1 Religion, Politics, Biology, and Economics: The Struggle of Reason with Emotion December 2, 2010 copies of this presentation can be found at

2 Pride Economic truths are opinion (relativism). Inability or unwillingness to admit limitations (hubris). Prejudice Humans who work in private industry are greedy. Humans who work in public sector are altruistic. Source of the Struggle  Pride and prejudice

3 How to Avoid the Struggle  Think in terms of first principles. First principles are not derived from other truths. They are… Either assumed to be true, or Are so self-evident as to be beyond dispute. When thinking about economic and policy issues… Begin at first principles, not at outcomes, or End up espousing contradictory or inconsistent views.

4 Example: First Principles Debate: We must help the poor by imposing a minimum wage. We must help employers by removing the minimum wage. F A I L Debate: The rights to life and property are natural rights. The rights to life and property are not natural rights.

5 First Principles The rights to life and property are natural rights. Others may not take your life. Others may not prevent you from using your property. Others may not prevent you from selling your labor. Others may not prevent you from paying for labor. We should not have a minimum wage.

6 Unintended Consequences If it is true that: the rights to life and property are natural rights, then government policies that are inconsistent with this truth will yield unintended consequences.  Bad things will happen that we didn’t intend to happen.

7 Unintended Consequences Requiring car makers to install airbags and seatbelts has little effect on traffic fatalities. Requiring small children traveling in airplanes to be in car seats increases child travel fatalities. Requiring ethanol in gasoline is bad for the environment. Promoting electric vehicles makes us more dependent on foreign countries. Banning the trade in ivory reduces elephant populations. Raising the minimum wage reduces the income of the poor.

8 Banned Ivory Trade Mozambique17,0001,495 Somalia2, Did not Ban Ivory Trade Zimbabwe52,00081,855 Botswana20,00080,174 Source:McPherson, M.A. and M.L. Nieswiadomy, African Elephants: The Effect of Property Rights and Political Stability. Contemporary Economic Policy. Elephant Population

9 What are the first principles?

10 First Principle of Catholic Social Thought Human Dignity People are created in God’s image and likeness.

11 Derived Principles of Catholic Social Thought Solidarity People have the responsibility to help each other live in a manner consonant with human dignity. Common Good People have the responsibility to pursue conditions that allow others to share in and respond to human dignity more fully and more easily. Subsidiarity Responsibilities that lesser and subordinate organizations can accomplish should not be assigned to greater and higher associations. Human Dignity People are created in God’s image and likeness.

12 First Principles of Classical Liberalism Human Motivation People are self-interested and have differing preferences. Equality Principles apply to all people equally. Self-Ownership People own their own lives. Human Condition People are volitional and capable of rational thought. Human Limitations People are neither omnipotent nor omniscient.

13 CST Subsumes Classical Liberalism Human Motivation People are self-interested and have differing preferences. Equality Principles apply to all people equally. Self-Ownership People own their own lives. Human Condition People are volitional and capable of rational thought. Human Limitations People are neither omnipotent nor omniscient. Human Dignity People are created in God’s image and likeness.

14 Guide to the Relationship of Church and State Human Dignity People are created in God’s image and likeness. How we should exercise our free wills. Limits on our free wills.

15 Failure to begin with first principles can lead to false assumptions. Markets-As-Exploitation Assumption Markets lead to a centralization of political and economic power, decreased competition, and the concentration of wealth. Markets-As-Empowerment Assumption Markets lead to a decentralization of political and economic power, increased competition, and the dissemination of wealth.

16 Globalization and Income Market-As-Exploitation Claim Globalization results in a transfer of income from the less wealthy to the more wealthy countries.

17 Source:International Financial Statistics, International Monetary Fund, December 2001 Greater per-capita trade is associated with greater per-capita income.

18 Globalization and Income Market-As-Exploitation Claim Globalization results in a transfer of income from the less wealthy to the more wealthy countries. Reality Globalization results higher incomes for rich and for poor countries.

19 Globalization and Exploitation Market-As-Exploitation Claim Globalization results in an increased exploitation.

20 Source:International Financial Statistics, International Monetary Fund, December 2001, and Human Development Report, United Nations Development Programme, 2002 GDI measures quality of life (longevity, education, literacy, income) for women relative to men. Greater per-capita trade is associated with greater gender equality.

21 Source: International Financial Statistics, International Monetary Fund, December 2001, and World Development Indicators, World Bank, 2002 Greater per-capita trade is associated with reduced child labor.

22 Source: International Financial Statistics, International Monetary Fund, December 2001, and World Development Indicators, World Bank, 2002 Even among middle-lower and lower income countries, greater per-capita trade is associated with reduced child labor.

23 Globalization and Exploitation Market-As-Exploitation Claim Globalization results in an increased exploitation. Reality Globalization results in higher gender equality and reduced child labor.

24 Globalization and Unemployment Market-As-Exploitation Claim Globalization results in increased unemployment and lower wages.

