By David Barr, on April 21st, 2009
The great insight of modern economics is the power of markets to align the interest of society and the individual. The idea that attending to your own affairs and following your passions is all that one must contribute to society is incredibly liberating. The market system has proven an incredibly powerful, efficient and innovate tool for distributing societies resources.
But it is time that we recognize that markets are not omniscient, they are merely a tool. The invisible hand does not free us from the obligation to actively create the society that we want. There are many well documented limitation to the power of markets. There is a vast array of goods and services that markets provide better and cheaper than any other system.
But there is an equally important set of goods that are incompatible with a market system. A healthy society must find a balance between the market economy and the need for public goods. Blind faith in the superiority of private investment over public investment has skewed this balance.
I was recently watching a Seinfeld rerun and it made me realize how rapidly technology has changed day to day life. The past 15 years has seen the near universal proliferation of the internet, cell phones and a host of other innovations that have fundamentally rearranged the way that people relate to their world. Yet the achievements of the technology sector underscore the societal failure in other areas.
Over the span of a generation we have built multiple nationwide cell phone networks yet allowed our transportation infrastructure disintegrate into the laughingstock of the developed world. While the internet blossomed into the greatest conduit of information in human history we have failed to provide a depressingly large percentage of our population with an adequate education. While drug makers have cured impotency and perfected the face transplant we have raised a generation of young people that is unlikely to outlive their parents.
The brightest minds of our generation have viewed trading derivatives on wall street or developing new gadgets in Silicon Valley as valuable contributions to economic growth. While government work has been the domain of the lazy or untalented. But in the enthusiasm for private investment the central signal of a capitalist economy has been ignored.
Prices are the brains of any market; by indicating what is needed price signals lead the way for investment. So what have prices been telling us? Over the past 15 years the profit margins of consumer goods from computers to clothing to fast food have been declining. At the same time public and semi-public goods have been kicking and screaming for more investment. It is clear that the bloated private sector has been starving the public sector of essential resources. Once we stop pretending that the private sector is morally superior to the public sector we will better be able to allocate resources between market goods and public goods.
By D H Smith, on April 21st, 2009
I know a lot of market participants have been looking for this break long before today. My sense has been that they are wrong and the market recovery in the six weeks through Friday can carry a long way, surprise everyone, and ruin the bears’ year as the prices will be set by investors looking beyond the current recession earnings trough. At the moment, I am holding on to that view. But I can be persuaded that I am wrong, and switch my position accordingly.
Recently I have had correspondence with Professor Christopher Mayer of Columbia Business School, regarding his Mayer-Hubbard Plan and my Household Initiative Plan. He says he has been in Washington lately and senses a real loss of momentum for all these plans. I think you can generalize that. There has been a loss of momentum for all the administration’s economic schemes as they have had other things on their plates such as foreign summitry, stem cells research, climate change, torture memos, and so on and so forth. Also, Congress has been on Easter recess. It may be a coincidence that the market took a swan dive on the day Congress returned and the administration held its first cabinet meeting. But on the other hand it may not — market participants have ample cause for concern about the administration of the TARP, the independence of the Federal Reserve, the possibility that Ben Bernanke is not reappointed, and the dawning realization of the scale and scope of the budget deficit to come. And with government back in full domestic operation, players may be pricing that in, and the previous six weeks could turn out to have been a pleasant holiday from hard reality.
By D H Smith, on April 20th, 2009
Here’s a new plan for America’s housing problem called the Household Initiative Plan. It’s called that because of all the plans out there it is the only one that asks little of the Treasury, Federal Reserve, or other government agencies besides non-interference in what millions of responsible householders could do for themselves on their own initiative.
My Household Initiative Plan will act to revive the real estate market by attacking three parts of the problem together. It reduces the unsold housing inventory and arrests the decline in home prices by helping liquidity re-form in the real estate market. It does this by making available an untapped source of capital that has previously been hard to access: the IRAs, SEPs, SIMPLE and Keogh plans of American retirement savers. According to the Investment Company Institute, there were over 46 million of these retirement accounts at the most recent survey in 2007, holding an incredible $4.5 trillion. No doubt some has gone in the financial market collapse, but it is still a great deal of money even by current jaded standards.
