Category: Economics

New study reveals wage envy

If you only need $50 a day to live comfortably, would you be happier making $50 each day or $60?

The answer might depend on how much your coworkers are making.

A new study by a group of economists at the University of Zurich and Nottingham found that wage satisfaction is directly related to peer-coworker salaries.

On NPR’s Morning Edition, Shankar Vedantam reported most people are happier making $50 when their peers are making $40, than they are making $60 when their peers are making $70.

In the experiment, economists worked with a company looking for short-term workers.

Pairs of workers received a pay cut when their teams only received a partial pay cut.

The study found that when you suffer a pay cut and your partner doesn’t,

The effect on your morale and productivity is two to three times larger than the effect of suffering an identical pay cut but in a situation where your coworker also suffers a pay cut of the same size.

In other words, your satisfaction with your wage doesn’t have much to do with the amount of money you’re making or your ability to pay your bills and live comfortably.

Host Steve Inskeep suggests this preference is based on whether or not you feel like you are treated fairly.

Does the preference to earn less when your coworkers are earning less than you, instead of earning more when your coworkers are making more than you, really come from a desired sense of fairness? Or is it envy?

Perhaps it’s a bit of both.

In the case of the experiment, if an employee receives a more significant pay cut than his coworkers, with the perception he creates equal value to his coworkers, it’s no surprise the wage cut would have such an impact on his morale.

Wage should be tied to value creation.

Under the same circumstance, but with wage closely connected to value creation—he gets a larger pay cut because he’s creating less value than his colleagues—the worker’s dissatisfaction may be considered more envious than the first scenario.

We all have a drive for equality and fairness, but we cannot desire equality for equality’s sake. This drive is what leads to harmful and enslaving redistribution policies and unemployment.

On the show, Inskeep paraphrases an Alexis De Tocqueville quote from Democracy in America that illustrates this point.

The full quote reads,

There is in fact a manly and legitimate passion for equality that spurs all men to wish to be strong and esteemed. This passion tends to elevate the lesser to the rank of the greater. But one also finds in the human heart a depraved taste for equality, which impels the weak to want to bring the strong down to their level, and which reduces men to preferring equality in servitude to inequality in freedom.

God made us each with equal dignity. Equality under the law and equality of opportunity are ideals that have made America great. But when our drive for equality is rooted in envy, we forget the beauty of our uniqueness.

C.S. Lewis reminds us of the true nature of our equality in his essay “Membership:”

God is no accepter of persons; His love for us is not measured by our social rank or our intellectual talents. […] If there is equality, it is in His love, not in us.

Originally published on the IFWE blog.

Good anti-poverty policy: strong families

Panelists at the Values and Capitalism Fall Summit gathered recently to discuss the impact of the family on poverty.

According to Bradford Wilcox, director of the National Marriage Project at the University of Virginia, the retreat from marriage has increased child poverty and inequality, hitting low-income families the hardest.

While educated families are more likely to enjoy stable homes and employment, those without high school degrees see an increase in single parent homes, teen pregnancy, and incarceration.

They are also less likely to get married, which further limits their economic opportunity.

The graph below illustrates the retreat from marriage across time for three different education cohorts. The least educated (high school drop outs) see a larger drop in marriage from the 1970s to the 2000s, followed by the moderately educated (high school degree or some college), and the highly educated (college degree).

Elise Blog Graph

Declining marriage rates drive a deeper wedge in the socioeconomic class divide.

Studies show that men who marry work harder and make more money.

Family structure is also a strong predictor of a child’s chance of moving up the income ladder.

Unfortunately, less educated men are becoming increasingly disengaged from institutions of work, religion, and marriage.

Panelist Melissa Boteach of the Center for American Progress named three important family factors that we must consider when discussing policy solutions, what she called the three S’s: structure, strength, and stability.

  • Family structure: the composition of a family unit at a point of time.
  • Family strength: the quality of parents’ and other primary caregivers’ relationships with each other and their children.
  • Family stability: extent of transitions between structures and changes in strength factors over time.

Boteach pointed out it is not necessarily a matter of marriage or divorce. The issue is more complex.

