The Righteous Mind (part 2)

January 24, 2018

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Here I will discuss Jonathan Haidt’s perspective on liberalism and conservativism, informed by his evolutionary psychology of morality. He views these opposing views as “deeply conflicting but equally heartfelt visions of the good society.” Both are influenced–albeit in somewhat different ways–by the foundations of morality that developed in the course of human evolution. While he sees liberals as placing primary emphasis on “caring for victims of oppression,” conservatives prefer to “preserve the institutions that sustain a moral community.” Haidt calls for a more civil, more empathetic politics, where each side opens their hearts, not just their minds, to the other.

If Haidt’s entire discussion were as even-handed as that, I would find little to criticize. But when Haidt compares conservative and liberal perspectives on each of his six moral foundations, the implicit conservatism I described in the last post comes out. So I want to do something unusual–first discuss how I wish he had approached this topic, and then describe what he actually says.

Two sides of the six moral foundations

Recall that Haidt’s six moral foundations are:

  • care/harm
  • fairness/cheating
  • loyalty/betrayal
  • authority/subversion
  • sanctity/degradation
  • liberty/oppression

The paired terms suggest to me a simple way of distinguishing conservatives and liberals. Let’s start with Haidt’s quotation from John Stuart Mill: “A party of order or stability, and a party of progress or reform, are both necessary elements of a healthy state of political life.” When these two parties react to the established social order, the party of stability will naturally appreciate its positive adaptive accomplishments (the first terms in the pair), while the party of reform will naturally criticize its failures.

  • On care/harm, conservatives may appreciate the care provided by the conventional family, while liberals may criticize the harm resulting from public neglect of the poor, homeless, mentally ill, medically uninsured, addicted, etc.
  • On fairness/cheating, conservatives may appreciate the rewards delivered by the market to those who are productive, while liberals may criticize the ways the rich and powerful rig the game to deprive others of a fair chance.
  • On loyalty/betrayal, conservatives may appreciate the social cohesion fostered by parochial loyalties, while liberals may criticize the betrayal of higher loyalties like democratic values or universal human rights.
  • On authority/subversion, conservatives may respect the contribution of legitimate authorities to the common good, while liberals criticize self-serving authority figures who abuse their positions.
  • On sanctity/degradation, conservatives may appreciate the social order for protecting what they hold sacred; to use Haidt’s own example, they may appreciate the role of Christian sexual morality in protecting the chastity of young women. Liberals are more likely to notice how the traditional sexual double standard allows men to degrade women, or how industrial capitalism degrades the environment.
  • On liberty/oppression, conservatives may appreciate existing liberties, while liberals react to the plight of oppressed peoples who are not yet free.

Note that if the focus is not on the established order but some proposed alternative system or policy, the tables can be turned, so that liberals accentuate the positive and conservatives the negative. For example, liberals are more likely to see the redistribution of wealth through progressive taxation as an increase in fairness (allowing children of all families to compete on a more level playing field), while conservatives see it as cheating (violating the rules of the game by letting the losers steal from the winners).

From this balanced perspective, we can easily understand how each group is seeking the good in its own way, with some good moral intuitions on each side.

A conservative advantage?

What Haidt actually does is a little different. He argues that conservatives have a distinct advantage in moral/political debates. This is not because they are better people, necessarily, but rather because they are more in touch with fundamental moral realities, the basic moral intuitions that drive moral judgments. The difference between being morally better and being morally more realistic is subtle, and I suspect that in Haidt’s scientific scheme of things they amount to very much the same thing. Much of the time, what he is describing seems also what he is prescribing.

Haidt says that conservatives are better moral psychologists, which may be just another way of saying that moral psychology as Haidt sees it has inherently conservative sympathies. “Republicans have long understood that the [intuitive] elephant is in charge of political behavior, not the [conscious, rational] rider, and they know how elephants work. Their slogans, political commercials, and speeches go straight for the gut….” While liberals blinded by the “rationalist delusion” are trying and failing to persuade people through rational arguments, conservatives are doing something more effective–making emotional appeals to people’s deepest moral intuitions. They are appealing to the elephant that is in control most of the time, not the conscious rider who only occasionally gets the elephant to change direction.

I have to acknowledge the large element of truth in this description. Of course it is easier to press people’s traditional moral buttons than it is to get them to think critically about their society. Of course emotional appeals to family, God and country are effective ways of shaping opinion. As well as race, by the way. Haidt’s example of a Republican message going “straight to the gut” is the Willie Horton ad associating a black criminal with a Democratic presidential candidate. I wonder why that wasn’t a bigger red flag for him. He acknowledges that conservatives are more parochial, but seems rather complacent about the obvious link between parochialism and racism. He even says at one point that parochial love “may be the most we can accomplish.”

