After a long hiatus, involving sickness and a car accident, I am finally back in the ball game.
Many of you must have noticed that recently the Democrats have been pulling the Chicken Little act saying that if the sequester goes into effect the country will basically come to a halt, we will have no military of any significance to protect us, jobs will perish by the boatload, and the poor will starve. My experience with New York City politicians sheds some light on this situation. In the 1970’s, when the city’s budget busting spendthriftery caused austerity to become a necessity, the first things to be cut were police and fire protection. Why, you may ask? Why not other non necessary things like the giant lumbering bureaucracies, for example? The only purpose of these cuts was to scare the citizens into insisting on removing the needed budget cuts and to say, “to heck with balancing the budget.” The same tactic is evident here. If the military budget gets cut, hoards of Canadians will come sweeping over the border in a murderous frenzy, and we will be helpless to stop them.
Nothing is further from the truth. I have gotten this from many sources, but the MSN Money site summarizes it most succinctly:
1. No recession is coming. They say that in a $16.4 trillion economy, the cuts are not nearly enough. After all, the cuts are only 2.4% of the whole Federal Budget.
2. The cuts are less than $85 billion. What the Democrats and many Republicans are quiet about is the economy and job killing $200 billion tax increase we are not saddled with.
3. Federal employees will feel the impact. Obama, or as someone in the comment called him, Oblabla, has expanded the Federal bureaucracy so much that Federal employment is really the only segment of the economy that is doing well.
4. Congress could give the Pentagon more flexibility. Since the cuts are across the board, allowing the Pentagon and the other agencies pick and choose where they will cut will assure that necessary programs will still function.
5. March first is not set in stone. Congress could pass a continuing resolution, as they have many times before, to extend the deadline and continue to fund the budget at current levels.
So before you build that disaster shelter and stock up on dried foods, mull this over. The gigantic Federal sector is like a cancer eating up everything in sight, like the blob from the jersey swamps. Is that what you want? And even if those evil Canadians attack us, we still have our Second Amendment Rights to fall back on, at least for the time being.
There are many reasons for the general population, and the politicians who cater to their wishes, not to accept what the scholars tell it to be true in economics and politics. There is ignorance, like the case of the woman who said that Obama was going to pay her rent, electric bill, etc. When asked where he was going to get the money, she replied, “From his stash.” There is the classic problem that you can never successfully oppose a principle to an interest. Even if I know what is right, it is very hard to think of the common good if that will stop my check from coming in. But what I would like to discuss in this entry is the problem of knowledge, the validity of it, and the method by which we attain it; and the problem of knowledge in our society.
This subject is called epistemology, from the Greek word epist?m?, meaning true knowledge as opposed to opinion. Opinion is a statement made with fear that the opposite may be true. Note that the fear does not have to reside in the know-it-all making the statement, but in the hearers, who would not bet money on the truth of the statement. Seeking the truth is a process designed to replace opinion with knowledge. In order to achieve knowledge one must be assured that the human being can accurately know the world outside of itself. This not only applies to physical things, but things such as the order contained within things on which the senses focus. Take the example of the little child who is given a new pink rubber ball. Such balls were common when I was a kid. Unless he has never seen one before, the child knows that that is a ball, that it is rubber, and that it bounces. The child immediately begins to bounce the ball until his mother tells him, “Not in the house, dear.” The child then goes outside to continue to bounce it. That child did not spend any serious time thinking about the ball; he got it in his hand, bounced it, his expectations were correct.
The great political philosopher Leo Strauss calls the fact that that we can accurately know what we sense pre-philosophical common sense. While there are cases when your senses can be deceived, those are out of the ordinary. I remember smelling what I thought was the smell of rotten eggs coming out of the chemistry lab, when it was really burning sulfur. Once I knew of the place from which the smell originated, and since I know there is no reason for eggs to be in the chemistry lab, I immediately drew the correct conclusion. I replaced opinion about the smell with knowledge about the smell. We could not live without this ability. Also, this does not apply to purely sensible objects but to more and more complex things. Think of the name Mary. It may remind you of our Blessed Mother, or a nice relative with that name. Suppose I add the word “typhoid” to Mary, so that it becomes “Typhoid Mary.” Typhoid Mary was the nickname of a woman in New York who, beginning in 1901, contracted typhoid fever as a carrier without symptoms and infected numerous people because she was a cook and unknowingly infected her customers. It was very difficult to find this carrier, so she became a household name.
Notice how your mind changed its orientation when the word “typhoid” was added to “Mary.” You needed no prompting from anybody to go from a joyful attitude toward “Mary” to a fearful attitude to “Typhoid Mary.” How did this happen? Typhoid Mary was a real person of which we received an intelligible species impressed upon our mind, such that “Typhoid Mary” became in some sense a part of you. The concept, coming from the reality and being impressed upon the intellect, can be analyzed by the intellect, and conclusions can be drawn. Hence flows the negative attitude. This is how human beings exist in the world. Their senses pick up something intelligible, the species impresses itself on the mind, the intellect analyzes it, and logical conclusions are drawn, frequently, but not always, followed by action.
But nowadays, the matter has become complicated. Beginning with the thought of René Descartes (1596–1650), who was a Catholic and a canon and civil lawyer, there arose the idea that we really cannot know what is outside our own head. For Descartes, the disagreements among philosophers were proof that we could not know reality outside of our mind, but we could only know our own ideas about reality. Thus he thought geometry was the true philosophy—because all of it was a mental construct. John Locke picked up on this in his epistemology by holding that our knowledge is only conversant regarding our own ideas, not external reality. Bishop Berkeley, who was a devout Anglican, felt that original creation could easily have been only mind and ideas, not real things. He held that anything that was not perceived did not exist, meaning that we know only what things are perceived by our own senses, and known by our own mind only. Any thinking not linked to these subjective things of sensing and perceiving have no existence. The things we think exist are, if you will, products of our senses and our mind, and we cannot posit their objective existence. Berkeley wrote: “Their esse [existence] is percepti [perceptible], nor is it possible they should have any existence outside of the minds or thinking things that perceive them.”