For example, a stable single parent home may provide a better environment for a child’s future than a family with many marriages and divorces.

Panelist Jennifer Marshall of the Heritage Foundation emphasized the failed policy of the War on Poverty as well as the church’s unique role in addressing these issues.

According to Marshall, the poverty rate today is nearly as high as it was in the 1960s. For that reason, she sees the War on Poverty as a 20 trillion dollar failure.

The issues are much deeper than something money and government programs can solve. Instead, she argues poverty relief efforts should embrace shalom and the wholeness of the individual.

Marshall believes there is a lack of creativity in the Christian community in this space, which reflects a lack of confidence in God’s redemptive work. She encouraged the church to get involved in the messiness of peoples’ lives and to do the hard work of building deep relationships with low-income families in order to better understand their needs.

How can the church help?

Wilcox suggested marriage mentoring. Those who grow up without a healthy marriage model need mentor couples to walk alongside them and offer guidance through difficult times.

Strong families prove to be good antipoverty policy, as the panelists concluded, but not without the help of the church.

‘The Last Man on Earth’ and the nature of wealth

Imagine you woke up this morning and you were the last person on the planet.

You’d feel lonely and terrified, but look at the bright side. You just inherited all the wealth in the world.

This is how the first episode of The Last Man On Earth begins. The 2015 post-apocalyptic comedy series stars Will Forte as Phil Miller, who discovers he might be the last person on the planet after a deadly plague strikes. A two-year road trip around the country searching for survivors turns up empty, but he seems to enjoy owning all the wealth in the world in the meantime.

Phil breaks into grocery stores and takes all the food he wants, whenever he wants. He blows through stop signs and fills up his gas for free. He even takes ancient mummy tombs and million-dollar pieces of art from museums, just because he can.

When he returns to Tucson, Arizona, he picks out a mansion to call his own. He pours Cheez Wiz into a glass of $10,000 wine, decorates his house with the Mona Lisa and the rug from the oval office, and lounges in Hugh Hefner’s pajamas. He lays in a giant margarita in a kiddie pool, drinking from a giant straw, and hoping someone will see the messages he left around the country about his location.margpool

The last man on earth seems to be the richest man on earth, but it doesn’t last for long. The garbage men are gone, so there’s no one to take out his trash. The farmers are gone, so Phil doesn’t have any fresh produce to eat. The water isn’t running, so Phil has been using the swimming pool in his backyard as a giant toilet. The richest man on earth quickly tumbles into poverty.

The Last Man on Earth is an unexpected lesson on the nature of wealth. It shows that wealth isn’t just material; it’s completely dependent on the constant work and creativity of others. Wealth can grow under the right circumstances and shrink under the wrong ones. In a post-apocalyptic world, wealth is like a deflating balloon.

Many might think inheriting all the wealth in the world would equate to economic well being, but Phil’s character shows this isn’t the case. Luckily, we live in a world with seven billion other people with the capacity to create wealth, discover new ideas, invent new products, and start new businesses. As Paul says in 1 Corinthians 12:12-31, the body of Christ is one body with many members. The economy is similar in this way, relying on the unique gifts and talents of billions of people for the flourishing of each individual.

It makes you appreciate the garbage men that take out your trash every Tuesday, doesn’t it?

*Originally published on the IFWE blog.

#ActonU: “Sentimental humanitarianism” is the worst temptation in our world today

Dr. Samuel Gregg kicked off Acton University on last week in Grand Rapids, MI with a lecture entitled “Truth, Reason, and the Quest for Equality.” According to him, the worst temptation in a post-modern world that does not trust truth is sentimental humanitarianism.

Originally, clergy and monks established universities because seeking truth was synonymous with seeking God. Harvard’s motto is Veritas which means “truth.” Oxford’s motto is Dominus illuminatio mea which comes from the opening of Psalms 27 and means “The Lord is my light.” Just as monks came together in monasteries to pray, they intended people to come together to learn and seek God at universities.

Today, our post-modern world doesn’t trust veritas or reason. Postmodernity says the ultimate reality is unknowable at worst and a social-construct at best. As a result, we have sentimental humanitarianism.

