Q&A: Jay Richards on Economic Myths, the Morality of Budgets, and More

This is part of the Values & Capitalism Q&A Series. Jay Richards recently answered questions for Values & Capitalism related to economic myths, the morality of budgets, matching good principles with good policy, and more. Richards is a senior fellow at the Discovery Institute where he directs the Center on Wealth, Poverty and Morality. Richards is also a visiting scholar at the Institute for Faith, Work & Economics. Most recently, Richards co-authored “Indivisible: Restoring Faith, Family, and Freedom Before It’s Too Late” with James Robison. His previous book was “Money, Greed, and God: Why Capitalism Is the Solution and Not the Problem.” Richards is currently working on another book to be released in 2013. In recent years, Richards has been a contributing editor of The American at the American Enterprise Institute, a visiting fellow at the Heritage Foundation, and a research fellow and director of media at the Acton Institute. His work has been covered in a variety of publications, and he has produced and been featured in a number of documentaries including “The Call of the Entrepreneur” and “The Birth of Freedom.” Richards has appeared on many national radio and TV programs, including “Larry King Live,” and he has lectured worldwide on a variety of subjects, including to members of the U.S. Congress. Richards has a Bachelor of Arts with majors in Political Science and Religion, a Master of Divinity, a Master of Theology, and a Ph.D. in philosophy and theology from Princeton Theological Seminary. In “Money, Greed, and God,” you address myths that many Christians believe about economics. What is the primary myth that young Christians buy into? How do you respond to those believing that myth?

These days the zero-sum game myth is probably the most common, especially with Occupy Wall Street and the recession. A lot of people—including a lot of young Christians—notice inequality. You look around and see some people on Wall Street who are really rich and other people who are not doing so well. We see that inequality, and we assume that if it exists it is causally related, as if one person’s wealth causes another person’s poverty. That’s true if you’re talking about theft or something like that, but in a market economy, that’s not how things work. Any free exchange that two people engage in is going to be free on both sides, so people don’t engage in a free exchange if they won’t be better off as a result. We experience this every day. Every time we go to the grocery store, every time we go to the hairdresser, we’re finding someone who has a service we value more than the money they’re charging for it, and they value the money more than the time it takes to provide the service. So it’s very important to understand that the nature of free exchange is not a zero-sum game. It is not a win-lose game; it’s a win-win game. What you have to do is make sure you have a rule of law in place so that when people are interacting economically they are doing it freely on both sides.

You have referred to government spending as one of the most morally significant issues facing our country. How is government spending a moral issue? What moral advice would you give in regard to government spending?

I think it’s often a mistake to distinguish so-called social or moral issues from economic issues. First of all, it’s a mistake because economic issues have a moral component. Anytime that the federal government chooses to spend money, they’ve made some kind of evaluative judgment that one thing is more important than another. That’s why I agree with people like Jim Wallis when they say that the budget is a moral document and government spending is a moral issue. Pick almost any subject that you like—for instance entitlement spending. What’s the nature of that? Do the benefits exceed the cost? Are we enabling people or are we crippling them? Are we spending the money of people who have contributed in the current time period or are we spending money now that someone in the future is going to have to pay for? All those questions deal will justice. They deal with fairness. They deal with whether we’re treating human beings with dignity and empowering them—or whether we’re not treating them with dignity and disempowering them. All those questions come to the forefront when you’re talking about government spending. Also, with any government budget we have to ask ourselves: What is the government for? What’s its core competence? And when is it doing something that either it shouldn’t do or that another agent ought to do? My view is that the federal government’s primary job is to maintain the rule of law at home and to protect us abroad. It does a lot of other things, but at some point the federal government starts doing things that are outside its core competence. And when they do that, government spending itself is morally problematic.

One of the issues you address in your writing is people who have good principles but promote bad policies. What are some common examples of this flaw, and how would you advise people to avoid it?

