Was Paul Right? | Brian Easton

<>Sea of Faith Conference: 18 July, 2009. Auckland

<>Paul, Timothy Money and the Economy discusses the same biblical text, but in terms as to what it reveals about Paul’s views of the economy.

<>Keywords: History of Ideas, Methodology & Philosophy;

<>I thought good context for today’s paper would be a biblical text – verses 6 to 10 of chapter 6 of the first pastoral epistle from Paul to Timothy

<>6: But godliness with contentment is great gain.

<>7: For we brought nothing into this world, and it is certain we can carry nothing out.
8: And having food and raiment let us be therewith content.
9: But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition.
10: For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

<>The last verse is often misquoted as ‘money is the root of all evil’. The difference is important. Paul is not ruling out that money may be a useful part of an economy and society, a means to an end. The evil arises when it becomes an end in itself.

<>Today’s seminar is about responding to the recession. I want to do so in the spirit of the Pauline epistle by suggesting that it is a good time for us to ask, what is the purpose of the economy? We are going to have a lot of people telling you what we should or should not do but they will fudge as to what is the point of it all, ignoring the purpose and focusing on the technical. Instead let’s call upon your expertise – the informed reflection of those concerned with spiritual values – to try to provide some guidance on where we should be going.

<>You will appreciate that as an economist I am operating outside the normal competence of my profession. What I hope to do is give you some background to build a better understanding than we currently have.

<>Although there have been numerous modifications to the initial idea, most of economics is built around the notion that individuals maximise something called ‘utility’, which is the response to the various things the individuals consume. A simple summary of the underlying philosophy might be ‘more means better’; for utility assumes that the greater the consumption the better off one is.

<>(In most of this paper I shall refer to income more often than consumption, although it is consumption that gives utility. There is a technical reason for this; what is not consumed is saved, and generally economists treat savings as deferred consumption, and that generates utility too. So it turns out that income is a better measure of utility than consumption.)

<>I dont have time to go through the caveats of this analysis – economists have many caveats – but ultimately they conclude that an approximate indicator of the total utility in a community is measured by aggregate total output, such as GDP (perhaps with modifications like for environmental degradation) and that a market economy (with modifications) is the best way to produce the maximum GDP – that is, maximum utility

<>Utility was thought to measure happiness. Jeremy Bentham, the founder of utilitarianism, said ‘happiness is the greatest good’. He is even better known for ‘the greatest happiness of the greatest number is the foundation of morals and legislation’. Two hundred years ago it was assumed the more one had the happier one was. But is this true?

<>Today we directly measure happiness by asking people how happy they are. I am going to report on some New Zealand research from Massey University’s Centre for Social and Health Outcomes Research and Evaluation. The 3000 plus person survey was not directly concerned with the issues I am about to discuss. Its pioneering focus was on the impact of alcohol consumption on the welfare of the associates of drinkers. But we needed to ask whether the associates have less satisfaction with their life – are unhappier – than those who do not have drinkers among their family, friends and colleagues after we allow for the individual’s economic and social characteristics (so that we can ensure that they do not contaminate our conclusions). It is these effects which I shall now report.

<>First consider gender. It turns out that women say they are happier than men, all other things we can measure being equal. (As it happens there is not a statistical difference but the finding is consistent with international surveys.)

<>Second, we found the internationally characteristic pattern by age. The young are happier, but as they grow older, they are less happy, hitting the bottom at the age of about 50. After that life satisfaction starts improving again – for the over 65s their life satisfaction is about the same as late teenage levels.

<>On the whole of ethnicity does not matter. Our Pasifika people are about as happy as Pakeha, Maori are slightly less happy, but not statistically so. (That is, after the differences in the social characteristics are controlled for – and of course these differences are large.) However, Asians report themselves as less happy. The Asians in our research team tell us this is a cultural response; apparently Asians always tend to score in the middle of survey scales, whereas in the case of happiness non-Asians tend to score more at the top.

<>This is a reminder that there are cultural elements to the responses. As far as we know this does not undermine the findings I am reporting since we are controlling for ethnic differences. However it not impossible that the male-female difference, say, is also ‘cultural’, although it not clear how one would test this objectively.