Sentimental Humanitarianism: A Dangerous Temptation

Gregg argues that sentimental humanitarianism:

  • Reduces most debates to exchanges of feelings. Common responses to disagreements are “you can’t say that” or “that’s hurtful” or “that offends me.” But in quoting British novelist Ian McEwan, Gregg says there is nothing virtuous about being offended.
  • Is naive of human nature. It assumes everyone is of good will. Rather, Gregg says we have to acknowledge that there are some groups of people in which rational conversation is not possible.
  • Doesn’t take free choice seriously. It claims all evil emanates from bad education and unjust structures, but this is hardly the full story. Evil is a free choice of each individual, and Gregg says it’s not something that can be explained away by the fact that someone is wealthier than you.

Sentimental Humanitarianism and Equality

Sentimental humanitarianism greatly influences the way our culture thinks about equality. Popular opinion is that economic inequality is unjust and we must do whatever we can to stop it. It is the root of all social ills.

Christianity, on the other hand, says sin is the root of all social ills. Many forms of inequality are not unjust in the Bible. Some forms are actually very just and intentional, like the example in the parable of the talents. Economic inequality is not the same as poverty.

Gregg pointed out two different cases that are illuminating to the nature of economic equality:

  • Global economic inequality has been in decline since the 1980s, more than any previous time in history, because Eastern Asian nations are growing at rapid rates and the poor are becoming wealthier.
  • Economic inequality is declining in Venezuela because totalitarian law is causing the wealthy to flee the county, the middle class to suffer, and the poor to become poorer, but at a slower rate than everyone else.

Which situation would you prefer?

There is nothing virtuous about economic equality for its own sake. The Christian-Hebrew understanding of equality is not about the obliteration of difference, it’s about human dignity.

While Gregg recognizes that sentimental humanitarianism is rooted in good intentions, he says it’s dangerous because it raises emotions over reason. The anecdote? Gregg says, “truth”. Veritas. Because ultimately, it sets us free.

*Originally published on the IFWE blog.

Why do we allow ourselves to lose economic freedom? Because we’re terrified of freedom.

As I mentioned last week, The U.S. has dropped from the second most economically free country in the world to the eighteenth in the past twelve years.

One of the major reasons we’ve lost economic freedom is because humans, by nature, hate uncertainty. We try to plan and control the future to reduce it.

Usually when we try to control future economic outcomes, it makes things worse. Our natural human fear of uncertainty is what drives our government to pass more regulatory legislation, suffocating economic freedom. When we lose economic freedom, we lose human flourishing. We are worse off than we were before, and the poor suffer the most.

This fear of uncertainty is part of our human nature. It is a spiritual problem that affects our personal lives as well as our nation at the policy level.

There is another aspect of human nature that causes us to lose economic freedom: freedom itself is scary.

We’re Terrified of Freedom

You might think of freedom as something that makes life easier. It means less rules and more room to do what you want to do with your life. This is true in a sense, but at the same time, freedom is a burden. Freedom doesn’t require less of us. It requires more. To many, the burden of freedom is a scary thing.

Michael Novak says in The Spirit of Democratic Capitalism: 30 Years After:

It cannot be supposed that human beings always love liberty. Free persons must meet the burdens of personal responsibility, and for some, that responsibility is too onerous. If I may paraphrase Dostoevsky: “When people cry out for liberty, give it to them—in fifteen minutes they will give it back.” For most of history, humans have been remarkably unrebellious under tyranny. If their simplest appetites are met, and why should they take up irksome responsibilities?

So it is today. Not all human beings desire to be economically free. If they are free, they are obligated to bear responsibility for their own welfare. Of course, there is always some percentage of the population too old or too young, too ill or too disabled, to carry their own weight in economic responsibility. There will always be some people who rightly depend upon the help of others. By its own moral identity, any honest Jewish, Christian, or even secular humanist society must come to their aid.