While it has been possible to buy real estate with IRA funds all along, the heavy restrictions and complicated regulations have kept people from doing so. This plan calls for suspending the restrictions and regulations on the use of IRAs for real estate purchase.
At present, if you buy property through your IRA, you do not own the property, the IRA does. You cannot pay the taxes and maintenance expenses of the property, the IRA has to have enough funds to cover them. You cannot make personal use of the property while the IRA owns it, it must be held only for investment until distribution upon your retirement. You cannot manage the property, the IRA trustee has to designate a manager. You cannot collect rents, they have to be paid to the IRA. You can apply monies from more than one IRA account to the purchase and expenses, but in effect you cannot buy the property with a mortgage simply because no lender is going to have IRA accounts as mortgagors.
At least for the duration of the economic crisis, why not liberalize and simplify the system, so that more people might take advantage of low real estate prices using IRA money that they have but would not think to use for this purpose? Let’s allow people to take as much of their money as they want out of IRAs, SEPs, SIMPLE and Keogh plans, without taxes or penalties, for any real estate purchase – investment property or principal residence, first, second, or seventh home. They can then write contracts and take title as real persons in the regular way, without the complication of having a trustee execute these instruments on behalf of the IRA. Subject to market conditions and substantial down-payments, buyers should be able to get mortgages for regular-way purchases.
Let’s permit buyers using IRA funds to pay property taxes and maintenance expenses and collect any rents of the property either personally if they prefer, or through the IRA if they can. On an investment property, if they receive net investment income personally, it can be taxable, if through the IRA, then not. That will provide an incentive for directing investment income back to the retirement accounts. If the property is used as the principal personal residence of the owners, the normal mortgage interest deduction can apply. If it is a vacation home, then perhaps disallow that, because there has already been a tax advantage conferred by the liberalized use of the IRA monies.
If a property paid for with IRA funds is sold before the owners’ retirement, there are at least two sensible ways of handling the net proceeds. They can either go into another property without any capital gains tax but also without the further complication of a Section 1031 Exchange. Or the proceeds can return to the IRA, without fees, taxes, or penalties. Also – and this is important – if the account holders suspended IRA contributions after their property purchase, they should be permitted to catch up on their contributions and top up their accounts to the full extent that they could have funded their accounts under IRA rules.
The idea of my Household Initiative Plan is to make things easy for people to choose to use their IRA assets to buy real estate now. It removes the preference for financial assets over real assets and places both on a level playing field. Financial experts will object that retirement-minded investors should prefer stocks at today’s low prices. However, real estate is also very cheap now, particularly in popular retirement regions of the southwest and southeast, and there is no way of knowing whether houses or stocks will treat people’s money better in the coming years. As they always say, past performance is not an indicator of future results, but it is noteworthy that even after its sharp decline, the broad real estate asset class has performed better than the S&P 500 over the last ten years.
The key point at this time of financial uncertainty is this: The people’s money in IRA accounts belongs to them, and it should be their free choice to do with as they think best. If their choice can help the national prosperity as they prosper themselves, and at no additional public expense, what could be better for the general welfare?
By David Barr, on April 20th, 2009
One of the puzzling aspects of the current economy is the soaring demand for US treasury bonds. On the face of it, T-Bills seem like a pretty terrible investment. The yields are low and given the massive government and current account deficits being run by the United States, it is highly likely that the dollar will lose value relative to other currencies.
But these loans aren’t investments, they are insurance. With the global economy in free fall nobody knows how bad things could get. There is a non-zero probability that we could be witnessing a true economic collapse. The sort of era defining event that will signal the end of the 500 year march of human progress and plunge us into a new dark ages. How will we know when it’s time to bust out the old amour suit. A good guess will be when treasuries fail. In other words if the US government defaults, we are all finished. The only assets that will be worth anything will be shotguns and canned beans.