Yes, critical thinking is harder, which is why so much of higher education is devoted to it. Study after study has found that more educated people are less parochial and racially prejudiced. Critical thinking about society is especially prized in sociology.

Conservatives may have the upper hand much of the time, but not all of the time. In times of social crisis, when established institutions are not working very well, consciousness tends to be raised and movements for liberal reform come to the forefront. Liberal views that are underdeveloped and poorly articulated in calmer times may suddenly burst on the scene. I find Haidt’s work stronger on past evolution than on contemporary social change, so he may have trouble seeing beyond the recent period of conservative success.

Counting and measuring moral foundations

According to Haidt, conservatives have another advantage in building on the evolutionary foundations of morality. “Liberals have a three-foundation morality, whereas conservatives use all six.” Because liberal philosophy sees society as a collection of autonomous individuals, liberals have a narrower morality that is short on loyalty, authority and sanctity.

Republicans since Nixon have had a near-monopoly on appeals to loyalty (particularly patriotism and military virtues) and authority (including respect for parents, teachers, elders, and the police, as well as for traditions). And after they embraced Christian conservatives during Ronald Reagan’s 1980 campaign and became the party of “family values,” Republicans inherited a powerful network of Christian ideas about sanctity and sexuality that allowed them to portray Democrats as the party of Sodom and Gomorrah.

Notice, however, the traditional ways in which Haidt has described loyalty, authority and sanctity. For example, the conservative advantage would be less clear if he had made reference to alternative authorities, such as scientists, federal regulatory agencies, or international law. The historical sociologist Max Weber distinguished between “traditional authority” and “rational-legal” authority; the latter would surely command more respect from liberals.

The conservative way in which Haidt conceptualizes these moral foundations also affects how he measures them with his “Moral Foundations Questionnaire.” If you are a social conservative, many items give you a chance to express your views of loyalty, authority and sanctity:

Questions about what considerations are relevant to judgments of right and wrong:

  • whether or not someone conformed to the traditions of society
  • whether or not someone acted in a way that God would approve
  • whether or not someone violated standards of purity and decency
  • whether or not someone’s action showed love for his or her country

Statements calling for agreement or disagreement:

  • I am proud of my country’s history
  • People should be loyal to their family members, even when they have done something wrong
  • I would call some acts wrong on the grounds that they are unnatural
  • Men and women each have different roles to play in society
  • Chastity is an important and valuable virtue
  • If I were a soldier and disagreed with my commanding officer’s orders, I would obey anyway because that is my duty

If, on the other hand, you are a liberal with a strong sense of moral obligation to protect the environment, you’re out of luck. The questionnaire has no place to express a reverence for nature, or a belief in climate science, or respect for the rule of law, or support for international climate agreements. Because of how he thinks about these things, Haidt has inadvertently constructed measures of loyalty, authority and sanctity on which conservatives can hardly fail to score higher.

Conservative morality on the defensive

Still another problem is that recent history has called into question Haidt’s simple distinction between individualistic liberals and sociocentric conservatives, and his clear preference for the latter.  The distinction may work pretty well for the eighteenth and nineteenth centuries, when liberals were indeed promoting rational individualism in rebellion against such traditional institutions as absolute monarchy, mercantilism, hereditary aristocracy and church-state theocracy. But as Haidt acknowledges toward the end of his book, twentieth-century liberals split into two camps, often called libertarians and progressives. The libertarians are the main proponents of the old individualistic liberalism, especially the pursuit of self-interest in the free market (think of the Koch brothers and the writings of Ayn Rand). The progressives actually share many of Haidt’s own moral concerns about laissez-faire industrial capitalism, and they are often the ones advocating for more social responsibility.

To upset Haidt’s intellectual apple cart further, most libertarians have joined a conservative Republican coalition, in cooperation with most white social conservatives. The libertarians seem especially influential in that coalition, since they have more money and often get their way on low taxes and less regulation for corporations and the wealthy. But social conservatives keep voting Republican in the hope of legislating their “family values,” especially a return to strict abortion laws.  Haidt’s somewhat rosy view of conservative morality overlooks the fact that religious conservatives have cast their lot with the rugged individualists, who press their moral buttons to get their vote, but then do things that should make a Christian blush, like trying to throw millions of children off of health insurance.

Today the conservative coalition provides the core support for that great exemplar of morality, Donald Trump. Where does he stand on Haidt’s six moral foundations? Is he more noted for care or harm? Fairness or cheating? Loyalty or betrayal? Authority or subversion? Sanctity or degradation? Liberty or oppression? Hmm, I guess I would associate him with liberty, although he values it primarily for himself and his rich friends and family. In general, his amoral egotism is an embarrassment to conservatives who would like to claim the moral high ground.

