The Economics of Loving Your Neighbor

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The Economics of Loving Your Neighbor

• Princeton University, Pace Center March 6, 2006
• John D. Mueller
• Director, Economics and Ethics Program
• Ethics and Public Policy Center
• President, LBMC LLC
• Washington, DC

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What is Economics About?

• What do people do all day?
• Marrying and giving in marriage distributing
• Eating and drinking using (consuming)
• Planting and building producing
• Buying and selling exchanging
• Luke 18 27-28

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A Brief, Remedial History of Economics

• Economics has been taught continuously at highest
  university level since 13th Century
• Scholastic (AAA) Economics 1250-1776
• Classical Economic 1776-1870
• Neoclassical Economics 1870-c. 2000
• Neoscholastic c.2000- ?
• Aristotle and Augustine, integrated by Aquinas

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How the Structure of Economics Has Changed
Theory Outline Final Distribution Consumption (Utility) Production Equilibrium
Scholastic Yes Yes Yes Yes
Classical No No Yes Yes
Neoclassical No Yes Yes Yes
Neoscholastic Yes Yes Yes Yes
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Augustines Description of Gifts and Crimes

• 1. All persons are motivated by love for some
  person(s).
• 2. Love means willing some good to some person
  (Aristotle).
• 3. We express our preferences for persons (e.g.,
  love) by distributing our goods between ourselves
  and others.
• Outer Acts toward
• Kind of love Inner Act Self Others
• Ordinate Benevolence Utility Beneficence (Gifts)
• Inordinate Malevolence Vice Maleficence (Crime)

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Selfishness (assumed by Adam Smith and
neoclassical economics)
Gifts (express love)
Crimes (express hate)
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What does it mean to love your neighbor as
yourself?

• Since we naturally love ourselves, the purpose of
  the Two Great Commandments is to make our loves
  ordinate
• What as yourself means depends on whether the
  good is diminished by being shared, i.e.,
  scarce (Augustine)
• If good is abundant, we can and must share it
  equally
• If the good is scarce, thats impossible loving
  your neighbor as yourself cannot always mean with
  equally with yourself
• Since you cannot do good to all, you are to pay
  special regard to those whoare brought into
  closer connection with you (De doctrina
  christiana 1,28)

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Distributive Justice

• Analog to personal gifts for common goods both
  are transfer payments, determined by geometric
  ratio, practically limited by scarcity (failure
  of communism)
• Violated by political faction (James Madison)
• A factions ideology creates a fictitious world
  (Hannah Arendt)
• Collectivists tend to reduce justice to
  distributive justice (as if all goods were
  common)
• Individualists tend to reduce justice to justice
  in exchange (as if all goods were personal)

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Justice in Exchange

• Products value (e.g., computer) producers
  income (labor and property compensation)
• Violated by disequilibrium general inequality of
  supply and demand e.g., unemployment,
  inflation/deflation
• Unemployment a function of labors after-tax,
  after-transfer share of total income (Rueffs
  Law)
• Inflation/deflation imbalance between demand for
  money and money supply

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Basic Principles of Successful (and Popular)
Economic Policy

• General government should be funded by taxing
  labor and property income equally
• Transfers to persons (e.g., Social Security)
  financed by taxes on labor income transfers to
  property owners (e.g., tax-free savings accounts)
  by taxes on property income
• Borrow only to fund government-owned investments
• Dont finance government by creating money

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How both parties violate the basic principles

• Both fund general government with Social Security
  surplus (labor income) Democrats to keep
  spending high, Republicans to dole out tax
  breaks, for constituents.
• Both rely on funding government with foreign
  dollar reserves, causing commodity inflation,
  chronic budget and trade deficits.
• Republicans want to shift tax burden for general
  government from all income to only labor income
  (e.g., tax-free savings)
• Democrats want to subsidize Social Security
  (benefits for workers) with income tax and/or
  taxes on property income.

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Income Shares Before and After Taxes and Transfers
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Shares of National Income and Unemployment
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Rueffs Law
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Components of U.S. Net Labor Cost
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Labor Income, Shares of Actual Potential Income
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Actual Projected Federal Spending
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Actual and Projected Total Fertility Rate
Year (1) Total Fertility Rate (TFR) w/ projected benefit share at 2001 incomes (2) Projected TFR with projected benefit share at projected incomes (3) Projected TFR, same as (2) without legal abortion (4) Memo TFR, SSA Trustees Intermediate Assumptions (5)   SSA Low-Cost TFR (6)   SSA High-Cost TFR
2001 actual 2.05 2.05 2.05 2.05 2.05 2.05
2025 est. 1.98 1.87 2.51 1.95 2.18 1.74
2050 est. 1.92 1.73 2.35 1.95 2.20 1.70
2075 est. 1.87 1.60 2.22 1.95 2.20 1.70
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Actual and Projected Net Labor Cost and
Unemployment Rates
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Social Spending and Fertility
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National Saving and Fertility
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Worship and Fertility
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Fertility Predicted vs. Actual