David Hume (1711–1776) continues this line of thought by holding that man has no distinct intellectual capacity for abstracting the intelligible from what his senses perceive. The things that the senses perceive are faint copies of the original, hence any intelligibility is a figment of the perceiver’s mind. Immanuel Kant took Hume seriously, and held that there was the world as it is and the world as we know it, and they were not the same. What humans do, supposed Kant, is impose categories on perceptions as though the perceptions were of real things. The categories are subjective. The person projects these categories or ideas outward on to the perceptions.
With all of this as background, we see in today’s society that these ideas are rampant, not just in intellectual circles but in the very populace itself.
We have all had conversations where our interlocutors have said, “Well, that’s true for you; not for me.” (As I recall that there is a line in West Side Story that says that very thing.) But today this subjective approach to reality even encompasses public policy. People in public life say things that are factually not true. More to the point, politicians, and even some economists, say things that the study of economics for centuries show are not true, yet they continue to mouth the same ideas. Even the economic practices of government have shown that they are not true, yet the persons uttering these same ideas continue to do so. Let’s take the economic stimuli. As a freshman in college, I could have told you that these injections of government funds (taxes) will not stimulate the economy. At best, they will lead to a temporary boom, which will end in a bust. At worst, like today, it will have no effect. The only outcome is inflation. Ben Bernanke, former economics professor at Princeton, should know better, but he now says he will continue injecting money into the economy by the billions every month to stimulate growth, despite the fact that economic theory tells us otherwise and practice over the past few years has verified the theory, as it did, by the way, in the 1970s. Nevertheless, Bernanke and politicians, the media, and many citizens think it will work. Why? Because the only reality is in their minds. If they think that it will “jump-start” the economy (as if the economy was a motorcycle), it will.
All of this is a type of Gnostic thinking. Gnosticism is a kind of infused, private knowledge given from “above” that only the elite have, such as Obama, Bernanke, and Geithner. Their followers are either in the Gnostic elite’s second tier, slavishly following the “enlightened,” or in the group that hangs on because of what they can gain from the elites being in power.
How do we remedy this situation? How do we change the minds of those who think that what they think is true, despite the objective truth? First we must ask the cause of the problem. I believe it falls directly on the government educational system and on the colleges and universities. Where would people pick up such outrageous epistemology except in the college classroom, taught by professors who cling to the Cartesian-Kantian fad? They inject the idea that we cannot know reality directly into the minds of students, who then go out and teach in the government schools. The poor teachers may never have heard of another epistemology. Oddly enough, on the other hand, those who major in business administration do not pick up these false philosophies because, if they thought like this, their business would fail and they might even wind up in jail. They cannot say that “they believe” that the company has a certain amount of funds, if the funds are not really there; but a liberal arts graduate can say that the stimulus will work, even though there is not a scintilla of evidence to back that up. Hence, prior to reforming the society, we have to reform education. When hiring teachers and professors, it is not where their degrees come from that matters, it is what they teach. If this is not done, the society will continue its downward slide.
In the preceding discussion of the popular notion of “fairness,” we discussed how there is a proper meaning of fairness which applied to procedures, but what most people today mean, and liberal politicians with them, is that fairness means equality of outcomes. Following this definitional error, we see the folks with fewer skills demanding the money of those with more skills based on the principle that it is not fair that, say, a great composer or novelist or inventor has more wealth than I, even though I have done nothing unique, such as write an opera or a great novel or invented a way to go to Mars quickly and safely.
To more clearly understand the cause of this problem, let us return to the Garden of Eden. Satan fell from the heavenly realms because he envied God. In the Garden of Eden, Adam and Eve were unable to commit regular sins of passion because their preternatural gifts gave their souls complete control over their bodies and their souls always cooperated with grace. They were in a similar condition as was Lucifer prior to his fall. In other words, Satan realized that the only temptation to which Adam and Eve would be able to succumb was the one to which he succumbed—envy. The temptation had to do, not with the fruit that God forbade them to eat, but the alleged outcome of eating the fruit—”for God knows that when you eat of it your eyes will be opened, and you will be like God, knowing good and evil” (Gen 3:5).
Let’s break this down. Firstly, notice how the devil is pointing out that God is not being “fair” because he is withholding something from them, a secret that he carefully guards by the prohibition of eating of that particular tree. God’s prohibition is meant to “keep them down” so that He can be the boss. If they stumble on the secret, God will now have competition; Adam and Eve will be like God. (This is Satan’s very desire and the very name of St. Michael opposing Satan, “Who is like God?”) So God is not being fair, and eating the fruit will produce an equality of outcome—divinity. By disobeying God, their envious motive, and their failure to repent immediately (remember Adam blamed God: “The woman whom thou gavest to be with me, she gave me the fruit . . . .” Eve blamed the serpent: “The serpent beguiled me . . . .” [Gen 3:12-13]), they wound up trashing the whole world and everyone in it.
None of this means that we should not try to better ourselves. But this should be done by our own work and prudence. In business school I learned that we should be always learning. In any profession, getting more and more certifications aids the business by making the employee more and more qualified, and it helps the individual to become more marketable. What we may not do is to get ahead at the expense of others, or because we envy them. We have to close our ears to the rampant charges that we are constantly getting ripped off by those who are more successful than we. This is not to say that at times we do get ripped off. We quite properly call these people criminals. But we can never accuse all or even most successful people of doing this. Many things, especially in politics, are rackets, but this is no excuse for your failures. We must always examine our consciences and ask, “Have I done all I could to help myself and my family?” In my case, one college at which I taught paid so little that during one summer I got a job at an asphalt plant, working in tremendous heat, because we had four children and had a hard time paying the bills. I never said I am “entitled” to have a free summer because of my credentials.