Lets say things don’t get that bad, there is still a long way to fall. If the economy continues contracting at its current rate, by the end of 2010 things will be as bad as the 1930’s. An economic collapse of that magnitude will have profound political consequences. Which brings us back to the original topic of the post.
In a climate of extreme uncertainty, the long history of stability is a unique asset of the American economy. The Euro is the most obvious rival currency to the dollar, but with less than a decade of experience the Euro has never survived a severe crises. If this recession hits the depths of the 1930s, politicians in hard hit countries like Spain and Ireland will be under intense pressure to break free of the Euro. During the great depression, countries that abandoned the gold standard benefited immensely from their devalued currencies.
Developing countries don’t offer better security prospects. It is hard to think of a developing country whose economic and political stability wouldn’t be threatened by a severe depression. The communist party is the third largest party in India’s parliament and the nationalist BJP is the second largest. It is easy to imagine a severe downturn tipping the balance of power towards these parties at the expense of international investors.
Latin America has a long history of socialist governments taking power and appropriating private property. It is not hard to imagine these elements gaining strength in countries such as Brazil, Mexico and Argentina. Africa and the Middle East are considered risky places to invest for too many reasons to list here. It is uncertain if the Chinese government can maintain stability through a severe downturn.
That leaves the US and the other wealthy English speaking countries as the most likely economies to survive a severe downturn. The catastrophe in Iceland demonstrates the danger of lending too much to a small economy. Given the quantity of money looking for a harbor it is possible to imagine international capital overwhelming a country such as Canada or Australia. Simply put it is possible to imagine the US economy surviving a complete meltdown in Canada, but there is no way Canada survives a collapse in America.
So what does this all mean for the future. As long as complete systemic collapse remains a real possibility, investors will be rushing to loan money to the US government. But as investors gain confidence that recovery is in sight demand for American debt will dry up. One sign that a recovery is on the horizon will be a decline in the dollar relative to other currencies. As the economy rises from the grave the dollar will steadily weaken.
This should be encouraged. One of the driving forces behind global instability has been the huge amounts of foreign capital entering the US economy and the countervailing large trade deficit that Americans have run. If we emerge from this crises with a more balanced global economy that would be a good thing.
By Ajay Shah, on April 20th, 2009
Economists are very clear that the interest rate that matters is one that is expressed in real terms. If I borrow Rs.100, and am obligated to pay back Rs.110 a year from now, the true cost of borrowing that weighs in my mind is not 10%; it is lower to the extent that I expect the rupee will be worth less owing to inflation, a year from now. Hence, what matters is the real rate: the difference between the nominal interest rate, and expected inflation over that identical horizon. This perspective matters greatly for thinking about monetary policy. What matters is not the short-term interest rate which we apparently see on the money market; what matters is this rate after subtracting out expected inflation over the same time horizon
In good countries, inflation has become boring, owing to the success of inflation targeting central banks, and the distinction between the real rate and the nominal rate has become less prominent. But in India, inflation volatility is immense, and it is particularly important to look at the policy rate in real terms.
In the recent article India in the Great Recession, which appeared in Financial Express on 15 April, of particular interest to a lot of people was the graph of the time-series of the policy rate, expressed in real terms. (This is inside section VII of the article). Lots of people asked for details about how this was done. Here goes:
- Start with the time-series of the level of WPI
- Convert this into seasonally adjusted levels [methodology]
- Shift to a time-series of inflation measured as point-on-point changes of the seasonally adjusted series.
- Now run through the time-series, starting from the beginning. At each point in time, only use data visible upto that point. Fit an ARMA model to the inflation time-series. Use that model to make forecasts for inflation for the next 3 months. Average those forecasts and you have a forecasted inflation over the next 90 days.
- Define the 90-day treasury bill rate (on the market) as the policy rate in nominal terms. This helps us get away from the fog of multiple instruments that RBI uses. The argument here is: in the bottom line, monetary policy is about the short rate, and the 90-day rate is the short rate. RBI uses various levers such as CRR, the repo rate, the reverse repo rate, the bank rate, etc. to try to influence the short term rate. The 90-day treasury bill rate shows the summary statistic of what is happening in monetary policy at a point in time.
