Month: June 2014

Matt Rognlie has a first-rate exposition of his critique of Piketty:

Matt Rognlie: A note on Piketty and diminishing returns to capital: “Capital in the Twenty-First Century predicts…

…a rise in capital’s share of income and the gap r – g between capital returns and growth…. Neither outcome is likely given realistically diminishing returns to capital accumulation. Instead–all else equal–more capital will erode the economywide return on capital…. Piketty (2014)’s inference of a high elasticity from time series is unsound, assuming a constant real price of capital despite the dominant role of rising prices in pushing up the capital/income ratio. Recent trends in both capital wealth and income are driven almost entirely by housing, with underlying mechanisms quite different from those emphasized in Capital….

In Piketty (2014)’s framework, slower growth will produce a rise in the ratio of capital to income. This, in turn, will bring about an expansion in capital’s share of income…. This will aggravate inequality in the wealth distribution. In short, a key message of Capital in the Twenty-First Century is that capital’s role in the economy will grow in the twenty-first century…. As Piketty (2014) readily acknowledges, diminishing returns may be problematic for this thesis. If the return on capital falls quickly enough when more capital is accumulated, capital’s share of income will fall rather than rise–so that even as the balance sheets of capital owners expand, their claim on aggregate output will shrink…. Most evidence suggests diminishing returns powerful enough that further capital accumulation will cause a decline in net capital income, rather than an expansion…. These conclusions are not definite–there are many obstacles to empirical certainty here–but they do counsel skepticism about Piketty (2014)’s central outlook…

Matt is 100% correct–if all other things are equal, “all other things equal” meaning that the rate of profit is the marginal product of capital from some reasonable neoclassical aggregate production function. As I wrote in my The Honest Broker: Mr. Piketty and the “Neoclassicists”: A Suggested Interpretation, Piketty needs the λ elasticity of the rate of profit with respect to the capital-output ratio to be significantly less than one, and conceptualizing “capital” as a factor of production whose return is determined by its marginal product in a standard neoclassical production function will not get you there.

To quote myself:

The neoclassical assumption that, roughly, that λ=1, damps dynamics in inequality…. Breaking the neoclassical presumption that λ=1 is even more important when we look at the wealthholder share of income S: If λ=1, then S = ρ. Full stop. All of the n (population growth) and g (per capita output growth) and ω (accumulation wedge) terms drop out. And nothing other than shifts in the raw wealth share of income can drive shifts in inequality. Thus there is an even stronger urgent need to break with the default vanilla neoclassical presumptions for Piketty’s argument to go through…. Should it happen to be that λ>1, things are even worse for Piketty. That is the scenario in which accumulation leads to the euthanasia of the rentier. As wealth accumulates–as n + g + ω falls–the wealthholder share of income falls as well. Piketty needs 1>λ for his arguments to be relevant, and 1>λ by a substantial margin for his arguments to be interesting. To further increase the size of the rock that Piketty-as-Sisyphus must roll uphill… focus on the level of real wages…. The things that Piketty says raise inequality–low n, g, and ω–are also the very things that raise real wages. The coming of the plutocrats and a very high societal wealth-to-annual-income ratio is then an unmitigated boon to the working class. If we are to get any form of immiserization argument out of Piketty, we need to break λ=1 and push it far lower.

How to break the neoclassical presumption that λ=1?

Piketty does not seem to see this as a significant difficulty. He is, after all, working primarily off of the history of France–and in large part off of the history of the late Belle Époque French Third Republic. His reference case is thus a universal (male) suffrage democracy with a strong egalitarian, anti-aristocratic, and anti-clerical ethos. Third Republic France had gone through the demographic transition: n was low. Third Republic France did not yet have the industrial research lab: g was relatively low too. Peace and good order and the absence of a culture of either extraordinary conspicuous consumption or philanthropic liturgies among the rising bourgeoisie kept ω low. And the memory of the suppression of the Paris Commune meant that the police could be relied on to keep ρ high on the shop floor.

Piketty thus assumes almost as a matter of course that the wealthier are the wealthy, the more they successfully manage the politics of the political system, even one that is in constitutional-legal terms radically egalitarian and democratic, in order to enhance the bargaining power of wealthholders. The way Piketty sees it, neoclassical economists claim that theory tells them that increasing capital-output ratios must exert strong downward pressure on the rate of profit, but experience tells us that it does not. The neoclassical assumption that λ=1 was adopted to make sense of a world in which the wealthholder share of income did not move. But that is not the world we live in….