Haidt says that “conservatives do a better job of preserving moral capital,” which he defines as a community’s stock of “interlocking sets of values, virtues, norms, practices, identities, institutions, and technologies that mesh well with evolved psychological mechanisms and thereby enable the community to suppress or regulate selfishness and make cooperation possible.” But just as financial capital can be squandered on bad investments, moral capital can be squandered by standing up for the wrong things. Many social commentators are expressing consternation that the religious right is turning a blind eye to Trump’s misbehavior, especially in light of the new allegations about paying hush money to a porn star to cover up an extramarital affair. Family values indeed. Yesterday, Michael Steele, former chairman of the Republican National Committee, said that he no longer wants to hear from evangelical Christians at all, since they have now lost their moral authority.

Meanwhile, progressives are building their moral capital by redefining social responsibility and standing up against  harm, cheating, betrayal, subversion (of democratic institutions and values), degradation and oppression. There is an historical process going on here that Haidt’s sweeping generalizations are poorly equipped to handle. One would never know from reading The Righteous Mind that America ever had a religious left, but it has played a strong role in social reform in the past, and may be about to do so again.

In evaluating the book as a whole, I am deeply ambivalent. Haidt has made a reasonable case for the evolution of human morality, and that part of the book may stand the test of time. His political analysis is flawed by overly broad generalizations about conservatism and liberalism and his tendency to favor one over the other without regard to the historical situation. Now that the moral ground is shifting beneath our feet, his argument doesn’t seem as compelling as it may have been just a few short years ago.

 


The Righteous Mind

January 22, 2018

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Jonathan Haidt. The Righteous Mind: Why Good People Are Divided by Politics and Religion. New York: Pantheon Books, 2012

Here it is 2018, and I’m just getting around to reviewing this thought-provoking book from 2012. Waiting this long does have one advantage, however. Recent political events provide additional context for evaluating Haidt’s view of moral conflicts between liberals and conservatives. In the age of Trump, some of his ideas are already starting to seem a little dated.

This is in a way two books, one on the evolutionary origins of human morality and the other on contemporary political conflict. As an evolutionary psychologist, Haidt makes a pretty good contribution to the first topic, but I found him much less convincing on the second. I will deal with these two sides of his argument in separate posts.

Intuitions come before reasons

Haidt is fond of animal metaphors, like “the rider on the elephant” and “the intuitive dog and its rational tail.” His central metaphor for Part I of the book is that “the mind is divided, like a rider on an elephant, and the rider’s job is to serve the elephant.” The rider is our conscious reasoning, which serves much deeper and more extensive mental processes most of the time. Moral judgment is mostly a matter of reacting quickly and intuitively to situations. Reasoning is secondary, and consists mainly of giving reasons to justify our intuitions in the eyes of others.

According to Haidt, most Western philosophers have had it wrong, accepting Plato’s “rationalist delusion” that reason ought to be the master of the passions. Hume was an exception, saying that “reason is, and ought only to be the slave of the passions.” Haidt sides with Hume, although he qualifies his position a little later.

Haidt also criticizes developmental psychologists such as Kohlberg for exaggerating how much children can figure out morality for themselves through increasingly advanced reasoning. He sees such views as an expression of a Western liberal tradition of rational individualism. Most of the world’s people, including the less educated within Western countries, are more sociocentric. They react to moral dilemmas by simply and unreflectively applying the intuitions that thousands of years of biological evolution and cultural experience have built into them. Haidt likes the acronym WEIRD for the Western, educated, industrial, rich, democracies, indicating how far out of step they are with the world’s moral majority.

Is an unreflective conformity to moral tradition a good thing? I don’t know that Haidt is entirely clear about that, even in his own mind. Sometimes he claims to be just describing, not prescribing, but social scientists have a way of sliding from is to ought. Haidt seems a little too comfortable with a world in which most people stick to their past adaptations and traditions. He does acknowledge the parochialism of the righteous mind, and he would like different social tribes to respect one another and perhaps learn from one another. But he displays no confidence in an expansion of individual consciousness or critical thinking. He claims that the philosophy he studied in college was no help in figuring out the meaning of life. (For a lover of both science and philosophy like myself, that was a red flag.)

Evolutionary origins of moral intuitions

In accounting for people’s powerful moral intuitions, Haidt tries to balance nature and nurture, the innate and the learned. “Nature provides a first draft, which experience then revises….’Built-in’ does not mean unmalleable; it means ‘organized in advance of experience’.” Social experience further organizes what evolution has already organized.

The innate part consists of six universal foundations of morality. These are “adaptations to long-standing threats and opportunities in social life. They would draw people’s attention to certain kinds of events (such as cruelty or disrespect), and trigger instant intuitive reactions, perhaps even specific emotions (such as sympathy or anger).” The situations that trigger these reactions today can be very different from what may have triggered them earlier in our evolutionary history, allowing for considerable variation in cultural experience and cultural norms.  Unlike some earlier evolutionists who fell into the trap of biological determinism, Haidt is sensitive to the need to reconcile evolutionary biology and cultural anthropology.

