable to any child. And because it is thus
understandable by those His disciples thought unworthy of approaching
our Lord, but of whom He said, "suffer little children, and forbid
them not, to come unto me: for of such is the kingdom of heaven", a
Christmas tree is of very little use as an expression of "good taste"
and cultural superiority. Indeed, if one's Christmas tree is not a
paragon of "bad taste", being garish, vulgar, and obvious, one isn't
doing it right.

If it is possible to translate the innocent fascination that anyone
who is honest with themselves finds in a Christmas tree into
architecture, it is achieved in the Gothic cathedral. The same wealth
of busy sparkle, which invites our sustained alert gaze, is found in
the interior of the Sainte Chapelle at Paris, for instance. But there
is another aspect that renders what A W N Pugin called "pointed or
Christian architecture" the perfect antithesis of the pyramid: for
all their vastness, one cannot escape the idea that the great
cathedrals ought to be even greater; that they have been mercifully
scaled down for our benefit.

I think there are two factors that bring this about. First, where the
tendency of the modernist and the pyramid-builder, and indeed the
Classicist, is towards magnification, the medieval impulse is towards
multiplication. Gothic elements have a proper size in relation to the
human body, and cannot be enlarged and reduced arbitrarily. If one
needs to build a bigger building it is necessary to use a greater
number of elements rather than the same number of bigger elements.
Consequently, the bigger the building, the greater the complexity,
the result of which is that the individual elements appear smaller in
proportion to the composite. And because we relate the elements to
ourselves both by absolute size and by proportion, the result is an
impression of immensity reduced.

Second, and in apparent contradiction with the first, is the medieval
practice of "micro-architecture", in which rood screens appear as
miniature west façades and reliquaries as miniature basilicas. I do
not believe the contradiction to be real: it indicates a sensitivity
to scale that is ever conscious of the proper sizes of things, even
when things are presented at another size. Thus, if a reliquary can
imply a proper size greater than its actual size, cannot a cathedral
do the same?

"Micro-architecture" is perhaps an extreme example of the tendency
that medieval architecture has of throwing up little bits of order in
unexpected places: little pockets of symmetry disposed asymmetrically
in relation to one another. Such distribution of order is thoroughly
Distributist in spirit. If there might be such a thing as a
Distributist architecture, I suggest that it would be difficult to
achieve except by consideration of medieval architecture. What say

Dawie Coetzee


Warren Buffet and Market Myths

I do not claim to be a market guru, but I do claim to know of someone who is: Warren Buffet, easily the smartist man on Wall Street, perhaps because he stays as far away from Wall Street as possible. One of the richest men in the world, and certainly the greatest investor in modern history, he lives a comparatively modest life in Omaha, Nebraska. I found these words of his enlightening:
Many institutions that publicly report precise market values for their holdings or CDOs and CMOs are in truth reporting fiction. They are marking to model rather than marking to market. The recent meltdown in much of the debt market, moreover, has transformed this process into marking to myth.

Because many of these institutions are highly leveraged, the difference between "model" and "market" could deliver a huge whack to shareholders' equity. Indeed, for a few institutions, the difference in valuations is the difference between what purports to be robust health and insolvency. For these institutions, pinning down market values would not be difficult: They should simply sell 5% of all the large positions they hold. That kind of sale would establish a true value, though one still higher, no doubt, than would be realized for 100% of an oversized and illiquid holding.

In one way, I'm sympathetic to the institutional reluctance to face the music. I'd give a lot to mark my weight to "model" rather than to "market."


Using the R-Word

Economist Clément Gignac of National Bank Financial now rates the odds of a U.S. recession next year at 50-50, up from 35 or 40 per cent just a couple of months ago. Read the rest of the story here.


The Oklahoma Food Cooperative

My good friend Robert Waldrop is what I call a "practical" distributist; he doesn't merely talk it, he practices it. And he practices it in a big way, as is appropriate for a man of his Chestertonian girth. Robert, a former libertarian firebrand, discovered the Catholic Church and distributism as means more likely to advance true human liberty and happiness. But it wasn't enough for him to hold some abstract ideals; he has to live them. He founded the Oscar Romero Catholic Workers House in Oklahoma City, works as a music minister in a Church, and, in his spare time, founded and runs the Oklahoma Food Cooperative. Distributism is about given folks the means to make their own living without depending on either the Nanny State or the Big Brother corporation. But this requires that people have markets for their goods; a place where buyers and sellers can connect. So Robert provides one. The Cooperative sells over 2,000 products from local producers. From a small beginning, the cooperative now sells over $40,000 a month of locally produced organic foods and other products.