The envy card plays right into the Marxist card game. Marx taught that everyone had class consciousness, meaning that if you were born in a certain socioeconomic strata, you could not transcend the mentality that came with it. This led to an implacable hatred between the wealthy and the poor that only the exploitation of the rich by the poor could remedy. When the violent takeover of society by the down-and-outs took place in the revolution, the job of those who ran the state, the proletariat, would be to expropriate the wealth of those who had, eliminating private property and reducing everyone to the same class. This would lead to perfect harmony. But note that the core of this whole way of thinking is envy. Marx held that the wealthy became so by ripping off the poor. There was no way out of this trap. This was what the wealthy do, and the poor live in hopelessness unless something is done.
There is an interesting wrinkle here. For Marx, a violent overthrow of the rich and their lackeys in the government is necessary. But a companion of his saw this a little differently. Ferdinand Lasalle, also a German (hard to believe with that name), agreed with Marx right up to the point of believing that the state was an enemy of the poor and a tool of the rich. Lasalle believed that the way to institute communism is to impose it through the state. Hardly anyone knows about Lasalle, but who won the argument, Marx or Lasalle? Think about it. American progressives are really socialists with a new name. They believe that the government is the vehicle of rescuing the poor from the evil rich. But to do so, they need the cooperation of the lower classes. But how do you get this, since the poor in the West live better than the poor in the rest of the world? You do it by stoking envy; by telling the lower classes that they are poor, whether they feel it or not, and blame their poverty, or even the fact that they are not as well off as certain business executives, on exploitation of the them by the rich. It’s a great vote-getter from those who have no idea how wealth is created or the basis of the payment of wages, which is productivity. Even talk about the “American dream” is founded on envy. Yes, it is true that this a country of unbelievable opportunity, but success requires hard work, knowledge, some cleverness, and the rejection of seeing oneself as a victim. And, no, not just anyone can be president!
Basically, success requires virtue. But today even the mention of virtue is met with ridicule. People are not allowed to see the results of their actions because those who did not do as well might be offended. Pressure is put on those in authority to be dishonest with those who do not work well, or who do not study well. Many people believe that they should get paid just for showing up, or students believe they should get an “A” just for attendance. Even criminals do not experience the punishment for their crimes for years after they have committed them.
For those who do not see the relationship between morality and politics, this scenario should change their mind. The 10 Commandments are there for a reason, and it is not merely personal sanctification. All morality impacts society and politics.
Anyone who is living has heard of the dispute between the Obama administration and the Catholic Church regarding the Obamacare ruling that religious organizations, such as schools and hospitals, must provide contraceptive services, including sterilization and abortifacient pills. Due to the tremendous outcry, the administration rescinded part of the mandate and said that the religious organizations did not have to provide the services, but their insurers did, and for free, women’s “health care” being considered a right under the Obamacare plan.
The major problem here is that the Catholic people and institutions will be paying for these “health” services, to which Catholics must have nothing to do, and many of the insurers are the Catholic organizations themselves. For example, in my diocese, the diocese is the insurer, and Catholic Charities is its insurer.
Why would a politician who wants to be reelected in November go charging into a large crowd of Christians, Jews, and religious liberty-loving Americans in general with only one horse and lance? Is he politically suicidal? Does he not know that he will be overwhelmed?
There are standard answers to this question, such as, Obama is appealing to his base. Even if he loses the fight, no one can say that he did not try to take on the evil, out-of-date Catholic Church. This will shore up his base, just as the stupid decision to stop the Keystone pipeline will solidify his radical environmental supporters. All this might be true. But an economist sees things from a little more complex view.
I have in the past explained what public choice economics is (see my article, “The Economics of Politics”). Let us apply Public Choice to the HHS mandate. What explains this action of the President and his Catholic henchwoman, Kathleen Sebelius, which seems to be political suicide. Remember, all people act in their own interest. That is not generally a bad thing, especially in the private forum, because 99% of what we do for ourselves helps the common good. Self-interest is not necessarily selfishness. But in public life it is another story. When a politician acts also for his own interest in public life, this interest usually contradicts the common good. Politicians protest that they are “public servants” and suddenly receive a halo when working for the government that they did not have in private life. Does that make sense to you? When politicians act (generally speaking), they act because they want something. Threatening to regulate an industry brings forth that something. Threatening to place expensive regulations on, say, the hat industry brings about a flurry of meetings among the hat industry executives about how to stop the regulations. The scenario usually ends up where the industry raises money and offers it to the politician’s election campaign funds or PACs, getting a promise to back down on the regulations. It also works in the other direction. A government cartel can be threatened by a politician to have the regulations which protect the cartel from competition removed. This forces the cartel to do the same thing—cough up money for the politician’s war chest to keep the regulations in place.
Now let us take the case at bar. We all know that Obama has a Catholic strategy. His idea is to rope in Catholics to his team by trying to show that despite the fact that he is a fanatical supporter of birth control and abortion, there are many prominent Catholics that follow him: Professor Kmiec, Kathleen Sebelius, Notre Dame, Joe Biden, etc. But his problem is that the American bishops are beginning to develop a backbone and are a bit more outspoken regarding the incompatibility of Catholicism with Obamaism. Since the original strategy meant to gain Catholic support is floundering, a new strategy to release the Catholic pressure against him is necessary. He now threatens to “regulate” Catholic institutions by making them pay for birth control, sterilization, and abortifacients. The Church puts up a big stink about it, good, but I am sure negotiations are going on behind the scenes to the tune of, “Mr. President, what do you want for this to go away?” Now the President can hardly expect the bishops to put money in his coffers. But one thing that they can do is soften their criticism of him, from now until election time.
Can we prove this? No, but we can see what happened in retrospect. If Obama lifts all the regulations, let us see if we see any opposition to Obama from the bishops in general. If they are silent prior to the next election, then that was probably what the deal was.
The above expression brings me back to my childhood on the streets of New York City, where we were always playing some kind of ball game. So many times during a stickball game in the street there would be a great hitter, like my friend Dennis, who would cream the ball every time he got up to bat. And usually after a few runs, one person on the other team would shout out, “That’s not fair!” In fact, it always seemed to be the same guy. He could not stand it that there was someone way better than he was, if that guy was on the other team. A few times this complainer would go off in a snit into his house until his temper would abate, and he would come out and apologize for his behavior in the face of yet another enemy home run.