I call this the “piety myth,” which is simply focusing on one’s good intentions rather than the actual effects of a policy. I think this may be the hardest intellectual mistake to get over because we constantly focus on what we mean to do. In the eyes of God, why we do something and what we do are both important. In fact, in the story of the widow’s mite, Jesus says it’s significant that the widow gave out of her poverty. The mite, a tiny little coin, wasn’t economically significant, but the fact that she did it out of her poverty, rather than abundance, was morally significant in the eyes of God. That’s a part of the moral reality. That’s not a part of the economic reality. When it comes to economic reality, the intentions that a legislator or a voter has for a policy bear no relationship to the actual effect of the policy. In fact, very often the worst policies are supported for the best reasons. One example of this is rent control in metropolitan areas. Rent control is usually implemented by a city government to try and keep affordable housing available for lower income people. And yet inevitably, when you have rent control, what it does is exactly the opposite: It creates a shortage in just that range of housing you’re trying to preserve. You find the same scenario with minimum wage, which is often treated controversially. But a lot of people, including many Christians, believe in a high minimum wage because they think it helps the poor. If you spend three minutes thinking about the basic economic realities underlying this, you realize it really doesn’t make any sense. A person’s labor has economic value in a particular time and place. You can’t legislate how much that person’s labor is worth. So if you have a minimum wage, the people who suffer the most from that are the people whose labor’s value is the furthest from the minimum wage. In other words, the poorest of the poor—those who need to grab the bottom rung of the economic ladder—are those most hurt by a minimum wage law. High wage people, like union workers who are already paid above the minimum wage, benefit from a minimum wage law at the expense of the poorest of the poor. This is a very simple analysis of supply and demand and basic economic logic, but often because of moral connection and sympathies for the poor, we advocate policies like minimum wage, even when it’s fairly clear that they don’t actually help the people we want to help. I would say that the best way to avoid this, in every case, is to ask what I call the trillion dollar question: “And then what would happen?” For any public policy issue, ask: “And then what would happen?” and think through the consequences of the policy before you implement it.

Which books would you recommend to students and why?

The two foundational books I recommend that everyone reads are “Wealth and Poverty” by George Gilder, which actually is out in a new edition, and “The Spirit of Democratic Capitalism” by Michael Novak. Those are probably the two books that had the greatest impact on me in thinking about economics from a Christian perspective. They’re both foundational books, not easy books. In terms of handy books in thinking clearly about policy and economics, I’d recommend “Common Sense Economics” by James D. Gwartney, Richard L. Stroup, Dwight R. Lee and Tawni Hunt Ferrarini. Second, I’d recommend the new book by Arthur Brooks, “The Road to Freedom.” He includes really good, simple, clear thought experiments in ways of thinking about economic policy that I think are really helpful. Both “Common Sense Economics” and “The Road to Freedom” are really easy to read even if you’ve never learned any economics.

In your view, how do we rightly distinguish between self-interest and selfishness?

I think this is one of the most important intellectual distinctions that Christians have to make in order to think clearly about economics and to understand the virtues of the free markets. Self-interest is not morally illicit. In fact, the Golden Rule implies that there is legitimate self-interest: “Do unto others as you would have them do unto you.” That implies that you can evaluate how you should treat other people by thinking about how you ought to be treated. In other words, you have to think about what would be good for you in order to understand what would be good for others. That implies that there is something legitimate about self-interest. And by self-interest, I mean the domain of concerns that are relevant to your life and that you have some control over. So self-interest doesn’t just mean you specifically, like getting enough food or getting enough sleep. It also has to do with your friends, your family and your community. If I live in a particular neighborhood because I want my children to grow up there, that’s an act of self-interest even though it involves those near me rather than me specifically. On the other hand, I would describe selfishness as disordered self-interest. If you start by thinking of legitimate self-interest, selfishness is a crack or disorder in that we elevate lesser goods to the greater good. As Christians, we call this idolatry. Anytime we take something that has a legitimate place and concern, like physical pleasure, and make it the highest good, we’re guilty of avarice or selfishness. At its core, selfishness is about the desire to control and to possess something absolutely that we don’t, or shouldn’t, have absolute control over. I think it’s important for Christians to distinguish between self-interest and selfishness. And it’s important to recognize that the virtues of the free economy have something to do with both. We want an economic system in which we can pursue our daily, narrow interests and yet contribute to the common good in some way. That’s what Adam Smith talked about with the invisible hand. If I’m a butcher, I don’t have to be visualizing world peace to help my fellow human beings. I just provide meat for them because I want to be able to pay the rent and buy my daughter’s braces. We want an economic system like that, and yet we also want an economic system fit for fallen human beings. Even when someone like the butcher is selfish, the best and easiest way for him to get ahead is still to provide something for someone else. I would say the free economy channels both our legitimate self-interest, and to some extent even our selfishness, toward socially beneficial outcomes. I think that is one of the key virtues of the free economy.