And the cooperative is still growing. Over the past three years, the cooperative has developed innovative software for coordinating the buyers and sellers throughout the state, software which he provides for free to other cooperative. Moreover, he has helped other cooperatives get started in other states. You can learn more about the cooperative at its website. You can also see a recent newscast about the coop, complete with video of Bob and his volunteers on market day.

Throughout its history, Distributism has been blessed with people who were not just "hearers of the word," but doers as well, and Robert Waldrop is certainly a doer.


Follow Up To "Utopia"

Friends and neighbors,

This is a brief post from me while I am still on hiatus.

I wish to reinforce what Mr. Medaille said. With the New York Stock Market in a tizzy over the last few days, and world stock markets responding to such, it is vital that you prepare yourself for the worst.

I encourage those of you who - like myself - are plagued with much credit card debt to GET OUT OF DEBT AS QUICKLY AS POSSIBLE!!! With personal, corporate and government debt in America numbering in the trillions of dollars, it is necessary to get out of debt as soon as possible. Please, for the sake of your families and communities, GET OUT OF DEBT!!!

And for our foreign readers, do likewise. Some economists I have read in the alternative economic media believe that if the dollar crashes - God forbid! - the Euro made be next. So please get your personal financial houses in order.

Thank you for your time and attention. And please us at the Review in your prayers.


The Utopia of Usurers

Paper or Plastic? Or both?

Ben Stein, the economist/actor, used his column in the New York Times today to echo a theme that resonates with many of the neoconservatives, namely, that the current jitters in the market are not meaningful. After all, the reasoning goes, only a portion of the sub-prime mortgages are in default, and the sub-prime loans are only a portion of the mortgage market, and the mortgage market is only a portion of the total economy, and the total economy is sound, so what's the problem and why the panic? Ben is certainly right that the sub-prime mortgage market, considered in itself, is not a large part of the economy. And indeed, if you look at overall numbers—corporate profits, unemployment, inflation, etc.—the economy does look good. On paper. And the economy should look good on paper, since it is an economy made out of paper. And plastic. The paper of loan notes and the plastic of credit cards. And we may add to the this the hyper-Keynesian policies of financing the govmint on mega-debt, and a trade deficit dependent on the largesse of the Chinese government. So what is the real state of the economy, and are the markets right to be worried?

A Two-Tiered Economy

In the last 25 years, the productivity of the average worker has greatly expanded, but the wage of that same worker has stagnated; the majority of the rewards have gone to the top. This means that there are a lot more goods produced then the worker can possibly buy on his/her stagnant wage. In other words, there is insufficient purchasing power to clear the markets. At the same time, the people at the upper end have more money then they could possibly use for consumption, no matter how conspicuous that consumption is. The solution was simply for those at the top to lend their vast amounts of excess funds to those at the middle and bottom so that there would be sufficient purchasing power to clear the markets. In other words, we entered an economy of pure usury—The Utopia of Usurers about which Chesterton wrote.

But utopia has it problems, even for the usurers. With wages stagnant, the real market—the market minus consumer debt—does not really expand. This means that there is a more limited pool of decent investments and a larger amount of money chasing those investments; hence the price goes up and the returns go down. This means, in turn, that investors who wish to get a decent return on their money must accept higher and higher levels of risk. Hence we see the proliferation of hedge funds, private equity firms, leveraged buy-outs, sub-prime loans, consumer credit at usurious rates, etc.

High risk lending was encouraged by the govmint. Alan Greenspan encouraged the banks and mortgage companies to lower their lending standards (just as he did before the S&L crises of the 80's) and to offer “alternative” products (a euphemism for high-risk and adjustable-rate loans). He lowered interest rates, thereby flooding more money into the markets. And the economy, working with high-risk, borrowed money, seemed to be in good shape. But can we really borrow ourselves into prosperity? Does not the bill one day have to be paid? The top players really aren't worried about this. After all, they have the example of the savings and loan debacle of the 80's before them, when there were a few prosecutions but a large amount of profits, and the govmint bailed out the miscreants by transferring a half-trillion dollars of public wealth into private hands. Not a bad wage for failure. After all, if a $30 billion dollar hedge fund goes under, the manager may be left with only a $100 million or so for his trouble; the losses go to the investors. If the govmint is willing to take all the risks for the richest, there is no reason why the richest should not be risky with the public's money. Indeed, the Fed has pumped another $38 billion into the banks to shore up the risky loans. This is entirely new money, newly printed. Congress did not appropriate it nor did we borrow it; the Fed just prints it (today, its largely done with computers.) But it is fair to ask if this is just more of the medicine that made us ill in the first place?

A Market Meltdown?