<>Marital status matters. One of the strongest effects from our survey and from the international literature is that the divorced and single are less satisfied with their lives than the married are. Do remember these are averages; of course there are some married couples who are deeply unhappy, and there are singles and divorced who are on top of the world. But as a general rule, the married are happier.

<>There appear to be few differences in satisfaction with life by educational attainment. Perhaps the sample is not large enough to capture with statistical certainty the slightly higher happiness of the better educated. It is also possible that education opens up opportunities for other things – marriage, employment and income – which do enhance happiness (but whose effect is measured directly). But we also need to recall the conclusion of John Stuart Mill, Bentham’s godson and intellectual successor, who said that ‘it is better to be a human dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied’.

<>There are two economic variables in the data set. As far as employment status is concerned, the sick and unemployed are markedly unhappier that those working, whether part or full time. Those studying or parenting are much the same as those working; the retired are likely to be slightly happier.

<>Utilitarian analysis would predict that the higher the income the happier one is. The survey broadly confirms that pattern but the gains in happiness are surprisingly small compared to the variables I have just described. For instance a person on $15,000 a year with a job is likely to be happier than an unemployed person on $30,000; a person on $50,000 a year who is married is likely to be happier than a single person on $100,000 a year.

<>The small benefit in life satisfaction from additional income is even more paradoxical if we look at happiness and income through time. The data I have been describing is cross-sectional; a snapshot of what individuals reported to us last year. As it happens the American government – mindful that their declaration of independence says a fundamental right is to pursue happiness – have been surveying Americans for the last sixty odd years. In that time their real incomes have tripled on average. But the average level of happiness has hardly changed (albeit it fluctuates a little from year to year, and the relative happiness of some subgroups has changed).

<>We get a similar picture of average level of happiness by country. We might expect countries with higher average incomes (say measured by National Income per capita) to have higher average happiness. Among rich countries – New Zealand and those like us – that is not true. There are inter-country differences in average happiness but they are not explained by differences in average real incomes. The rule seems to be rich countries are all about equally happy, with particularities which cause differences which are nothing to do with income

<>This is a bit of a setback for economics. For two hundred years it has assumed that ‘more is better’, but the evidence is that higher incomes does not seem to mean greater happiness, whether we are looking through time or between countries. That higher incomes within a country generate a little more happiness at a point in time, suggests there is a relativity effect which I shall try to explain.

<>But whatever that explanation, it is humbling for an economist to realise that phenomena other than income ones, such as marital status and employment are far more important than income is when it comes to determining life satisfaction.

<>Inevitably economists dispute what this means. This is not a central debate within the profession, although more that a handful of economists observe there is an anomaly and think it should be addressed. (Many scientific disciplines have such anomalies for long periods.) Rather than go through the debate, let me give you my explanation.

<>While, as I mentioned earlier, average happiness in rich economies does not rise as the economy gets richer, that is not true for those economies which are poorer – say below two-thirds of the New Zealander’s average income. Below that threshold there is a strong correlation between happiness and income. As income and consumption rise, people in economies below the threshold say they are happier on average.

<>What this suggests is that Bentham may have been right in his time, when ‘more’ did mean better. Increased production meant people ate better, were better clothed and lived more comfortably. However at a certain point one reaches a threshold and more spending does not increase happiness because the material requirements of life are already met. America seems to have been at that stage for about sixty years. We dont have the same longitudinal data for other rich countries, but New Zealand seems to be among those that are now comfortably above the threshold.

<>Once a country is above the threshold what is the purpose of the extra production? To try to answer this (albeit only in part given the time I have) I am going to use the notion of a ‘hierarchy of needs’ as first proposed by the American (Jewish) psychologist Abraham Maslow.

<>It is a framework widely used by other social-science disciplines, although it is a little too timeless, ignoring longevity, perhaps assuming it does not change much. In fact there appears to be a correlation between income and health and life expectation. I leave that for another venue. There is a story about employment, but that too will have to be left for another day. Today I am going to just explore the implications of the hierarchy of needs for income.

<>Maslow’s hierarchy of needs involves five steps. At the bottom are physiological needs such as food, water, and shelter. A central role of an economy is to provide these basic needs. What seems to have happened is that in the rich world the economy now does that pretty successfully. They are above the first step of the hierarchy of needs, although we should never forget that most of the world’s population live in countries which are not so rich, where their basic needs are not met, and where they are, on the whole, not so happy.