In this case, my complaining friend was angry that someone was better, not only than he was, but even better than the rest of us—and we were no slouches. But Dennis was headed to the pros one day, which he almost made as a pitcher when he permanently injured his arm, and that was the end of that.
What is fairness? Interestingly, it is not a philosophical concept. Neither the Dictionary of the History of Ideas nor the Encyclopedia of Philosophy has an entry for the word or any variation of it. The online dictionary, on the other hand, hits the nail on the head: “Gained or earned without cheating or stealing . . . free from favoritism or self-interest or bias or deception. . . .” But is this what my companion meant by his protests—that we have violated the rules; that we cheated or were out to get him? Of course not. But there is a serious problem in our society. More and more we hear the word “fair” and “fairness” in public discourse about the economy. There are calls by politicians and other interested parties that we need more fairness. The implication is clearly that if some people are doing better than others, financially, educationally, or skill-wise, there is something “unfair” about it; that these people have gotten where they are by “cheating or stealing” or with “bias or deception.” Take the example of Robert’s Rules of Order or the rules of criminal or civil procedure of a state. These rules are meant to produce a fair process, not to effect a “fair” outcome. The rules protect both sides of an argument to make sure they get a “fair” hearing. If the chairman of the meeting or in court the judge, who is the trier of law (the jury is the trier of fact), deviates from the rules, someone can object. But in a meeting when a vote is taken after the rules are followed, one sides loses; in a court once the jury decides, the rules being properly enforced by the court, the outcome is final. If you are convicted of bank robbery by said jury, that’s fair, because the rules are followed. You cannot argue that it is not fair that you have to spend 10 years in jail, while everybody else walks around free.
Now if your side loses, and there is a reason of substance, not procedure, why you are upset, you might claim that the outcome was not just, even though the procedures were fair. Suppose the members of the organization at the meeting merely did not listen to your arguments, or the jury ignored evidence in your favor; then you can argue on substantive grounds that justice was lacking. In business, suppose I contract to work for a company for a gross amount of $10 per hour, and when I get paid, I get only $8 per hour gross. This might very well be unjust, assuming it is not a mistake. If it is a mistake, it is merely unfair. If it is intentional, it is unjust.
So why the constant talk about fairness? Some have less resources than others. This is a fact of life, but there are reasons for it. If I have a skill that is in demand and you have no skills or a skill that no one demands, it is just that I get more income than you. A brain surgeon makes way more than I do, even though I have much more education than almost all brain surgeons. Why? If you have a brain tumor, who would you go to? Me? Even I would not go to me. Even though the world needs good political philosophers, economists, and theologians, the need is not as acute as the need for surgeons. Hence, surgeons are in demand more than political philosophers, economists, and theologians. Hence, the surgeons make more money. But so many people resent this. So many are supporters of politicians who will take the surgeons’ income away and give it to the political philosophers, economists, and theologians, or, more likely, give it to the skill-less. But the surgeons, and for that matter, the political philosophers, economists, and theologians are more in demand by society than the skill-less.
It seems that the root cause of all this fairness “jibba-jabba” (to quote Mr. T.) is egalitarianism, or the desire for equal outcomes, enforced, of course, by the government. And where does this idea come from? There are a couple of sources; intellectual, laziness, greed and envy. Here I want to address the laziness, greed and envy aspects. I want to do this because there are personal flaws surfacing and now widespread in many American people today. Laziness produces a desire for a reward despite the fact that one does not do anything to earn the reward. Greed is the desire lurking in all of us for more and more. Greed does not apply to the rich only, contrary to popular opinion. Since greed is a capital sin, as is laziness, it applies to all, if we let that cat out of the bag. Envy may be the worst of the three. In envy we are sad and jealous at the success of another and we begin to go from mere envy to a violation of the Tenth Commandment—desiring our neighbor’s goods, which then leads to violation of the Seventh Commandment—Thou shalt not steal.
But most people do not want to risk walking over to their neighbor’s house and kicking the family out of their mansion. This might bring dire consequences, like the possibility that the owner might kill the perpetrator, or that the perpetrator will be arrested and spend time in prison. What is the next best thing? Get the government to do it! Almost all government programs are wealth transfers in order to buy votes. The lower classes, which are more numerous than the more productive classes, use the votes or threat of votes to get politicians to take money from the latter and give it to the former. This now has become legalized theft. Those who voted for it will not go to jail, and the politicians will not go to jail. The productive classes are the only losers here because they just do not have the numbers. Today a report came out that the average person on governmental assistance gets more net money than the average net income of the whole USA. Gee, I wonder why!
Next, I want to write an article about the HHS mandate, but then I will return to the root causes of this problem.
Once upon a time, there was a man, let us say for the sake of the story it is me (it isn’t, but if I did these things, I would be in the same state as the man in the story). One day my 11-year-old Buick died. So, I needed another car. But instead of getting a nice used car for cheap, like the Buick I had which lasted 6 years, I went out and treated myself to a Ferrari. The price of this new car was over $225,000. Now I am a man of modest salary, and I already have a mortgage on my house and am trying to pay off credit cards, which means that I do not have that much discretionary cash. But the payment on this car (I looked this up in the amortization tables) at 5% for five years (the most they usually allow in a new car) is $4700 per month. Since, up to this time, I had a good credit record, they actually loaned me the money.
So I came home with the new Ferrari, and, after my wife stopped hitting me on the head with her rolling pin, she yelled at me for spending too much money and for putting us in so much debt. I felt very bad that she was so upset, so I decided, as soon as the headache went away, that I would do something nice for her. Since my wife does not have her own car (again, for the sake of the story), I went out and bought her a car. But since she was mad that I spent so much on the Ferrari, I decided to get her a cheaper car, so as not to spend as much. The car I bought, a Mercedes-Benz, cost $42,000 and the payments, at 5% for 5 years, would be about $800 per month, surely a bargain compared to a Ferrari. This means that I just boosted by monthly liability payments by $4700 + $800 which equals $5500 per month.