So, getting back to Ben Stein, are the markets over-reacting to a few bad loans, or do they correctly perceive a wider problem? After all, most of the men in the market are not among the super-rich who will be bailed out by the govmint; their risks are real and their worries justified. They perceive a larger problem, and they can't be entirely wrong; sooner or later, a debt-ridden economy must suffer a severe correction. What “correction” usually means is that the guilty will be rewarded and the innocent—all the rest of us—will be “corrected,” and corrected at great cost and suffering. I cannot say that today is the day that this will begin, but I do know that the day it begins will look very much like this day, and since this day is so very like itself it could very well be the day.

We forget how common these days are in the history of capitalism. After all, it has been 78 years since the great depression, long out of the memory of most living men. And the downturns since then have been comparatively mild. However, if we look at the period from 1853 to 1953, we find that the economy was in recession or depression fully 40% of the time. That's a huge number. Since 1953, the economy has been “managed” by the Federal govmint using Keynesian and monetarist techniques and we have been in recession only 15% of the time. But can such hyper-Keynesiansism—a perversion which would have appalled even Keynes—be sustained? Is capitalism about to revert to type, a type which involves chronic instability? Time will tell. But while time is telling, I think this may be a good time to hold a little gold, or a little field, or a few tools with which to make your own living; something, that is, to tide you over these telling times.


Unethical = Uneconomic

John Connolly, in response to my “Why Economics Needs Ethics” post, brings up an excellent point. He says, “What you say is true, but I'm not sure that the argument will hold up as exploitation (I've heard arguments for sweatshop labor at low rates because it keep the workers working harder). The argument could be that with $5 over $2 a day, even though the worker can't buy what he's making, he can buy more of other things in his country. If he's making soccer balls, he probably won't want to buy them anyhow. But we do, so what's the harm in hiring them out to make them at what they consider to be luxurious rates? Everybody wins, right?” This is an excellent point, and needs to be considered.

Let us be clear here: It is not that workers in all countries should be paid the same. Workers should be free to leverage their lower standards of living into a competitive advantage. But this only works if the object is to raise their material well-being above the level of subsistence as defined by their particular society. Obviously, this level will not include everything it includes in our society; it is unlikely to include a car, a big house, or even indoor plumbing. But if workers get subsistence and something to spare, the “something to spare” will support many local businesses, which will then raise the demand for labor and with it the average wage. Further, the excess over subsistence will contribute itself to trade, as workers, or at least the lowest level of businessmen, have incomes sufficient to buy foreign goods. Within a relatively short time, the country becomes a real trading partner and not just a source of cheap labor.

But if, on the other hand, justice is absent, if workers can command no more than subsistence, then subsistence itself will be defined downward; the human capacity to endure hardships will allow for increasingly oppressive conditions. As this process continues, workers will lose what little bargaining power they have, because there will be no excess to support them in times of unemployment, and they cannot withhold their labor, even for a day. In such cases, the only thing worse than being exploited is not being exploited; one must work at the terms offered or starve. At this point, all the positive values of trade disappear into a black hole. Education will not be advanced because only the meanest labor is desired, labor which can be done by mere children, the easiest of all groups to exploit. Women will not be able to attend to the home, since they are the next easiest group to mistreat

Business begets business; the more flourishing businesses there are, the more supporting businesses spring up. But first, business itself depends on having a broad base of customers with sufficient income to support business. With just a little justice, a virtuous business cycle ensues; the little excess fuels little businesses which fuel more businesses, which creates more excess over subsistence, a higher demand for workers, and more businesses. This “virtuous cycle” has been tested in such places as Taiwan, and Singapore, and in many other examples of successful development. But if justice is absent, the reverse happens. If the workers in Bangladesh won't moderate their demands, we'll move to Indonesia. And then we will play Indonesia off against Vietnam, and from their we'll threaten to go to Ghana. The poor in each country are played off against each other, and a vicious cycle results, pushing wages to subsistence and pushing subsistence itself to lower and lower levels.

When we hear of sweatshop conditions, we like to comfort our consciences by saying, “yes, but its a good rate for their society.” Alas, this is not true; the very logic of the trading argues against it, as owners seek greater and greater profits; indeed, the market punishes the owners if they cannot continually increase their gains, and the logic of competition, unrestrained by the natural and customary rights of workers, dictates a continual search for ever-more exploitable labor.

Such systems are unstable. Not only socially unstable, fueling growing resentment and discontent, but economically unstable, as the whole logic of trade is broken, a logic that depends on a certain balance. The unethical is also, ultimately, the uneconomic.


Why Economics Needs Ethics

Since the 1970s business schools have recognized that something was missing from the training they were giving their students, namely an ethical foundation. Consequently, they began to offer courses in business ethics. Today, nearly every business school has such courses. However, there is a fundamental problem with the way business ethics is taught. Ethics are often taught as something “external” or “added-to” economics, rather than something which lies at the core of our economic and business relationships. Ethics are regarded as belonging to one realm, and business to another; the world is divided into the realms of "ought" and "is," and the former is not supposed to interfere with the latter. But such teaching cannot challenge the central—and incorrect—view of man that is at the heart of standard economic theory. This view states that man is naught but a “self-interest maximizer,” who always acts to increase his personal advantage, even at the expense of others.