Perhaps the most obvious of the moral foundations is what Haidt calls “care/harm.” The human species is noted for its large-brained but extremely dependent offspring, who require prolonged protection and care. Humans who didn’t have a strong impulse for care would be out-reproduced by those who did. Once a foundation was laid for caring behavior in human evolution, the caring impulse could be extended and applied in many different ways, depending on the cultural situation.

Haidt relates each of the moral foundations to the adaptive challenge it evolved to meet in the course of building reproductively-successful human groups. The challenges and corresponding foundations are:

  • protecting and caring for children (care/harm)
  • reaping the benefits of two-way partnerships (fairness/cheating)
  • forming cohesive coalitions (loyalty/betrayal)
  • forging beneficial relationships within hierarchies (authority/subversion)
  • avoiding contaminants (sanctity/degradation)
  • avoiding domination (liberty/oppression)

Rationality and politics

In Haidt’s “social intuitionist” model of morality, intuitions come first and reasoning second. When moral reasoning does occur, its function is not primarily to figure out what is right, but rather to “help us pursue socially strategic goals, such as guarding our reputations and convincing other people to support us, or our team, in disputes.” In Plato’s Republic, Socrates and Glaucon argue over which is more important for happiness, being just (Socrates) or appearing to be just in the eyes of others (Glaucon). Haidt agrees with Glaucon that “people care a great deal more about appearance and reputation than about reality.” And he says, “Our moral thinking is much more like a politician searching for votes than a scientist searching for truth.” That description leads to this prescription: “Make sure that everyone’s reputation is on the line all the time, so that bad behavior will always bring bad consequences.” Thus Haidt pins his hopes for moral improvement on tighter social control, not on moral education.

Haidt does try to avoid taking his disparagement of moral reasoning too far, as he admits that Hume did. He allows that “elephants are sometimes open to reason.” People can sometimes question their intuitive moral reactions, especially when people interact with others whose reactions are different from theirs. In fact, better reasoning is very likely under certain conditions:

But if you put individuals together in the right way, such that some individuals can use their reasoning powers to disconfirm the claims of others, and all individuals feel some common bond or shared fate that allows them to interact civilly, you can create a group that ends up producing good reasoning as an emergent property of the social system. This is why it’s so important to have intellectual and ideological diversity within any group or institution whose goal is to find truth (such as an intelligence agency or a community of scientists) or to produce good public policy (such as a legislature or advisory board).

Perhaps if Haidt had taken that ball and run with it a little further, he would have had a little more respect for Western liberal rationalism.

A more rational society?

Once one has acknowledged that “good reasoning” can be an emergent property of a social system, contributing to better public policy, then why not also acknowledge that a society can move in that direction in an historical process? Isn’t that exactly what one would expect of a modern, pluralistic democracy? Isn’t Haidt’s own scientific psychology and his critical thinking about prevailing psychological theories a product of such a society? Western societies are in need of reform, to be sure, but rejecting their rationality as WEIRD seems to me to be overkill.

Haidt’s position seems implicitly conservative because he is more interested in how morality evolved in the past than how it continues to evolve culturally in the present. What else besides critical thinking can evaluate traditional morality in the light of new experience?  For example, trying to restrict sexual activity to heterosexual, reproducing couples made a lot more sense when death rates were high, and high birth rates were needed for group survival. Today, societies with low birth rates but prosperous economies flourish, and they do so less by out-reproducing their competitors as by sharing their culture with them. Innovations like contraception and same-sex marriage are not a threat to such societies.

In his discussion of the “sanctity/degradation” moral foundation, Haidt expresses his appreciation for conservative sexual morality, especially the idea of chastity, while he portrays liberals as individualistic hedonists. He fails to appreciate the emerging morality expressed in such ideas as safe sex, mutual respect and mutual consent. Isn’t today’s #MeToo movement a moral crusade to hold men accountable for their behavior toward women?

In dismissing Kohlberg’s developmental psychology as too rational, he overlooks the significance of Kohlberg’s “post-conventional” moral stage. Haidt’s conception of morality is so focused on conformity to society that he fails to grasp how a rapidly changing society requires some post-conventional thinking in order to adapt to changing times.

All of this is relevant to Part II of the book, which praises conservatives for being the superior moral politicians. They win a lot of the political arguments by appealing to more of the evolutionary foundations of morality than liberals do. Or so it would seem. That will be the topic of my next post.

Continued

 

 


A Measure of Fairness

February 25, 2015

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Robert Pollin, Mark Brenner, Jeannette Wicks-Lim, and Stephanie Luce. A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States. Ithaca: Cornell University Press, 2008.