For a man of modest salary and only a small amount of discretionary cash, this payment is way too much. Suppose, for the sake of the story, I am not allowed to give the cars back. Even if I did, they would be considered used cars and I would still owe a chunk on them, though nothing like I am currently paying if I keep them. How do I make the payments? I borrow the money. After all, I made these purchases in only two days; maybe they have not gotten into the credit system yet. Suppose I got some credit cards with high credit levels? I would not have to borrow the whole payment from the cards every month, because I could make some part of the payment with my discretionary cash. I would, however, have to borrow a large portion to make the full payment. Maybe I could make my wife go to work, if she is not already working (in real life, she is). Maybe I can suddenly get hired as a vice-president of a big company so that my salary will take a big jump. But is that likely to happen anytime soon? No. Basically, I am in serious financial trouble.
Now, what is the meaning of this parable? If the reader did not already see it coming, we can compare the man in the parable to the Federal government. The man got attached to material goods, and not just any goods, but fancy, expensive cars, probably due to the mid-life crisis syndrome. The populace gets attached to transfer payments made to them, called entitlements, and the government gets attached to the power that comes to it in return for promising these entitlements to the people attached to them. But the government and the populace, who pay for these things, cannot really afford it, and, like the wife in the example, will shout and scream about the cost. So the government (husband) goes and gets loans to pay for the entitlements, and to appease those who complain about the spending, gets them some goodies, like bailouts for profligate banks and companies, the executives of which get to keep their jobs. Of course, to do that, the government has to borrow more, and in a pinch, the Federal Reserve Bank can counterfeit some cash, for which the man in the parable would go to jail for a long time if he got caught doing that. Meanwhile, the people (like the wife) are furious and are worried that the whole edifice will collapse. Just as the family will have to declare bankruptcy, the government will have to default on its debt. So the government (husband) finds a way to keep borrowing, though a lower amount, to enable everyone to keep their programs (and their cars), the protesters (wife) having gotten used to the bailouts (the Mercedes-Benz), etc. This is the recent debt deal worked out between Democrats and Republicans. Spending was not cut; just the rate of new spending is less than the old rate. We can still borrow more money, which we will also have to pay back, but since the economy has been malfunctioning for some time (no gigantic pay increases for the husband), where will the money come from?
This parable is not far-fetched in any sense of the word. The laws of economics, which are not laid down by anybody but come from the actions of humans, are the same for all. Milton Friedman famously said that there is no such thing as a free lunch. For those too young to know the reference of this wise statement, my grandfather, who was born in New York in 1880, told me that bars in those days advertised a free lunch. Of course, most people going in to get a free lunch got some alcoholic beverage. The cost of the beverage was high enough to pay for the food, so the lunch was not free. Everything has to be paid for, and the debts incurred are not incurred by the “government” but by the individuals in government whose actions try to defy the laws of human action—the laws of economics. Just as the husband in the story would be a fool to buy a Ferrari with the income he has, and then buy a less costing but costing nevertheless Mercedes-Benz right after that, so the people in government are crazy to think that they can keep promising and giving benefits to voters without considering how to pay for them. Thus endeth the lesson!
As everyone knows, the government has painted itself into a corner. More and more spending on more programs, more bureaucracies, more entitlements, and more buying of votes with these programs has gotten the Federal (and some state) government into the unenviable position of reaching the end of the tolerable income tax level, beyond which the populace will revolt, and at the end of the indebtedness limit, beyond which we cannot repay all the money it borrowed in order to fund these things beyond the tolerable tax level. Calls are being made for a hike in taxes “on the rich,” and a hike on capital gains taxes.
So let us examine what a capital gain is, and then examine the effect on the economy of higher capital gains taxes. A capital gain is the proceeds less cost from the sale of a capital asset, such as property, stocks or bonds, a car, etc. These proceeds are taxed at a lower rate than income, because if income tax rates were applied, most of the proceeds would be given to the government. Suppose you win a million-dollar lottery. This is not a capital gain, and it is taxed as income, which means that about one-half of the million dollars goes to the government. A capital gain, however, is taxed according to different rates. According to the Tax Foundation, the current capital gains tax rate goes from 20% to 39.6%, depending on how long you have owned the asset. The higher rates are for shorter time spans. So if you held a piece of property for a year, you would pay virtually a 40% tax on the proceeds. If you held it for five years or more, you would pay 20%.
What is behind the capital gains tax? Those who propose a capital gains tax, or those who propose raising it to higher levels, are motivated by a number of things. Firstly, there are the government officials whose spending is so profligate, by which they “buy” votes by rewarding their supporters and harvesting more followers, that they need to tax everything that they can, and Americans are habituated to the thinking that everyone has to pay their “fair share” so that the racket can continue. Then there are people motivated by false thinking. Neither of these parties cares about you selling a seven-year-old car, or an old outhouse. Both of these are interested in people who sell, say, the Empire State Building. These types of capital gains are targeted both by government officials and by the people of the second type of thinking, who have in their heads the image of rich people with yachts, with large living quarters on the most desirable locations in the world. To this second group, it is a question of pure class warfare and envy. In their minds, the wealthy sold this big asset so that they could live “high on the hog,” while the rest of the country toils away for a modest living. There was an anecdote I heard when I was a kid, although the story pre-dated my birth, of rich people sitting around having cocktails and one of them says: “I wonder what the poor people are doing today.”