This theory was famously put forward in 1712 in a long poem, The Fable of the Bees: Private Vices, Publick Benefits, by Bernard de Mandeville. Mandeville claimed that if people would only and always look out for their own self-interest, then the public good would take care of itself. We need never worry, Mandeville believed, about the moral universe; the economic engine, freed from morals, would provide riches enough for everyone.

However, this theory simply doesn't work. The reason that self-interest cannot add up to a public good is that it cannot even add up to a private good. In truth, our good is not something known in advance, but something discovered in the process of living out our choices, and life is the process of this discovery. All of us have had the experience of living through something they thought was a disaster, only to discover that it was the best thing that could have happened, or of receiving exactly what we wanted, only to discover that it was a disaster. What we really need to do is reverse Mandeville's law. Only by acting for a higher good can we discover our own particular set of goods; only through a certain regard for others can we learn to have respect for ourselves.

And this is important because what people really seek in their actions is not self-interest, but self-respect. Self-respect includes self-interest, because no self-respecting person allows himself or his family to fall below a certain level or to go on charity or into bankruptcy, if it is in his or her power to prevent it. But self-respect also allows us to go further and pursue higher-order needs, needs such as virtue, love, professional competence, and the pursuit of truth, knowledge, and beauty for their own sakes.

This is not just a personal matter, for the economy as a whole requires these same qualities to function properly. Some level of justice, some rough equity in the distribution of rewards, is necessary or it is difficult, if not impossible, to achieve equilibrium, the more or less stable balance of supply and demand. When there are great disparities in wealth and poverty—when, for example, the CEO makes 500 times what the average worker makes—then there will be insufficient purchasing power among the workers to clear the markets. This lack of purchasing power will have to be made up either by government tax and redistribution policies, or by consumer credit, that is, having those few at the top with too much money lend it to everybody else in order to prop up demand. But running an economy on usury is surely just a stopgap, a way-station on the road to ruin.

But another problem arises. For while an economy without ethics is on the road to ruin, any particular business person who lacks moral principles may be on the road to riches. A businessman who acts dishonestly may gain a competitive advantage, while the CEO who fires all his workers and outsources his factory to a country that pays starvation wages will be able to undersell his rivals. However, when everybody does this, then not only will the advantage disappear, but the CEO will discover that in firing his workers he has also fired his customers; they are the same persons. And unless his former workers can find jobs as good as the ones they lost, the economic balance will be broken. While credit cards may, for a time, restore the balance, they can be but a stopgap. But in the end, you cannot, as G. K. Chesterton noted, "pay a man like a pauper and expect him to spend like a prince."

Self-interest may make a man rich, but can never make him a man; only the virtues can do that. In receiving a business education, students must learn both the tools of business—finance, operations, marketing, and so forth—and the connections between their actions and the world in which they live. Students must be shown how their actions shape not just their businesses, but themselves and their communities. They must be reconnected with the values that no man or woman should be without, and no economy either. This is the approach that we take at the Business Leadership Program at the University of Dallas, where I am privileged to teach a course in Social Justice for business students. We aim to give students not only the best tools, but the best values. The truth is that in our commercial civilization the world is largely shaped by business decisions. If we continue to mis-educate our business students, we need not complain about the world they build.


Other Voices

[An occassional feature, for when the blogger is to tired to write something original. Click on the headlines.]

The 62nd Anniversary of Hiroshima

Could be a Big News Day!

Will Tony Blair Pope it?

Bobblehead XVI?

Oh well. It beats the popener.
(By the way, if you're going to Rome, could you pick me up a Benedict XVI popener?)

Higher Productivity = Higher Wages, Yes? No!

God Bless the Duggars!

So, What Was so Great about the Depression?

If you have any candidates for "Other Voices," email me at john at medaille dot com


Free Markets, Free-ways, and Falling Bridges

Several years ago, when my son was taking the undergraduate economics course at university, I asked him how his textbook defined the "free market." Without skipping a beat he replied, "it doesn't." "Surely," I thought to myself, "he must be mistaken; a text-book would surely define its subject." So I read his textbook, a popular college text written by prominent Austrian economists and staunch defenders of the free market. Or so they claim. But my son was right; nowhere did the text define the object of its study, surely a methodological failure of the first order.

And yet, it is not so surprising. Much ink is spilled and much rhetoric expended on the "free market," yet it is an extinct form of life, so that discussions about the life of markets have even less certainty than discussions about the life of dinosaurs. The actual economy we life in is a combination of corporate power and government intervention, both of which are enemies of a free market. Now, this combination may or may not be good, but in no sense does it constitute a "free" market. Indeed, we are so used to government subsidies to one group or another that they have become invisible; we no longer even see even the largest subsidies as subsidies. To take but one example, let us speak of the so-called "freeways."