<>The second step up involves safety needs although perhaps we dont think a lot about them until, say, there is a crime or accident in our neighbourhood. While responding to these needs usually takes resources – jails and safety equipment for instance – economics is not at the centre of these issues. Criminology is quite a separate discipline.

<>Having said that, I should mention a recent development, which I am cautious about; it is plausible but it does not have the same rich data base that the happiness research depends upon. What, Richard Wilkinson in his The Impact of Inequality, among others, argues is that the degree of social inequality in a society affects the health and welfare of the society.

<>Using data bases from country comparisons, from the states of America, and from comparisons of cities it appears that the higher the social inequality, the worse is average health (which is where the research area is most worked through). But the murder rate is also likely to be higher when there is greater social inequality, while there is also likely to be greater social hostility and lower social trust. In a different venue we might ask whether the rise in income equality in the late 1980s and early 1990s triggered the phenomenon increasing demand for law and order.

<>Apparently the higher the degree of social inequality the harder it is to secure the second step on the hierarchy of safety needs. I shall return to this finding shortly.

<>The next step up – it’s the middle step of the hierarchy – is love, affection and belonging. Perhaps economics has little to say about this need for people to seek to overcome feelings of loneliness and alienation. The Beatles tell us that ‘Money Cant Buy Me Love’; perhaps I should leave it there, except to note that money may enable the time and reduce the stress which makes effective love, affection and belonging possible.

<>The second to top step in the hierarchy is esteem, which covers both self-esteem and the esteem a person gets from others. Humans have a need for a stable, firmly based, high level of self-respect and public respect. Until they are fulfilled, the person feels inferior, weak, helpless and worthless. When their esteem needs are satisfied, the person feels self-confident and valuable as a person in the world.

<>At this stage economics comes back. Recall that while over time average incomes do not increase happiness, that any point in time those with higher incomes are happier. This suggests that one component of happiness is your income relative to others, and that perhaps once some threshold is past – the threshold implied by Maslow’s first step of meeting physiological needs – the value of income and wealth is that it helps enhance one’s self esteem.

<>We often rank people by their wealth, so that it appears that an individual can obtain greater public esteem by earning and owning more. In response we attribute to them a wisdom, which was not evident before they became famous. As Tevye noted that if he were a rich man ‘the most important men in town would come to fawn on me/ they would ask me to advise them,/ like a Solomon the Wise/ … And it won’t make one bit of difference if I answer right or wrong./ when you’re rich, they think you really know’. Money may not be able to buy you love, but it seems to be able to buy public respect – or at least many people operate as if it can.

<>There are a couple of points here. If the only dimension of self esteem is income and wealth, then we have a striving to increase the inequality in order to obtain a higher ranking of public esteem. But recall that greater inequality increases crime, thereby undermining the second step of the hierarchy of safety needs.

<>Second, in order that income and wealth justify public esteem we have to believe that in some way that those with high incomes (which may accumulate into great wealth) represent some general benefit to the public. Economists have spent much time trying to establish whether this is generally true. There is Hume’s problem that an is cannot convert ‘is’ into an ‘ought’ – how the economy works does not tell us about what is ethical or good and bad. Economists partly get around this by the notion of utility as a measure of worth, yet it may be an increasingly flawed theory. Even were it not, the economist’s argument that one’s income reflects one’s value to society proves circular. It says high incomes reflect contribution to society because we say so. That teachers are paid less than bankers does not mean they are less socially valuable.

<>Obviously in some cases the income is associated with the social contribution. Let me hazard that Peter Jackson has made a greater contribution to the world welfare than most of us, although it is not clear that his contribution is in proportion to his income. However that is certainly not true for many others. For instance it hardly explains the bonuses of those in financial institutions whose actions have contributed to the Global Financial Crisis. Nor can one easily say of those who have inherited wealth that their holdings in some way represent their personal merit.

<>In summary, we should be very cautious about assuming that high income or great wealth reflect social merit, and be unwise to assume that such people are automatically worthy of public esteem.