Freedom means we have a huge responsibility to care for our neighbors and trust they will come to our assistance when we are in need. We are scared of freedom because the burden is heavy. We do not trust ourselves or others to carry the burden, so we continue to hand over our freedom to someone or something we think can manage it better, like government, even when giving up economic freedom to government leads to lower levels of human flourishing.

Freedom is a burden, but we are always better off with it than without it.

Freedom Is What We’re Made for

These two natural human tendencies that cause us to lose economic freedom, our disdain for uncertainty and our fear of freedom, are both spiritual problems. It makes sense why we lose economic freedom when we look at our sinful human nature, but we need to remember how God created us. We were created to flourish and we were created to be free, and freedom leads to flourishing.

Economic freedom is the force wiping out poverty across the globe. It is the reason so many people around the world are not starving to death today. It is the best known path towards flourishing because it reflects biblical truths, allowing us to unleash our God-given creativity, enjoy the dignity of a hard day’s work, and flourish as God intended. It gives us the best chance to provide more opportunities for people of all income levels, not just for the wealthy.

If we really want to fight poverty, we have to fight for economic freedom for everyone, at home and abroad, and in spite of our fears.

*Originally published at the IFWE blog.

Why do we allow ourselves to lose economic freedom? Because we hate uncertainty.

The United States is one of the most economically free countries in the world, but it might not stay that way for long. The U.S. has dropped from the second most economically free country in the world to the eighteenth in the past twelve years alone. Just because a nation has economic freedom today doesn’t mean it will in the future.

Lower levels of economic freedom mean lower levels of human flourishing, and the poor suffer the most. Why are we so quick to forfeit our freedom? There are at least two major reasons – one of which will be covered today, and the other next week. They are both spiritual problems, inherent to our human nature.

We Hate Uncertainty

Our human nature despises uncertainty. We often do anything we can to minimize it, so we plan. We plan our days, our meals, where to go to school, where to live, where to work, and how many kids to have. We predict elections, the weather, and the future of the stock market. Humans, by nature, want to know as much as possible. This natural human behavior spills over into policy-making, especially economic policy. Dr. Gregory M. A. Gronbacher says,

When faced with the uncertainty and complexity of modern economic reality – from banking to foreign aid, from employment issues to tax policy, from mortgage laws to money funds – the desire for control, safety, and predictability is strong. It is frequently the government that is called upon to enforce this so-called stability.

We don’t like uncertainty or unwanted surprises in life, or in the market, so we try to plan and control to avoid these circumstances. When we do this through policy, it usually comes in the form of expanding government programs and increasing regulation, which reduce economic freedom. Two examples of this are the Great Depression and the recent Great Recession, both of which were very unpleasant economic surprises followed by a political attempt to correct and control the economy by increasing government programs and regulation.

Trying to Control Uncertainty Can Make Things Worse

I’m getting married this summer–I can use all my knowledge and planning power to plan the perfect wedding, but I will never have control over the weather on that day. Likewise, history shows us that the market continues to cycle through periods of growth and periods of recession, despite an increase in government control over the economy. There is a limit to the amount of certainty we can create, and when we don’t acknowledge this, our controlling behaviors can often times make things worse.

Many scholars, writers, and thought-leaders argue that the New Deal actually prolonged the Great Depression. Shortly after the Great Recession, Harold L. Cole and Lee E. Ohanian argued in the Wall Street Journal that government interventions that are meant to correct economic depression, like the New Deal, often don’t work out as planned:

The main lesson we have learned from the New Deal is that wholesale government intervention can — and does — deliver the most unintended of consequences. This was true in the 1930s when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.

I can think of many times in my life when I have tried to control a situation and actually ended up making matters worse. My desire to control was predicated on a sense of pride, that I knew how to run the show better than someone else (most notably, God). The control felt good in the moment, but overtime I came to realize how little control I actually had over certain situations. I saw many of my plans foil, and those things that I tried so desperately to control had spun out of control. I quickly learned that I wasn’t always the one with the best knowledge, and I had to quit acting like it.

A certain amount of planning is absolutely good and necessary, but since we are not omniscient, we have to be okay with uncertainty in our personal lives and in the economy. God calls us to plan and prepare, but at the same time, he calls us to surrender control to him during both certain and uncertain times.