Having looked at a book about the history of the living wage, I turn now to the modern economic debate over efforts to raise wages. Most of this book reports research on the costs and benefits of state and municipal wage legislation. In general, the authors find these laws effective in modestly raising incomes for the low-wage workers they are intended to benefit. They also impose some costs, but those are generally small and widely diffused among many people, such as consumers who have to pay slightly more in prices.

The most common argument against legislated wage increases is that they may hurt the very workers they are trying to help, since some employers may employ fewer workers, relocate their businesses, or spend less money on other things that benefit workers. I will discuss the authors’ research on such issues in a later post.

First, however, I’d like to address a more philosophical issue on which advocates and opponents of living-wage laws often disagree. The argument over wages is not just an economic argument in the narrow sense; it is also a moral debate. The title of Chapter 2, “The Economic Logic and Moral Imperative of Living Wages,” makes that clear. So does this passage from the UN’s Universal Declaration of Human Rights (expressed in the gendered language of the 1940s): “Everyone who works has the right to a just and favorable remuneration ensuring for himself or his family an existence worthy of human dignity and supplemented, if necessary, by other means of social protection.” In discussing Glickman’s history of the living-wage movement in the previous post, I quoted his statement that “religious reformers were the first group outside of the labor movement to call for a living wage, beginning with Pope Leo XIII’s encyclical of 1891.”

Some of the opposition to living-wage proposals is based on resistance to the idea that moral considerations can be brought to bear on economic behavior. Chapter 3 includes a reprint of Paul Krugman’s critique of an earlier book by Robert Pollin and Stephanie Luce, The Living Wage: Building a Fair Economy. For Krugman, the very fact that Pollin and Luce have a moral preference for higher wages over government handouts makes their entire argument suspect.

The problem for Krugman is that markets are “absolutely and relentlessly amoral. Labor, in a market system, is just another commodity; the wage a man or woman can command has nothing to do with how much he or she needs to make to support a family or to feel part of the broader society.” Krugman sees three possible responses to this amorality of markets: (1) a pro-market conservative response that fails to see any moral problem here, since whatever the market does is just, (2) an anti-market “socialist” response that tries to “do away with the market’s determination of incomes,” in favor of some more just alternative, or (3) “after-market intervention: Let the markets rip, but then use progressive taxes and redistributive transfers to make the end result fairer.”

Krugman supports choice #3 as the “standard economist’s solution, which is also the main way the U.S. welfare state operates.” It accepts the amorality of the market and confines moral responses to the political sphere. The living-wage movement, on the other hand, is a form of choice #2, which can’t work because it tries to bring morality into an inherently amoral sphere of behavior. So he concludes:

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand–the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.

In his response to Krugman, Pollin is troubled by the implications of such a sweeping argument. If living-wage legislation is “doomed to failure” because it tries to counter market forces, then wouldn’t the same objection apply to any effort to regulate wages and working conditions, even laws against child labor and slave labor? If markets are absolutely amoral, then how can “letting the markets rip” always be good social policy?

In essence, Krugman’s position seems to me to come down to three propositions:

  1. Powerful market forces determine wages
  2. Efforts to counteract those forces as they are operating are doomed to failure
  3. Only after-market policy measures can be effective

I wonder if scientists working in any other discipline besides economics would accept this logic. If we were talking about forces of nature, such as the weather or harmful bacteria, would we agree not to counteract such forces as they are operating? Well, we don’t have much control over the weather, so we do often resort to “after-weather” measures to undo whatever damage is done. We “let it snow, let it snow, let it snow” (the meteorological equivalent of letting the market rip), and then clean up the mess afterwards, just as Krugman wants to do with incomes through progressive taxation). But where we have gained a measure of control over natural forces, such as diseases, we do try to counteract harmful forces as they are operating, with timely treatment and even preventive measures like vaccination.

Isn’t this true in the economy as well? Supply and demand considerations may lead a pharmaceutical company to market an unsafe drug, but the FDA tries to intervene before the damage is done. The market may reward a company for dumping toxic waste, but society can act to prevent that damage rather than accepting the cost of “after-market” cleanup. And regarding wages, if widespread prejudice has lowered the price of female and minority labor, civil rights legislation can work against that by mandating equal pay for equal work. Economists can study the effects of legislation, but they should not declare entire categories of law a waste of time just because they promote some moral good like health or justice.

Why treat market forces as uniquely powerful and unstoppable, even more powerful than forces of nature? After all, the capitalist economy from which those forces emanate is a modern human creation. Market forces are really aggregations of human decisions that are subject to moral and legal influences. Society allows economic actors to pursue their self-interest up to a point, but also makes some rules to keep selfish behavior from getting out of hand. As a financial advisor, I was subject to a whole set of legal and ethical rules involving matters like respecting client confidentiality, disclosing conflicts of interest, and recommending only investments in the client’s best interest. Economic behavior is not, by definition, amoral behavior.