At this point, some readers will be thinking, "What? Of course the government should build the roads; that's what governments do." Yet, gentle reader, would you not be surprized if we shifted the focus just slightly, and spoke of "free railways" or free airlines"? Any yet, why should one form of transportation be so privileged over these others? The point here is not that the government shouldn't be involved in the road-building business; that may be the most convenient way to do it. Rather the point is to determine who should pay for them, and how. Three-fourths of all "social justice" issues are simply a matter of accurate cost-accounting; that is, of allocating costs back to those who cause the costs. For example, the cost of pollution clean-up should be allocated back to those who caused the pollution, while the cost of roads (rail or automobile) should be allocated to those who actually use them.

While this principle would seem self-evident, I have an economist friend who insists that freeways create wealth. I beg to differ. Roadways create wealth; freeways reallocate wealth. They are a complex system of subsidies which reallocate wealth to one group from another, and to the current generation from future generations.

In the first place, in order to use the freeways, one must first have the large capital and operating budget for a car. So the non-owners are taxed to the benefit of owners. Second, freeways subsidize the suburbs over the central cities, and thus determine the very shape and economic vitality (or lack thereof) of cities. Third, freeways compete with trolleys and buses, putting them at a disadvantage. We should remember that before the advent of the freeway system, most trips were taken by electric trolleys, a service provided by over 1200 companies in this country, most of which were private enterprises. (By the way, the story of how the automobile came to dominate transportation is rather an interesting one. See Bradford Snell's The Streetcar Conspiracy.) Fourth, the freeway constitutes a subsidy to remote landowners; when a new road goes near their property, the value increases dramatically. But the value of inner-city parcels suffers. City folk are taxed for the privilege of seeing their property values decline or fail to rise as fast as they would. Fifth, the freeway is a subsidy to a certain kind of business. Wal-mart would not be possible without the subsidies provided by freeways, while other large companies often move facilities to remote areas where the land is cheap, knowing that they have the political clout to get the govmint to build them a new road in the name of "job creation." The upshot of all of this is that the single-mother, working as a waitress and forced, by lack of adequate transportation, to live in a shack near her work, is taxed to help another person move to the suburbs and buy a McMansion. Wealth is transferred from one group to another.

But there is another and even more insidious transfer: from one generation to the next. The current users did not pay the depreciation costs; that was left to the next generation. Hence we have a vast infrastructure that is aging and in need of repair, but without the funds to accomplish those repairs. So who do you think will pay for them? My generation profited greatly, but at the expense of our children; they will have to pick up the tab. Surely, this is immoral.

A bridge collapsed in Minnesota. I do not know why it collapsed, but surely it is a warning. The papers and the airwaves are filled with grim statistics about the numbers of bridges, roadways, and other infrastructure items that need, or shortly will need, replacement. And there simply isn't the money to accomplish this. Its been spent in Iraq, its been spent on other subsidies, its committed to social security, its needed to pay our foreign debts. But it isn't where it should be. I won't repeat the statistics, because I have no idea how reliable they are, and I doubt that anyone else does either. After all, even the engineers who recently inspected this bridge had no inkling that it was about to collapse. But I have no doubt that roads and bridges, being physical things, deteriorate over time and need to be repaired.

The freeways were financed by robbing one group to pay another. Of course, there is a simple solution. Simply put a toll-booth at the entrance to the freeways and bridges, and insure that the toll is high enough to pay all the costs of the building, maintenance, and rebuilding. This allocates costs to users, which is part and parcel of social justice. I have no objection to people wishing to move to remote areas; in fact I encourage it. But those who do so ought to pay their own costs, and not rely on a subsidy. They may have to reduce the size of their McMansion in order to have funds to pay the toll, but this is only justice. With the toll-booth, there are always funds to properly maintain the assets, and the public is spared the spectacle of the governor and the legislature arguing about who's at fault for not allocating the funds; with a toll, the funds allocate themselves.

Of course like all simple solutions, it is devilishly difficult to implement. People first have to see the roadway as a cost and their use of it as consumption for which they should pay. This is a difficult cultural change, since people have already made a host of personal and business decisions based on the current system of subsidies, and a change in the system is likely to cause them some grief. However, since the current system can't continue anyway, it is just a matter of when, not of "if." Then there will come a shock at the size of the tolls, as people find out just how expensive it is to build, maintain, and replace such massive infrastructures. And there will be any number of powerful business and corporate interests who will oppose such a change, even as they will not be able to give us a viable alternative.