This story is like the cartoon version of the truth, so let us examine what people do when they sell a major capital asset. Firstly, why would a person, or a company, for that matter, sell a major capital asset? Unless the person just wants cash to retire with, which is not that common, he or she wants to do something more profitable with the money. Take our Empire State Building, for instance. That building is income property. Companies rent the offices and the owner, after expenses, is the residual claimant, which means he or she, or their company, gets what’s left. It is this money that allows the owners to live a comfortable life, assuming that they can keep the building rented. The owners do a great service to companies in providing such a building for companies to use. But if the economy tanks, they might find companies that rent space in the building going out of business, and getting others to rent might be difficult, requiring the lowering of rents, so then the residuals will get smaller. Now let us posit the scenario of a midwestern city that is going to get a major-league baseball and football franchise, and now needs a stadium. The owners of the Empire State Building notice that even though the economy is not doing so well generally, and in New York, the Midwest is doing better, and throughout the Midwest receipts for sporting events are actually increasing. The rule here is that money goes where it is most productive, because that is where it is most needed. So the owners of the Empire State Building will find a buyer for the building, even if they sell it for less than they think it is really worth, to raise the cash to build a stadium. (Of course, we are leaving out many technical details here, such having to bid for the contract, etc., but these are not relevant to the story.) But, and here is the key to the article, if the capital gains tax takes too much of the proceeds, the owners of the building will not sell it because the sale will not render enough cash to build the stadium. So, the result of high capital gains taxes is to keep capital frozen in current projects and forestall new, more profitable projects. Notice that the owners of the Empire State Building did not want to sell the building so that they could buy another mansion, but to enter a venture that will increase their own cash flow or income. If they succeed, money will flow from where it is not really needed—New York, where things are in decline—to the Midwest, where people are begging for investment funds.
The result of all of this is that whatever the reason for wanting to foist higher and higher capital gains taxes on business folks, either to fund government profligacy or to soak the rich, the result is the same—economic stagnation.
Speaker of the House of Representatives John Boehner was recently invited to give the commencement address at the Catholic University of America. Boehner himself is a practicing Catholic. But some professors both at Catholic U. and other “Catholic” colleges wrote a public letter upbraiding Speaker Boehner for violating Catholic social teachings by proposing major cuts to entitlements. The letter treats the Speaker like a five-year-old, one who is ignorant and hard-hearted, neither knowing about the social teachings of the Church (they sent him a copy of the Compendium of the Social Doctrine of the Church) nor caring about the poor. They repeat the old complaint that “it [the budget] carves out $3 trillion in new tax cuts for corporations and the wealthy.”
While there are a few recommendable passages in this letter—such as, you cannot cut the budget in a way that is a disproportionate sacrifice of the benefits that the poor get—most of it shows a very poor understanding of Catholic social teaching, such that my undergraduate students could write a better letter than this one. In fact, there are so many problems with the letter that one does not know where to begin. So let’s examine just a few points.
First of all, it turns out that Professor Schneck, the first signer of the letter, and hence, probably its author, is a board member of both Democrats for Life and Catholics in Alliance for the Common Good. The fact that he is a Democrat tells us a lot, in that most Democrats have major socialist tendencies, and bow down to the Obama agenda. Secondly, I even question the “life” title. Remember Professor Kmiec (see my articles in this forum about him), who, in supporting Obama’s presidential run even though Obama is the most anti-life presidential candidate we have ever had, justified his support by lumping together concern for the poor with the overt act of murdering an innocent baby, holding that Catholics who concentrate on abortion take away from the other life issues, as if these could be compared. For his loyalty to Obama in suppressing a major moral teaching of his faith, Kmiec was rewarded by the president by being nominated to be the Ambassador to the Vatican. The Vatican rejected him. (Gee, maybe that tells you something.) He then was appointed to be Ambassador to Malta—remember, the island converted by St. Paul (“[i]t profits a man nothing to give his soul for the whole world but for Malta?”). He got that position, but resigned soon after because basically the Inspector General reported that he was incompetent, used his office for his personal agenda, and did not take directions from the State Department, his immediate superiors. The always whiney Kmiec, of course, denied everything, just as he blamed those who wrote against his questionable life position as being mean.
The second organization of which Professor Schneck is a board member is funded by George Soros, the billionaire businessman-socialist-atheist, who also funds many of the most leftist organizations in America. While I do not know the personal thinking of Professor Schneck or the other academics who signed the letter, board membership in these organizations does put some questions up for discussion as to the sincerity of the letter and the interpretation given to the social teachings of the Church.
On the sincerity front, Professor Schneck says that he was shocked that the public letter “became viral” so quickly. This man who calls himself a political scientist did not know that a public letter attempting to embarrass the Speaker of the House prior to his speaking at Catholic University of America would cause a stir? This strains the bounds of credulity, to say the least. If the signers did not want the publicity, if they were that concerned with the Speaker’s moral understandings, why did they not just send it to him privately, even handing it to him after the commencement ceremony, to make sure he got it? The signers of this letter just became shills for the Democratic agenda, hiding behind their version of Catholic social teaching in the process.
Since Professor Schneck is a board member for Catholics in Alliance for the Common Good, let us take a look at the nature of the common good. Vatican II defines the common good as “the entirety of those conditions of social life under which men enjoy the possibility of achieving their own perfection in a certain fullness of measure and also with some relative ease, [but] it chiefly consists in the protection of the rights, and in the performance of the duties, of the human person” (Dignitatis Humanae, #6). Notice that this definition has no specific content, but specifies a certain “habitat” in which the human person can develop. The specifics are decided by the laypersons with the guidance of the Church. Nevertheless, the specifics of all this are generally prudential, not moral. Part of this common good is helping the poor. How this is done is part of the virtue of prudence, and includes actions about which there will be disagreements among well-meaning persons. But remember, “the road to hell is paved with good intentions.” As a Catholic economist, this writer is concerned with things that will actually help the poor, and save the most souls. The writers of this letter seem not to care about the poor or souls, and here’s why. The best way to help the poor is your own personal actions, either alone or in concert with others. Mother Teresa correctly pointed out that Jesus sometimes comes to us in distressing disguises. Personal contact with the poor is where Jesus is met. We, you and I, have the responsibility to help the poor, and when we do it personally, we sanctify ourselves, as opposed to having the government take the money out of our wallets to do that which it thinks it can do better, and buy votes in the process.
Also, the question should be asked, “Who are the poor?” Are they only those short of cash? Is there a reason why they are short of cash, like, say, just hard luck, or is the cause mental problems, addictions? Are they working poor who never got any skills? Did they have parents who never imparted to them a work ethic? Are they crippled, or seriously depressed? And what about rich people who live in a bubble and never think of the serious questions of life? All these are poor, and money is not always, and frequently is not, the solution.