Of course, some people in powerful economic positions would like to be free to pursue profit without regard to ethical or legal constraints. That’s not a surprise, but what is more puzzling is why economists would want to encourage such an attitude. One reason may be that exaggerating the power of amoral market forces serves to place the field of economics itself in a uniquely powerful and privileged position in society. Other authorities such as political or religious leaders may try to tell us what we should do, but economists are the only ones who can tell us what we must do. Only they understand the amoral forces that rule our lives, and resistance is futile.

Economists have a lot to tell us about the probable consequences of economic actions and policies. If raising the minimum wage is likely to increase unemployment, as Krugman and many other economists believe, the advocates of higher wages need to address that concern (and this book does). But I think economists go too far when they try to settle policy debates by invoking a doctrine of moral fatalism, encouraging people to feel morally impotent in the face of economic forces.

Continued


Macroeconomics and Moral Judgment (part 2)

July 6, 2013

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In my last post I argued that the study of economics should inform but not eliminate our individual moral judgments as citizens in a democracy. Economics shifts our attention from the virtues and vices of individuals to the strengths and weaknesses of fundamental economic policies. But that doesn’t mean we have to attribute economic events like the recent financial crisis just to impersonal economic forces. Policies are made by people, and some people have more influence on them than others.

To illustrate how a macroeconomic perspective can inform our moral stance, consider the distinction between personal saving and national saving.

Saving: the more the better?

Recently, I posted a series of investment guidelines called “Principles of Sound Investing.” The very first principle I discussed was “Live within your means,” dealing essentially with the virtues of saving. A household’s savings rate is a crucial determinant of its ability to sustain its income into the retirement years. This is partly just a matter of mathematics. By making assumptions about rates of return, longevity, and so forth, financial planners can calculate recommended savings rates, which usually come out in the range of 10-15%. But the issue also gets entangled with our ideas about how people should live. We tend to think of people who can save for tomorrow as frugal and responsible, while people who run up debt by spending beyond their means as self-indulgent and irresponsible.

Macroeconomics provides a different perspective on saving, one that focuses on national savings rates, not just household savings rates. From this perspective, saving is also a good thing, but only up to a point. Saving provides capital for investment in economic enterprises, which sustains economic production and supports future consumption. National production and national income depend in part on national saving. However, they also depend on national consumption, since producers can’t sustain or increase production if consumers aren’t buying. Too much consumption and too little saving can be a problem, but so can too much saving and too little consumption. That’s why the messages from advertisers seem at odds with our ethic of frugality: Go ahead, live it up; buy that sports car; you deserve it! Already in the 1950s, William H. Whyte was describing how the mass-consumption economy was undermining our traditional ethic of thrift.

Economists like Michael Pettis argue that underconsumption can be just as big an economic problem as overconsumption. He warns us against applying our individualistic conceptions of virtue to entire countries, seeing countries with a high ratio of savings-to-consumption like China and Germany as good, and those with a low ratio of savings-to-consumption like the United States and Greece as bad. In the global economy, the two kinds of countries are complementary, and together they have created the global imbalances that resulted in the financial crisis.

One country’s underconsumption enables and even forces another country’s overconsumption, through its export of goods and capital. A country whose citizens spend too little to absorb its productive capacity can rely on exports to keep the economy booming. But for that country to be a net exporter, generating trade surpluses, some other country must be a net importer, running up debt.

Underconsumption as a growth strategy

In addition to seeing underconsumption as a possible problem and exports as a solution, global macroeconomics can see underconsumption and exports as two sides of a conscious strategy for growing an economy. The idea is to hold consumption down, limit the production of consumer goods for the domestic market, and invest heavily in infrastructure and export industries. That’s been a common model for developing countries in Asia recently, as well as in countries like Brazil and the Soviet Union somewhat earlier.

The prime example of an underconsumption growth strategy today is the Chinese economy. Several key policies support that strategy. Employers raise wages at a slower rate than worker productivity. The central bank sets the value of the national currency low in relation to other currencies, reducing the buying power of Chinese consumers while making Chinese goods cheap on world markets. The central bank also sets interest rates very low, hurting ordinary depositors but helping producers borrow to expand production. The low interest rates are more helpful to producers than consumers, since China provides less financing for consumer expenditures.

This is one way to grow an economy, but it is not without costs. It limits the ability of the domestic population to benefit from the results of their own increasing productivity. In addition, it leads some other country to compensate by spending beyond its means, which it can’t do forever.

US debt in global perspective

What do the Chinese (and other net exporters) do with all the dollars they make by selling things to Americans? One thing they don’t do very much is buy our goods. If they did, the trade imbalance wouldn’t be so large. What they do a lot is lend those dollars back to us by purchasing US securities. They are net exporters of capital as well as net exporters of trade goods.