25 Source: Bureau of Labor Statistics, and Bureau of Economic Analysis Greater per-capita trade is associated with reduced unemployment.

26 Source: Bureau of Labor Statistics, and Bureau of Economic Analysis Greater per-capita trade is associated with increased real wages.

27 Globalization and Unemployment Market-As-Exploitation Claim Globalization results in increased unemployment and lower wages. Reality Globalization results in reduced unemployment and higher wages.

28 Markets and the Income Gap Market-As-Exploitation Claim As markets grow, the rich get richer while the poor get poorer.

29 Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668. % of Households in Each Income Bracket (2006$)

30 % of Households in Each Income Bracket (2006$) Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.

31 % of Households in Each Income Bracket (2006$) Source: Statistical Abstract of the United States, U.S. Bureau of the Census, 2009, Table 668.

32 Markets and the Income Gap Market-As-Exploitation Claim As markets grow, the rich get richer while the poor get poorer. Reality As markets grow, the rich get richer and the poor get richer.

33 Markets, Wages, and the Poor Market-As-Exploitation Claim Minimum wage (or “living wage”) protects the working poor.

34 Source: Statistical Abstract of the United States, and Bureau of Labor Statistics

35 Source: Statistical Abstract of the United States, and Bureau of Labor Statistics

36 Source: Statistical Abstract of the United States, and Bureau of Labor Statistics

37 Markets, Wages, and the Poor Market-As-Exploitation Claim Minimum wage (or “living wage”) protects the working poor. Reality Minimum wage (or “living wage”) hurts the lesser educated and the lesser skilled.

38 Conventional Wisdom versus the Data In addition to reasoning from flawed premises, many people simply believe things that are untrue.

39 Conventional Wisdom The Federal government has a deficit problem.

40 Source: Bureau of Economic Analysis The Federal deficit has been rising at three times the rate of inflation.

41 Source: Bureau of Economic Analysis Although Federal revenues per person have been growing faster than inflation, Federal spending per person has been rising faster than that. Federal spending per person (2009$) Federal revenue per person (2009$)

42 Conventional Wisdom The Federal government has a deficit problem. Data The Federal government has a spending problem.

43 Conventional Wisdom The government needs to raise taxes to balance the budget.

44 Since 1969, the top income tax bracket has ranged from a high of 77% to a low of 28%. Source: Bureau of Labor Statistics, National Taxpayers Union

45 But, over that same period, Federal tax revenue has averaged a constant 18% of GDP (plus/minus 2.3%). Source: Bureau of Labor Statistics, National Taxpayers Union

46 Conventional Wisdom The government needs to raise taxes to balance the budget. Data Regardless of tax rates, the government collects tax revenue that is a fixed 18% of GDP.

47 Conventional Wisdom We need stimulus spending to jump-start the economy.

48 Source: U.S. Census Bureau A 1% increase in the size of the Federal government reduces per-capita GDP by $4,000 (in 2008 dollars).

49 Conventional Wisdom We need stimulus spending to jump-start the economy. Data Stimulus spending causes the economy to contract.

50 Conventional Wisdom Corporations spend a lot of money lobbying Congress.

51 Source: Labor unions have given twice as much money to politicians as the Telecommunications, Insurance, Tobacco, Pharmaceuticals, and Real Estate industries combined.

52 Source: Labor unions and lawyers give more than 90% of their donations to Democrats. Tobacco, pharmaceuticals, and oil give 75% of their donations to Republicans. The investment, telecommunications, insurance, and real estate industries split their donations evenly between the two parties.

53 Conventional Wisdom Corporations spend a lot of money lobbying Congress. Data Labor unions significantly outspend corporations.

54 Conventional Wisdom Something is wrong about the rising cost of health care.

55 Source: Bureau of Labor Statistics ( The price of medical care has increased 350% since 1980 versus 135% for other consumer prices.

56 Source: Derived from Statistical Abstract of the United States, and the Bureau of Economic Analysis. 400,000 lives saved annually If we had the same mortality rates today that we had in 1960, 400,000 more people would die each year. These 400,000 lives (annually) is what the higher cost of health care buys.

57 Conventional Wisdom Something is wrong about the rising cost of health care. Data The rising cost of health care is the price we pay for living ever longer lives.

58 Conventional Wisdom Many people are uninsured.

59 Source: Bureau of Labor Statistics, Census Bureau (15% of the population)

60 (12% of the population) Source: Bureau of Labor Statistics, Census Bureau

61 (4% of the population) If we count one-third of this group, the uninsured are between 6% and 8% of the population depending on whether or not we count this group. Source: Bureau of Labor Statistics, Census Bureau

62 Conventional Wisdom Many people are uninsured. Data Some people are uninsured, but not nearly as many as people claim.

63 How to Think Constructively When thinking about economic policy, start from first principles and let the principles guide you to conclusions. Avoid making assumptions about “the way the world works”. Avoid accepting statement of facts without recourse to data.

64 Religion, Politics, Biology, and Economics: The Struggle of Reason with Emotion December 2, 2010 copies of this presentation can be found at