Moreover, there is another way to break the neoclassical presumption that λ=1. Humans used to have five ways of creating economic value: through backs, through fingers, through routine control, through smiles, and through creative insight:

1. Strong backs–usually those bathed in the steroid testosterone–could do the heavy lifting.
2. Nimble fingers could do the fine manipulating.
3. Cybernetic control loops could keep the lifting and manipulating on their proper tracks.
4. Smiles–in fact, an entire universe of human social interactions–could keep us as a group all pulling in roughly the same direction, playing positive-sum rather than negative-sum economic games, and could also provide the personal services from which we derive so much of our human well-being.
5. Genuine creative insight could think up new ways of doing things and new things to do that would be useful: luxurious or convenient, and over the course of time could transform conveniences into necessities, luxuries into conveniences, and invent yet new dimensions of luxury.

The coal, steam, and metal technologies of the First Industrial Revolution devalued the strong backs. The second and third generations of the assembly lines of the Second Industrial Revolution devalued the nimble fingers. But that was okay because every machine and every process still needed a cybernetic controller. And no alternative cybernetic controller could fit in a shoebox and run on 50 W of power. Human brains remain a unique resource, one strongly complementary with capital. With labor a complement to capital the rate of profit could not but fall with an increasing wealth-to-annual-income ratio to the extent that increasing wealth took the form of increasing numbers and sophistication of machines and processes. But now rapidly-exploding information and communications technologies are severely reducing the need for human brains as blue-collar or white-collar cybernetic controllers of machines, processes, and accounting and distribution systems. Rather than just substituting for backs and fingers and leaving brains as complements to capital, now increasing capital substitutes for brains as well. What will be left are smiles–services that are inherently and necessarily personal, “face time”–and genuine creative insight. That is the world we are moving into. And is that world still a world in which labor and capital are complements?

Big questions, all. Unresolved questions, all.

But if this neoclassical presumption that λ=1 is true, Piketty’s argument largely falls apart. And if this neoclassical presumption that λ=1 is not broken in the minds of economists, Piketty’s intellectual influence will be small.

In the framework in which Matt using, the fall in the wealth-to-annual-net-income ratio from 700% in the late Belle Époque Era to 300% in the post-World War II Social Democratic Era ought to hav greatly increased the salience of capital and its ownership in income. As best as I can quickly calculate on the back of my envelope , if we calibrate the Belle Époque to Rognlie’s model, the model sees income from capital back then as roughly 18% of net total income–less than half of its actual value–and sees a sharp rise in the capital share of net income to 25% in the post-WWII Social Democratic Era. That did not happen. Something else is going on that Matt is not modeling…

Malcolm Gladwell: Black Like Them: Tthings changed when I left for Toronto…. The infamous Jane-Finch projects…

…were considered the Jamaican projects. The drug trade then taking off was said to be the Jamaican drug trade. In the popular imagination, Jamaicans were–and are–welfare queens and gun-toting gangsters and dissolute youths…. After I had moved to the United States, I puzzled over this seeming contradiction–how West Indians celebrated in New York for their industry and drive could represent, just five hundred miles northwest, crime and dissipation. Didn’t Torontonians see what was special and different in West Indian culture? But that was a naïve question. The West Indians were the first significant brush with blackness that white, smug, comfortable Torontonians had ever had. They had no bad blacks to contrast with the newcomers, no African-Americans to serve as a safety valve for their prejudices, no way to perform America’s crude racial triage. Not long ago, I sat in a coffee shop with someone I knew vaguely from college…. He began to speak of the threat that he felt Toronto now faced. It was the Jamaicans, he said. They were a bad seed… he launched into a long explanation of how, in slave times, Jamaica was the island where all the most troublesome and obstreperous slaves were sent, and how that accounted for their particularly nasty disposition today. I have told that story many times since, usually as a joke, because it was funny in an appalling way–particularly when I informed him much, much later that my mother was Jamaican. I tell the story that way because otherwise it is too painful. There must be people in Toronto just like Rosie and Noel, with the same attitudes and aspirations, who want to live in a neighborhood as nice as Argyle Avenue, who want to build a new garage and renovate their basement and set up their own business downstairs. But it is not completely up to them, is it? What has happened to Jamaicans in Toronto is proof that what has happened to Jamaicans here is not the end of racism, or even the beginning of the end of racism, but an accident of history and geography. In America, there is someone else to despise. In Canada, there is not. In the new racism, as in the old, somebody always has to be the nigger…