Here I’ll repeat what I said in an earlier post about international capital flows, quoting at some points from Pettis: Under some conditions, a capital or trade imbalance can be useful for the deficit country as well as the surplus country. For much of the nineteenth century, the United States depended on foreign capital–especially British and Dutch–because investment opportunities in its growing economy were actually greater than domestic savings could fund. But that didn’t hurt the country because “the wealth generated by foreign-funded investment was more than enough to repay the foreign debt and equity obligations.” Poor countries can also benefit by relying on foreign capital for a time. “For countries that lack technology, that have weak business and management institutions, or that suffer from low levels of social capital, foreign investment can bring with it the technology and management skills that allow the economy to grow faster than its foreign debt and equity obligations.”

Today, of course, the United States is no longer a poor country, nor a developing economy with more investment opportunities than we can fund ourselves. The large infusion of foreign capital into the US economy before the crash appears to have hurt the economy more in the long run than it helped it. With our manufacturing sector in decline and our net exports falling, there wasn’t much demand for new capital to expand production, at least not enough to absorb what Ben Bernanke has called a “global savings glut.” Instead, the capital went heavily to finance consumer and government spending. Economic activity was sustained, for a time, by running up government and personal debt. Foreigners bought a lot of Treasury bonds and–more relevant to the financial crisis–mortgage backed securities. The glut of capital pushed interest rates down, encouraging investors to “reach for yield” by considering untraditional but potentially high-return investments, such as the complicated pools of mortgages assembled by Wall Street firms.

So the housing bubble was driven by much more than irresponsible buyers borrowing beyond their means. A housing boom was one way to sustain a high level of economic activity in an increasingly uncompetitive US economy. It gave investors one place to invest and households one way to get ahead. We no longer seemed as capable of making products the world wanted to buy or expanding the middle class by raising wages. But we could finance an increase in home ownership anyway by making shakier loans and packaging them so they appealed to investors.

Economic imbalances

The financial crisis resulted from unsustainable imbalances in the global economy, especially the imbalance between net importers and net exporters, debtors and creditors, high-consuming and low-consuming nations. The economies involved had their own internal imbalances. China grew its export industries at the expense of domestic consumption. In the United States, the financial services industry boomed while manufacturing languished. We financed consumption more creatively than we developed the products and workforce required for success in the twenty-first century.

Economic imbalances also developed in Europe. Germany became a net exporter and creditor, while poorer countries like Greece became net importers and debtors. The use of a strong common currency, the euro, enabled the debtor countries to buy more than they should have, just as the strong dollar enabled Americans to import so much. One difference is that in Europe, the poorer countries are usually the debtors, while in the US-China relationship, it’s the richer country that is the debtor.

One lesson to learn from all this is that it takes both creditors and debtors to create a debt crisis. Those who heap moral blame on the debtors alone are not seeing the larger picture. Furthermore, the solution cannot just be that the debtors change their behavior to emulate that of the creditors. Since the roles are complementary, changes on one side require changes on the other side. The polices and practices of creditor economies depend on those of debtor economies. If Greeks and Americans suddenly adopted the frugality of Germans and Chinese, without complementary changes on the other side, the decline of consumption would produce global economic contraction and higher unemployment.

As the United States tries to solve its problems as a debtor nation, we don’t want to undermine the high output of our own economy either. Four things drive economic activity: household consumption, government spending, investment and net exports. (Since the US is a net importer, the last part of the equation drives foreign economies instead of our own.) Living beyond our means has been a way of sustaining aggregate demand for economic goods and services, both domestically and globally. Telling households and government to spend less may sound wise and responsible, but it fails to address the larger question of how to rebuild our economy on a stronger foundation. How can we grow the economy in a more sustainable way, without relying on consumers and government to spend beyond their means and run up debt? That is the subject of my next post.

Continued


Macroeconomics and Moral Judgment

July 6, 2013

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Many of my posts over the past year have aimed at making sense out of the Great Recession that began in 2008. Several of the books I’ve discussed here have dealt with it specifically: Alan Blinder’s After the Music Stopped, Michael Grunwald’s The New New Deal, Michael Pettis’s The Great Rebalancing, and Peter Temin & David Vines’s The Leaderless Economy. I have found the latter two works especially helpful in seeing the recession from a global macroeconomic perspective. For one thing, international capital flows helped produce the housing bubbles in the United States and other countries.

In this post I want to raise the question of how an understanding of large-scale economic relationships might affect one’s moral judgment about economic behavior. Once that we have a better idea how the recession happened, are we–or should we be–more critical of the policies and practices that led up to it? Do we see moral failures where we didn’t see them before? Do we appreciate how wide and deep the responsibility lies? Or are we so overwhelmed by the economic complexity of the whole thing that we give up trying to assign any moral responsibility at all?