As it turns out, nothing is quite as expensive as a freeway. But on the other hand, nothing is more conducive to self-respect than paying your own way. One measure of a free market is that each person pays for what he or she consumes. But we are so unfamiliar with this beast that we no longer recognize this simple fact. After all, everybody talks about the free market, but nobody really defines it. And if even the Austrians can't tell us what it is, no wonder the general public is confused on the subject.


Science, Normative and Positive

Some wag somewhere has remarked that economists suffer from “physics envy.” One could certainly make that charge against W. S. Jevons (1835-1882), one of the founders of marginal economics, when he wrote that a “perfect system of statistics … is the only … obstacle in the way of making economics an exact science”; once the statistics have been gathered, the generalization of laws from them “will render economics a science as exact as many of the physical sciences.1 More than a century has passed since Jevons wrote these words, and in that time there has been a growth of vast bureaucracies, both public and private, devoted to establishing this “perfect system” of statistics. Yet today economics seems no closer to being an exact science than it was in Jevons’ day. Despite this failure, economic orthodoxy clings to the notion of itself as a positive science. As Milton Friedman puts it:

Positive economics is in principle independent of any particular ethical position or normative judgments. As [J. N.] Keynes says, it deals with “what is,” not with “what ought to be.” Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision, scope, and conformity with experience of the predictions it yields. In short, positive economics is, or can be, an “objective” science, in precisely the same sense as any of the physical sciences.2

Friedman makes predictive success the criteria for judging a positive economics, yet such success is doubtful, despite the fact that we have access not only to vast amounts of statistics, but to computing power unimaginable in Jevons’ day. Yet the models, worked out in great precision and computed on engines of vast power, seem to lack any predictive reliability whatsoever.3 Nevertheless, economists are (as Lev Landau said of cosmologists) “frequently in error but never in doubt.” As Paul Ormerod puts it, "By definition, any model necessarily abstracts from and simplifies reality. But the model of competitive equilibrium is a travesty of reality." Paul, a former econometrician, goes on to document the failure of economics to actually predict anything substantive. Thus economics fails Friedman's own test for a "positive" science.

In light of these failures, can we ask if economics really is a positive science? Let me suggest that the question is meaningless. Every science, insofar as it really is a science, is both positive and normative. Every science, insofar as it is a science, must be “normalized” to some criteria of truth. These truths will arise from two sources: an internal and an external source. The internal criteria involve a science’s proper subject matter and methodology. But these criteria are insufficient to found any science as a science. In addition, there must be external criteria of truth, and these truths can only come from one or more higher sciences. In the absence of such an external check, the science will merely be circular, dependent on nothing but itself and unconnected with the hierarchy of truth. Thus, for example, biology is responsible to chemistry, chemistry to physics, physics to metaphysics. No biologist can violate the laws of chemistry, and no chemist can reach a conclusion contrary to physics. Thus every science is responsible to its own methodology (and therefore “positive”) and to the higher sciences (and therefore “normative”). Every science has, therefore, both its own proper autonomy, based on its subject matter and methodology, and its own proper connection to the near sciences, based on the hierarchy of truth. In speaking of the autonomy of a science, we should note that it is only a relative autonomy, not an absolute one. A scientist’s obligation to be faithful to his proper method does not relieve him of the obligation to higher truths.

No science can provide its own criteria entirely without being merely circular. When a science attempts to do so, one of two things happens. The first possibility is that the science breaks up into mutually warring camps whose disputes can never be resolved because there are no accepted criteria of truth by which to resolve them. The second possibility is that the science becomes merely dogmatic, and no rational examination of its premises is permitted. In economics, both things have happened; the science is divided into warring factions with no arbiter of truth among them; the principles of the various factions often become dogmatic statements with little connection to reality.

It is necessary, then, to determine what the “higher sciences” are for economics. Now, the physical sciences terminate in physics, but the humane sciences terminate in some view of anthropology derived ultimately from philosophy and theology. Therefore, some theology must be the ultimate source of truth for economics with some intermediate stops at philosophy, psychology and sociology. It would seem to be self-evident that a complete view of man would involve these sciences, yet this view is not at all universally (or even generally) accepted by economists. How is it possible that a humane science can cut itself off from these indispensable sources of knowledge about humans? The answer lies in the fact that neoclassical economists accept as a purely economic truth that which is, in fact, a purely philosophic stance, namely that of Jeremy Bentham’s utilitarianism. The purest expression of this is in Ludwig von Mises’s tome, Human Action. The very subtitle (“A Treatise on Economics”) gives the game away; he claims that his thesis is not, as it appears to be, a philosophic one or an exercise in psychology, but a purely economic treatise; he is off course wrong, from the title onwards. Mises states that his theory has the same epistemological status as do logic and mathematics, asserting that it is “unconditionally valid for all beings endowed with the logical structure of the human mind.”4 But surely, quite logical people have found logical grounds for questioning his “praxeology”; it is not an intuitively obvious principle that all scientists, indeed, all persons, must accept. Here we see a purely philosophic stance becoming an economic dogma, placed beyond testing or question, and hence unscientific. Nor is the problem confined to the Austrians, for what Mises does explicitly, Friedman does implicitly. And in either case, “science” is cut off from the very roots, the very connection with the higher sciences that could make it a legitimate science rather than a warring set of ideologies.