Should-Reads:

1. Dara Lind: Poll: Most voters in Cantor’s district actually like immigration reform: “Public Policy Polling went into Eric Cantor’s district…. They found that Cantor himself was unpopular among registered voters: 63 percent of all registered voters disapproved of his job performance, and his net approval among registered Republicans was -6 percentage points. But the poll also described an immigration reform proposal… and asked voters whether they supported it…. ‘About 72 percent of registered voters in Cantor’s district polled on Tuesday said they either “strongly” or “somewhat” support immigration reform that would secure the borders, block employers from hiring those here illegally, and allow undocumented residents without criminal backgrounds to gain legal status–three key tenets of an overhaul…. Looking just at Republicans in Cantor’s district, the poll found that 70 percent of GOP registered voters would support such a plan, while 27 percent would oppose.’… Public Policy Polling was talking to all registered voters. The voters who booted Cantor out yesterday were the ones motivated enough to show up for a Republican primary–that’s definitely a self-selecting group, and one likely to have stronger (and more conservative) feelings than other voters…”

2. Sarah Kliff: How Obama completed Mitt Romney’s work in Massachusetts: “The Bay State appears to have pulled off an impressive feat: it appears to have lowered the uninsured rate to nearly zero. Martha Bebinger of local radio station WBUR reports: ‘Between December 2013 and March of this year, the number of Massachusetts residents signed up for health coverage increased by more than 215,000. If that number holds true over time, it will mean the percentage of Massachusetts residents who lack coverage has dropped to less than 1 percent.’ Massachusetts has long had the lowest uninsured rate in the nation since it passed its universal coverage law in 2006. But its always hovered a few percentage-points above zero. In 2011, 3.9 percent of Massachusetts residents lacked insurance coverage…”

3. Carlos A. Vegh and Guillermo Vuletin: Fiscal policy responses to crises: The social impacts | vox: “The question of whether fiscal policy should be pro- or countercyclical has become increasingly relevant during the recession. This column provides causal evidence from South American countries showing the success of countercyclical policy in improving social indicators of economic success, combined with correlative evidence from Europe. This represents a strike against the case for austerity-led growth…”

Should Be Aware of:

• The Onion: “More Office Workers Switching To Fetal Position Desks: Wellness experts say curling up in a ball on the floor is the healthiest way to deal with the non-stop agony of the workday…”
• Ryan Grim: “More than any other Republican leader, Cantor was aggressively committed to the strategy of all-out opposition to President Barack Obama…. Yet… the architect of the Party of No strategy had it turned against him… suspicions among grassroots activists that Cantor was an impure conservative. On Tuesday night, the tea party said no…”
• Claude Fischer: “Those concerned with closing the wag gap ask two questions: What is happening at the workplace that seems to be pressing people to overwork? What is not happening at home that discourages women from working long hours?”
• David Weigel: David Brat defeats Eric Cantor: How did the House majority leader lose to the Tea Party?
• Patrick Iber
• Amy R. Krosch1 and David M. Amodio: Economic scarcity alters the perception of race
• Alexis Madrigal: Brian the Mentally Ill Bonobo, and How He Healed: By 2001, after four hard years of therapy and improvement, Brian had begun to integrate…. He went off Paxil at some point, after he took to sharing it (!) with the other apes…”
• Francis Spufford: “while [Iain M. Banks] was a good novelist, he was a great SF writer: an iconoclast, a changer of the landscape of imagination, a once in a generation talent. Let me try and explain why, for those of you who happen not to have read him, who maybe haven’t seen reason to dip much into SF at all. In particular, let me try and explain why this part of his work ought to be cherished…”
• Barry Ritholtz: “Any opportunity to correct myself when I make an error is an opportunity that is always appreciated. It happens to everyone all the time. But as Bridgewater Associate’s Ray Dalio has so eloquently argued, it is much better to own up to a mistake, rather than pretend it never happened, or simply hope no one notices or mentions it again in public…”
• “Iraqi officials told the Guardian that two divisions of Iraqi soldiers–roughly 30,000 men–simply turned and ran in the face of the assault by an insurgent force of just 800 fighters…”
• David Weigel: “Frank Rich materializes and is asked to weigh in on the defeat of Eric Cantor. His reaction: How did you chuckleheads in the media miss this one?… Did he ever predict that Eric Cantor would be in trouble? No. He never wrote about Cantor’s race. The first mention in New York magazine of David Brat occurred on primary night, when Jonathan Chait covered the Cantor loss and suggested that the ‘shock contained by Cantor’s defeat is almost impossible to fully convey’…”