When the government tries to control the economy, it might make us feel more secure or stable temporarily, but it limits our freedom and flourishing in the long run. Ben Franklin said,

Those who surrender freedom for security will not have, nor do they deserve, either one.

We lose economic freedom not primarily because we don’t understand the way economic policy works, but because of our natural human tendencies. Uncertainty is scary to us because it means we can’t know everything. Fearing uncertainty and trying to mitigate it through our own control is a spiritual problem that can become a policy problem, and ultimately a problem of human flourishing.

Next week, I’ll share with you the second reason why I think we are losing economic freedom.

*Originally published at the IFWE blog.

The surprising news about poverty

My latest article in Relevant, which mentions economic freedom positively and has not yet received a barrage of angry comments!

Imagine someone asked you to put together a giant jigsaw puzzle without all the pieces included in the box. That’s how I think about poverty sometimes: an impossible problem we are called to solve anyway.

We won’t ever have all the pieces to the poverty puzzle in place on this side of eternity, but every now and then one falls into place, or we discover a lost piece between the sofa cushions.

Here are a few pieces of insight related to poverty that might come as a surprise to you.

Extreme poverty is declining — and business is a primary reason.

Last year, Barna Group found that more than eight in 10 Americans (84 percent) don’t realize extreme poverty has dropped by more than half over the last three decades. More than two-thirds (67 percent) actually thought global poverty was on the rise.

According to the World Bank, in 1981, 52 percent of the world’s population lived in extreme poverty, as defined as living on less than $1.25 a day. By 2011, it was cut by more than half (17 percent). This trend is also likely to continue. Bill and Melinda Gates predict “the lives of people in poor countries will improve faster in the next 15 years than any other time in history.”

Although traditional charity offers some immediate relief, it’s not the only solution because it doesn’t always focus on the root causes of poverty.

Peter Greer, President of Hope International, doesn’t believe traditional charity is the solution to poverty. He says in his essay in For the Least of These: A Biblical Answer to Poverty that although traditional charity offers some immediate relief, it’s not the only solution because it doesn’t always focus on the root causes of poverty.

In the same book, Christian economists, theologians, historians and practitioners claim that it is economic freedom—the freedom to secure and protect one’s own resources, labor and private property—that is responsible for lifting millions out of poverty.

Countries that have experienced an increase in economic freedom over past decades, like Bangladesh and Botswana, are also seeing lower poverty levels. Why? Because economic freedom encourages entrepreneurship and job creation. Greer says in For the Least of These that, “In one generation, poverty has been cut in half, not through charity but through job creation.”

A job can’t solve everything though, which is why it is also important for the Church and private charities to also pitch in, by serving the poor in a personal and relational ways, especially during and after disasters such as the earthquake in Nepal. The key is finding balance approach, without losing sight of what can effect long-term change.

Churches used to do a lot more for the poor than most do today.

Up until the early 20th century, the Church played a major role in ministering to the physical needs of the poor. Perhaps we’ve forgotten what the Church is truly capable of since many churches we know today have withdrawn from the front lines of poverty alleviation.

The church in Acts 4 voluntarily shared their possessions with one another so that not one would be in need. In the Middle Ages, Christian churches ran all different types of social welfare programs—much like we see the government doing today. Many people might not know that it was common for churches to establish hospitals, schools for immigrants, homes for unwed mothers and welfare societies like the Salvation Army.

So what changed?

Some historians say things shifted in the early 20th century when more theologically conservative evangelicals began to react against the so-called “social gospel” movement, which they believed placed more of an emphasis on social justice issues than the message of the gospel.

In When Helping Hurts, Brian Fikkert writes, “As evangelicals tried to distance themselves from the social gospel movement, they ended up in large-scale retreat from the front lines of poverty alleviation.” Church historians refer to this era as “The Great Reversal” because the evangelical church’s shift away from the poor was so dramatic.

American evangelicalism is still suffering from the aftermath of this division, though the social justice movement today is working to refocus the Church on caring for the poor.

Read the rest here.