- So now you are holding: a time-series of the policy rate in nominal terms (i.e. the 90-day treasury bill date) and a time-series of forecasted inflation at every point in time (i.e. the forecasts of point on point changes to seasonally adjusted WPI, made carefully to only use information available at time t when forecasting for months t+1, t+2 and t+3). Subtraction yields the time-series of the real rate.
- Smooth this series so as to get away from the month to month fluctuations to some extent. In the graph below, the deep line is smoothed and the light (dashed) line is the underlying unsmoothed data. The smoothing here is done using the smooth(x, kind=”3R”) function in R, which is a simple non-parametric smoother.
This time-series (click on the picture to see it more clearly) shows some signs of procyclicality:
- The Asian crisis broke in August 1997 and India tested nuclear weapons in May 1998. India’s downturn ran from 1998 till 2002. Early in that period, monetary policy tightened by around 600 basis points.
- From 2001 onwards, the greatest business cycle expansion in India’s history commenced. Monetary policy responded to this by cutting rates from 2001 till 2004. In good times, monetary policy made it better. Then tightening took place from 2004 till 2007 but in the great inflation of 2008, the real rate again dropped.
- The happy days ran from 2002 till mid-2008. When bad times were clearly upon us (from 9/2008 onwards), monetary policy seems to have tightened.
While on this subject, do read about the Taylor Principle which gives a simple conceptual framework for thinking about how the real rate should respond to changes in expected inflation. Now all this is vulnerable to the difficulties of measurement that bedevil the WPI. So it’s worth doing this by the CPI (IW) also. Here’s the graph that it yields (click on the picture to see it more clearly):
How good is this estimator of the real rate? Only as good as the inflation forecast.
What would be great is to have a liquid market for inflation indexed bonds and a liquid market for nominal bonds; the difference between these would be a market-based estimator of expected inflation. This would take into account myriad factors that affect inflation. In contrast, forecasting inflation using ARMA models is quite lame. It only uses the time-series structure of inflation and fails to take into account all the other factors that affect inflation. This can and should be done better by going to a multivariate setting.
However, I do think that this is a useful first cut, and it’s more useful to look at this rendition of the real rate as compared with only looking at the policy rate expressed in nominal terms, as is currently done in India.
By Dan McLaughlin, on April 17th, 2009
David Cay Johnston has written a book on a very important topic, the corporate welfare that occurs on a massive scale. Unfortunately, Mr. Johnston takes a very important topic and shoots it so full of populist sensationalism that it is hard to take him seriously. One of the main building blocks of his hype building is the grossly flawed study by Pickety-Saez, which attempts to use income tax data to prove radical changes in the distribution of income, but instead proves that people respond to changes in the tax laws.
The core of the book is the corporate-government partnership, where greed and malice on the part of business people siphons off mountains of money from taxpayers in the form of subsidies and protection for favored businesses and industries. Very surely, that modern day mercantilism is one of the primary problems in most modern societies. Mr. Johnston, however, puts on very thick blinders to the fact that the mercantilist partnership involves two sides. Government is the other partner, and for sure, the more egregious offender.
Business people are in business for profit. It is not all that unexpected that people will try to use whatever tools are available to increase that profit. Politicians and bureaucrats, on the other hand, are elected and hired as servants of the people. The primary legitimate role of government is to protect the rights of the individuals in society. They operate under the expectation that government is there to protect the members of society. Thus, when a politician or bureaucrat aids business at the expense of the individual citizens and taxpayers, they are forsaking their fundamental reason for being, they are worse than the businessman seeking handouts.
The book was hard to read, in spite of the fact that Johnston has a great, easy-to-read writing style. So many times throughout the book, a sentence would stand out as pithy, straightforward and true. Then, a few sentences later, he would make conclusions that didn’t follow or somehow destroyed the credibility that he may have built up. Quotations from Adam Smith are generously sprinkled throughout the book, and made to sound as though the champion of free markets would have supported Johnston’s proposals for big government and heavy regulation of business.