And:

1. Fabio Rojas: “In 2000, Elizabeth Armstrong and Ernest Abel published an article… arguing that fetal alcohol syndrome had become a moral panic.… In 2013, the economist Emily Oster published a book called Expecting Better…. Like Armstrong, Oster finds that the norm against moderate alcohol consumption is  not supported by the data…. Oster frames her work… as a morally neutral project…. ‘Statistics is hard, people may not have all the facts, and you might have a mistaken belief, but as an economist,  I am trained in statistics. I can help you make a better choice.’ Thus, the reader is morally blameless. In contrast, Armstrong’s approach… goes something like this: ‘The facts we believe reflect our underlying biases. These biases reflect our evaluations of certain types of people, who may not deserve that stigma.’ Thus, if the reader buys FAS, they are implicated in an immoral action–unfairly exercising gender prejudice…. Economists may advocate unpopular policies (e.g., they are often critical of minimum wage laws) but their moral framework is fairly neutral and technocratic. If you don’t buy my policy, it’s probably because you aren’t aware of all the factors involved. You haven’t calculate the social welfare function properly! In contrast, sociologists often make arguments that implicate the moral character of the audience. And that doesn’t buy you a lot of friends…”

2. Kathleen Geier et al.: Does Feminism Have a Class Problem?: “Welcome to The Curve, where feminists talk economics… with Kathleen Geier as your host…. We have long been frustrated by two phenomena. One is the way in which women’s voices are so frequently sidelined in economic debates…. The flipside of this problem is that, even amongst ourselves, feminists don’t talk enough about economics. Too often, discussions about so-called culture problems like abortion access and domestic violence lack the economic context necessary to appreciate their true causes and repercussions. When topics such as the pay gap or workplace discrimination come up, coverage is often superficial and focused on the experiences of a tiny elite. Meanwhile, the economic pressures on women are mounting: as inequality soars, women make up a growing proportion of the long-term unemployed, low-income women lead a growing majority of single-mother households, middle-income women struggle with few social supports, and even the progress being made by high-income women into the executive suites remains glacially slow. Hence The Curve—where feminists will hash out economic issues and intervene in feminist debates from an economic perspective…”

3. **Elizabeth StokerAn advisor to Pope Francis says Catholicism is incompatible with libertarianism. He’s right: “[Kevin] Williamson… pre-supposes that the production of wealth gives its producers some special entitlement to it…. The kernel of Maradiaga’s argument: when states are assembled in order to protect and enforce ownership to the exclusion of the poor, then a twofold error has been committed…. First, there is no divine right to private property in the eyes of the Church…. Augustine’s point is that property is a de-facto creation of the state… [and] property has a spiritual dimension: all things in common belong to the people of God. But in temporal matters that heavenly distribution isn’t honored, and so we rely on states to create institutions of property that are hopefully fair and just…. Second… Williamson says government simply has no moral dimension… But to deny the moral dimension of government is to suggest that there are realms of human life exempt, somehow, from moral judgment, and this is emphatically contrary to the Christian vision. A hammer may be a piece of technology, but there’s a decided moral distinction between using it to nail down a beam and using it to bash in a skull. Likewise, the state may be a tool, but the way it shapes property distribution–to either care for the poor, ill, and those in need or to ignore them–is absolutely subject to moral inquiry. This is the point Cardinal Maradiaga made, and it has been a powerful theme in Pope Francis’ ministry as well…”

Already-Noted Must-Reads:

1. Matt Bruenig: Fertility Rates and Government Intervention: ” I have been writing on the weird conservative tax plan to give money to every parent who isn’t poor (I, II, III). This is not how it was initially sold of course. My favorite in the genre of extreme deception about the plan came from Reihan Salam who wrote an entire piece… as if he wants to assist all parents: it’s costly to raise kids, kids are important for the future, etc. He never lets on that his actual plan is not a natalist policy… but a policy to give more money to all parents who aren’t poor. The exclusion of the poor from this massive welfare state expansion is curious on a number of grounds. The US has the highest child poverty rates in the developed world precisely because we have pathetic levels of family benefits. Excluding the poor from an expansion in family welfare benefits seems particularly cruel in that context…. The argument is that the government distorts incentives to have children by intervening in the economy via creating Social Security and Medicare. And so this plan to give money to every parent except the poor ones will correct that… hold all else equal in society, but then tick SS and Medicare off and guess as to how many more kids that ticking off would result in. But that does not tell us how many children there would be without government intervention. We should hold all else equal in society and then tick off property law, contract law, securities law, corporate law, commercial law, patent law, copyright law, and every single government economic institution. I’d guess that ticking off all of those institutions, and thereby bringing us to the world ‘without government intervention’… would cause national income to plummet and birth rates to massively spike, maybe to seven children per woman…. It’s such an out-of-left-field argument here that it is extremely difficult to imagine anyone started with ‘let’s end child-having distortions’ and then worked their way to this proposal. What’s more likely is they started with this proposal and then worked backwards towards some argument for it…”