Cut off from these roots, economics cannot answer the question of distributive justice, or any other question, for that matter. Or rather, it cannot test the theories of distributive justice offered by the higher sciences. Instead, thinking itself complete in itself, it will engage in battles that have no possible resolution, because they are not really economic battles but philosophic ones. But more importantly, it cannot even answer the question of corrective justice, of justice in exchange. It cannot possibly show whether its distributive equation, marginal productivity, actually marginalizes productivity or merely power.

1 Quoted in James E. Alvey, "A Short History of Economics as a Moral Science," Journal of Markets and Morality 2, no. 1 (Spring, 1999): 62.

2 Milton Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1953), 4.

3 Paul Ormerod, The Death of Economics (New York: John Wiley & Sons, Inc., 1994), 120-7.

4 Ludwig von Mises, Human Action: A Treatise on Economics, 4th Revised ed. (San Francisco: Fox & Wilkes, 1963), 57.


Wages: Power or Productivity?

Most modern economists find the discussion of a "Just Wage" to be problematic because they believe that wages are regulated by a formula of the "natural law" the gives each "factor" of production (land, labor, and capital) its fair share of the output. This involves a basic misunderstanding of what the natural law is, but I will leave that question for a later post. The formula is called "marginal productivity," and it is supposed to fairly allocate rents, wages, and profits among all the players. It is built on the principle of marginal utility, where things are valued "at the margins," as it were. Marginal utility is a fairly reliable physical principle. Think about being thirsty. A glass of water would have a certain value to you. But a second glass would be less valuable, and a third glass would have no value at all. As it marginal unit is added, the usefulness declines and finally disappears. When marginal utility (in the form of marginal productivity) is applied to incomes in a free market, the theory states that wages, rents, and profits will not merely be fairly allocated, but will actually be "normalized" to each other; that is, the entrepreneur or rentier will not make that much more than the worker. In other words, there would not be great differences between the rich and the poor.

I will here leave aside the question of whether a purely physical principle can be generally applied to human relations; suffice it to say that the utilitarianism that is at the base of all neoclassical economics found this a useful principle, given their rather limited understanding of the human person. There are a lot of problems I could point out with the formula (and you can read my book on that question), but here I will deal with just one question: Is it productivity or power that is marginalized? Are workers under this formula rewarded for what they do, or for the power they have--or do not have? We may ask, "Does the CEO earn 500 times more than the line worker because he produces 500 times more or because he has 500 times more power? Does the seamstress in a sweatshop in Dacca make a pittance because she lacks productivity or because she lacks power? Have the wages of most workers stagnated because their productivity has stagnated or because their power has stagnated?"

If we look at the data, the pretensions of MP are hard to justify; actual events--and actual wages--better fit the idea that MP rewards power, not productivity. The productivity of average workers has stagnated in the face of dramatic productivity increases. Moreover (as John Bogle points out in his book The Battle for the Soul of Capitalism) a new class of uber-managers has sprung up with takes to itself rewards that more properly belong both to investors and workers. But if the data better answers our question with power rather than productivity, we should ask why?

In truth, wages are set in a negotiation between employer and employee. But in any negotiation, it is power that will be the decisive factor. Workers with skills that are in short supply are likely to get a premium, while workers with more easily available or replaceable skills will have little bargaining power. Further, as Adam Smith pointed out, the employers can hold out for a longer period of time, and most workers find it difficult to with-hold their labor while waiting for a better offer.

Of course, the best test of any theory is the internal test, the test that theory imposes on itself. And the test for the proper functioning of MP is normalized wages, profits, and rents. But clearly, the formula fails this test; wages and profits are NOT normalized to each other, and there are great differences in wealth and poverty, differences which are growing, not narrowing. So clearly, this formula fails its own test. Moreover, the more "free market" a market claims to be, the greater these differences become. Clearly, something is wrong with the theory. And the mistake is this: there is nothing in the mathematics that says what, precisely, is being rewarded at the margins. And all the clear evidence we have points clearly to something other than productivity; that thing is power.