According to Johnston’s analysis, the problems that modern America faces are due to alleged “deregulation”. The author summarizes his confusion early on when he says “In the past quarter century or so our government has enacted new rules that have created not only free markets, but rigged ones.” If the markets are “rigged”, they are not free in any sense. The regulators rig the market and make it un-free. It shouldn’t be that hard to make the connection. The regulation that he longs for has always been written by the regulated, to the detriment of competitors, taxpayers and the buying public.
His conclusion is that people should bring pressure on elected officials, to enact regulation necessary to bring us back to the good old days. That conclusion invites the fox to guard even more henhouses. He plays into the hands of the very people he seeks to control. Economic freedom is the source of progress and prosperity, and limitation of government is the only possible way to limit the power of mercantilists to rip us off. Without government enablers, bad businesses would be punished, either by the market or, if they actually used force, fraud or violence, by government, using its limited power to protect people against those obvious violations of individual rights.
By J.D. Seagraves, on April 17th, 2009
The U.S. national debt now stands at over $10 trillion. If Social Security and Medicare liabilities were accounted for (as they would have to be if the U.S. Government were a private corporation), then the real debt would be in excess of $100 trillion. And yet, in response to sweeping economic failures—caused by the Federal Reserve’s manipulation of monetary policy—the federal government’s response is to spend even more money that it doesn’t have. Where does it get this new money? From the printing press, of course!
Clearly, this system is not sustainable. In fact, “the system”—the global “U.S. Dollar Standard”—isn’t failing, it has already failed. The country and the world is currently engaged in the greatest mass-delusion in all of human history, as the hard truth—that the United States government and its people are bankrupt—is just too much to handle. But the longer we take to admit reality, the worse things will be. In fact, the misplaced “Hope” that “Yes, We Can” get out of this mess and return to the way things were is enabling a massive redistribution of wealth as the power elite engage in a “run on the state.”
Where Does Money Come From?
One thing that must be understood is that virtually every single dollar in circulation, both in greenback and electronic form, was created out of debt. Once upon a time, dollars were theoretically backed by gold, and thus the only way for the Federal Reserve to create new dollars (at least in theory) was for it to have a corresponding store of gold. In reality, the Fed created way more paper dollars than it had gold backing them, and this is what led to the gradual abolition of the gold standard. Since then, every new dollar created has been backed by nothing more than the promise of someone to repay it. Where would this someone get the dollar to repay the one the Fed created for him? With more new dollars also created by the Fed, of course!
It doesn’t take a Nobel prize winning economist to realize that this system has been doomed from Day One, although at least one living Nobel laureate—John Nash, the subject of the movie A Beautiful Mind—has come around to the pro-gold standard view. After all, if (almost) every dollar in circulation is based on debt, then the system demands that people remain in debt. If everyone were debt free, then the money supply be shrunk to its pre-Fed era levels, and as we all know, deflation (shrinking of the monetary base) is the greatest of all evils.
Or at least that’s what Ben Bernanke and most mainstream economists think. In reality, deflation is a good thing, but that’s neither here nor there. The point is that the only way for the federal government to make good on its obligations—to say nothing of bailing out all of these dysfunctional firms—is to go deeper and deeper into debt, thus instructing the Fed to print more and more money. The inevitable result of this is hyperinflation and the erosion of the dollar’s value to zero. This will probably happen sooner than any of us are expecting and with little warning. But there is still something we can do.
The Inevitable Demise of the Dollar
The dollar still has value today because people are willing to accept it in exchange for real goods and services. This is primarily due to the slight of hand the government employed over the first 58 years of the Fed’s existence, gradually removing the dollar’s tie to gold. Secondarily, people accept U.S. dollars because they have to by law. This is the meaning behind “legal tender.” And thirdly, people accept U.S. dollars because the U.S. government accepts them in payment for taxes.