What about the principle of subsidiarity, which Schneck mentions toward the end of the letter? Subsidiarity was annunciated first as a concept by Leo XIII, although it appears in many other Catholic thinkers, but not by name. Pope Pius XI gave it its name. Subsidiarity holds, first, that nothing should be done by a higher social level that can be done by a lower social level, and secondly, that nothing should be done by a government agency that can be done privately, by either individuals or their groups. As Leo points out, the state is the last resort, not the first. This begs the question, “What has the human race done all these centuries without government welfare programs?” How much of the “lower” and “private” has been destroyed by government doing everything, leading to a cynical approach to the poor by the citizen? How much is this attitude encouraged by statist Catholics who never really stress subsidiarity?
Lastly, what about the enormous budget deficit that threatens the very future of this country? If this is not taken care of soon, we will all be poor. That’s the reality that the letter takes no care to pursue. What about the question of taxes on business slowing the growth of those businesses or driving marginal ones out of business, and contributing to unemployment? It figures that these signatories would not even think of these things. The list of signers has only one economist on it, and he is from Catholic University. He seems like the odd man out, seeing that he is there with a lot of theologians, nursing professors, and directors of vaguely named institutes, and even the head of the Leadership Conference of Women Religious, a notoriously leftist and even heterodox organization of non-habit-wearing Catholic sisters.
The answer to the question as to why this even happened is contained in this video, which is very informative. It is really sad that our Church has become so politicized, that we have to beaten over the head with Democratic party themes disguised as Catholicism by folks who have very little idea of the nature of the world, and who have no problem putting Catholics on a guilt trip for trying to find prudential solutions to economic problems their kind of thinking caused in the first place.
If you read my last article, “What Is a Humane Economy?,” you will notice that in there I brought up the subject of whether large corporations seek money or power. I said that if they seek power, it is only because they seek money, which is their raison d’être. Well, this article was a paper I gave at a conference of an academic society. The format of the panel I was on was that each of four participants gave their papers, then responded to questions from the panel, and then responded to questions from the attendees. Mine was the last of the four papers. The first was by a very radical distributist who, I found out later, has no graduate credentials in anything, and said he teaches theology at a good Catholic university down south. I looked at the website of this university and his name does not appear there. Be that as it may, the only “question” anyone asked from the panel was this guy asking something about my paper. I put the word question in quotation marks because he did something I have never seen at any academic conference since I have been either attending or actually giving papers in over forty years: He shouted his question at the top of his lungs, saying: “How can you say that corporations don’t seek power?” I felt like replying in an Inspector Clouseau fashion: “Well, I just opened my mouth and the words came out.” But I didn’t. I tried to answer the question, but he kept shouting his question, phrasing it in various ways. I had to shout over his shouting. Finally, in desperation, I said that we would have to agree to disagree and get on with it. No one else on the panel had any question for anyone else. Incidentally, his paper was a hodgepodge of non-scholarship and ranting, such that if I wanted to question or critique his paper, I would not even know where to start.
There are two lessons from this episode. The first one is that distributism is merely an ideology. And distributists are unhappy folks, because this is not the first incident of this type I have witnessed, just not at academic conferences. If distributists had good arguments, why do they not discuss them in a mature way? But they either use trickery, like asking the speaker trivial questions they know the speaker can’t answer, or merely shout their way through. The reason is that an ideology has, by definition, no convincing reasons. It is merely taking an idea, usually unproven, and building a logical system around it. This is why they do not like probing questions. For example, in a meeting of distributists a student of mine asked how this distributist society is going to come about since there is absolutely no real movement in society toward it. Would it have to be imposed by the government? Everyone in the room got furious with this student for even asking the question—a proof that we are dealing with an ideology. (For a good discussion of probing questions and ideology see, Eric Voegelin, Science, Politics and Gnosticism [n.p.: Regnery-Gateway, 1968].)
Now for the heart of the question. I do not agree with Milton Friedman that the whole purpose of a company is to make a profit. The purpose of a company is to produce something that the founder of the company believes is beneficial to the public. Studies of entrepreneurs have borne this out. But the desire to do this cannot be fulfilled unless the company brings in more money than it spends. The difference between the money it spends and that which it brings in is called profit. As Pope John Paul II said in Centesimus Annus, profit is the sign of the health of the company. In addition, profits are returned to stockholders, who ponied up the money for the company to begin with. They would not have done this without some expectation of a return on their money, which they would have put into a different enterprise. Profits are also plowed back into the company for research and product development so that the company can produce better products.
Why, then, do large companies seek favors from government? They do so because the government will give them privileges which make it easier to make more profit. One way to do this, believe it or not, is to insist that government regulate the industry, because regulation costs companies money, and smaller competitors cannot afford dealing with the regulations, and go out of business, thus limiting competition for the original firm. The same is true of tariffs. Why do corporations not want power? Because power is not money, and they are judged on the basis of money, not power. When the CEO goes to a stockholders meeting, bragging about how often he has been in the White House, it does him no good if the company is failing. But if the CEO has been to the White House and has persuaded the President of the United States to suppress the competition in some way, and that has resulted in an increase in revenue, the stockholders are happy.
The reason that distributists and others do not understand this is because, repeating myself, their views are pure ideology. The value of any writer’s or speaker’s thought comes not from whether you like it or not, but from whether it jives with human experience. Distributism does not. Capitalism does.
But how do we solve this tendency to get government favors for some businesses so that they prosper over those who did not get favors? The remedy is to prevent government from getting involved in the economy. If government were strictly prevented from any interaction with companies for any reason, and this could be monitored, crony capitalism would end. A company would have to survive on its own effort and newcomers to the industry would have a better chance to compete, as well as foreign suppliers. Prices would go down, and the people of the US would not be paying for massive bailouts in exchange for votes for politicians.