<>Those who desire public esteem from their wealth have two not incompatible strategies which I shall call demonstration and contribution. After all how can one obtain the public esteem from one’s wealth unless it is demonstrated? Hence the importance of ‘Rich Lists’ – showing off.

<>Another means is possessing what economists call ‘positional goods’ whose purpose is to demonstrate the wealth of the owner or consumer – to flaunt it. (Thorstein Veblin, called the phenomenon conspicuous consumption.) So the rich get bigger cars, not because they need bigger ones, but the owner needs to publicly display that they are higher in the social ranking than the mass of car owners. Some people seem to have more houses than they can possibly use. But jewellery, designer clothes, expensive parties and so on are all positional goods – perhaps even that my mobile phone is cleverer, or at least more expensive, than yours.

<>The difficulty with this positional goods strategy is that higher incomes and technological innovation undermine them. Soon everyone can have a bigger car. You observe this in the evolution of holiday homes. As they have become more common, the very rich have found their territories invaded by those they judge of lesser standing, so they move on, and on. Perhaps it is to home at a more remote location, or to a third home, or a yacht.

<>Positional goods are not confined to the very rich. I was recently looking at housing at a more middling part of the market. I was struck by how those homes have been constructed to be larger in recent years, but usually the additional space is not particularly functional. One can only live in a certain area – the rest is for display;’ look at my house, it shows how well off I am. Dont you think more highly of me?’

<>We are beginning to get here modern day version of Paul’s love of money. It may not be able to purchase love, but it seems to be able to purchase social esteem. This seeking of public esteem by way of display – of positional goods – is one of the drivers of economic growth. It gives temporary additional happiness – only a little – but it is continually undermined by economic growth raising all incomes and so enabling those who are lower ranked to acquire the positional goods too. Thus once the basic needs are met, there is no general rise in happiness over time.

<>Just to complete the story, another way of adding to one’s self esteem is by using the income and wealth to contribute to society. I certainly dont want to play down the genuine charitable aims of the rich, especially by those who are a little embarrassed by their wealth. But charity was once more circumspect. Is it my memory, or is conspicuous consumption more common today than, say, before 1984?

<>Earning public esteem by conspicuous consumption (even if it is on borrowed money) drives increasing consumption without increasing average happiness, because the public rankings remain the same on average. Thus the desire for economic growth does little to raise actual welfare (while depleting fixed resources and degrading the environment).

<>Perhaps the most obscene example of this ranking by wealth/income was the way that the money markets were organised to give bonuses to those in the financial sector which involved sums out of line with any realistic assessment of what the recipients were contributing. Hardly any of those in the scramble for the vast sums asked whether they were worth it in absolute terms. What was important was their ranking in the hierarchy together with the certainty that they ranked well above the ordinary public.

<>So money became the ultimate positional good, with the love of it as the root of the evil. It led to the financial boom and now the bust of the Global Financial Crisis.

<>We can go all to manner of controls to try to prevent this happening again, but it as long as individuals think they can purchase self-esteem then the system is vulnerable to repeating the evil. No law can prevent this. Instead we need a society whose thinking is not dominated by wealth, in which we award public esteem for other attributes. going back to the traditional virtues. Accepting this means abandoning public ranking based only on crude economic values. It requires more subtle understanding of the human condition, and one in which there is not single dimension on which each of us could be ranked. Recall that the sweetest thing of all to Tevye was to discuss the holy books. That may not be your ultimate objective, but you can still respect others for whom it was.

<>We are increasingly moving outside my professions competence; perhaps it is the time to pass these matters to the floor. Except that I have yet to explain the top of Maslow’s hierarchy of needs He argued that it was self-actualisation, the realisation of one’s potentialities with the implication that each of us has a different potential to realise.

<>The psychologists’ debate on self-actualisation is fraught with complications. This audience is far more competent than I to discuss such issue. So perhaps I shall leave the last word to Paul. Verse 11, which follows that condemning the love of money as the root of all evil, says:

<>But thou, O man of God, flee these things; and follow after righteousness, godliness, faith, love, patience, meekness.

<>Footnote: I was asked whether there was a resolution in terms a better measure of output than GDP. All the proposed measures assume more means better, and miss the conclusion of the end of a variety of ways one should be given self respect, and can attain self-actualisation. .

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