But as the inflationary effects of the Fed’s hyper-aggressive expansion of the money supply begin to be felt, and as foreign creditors race to dump their dollars on the world market, people—even in America—will become less and less accepting of the dollar. The currency will lose essentially all value once it is no longer stable enough to plan even short-term purchases. You’ve undoubtedly heard stories about inter-war Germany in which stores would have to adjust prices several times a day to adjust for inflation. Barter becomes the new money during an economic environment such as this. “But that couldn’t happen here.”
Time To Take Our Monetary Medicine
The only way for the federal government to avoid this fate is to come clean right now and admit that it is bankrupt. Then, just like any insolvent corporation, it could begin liquidating its assets and dividing them up among its stakeholders, pro-rata.
After abolishing the Fed and cutting off all monetary expansion, the first step of the liquidation process would be to refund (a) all of the FICA taxes paid by living individuals who have not yet begun to collect Social Security and Medicare, and (b) the difference between the value of FICA taxes paid and benefits received by current retirees. These payments would be made in the form of dollar-denominated vouchers for claims on government property and would signal the end of the Ponzi scheme known as the welfare state.
Secondly, all outstanding federal debt obligations (bonds, bills, and notes) would be redeemed at face value using a similar voucher program. These vouchers would effectively expand the money supply, but given that they would dramatically reduce the long-term obligations of the now-defunct federal government, it’s not clear how much of an inflationary effect they would have.
Third, all federal government property—lands, buildings, businesses, government agencies (which would be privatized via sale), military weaponry, etc.—would be auctioned off. State governments, which would pick up the slack in the federal government’s demise, would be some of the primary purchasers of these assets.
Fourth, all remaining dollars would be redeemed for the gold and silver held by the Fed and Treasury. This monster known as the federal government would be no more, and if (and only if!) they wanted a new federal government, the states could voluntarily set one up—just as the first federal government was initially created.
This may seem like a radical proposal, but what’s the alternative? If you think the ship can be righted, you’re living in a fantasy world. We have been conditioned to look at the federal government like Big Brother, but in reality, it is a lazy, mooching friend we let stay on the couch one night but then moved in and ate us out of house and home. We don’t need and probably can’t afford friends like that, and the federal government is no exception.
By B.P.T., on April 16th, 2009
I sometimes wonder how recent Supreme Court decisions that are seemingly non economic related affect local economies. Case in point. I live in South Louisiana where the Kennedy v Louisiana case got plenty of media air-play. In case you live in a cave, the case revolved around whether or not the execution of a child rapist was constitutional. The U.S. Supreme Court ultimately held a state may not execute a rapist for the rape of a child. (Coker v Georgia, a 1977 case, had outlawed execution for the rape of an adult woman.)
My issue is this- now that the case is decided, and other inmates won’t sit rotting on death row waiting for their multitude of appeals, habeas writs, etc. to run out, how does that compare dollar wise to putting a prisoner to death? This question could be asked for any capital crimes, (and I am not addressing the issue of capital punishment whatsoever…) but since this crime has now been declared to be a non-capital offense, it begs the question- from a tax-payer point of view, which costs more for a state?
Here’s a cost breakdown of the issue from a strictly economics viewpoint, in simple terms:
The average death penalty case costs an average of $470,000 more than non-death penalty cases, according to the Death Penalty Information center. These are costs to the prosecution and the defense, often footed almost entirely by the taxpayers. The constitution guarantees the assistance of counsel to those that cannot afford it (and let’s face it, most can’t). That means the taxpayers are ponying up for the lawyers and other court costs. This does not include additional court personnel costs of up to $70,000. An appellate defense costs upwards of another $100 grand.
OK, so assume the prisoner is convicted and sentenced to death. In addition to the cost of the case itself, is the annual cost of housing the inmate in a high security facility. The U.S. average in 2001, to house one inmate in the Federal Prison System, according to the Bureau of Justice, was nearly $23,000 per year. (As an aside, Louisiana had one of the lowest annual expenditure costs, at about $13,000.)