When people are rewarded for their power and position rather than their productivity, the social fabric is weakened, and the economics no longer works. Societies run-up unpayable debts in a constant effort to prop-up demand. Indeed, if we stopped playing the debt game, both the government and the economy would fail. If, for example, the Chinese stopped lending a billion $/day, the Feds could not pay their considerable bills and the trade deficit could not be financed; and if we did not continue to borrow and live beyond our means, there would be an immediate failure of demand. The failure to rationally distribute incomes means a failure to have a rational economy; instead we have one mired in government intervention and debt at every level. Therefore, the question of distributions (the very question at the heart of Distributism) is, and has always been, the most important question for economics. It was naive of the neoclassical economist to believe that a mere mathematics could solve the thorny problems of human justice. The loved the formula because it was easy, while justice was hard. But thinking about justice is a lot easier than trying to fix an economy mired in injustice.


Angelo Matera on The Vocation of Business

Angelo Matera was kind enough to give a kind review to my book, The Vocation of Business: Social Justice in the Marketplace, for the July/August edition of the The Houston Catholic Worker. His review:

It is ironic that because the Church refuses to accept the reduction of man to one dimension--homo economicus--thereby reducing all of life to matters of utility and exchange and profit, it is accused of being unrealistic and out of touch with economics. Médaille, in the opening pages of The Vocation of Business, thoroughly refutes the idea that the Church doesn't have the right to interfere with the "science" of economics (we've heard this before from extreme Darwinists who want the Church silenced on evolution). He asks "Is life, both the life of the world and the life of the individual, thus consigned to a kind of schizophrenia in which our moral life--the life of love and personal relationships and our deepest longings--is forever at odds with our 'scientific' life, the life in which we earn our daily bread?"

Médaille takes on the critics of CST [Catholic social teaching] on their own turf, accepting the challenge that "a 'teaching' which cannot be enacted in daily life and mundane concerns, which has no 'practical' application, is not really a teaching at all, but a mere set of platitudes." HE painstakingly builds the case for introducing ethics and justice into economics and business, starting with the most basic issues. He begins in the territory of Alasdair MacIntyre, the acclaimed Catholic philosopher who, in his 1981 book, After Virtue, argued that moral discussion isn't even possible in western societies anymore because we no longer share a common vocabulary. Médaille confronts this problem directly, and carefully reconstructs the process of moral reasoning, taking the reader all the way from the Bible and the Greeks to the Enlightenment, and the separation of reason from faith--the source of our modern (or post-modern) predicament, where relativism rules.

Médaille's range is breahtaking; he explains classical economic theory and the Church's social encyclicals, the arguments of the Catholic "neoconservatives," the history of "Distributism"--the Catholic-influenced movement for a wide dispersion of land and property which was promoted by G. K. Chesteron and Hillaire Belloc in England, and by Dorothy Day and Peter Maurin in this country. (Many progressives would be surprised to know that Day's urban-based Catholic Worker Movement advocated a radical, faith-based agrarian vision.) He continues on to the "just wage" and the theory of the corporation, and then presents several case studies of recent social and business innovations that illustrate how CST can be implemented. (These include the Distributist-inspired Mondragon Cooperative in the Basque region of Spain, and the Grameem micro-bank of Bangladesh.) Throughout, he weaves in history and theology, from the ancients through the medieval era to contemporary thought.

I've only touched on the breadth of ideas and examples that Médaille includes. The book is a densely packed 325-pages, yet the writing is always clear and elegant. It's not for the casual reader, but neither is it for the theological or economic specialist. It's aimed at the intelligent layman willing to put in some effort. Médaille covers so much, I'm surprised the book works so well. You would expect a few embarrassing simplifications, but there are none--the argument is airtight, and Médaille leaves almost nothing out (I wish he had addressed the mid-twentieth century economist Joseph Schumpeter, who coined the phrase "creative destruction," and reworkd classical economics to account for "disequilibrium" and the dominance of large firms. And although Médaille includes the communitarian economies of South Korea, Taiwan and Singapore, he doesn't mention the Catholic-influenced "Social Market" economy of post-World War II Germany.)

The Vocation of Business may be the definitive book on Catholic Social Teaching. But did Médaille accomplish his goal of bridging the gap between moral theory and business practice? I'm not sure. In the final paragraph, he says: "The world we live in is a world built by businessmen and -women." Unfortunately, I don't think this book will reach that audience. Theologians? Yes. Economists? Probably. And that's no small accomplishment. But I doubt it will engage the business leaders who run MBA programs and business magazines, or make the sort of impact that E.F. Schumacher's Small is Beautiful did. I don't think The Vocation of Business will spark a revolution of virtue-based business practicies (although I hope I'm proved wrong and it becomes the guidebook for thousands of social and business innovators.) It's an important stepping stone in that direction. But we still await that oh-so-necessary book. In the meantime, we should thank Médaille--and God--for this one.

Thanks, Angelo. I'm glad you found it useful, and I hope others will as well.


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