Finding villains

When things go wrong in society, a natural response is to find someone to blame. During the Great Depression of the 1930s, many Americans blamed Wall Street speculators for pushing up stock prices to unsustainable levels. They also vilified Herbert Hoover for policies that made the Depression worse, and they called the shantytowns that housed the homeless and unemployed “Hoovervilles”. They celebrated Franklin Roosevelt as the hero who rescued them, making his Democratic Party the dominant political party for decades afterwards.

Our Great Recession struck a much more polarized society, making it much harder to agree on villains and heroes. A popular conservative response has been to blame homeowners who borrowed more than they could repay, along with those in government who wanted to help them. When the Obama administration proposed assistance for people who were in danger of losing their homes, CNBC reporter Rick Santelli delivered an angry rant from the floor of the Chicago Mercantile Exchange, saying that the proposal would “subsidize losers’ mortgages.” This was a variation on an old theme in American conservatism: the economically successful are the virtuous ones, and it’s the losers whose irresponsible behavior is the problem. (To be fair, many conservatives also opposed helping the big banks, but in the end, the “too big to fail” argument carried the day there.)

Progressives tend to find their villains near the top of the economic pyramid. Teddy Roosevelt attacked the “malefactors of great wealth,” describing a battle “to determine who shall rule this free country—the people through their governmental agents, or a few ruthless and domineering men whose wealth makes them peculiarly formidable because they hide behind the breastworks of corporate organization.” The Occupy Wall Street movement has focused its attack on the richest 1% of the population, and especially Wall Street bankers. More specifically, many observers blame the Great Recession on:

  • Subprime lenders: In order to make more loans, lenders lowered their lending standards and made more subprime loans–loans with less favorable terms for people with shakier credit. They moved away from the traditional 30-year fixed-rate mortgage and heavily promoted more confusing arrangements like adjustable-rate mortgages with temporarily low “teaser rates.” They became less concerned about defaults because they increasingly sold off their mortgages to financial firms that packaged them for sale to other investors.
  • Investment bankers: Wall Street firms bought mortgages and repackaged them as complicated Collateralized Debt Obligations (CDOs). These pools of mortgages were divided into slices called “tranches,” with varying degrees of risk. In theory, at least some of the tranches were supposed to be extremely safe; in practice, even the safest ones were riskier than they were cracked up to be.
  • Rating agencies: Since the securities rating agencies were paid by the banks whose securities they rated, they had little incentive to be critical. Previously exclusive AAA ratings went to too many risky securities that ultimately collapsed.
  • Regulators: Both Congress and regulatory agencies such as the SEC and Federal Reserve acquiesced to financial lobbyists and resisted calls for regulatory reform to deal with the increasingly risky financial practices. In particular, they exempted derivative securities (those like CDOs that derive their value from other securities) from regulation.

Economics and moral engagement

An economic understanding of how the housing bubble grew and then burst can help focus our moral outrage on the most responsible players. On the other hand, it could also muddy the ethical waters. After all, economics in general–and macroeconomics in particular–isn’t about personal moral decisions. It’s about impersonal economic forces like supply and demand and interest rates and global capital flows. Maybe subprime lenders and investment bankers were just responding rationally to market conditions, doing what they needed to do to make a profit. One could argue that individuals are just cogs in some gigantic economic machine, and bad things like severe recessions just happen from time to time. Maybe we should react to them the same as we react to hurricanes–we don’t like them but we can’t blame anyone for them. In other words, maybe the effect of economics is to substitute analytic detachment for moral engagement.

And yet, complete moral disengagement certainly doesn’t work, even for climate events. They are coming to be seen as partly a result of human activity, for which we need to take some responsibility. And that should be even more true for the economy, which is, after all, a human creation.

A less extreme argument for moral disengagement is that someone must take responsibility for good economic policy, but ordinary citizens lack the expertise to do so. They should leave it to the experts. The job of keeping the economic machine humming along is a job for economists and others with technical skills. This is an appealing argument. Many people seem willing to put a relatively small number of people in charge of social institutions, as long as they are selected on the basis of merit. However, Chris Hayes’s book Twilight of the Elites tries to show that even a hierarchy originally based on merit has a tendency to become self-serving and detrimental to democracy. In the aftermath of the financial crisis, economists themselves got some criticism for being too cozy with powerful financial firms, having too rosy a view of the economy, and completely missing the impending disaster.

Call me a liberal, but I think that an informed and morally engaged citizenry is essential to a democratic society. The average citizen cannot be an expert on the details of every policy issue. But each citizen can try to tell the difference between policies that serve the broad public good and those that serve some narrower interest.

Macroeconomics does not have to make ordinary people disengaged, resigned or fatalistic about economic events. What it can do is inform and shape their moral judgments, so they have a clearer and more realistic idea about what is right or wrong about economic policies and practices. It can shift the focus from a few obvious players in an economic drama to the more fundamental economic choices that societies make. That’s what I’ll be trying to illustrate as I discuss the global macroeconomics of the Great Recession in the following two posts.

Continued