The website Dead Man Walking (www.deadmanwalkingupdate.org) says the average life sentence lasts 29 years. So if an inmate is sentenced to life, rather than the hassle of a capital trial, the average U.S. cost would be somewhere around $667,000, not taking inflation into account, for a life sentence. A death row inmate, according to the Death Penalty Information Center, spends an average of just over ten years on death row, with some waiting for over 20 years. That’s a cost of at least $230,000 just to house the inmate wait.
While death penalty cases make great headlines, and often seem to satisfy justice for crimes committed, these cases have the ability to totally bankrupt a small county or parish- using the simple figures above, here’s how that plays out for the average taxpayer’s pocketbook:
A death row inmate costs approximately $870,000 to try, appeal, and house, assuming he is the ‘average’ prisoner. A prisoner sentenced to life, on the other hand, costs about $667,000 in total, over $200,000 less per inmate. That’s a generous estimate- in Florida, the average cost per execution is $3.2 million dollars. The Palm Beach Post estimates that the state would save $51 million each year by doing away with the death penalty.
No matter how you feel about the death penalty itself, it is easy to see that money could better be spent in other ways than wasted on criminals- roads, child care, healthcare, education…….. definitely something to consider.
By D H Smith, on April 16th, 2009
So I went. I had business at my brokers, right across from the Morristown Green . . . but let’s face it, I would have gone anyway.
Here are some pictures. There’s the crowd in front of the dais (I arrived late for most of the speechifying):
There were some young guys carrying rather erudite signs noting a website called campaignforliberty.com — I should check it out. One of them has a great hat.
The hat close up says GOLD IS MONEY. John Galt!
There was a Morristown Minuteman. I hear Morristown had a prominent role in the earlier American Revolution of 1776.
What I wore to the Tea Party to hand out anti-Corzine stickers was actually my own silkscreen design. Or rather, a take-off of Shepard Fairey who is known for his, um, sampling. Sarah Palin is the man . . . the best of the four top ticket candidates in 2008.
By Winton Bates, on April 15th, 2009
Jen is apparently the central idea in the teachings of Confucius. In his book, “Born to be Good”, Dacher Keltner tells us that the numerator in the jen ratio is actions that bring the good in others to completion and the denominator is actions that bring the bad in others to completion. For example, if a writer misrepresents the views of others he would tend to lower the jen ratio.
I have been looking forward to reading “Born to be Good”. I have previously considered on this blog the question of whether the inner nature of humans is good and I want to explore this topic further.
However, after reading a few pages I began to wonder whether reading this book will do much to improve my jen ratio. The problem is that it seems to me that Keltner’s discussion of the views of Adam Smith is uncharitable. Keltner claims that Smith portrayed Homo economicus as some kind of ideal of human evolution who was designed to maximize self-interest in the form of experienced pleasure and advances in advances in material wealth ( p 8).
Smith had a realistic view of human nature. I don’t think he saw humans as rational maximisers of anything, but it is true that he did make some famous observations about self interest as a motivating force. Smith stated: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest” (“Wealth of Nations”, I.ii.2). It seems to me that this is an observation about the way the world works rather than a statement advocating selfishness.
I think the closest Smith got to advocating selfishness is his claim that by pursuing his own interests an individual frequently promotes that of society: “I have never known much good done by those who affected to trade for the publick good” (W.N., IV, ii, 9).
It is arguable that Smith was being too cynical at that point. It is possible to think of examples of a great deal of good being done by not-for-profit organisations e.g. in running schools and hospitals.
Anyone who had an interest in presenting a fair picture of Smith’s views of human nature, however, would also take account of the views he presented in “The Theory of Moral Sentiments”. For example: “The virtues of prudence, justice, and beneficence, have no tendency to produce any but the most agreeable effects. … In our approbation of all these virtues , our sense of their agreeable effects , of their utility, either to the person who exercises them , or to some other persons, joins with our sense of their propriety, and constitutes always a considerable, frequently the greater part of that approbation” (TMS IV, iii, 59).
It is not fair to portray Adam Smith as promoting an “ideology about human nature … with a jen ratio trending toward zero”.
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