When discussing economics, the layman to the field gets bogged down in all sorts of baggage about economics that clutters the view of the subject itself. He brings to the table theories that do not accord with reality; there are religious biases, meaning that because some theologian says something about economics or business, it has to be true; they come with a neo-classical bias given them by mathematical economics that obscures the philosophical and theological bases of economics; they come with schools of thought that, though they have been thoroughly discredited, still influence the thinking of many non-economists. The result of this menagerie of error has been to obscure the real nature of economics and to cause confusion in the councils of government and the realm of public discourse.
One problem with amateur philosophers is that they tend not to examine a subject in itself, without the previously mentioned baggage. I propose to begin again. Since economics is a human science, we should begin with a look at the human person.
Human beings are thinking and feeling beings. They are not automatons, acting with cold reason all of the time, but frequently, their choices are based on the heart—whether they like or do not like something. The word “choices” is the key. Humans live in a world where they have to make choices every day regarding a myriad of things, some important, some trivial. The important choices really require that they be thought out, and we look askance at someone who chooses a spouse or selects a career as though they were picking numbers in a lottery. Also, people make choices in a rational way in that they choose according to their values. Aristotle reminds us that all men seek the good; no one intentionally chooses an evil. But people do choose evil things. This is because, as Aristotle puts it, they choose either a true good or an apparent good. The apparent good looked good to them at the time, considering their values.
Next of all, all humans act, and the choice leads to an action. A person who makes choices but does not act lives in a fantasy world, and eventually dies from the lack of choice about the basics of survival. The very idea of choice implies an action. One cannot even reject this “action axiom” without acting. Contrary to what I call the “industry of evil,” which portrays all choices as between good and evil and sells a lot of books in the process, most of the choices people have to make are between competing goods. The choice is based on subjective valuation—what is consistent with a person’s values. This does not mean that there are not objectively good values, as I have heard so many people accuse free-market theorists of advocating, but even objectively good things have to be subjectivised prior to choosing them. In other words, I must see something’s value before I will choose it. And that choice must actually apply to me or my situation.
The next point is that all human beings act to better their condition. This is true in every area. Normal people desire to improve their participation in those things which they value. Academics want to learn more, advance their discipline, teach better, and publish their ideas. Married persons wish to do more for their families. All men desire to improve their physical lives by making them easier, healthier, safer, and convenient. Notice that all these things have nothing to do with money. These are things to which people naturally gravitate. Money only makes many of these things possible. Remember, though, that since the subject is human beings, not everyone will pursue the better things, for a variety of reasons, from laziness, ignorance, alcoholism, or even taste. So it is no argument against this to point to people who do not conform to this norm; it just means that we are not programmed robots, and that we act according to our values, which can vary quite a bit.
In discussing what a humane economy is, a number of things must be remembered. A free society and a free economy are what Hayek correctly called a “spontaneous order.” Contrary to those who have an anthropomorphic view of society or the economy, no one created society, assuming it was not set up by a dictator. No one set up an economy. A society and an economy are not “things,” but interrelationships which come about out of natural human sociability, and need. These interrelationships go from permanent, such as family, down to the one-time contact, such as when a person travels and needs to get lunch, stopping at a restaurant. A free society and an economy come about, as Adam Smith points out, as a system of “natural liberty,” meaning that these interrelationships are what people do. At the higher levels, people need friends who love them for themselves, and parents who will teach them how to be adults and give them what they need for survival when they are too young to survive without help. People also need the things that others have in order to enhance their personhood. This is the foundation of exchange. A humane economy is one which allows this to flourish. But since no one actually sets up a free economy, the humane economy is one that we set up ourselves, by doing our own actions.
It was pointed out that not everyone conforms to the norm because we are reasoning persons with free will and a fallen nature. Society and the market need a mechanism to prevent the actions of others from interfering with our legitimate actions, the ends that are not harmful to those around them. So some institution is needed to protect against fraud, coercion, and other such things. But because people generally know what enhances their values, that institution itself must not coerce them into choices that do not conform to their values, again within the ground of legitimacy—that is, choices that would hurt others to any significant degree.
What if, the complaint usually goes, the values of the society are stupid or bad? What is the cause of it? For instance, does the unparalleled success of the modern market economy cause materialism, or does the materialism in modern society come from the acceptance of twisted ideas, and the declining influence of Christianity? Or does it come from the human heart that is infected with what we Catholics call the seven capital sins? Do people have free will or not? Is becoming a materialist not also a choice, chosen because what makes a person a person has been obscured by a bad education system, the media, etc.? Are people as materialist as we think, or as the “industry of evil” has led us to believe?
Lastly, complaints are made about the size of corporations, that corporations are too powerful, and government needs to prevent their growth above a certain level of income. Firstly, this view that corporations want power comes from the progressivist platform, and has been parroted by many since then. Secondly, I would love to meet a non-economist who says these things who has read the ground-breaking article by Nobel Prize–winner Ronald Coase entitled “The Nature of the Firm.” In that article he does what no else ever did—ask, “What is the firm, why do firms exist and what governs the size of firms?”
Regarding the first point, corporations do not want power, they want money. If they want power, it is only to enhance their profits. Since firms can’t coerce purchases of their goods and services, they have to get someone to do it for them. That someone is an all-too-willing government, the members of which, in exchange for campaign contributions and the promised votes of the members of the firm, make a firm a monopoly, or give it special breaks. GE is a good example of this. There is a massive body of literature from what is called the Public Choice School of Economics on how this works, and the remedy is to take away government’s power to aid corporations. Non-economists never think of that. Plus, most firms do NOT seek government advantages.
On the second question, Coase shows that firms are as big as it takes to make a product or service, but not any larger. Why? The key is cost. For a firm to make itself any larger than it has to be increases costs. Increasing costs reduces profits. Reducing profits irritates the Board of Directors, and drives down the price of the stock, thus opening the firm up to someone who will try to buy a majority of the stock, fire the directors and officers, and put in people who will cut costs in order to make the firm more profitable.
So in answer to the question of this paper, “What is a Humane Economy?,” the answer is that it is the freedom of human action to provide what people want and need for their lives.