2. Sean Trende: What Cantor’s Loss and Graham’s Win Mean: “Watch Dave Brat’s interview on Fox News here. He is not Tom Tancredo; immigration reform is not his main focus. He’s hitting a lot of the themes that… in many ways echo the Democratic Netroots’ discontent with “Wall Street Democrats” in the mid-2000s (a discontent that led, in part, to Obama’s victory in the 2008 primaries, to the discomfort of some in the Democratic Leadership Council)…. The GOP base is frustrated over the direction of the country… a large portion of that frustration is directed at the Democratic Party, and Barack Obama in particular.  But it is also directed at the party establishment…. When pundits say that the Tea Party seems like it is more interested in defeating Republicans than Democrats, they aren’t entirely off base. They just miss the reasoning behind that animus toward the GOP establishment…”

3. Noah Smith: Japan’s Abe Is the World’s Best Leader: “I was a Shinzo Abe skeptic. When Abe swept back into power in 2012, I thought he was just going to try to talk down the yen and give a little boost to stocks, increasing his public support just long enough to ram through a revision of Japan’s pacifist constitution. I thought he was going to ignore Japan’s moribund economy and long-festering social problems in order to throw red meat to his right-wing backers. Boy, was I wrong. I was wrong, wrong, wrong…. Shinzo Abe is the most effective national leader in the world right now… the biggest monetarist push in world history. He went the opposite direction of Europe, and–unlike the U.S.–he gave every indication that the shift toward [expansionary] monetarism was permanent. The result: Japan has escaped deflation. The stock market is up, growth is way up and even wages are finally starting to rise…. Unlike everyone else… Abe listened to Milton Friedman, and the results are looking good. As the Fed contemplates not whether to taper its quantitative easing but how fast, it might want to look at what’s happening in Japan. But monetary policy was just the beginning… the role of women… moving to cut Japan’s corporate tax rate… deregulation efforts… suggested bringing in 200,000 immigrants a year…. He has turned his nationalism into something that looks like liberal internationalism, standing up for the various small Asian countries… championing the rule of law and the freedom of the seas…. But where Abe really shines is in comparison with previous Japanese leaders… The rest of the world should be paying attention…”

4. David Wessel: “From @macroadvisers Q1-2014 GDP Tracking -2.1%; Q2-2014 GDP Tracking 3.7%…”

David Wessell: “From @macroadvisers Q1-2014 GDP Tracking -2.1%; Q2-2014 GDP Tracking 3.7%…”

Noah Smith: Japan’s Abe Is the World’s Best Leader: “I was a Shinzo Abe skeptic…

…When Abe swept back into power in 2012, I thought he was just going to try to talk down the yen and give a little boost to stocks, increasing his public support just long enough to ram through a revision of Japan’s pacifist constitution. I thought he was going to ignore Japan’s moribund economy and long-festering social problems in order to throw red meat to his right-wing backers. Boy, was I wrong. I was wrong, wrong, wrong…. Shinzo Abe is the most effective national leader in the world right now… the biggest monetarist push in world history. He went the opposite direction of Europe, and–unlike the U.S.–he gave every indication that the shift toward [expansionary] monetarism was permanent. The result: Japan has escaped deflation. The stock market is up, growth is way up and even wages are finally starting to rise…. Unlike everyone else… Abe listened to Milton Friedman, and the results are looking good. As the Fed contemplates not whether to taper its quantitative easing but how fast, it might want to look at what’s happening in Japan. But monetary policy was just the beginning… the role of women… moving to cut Japan’s corporate tax rate… deregulation efforts… suggested bringing in 200,000 immigrants a year…. He has turned his nationalism into something that looks like liberal internationalism, standing up for the various small Asian countries… championing the rule of law and the freedom of the seas…. But where Abe really shines is in comparison with previous Japanese leaders… The rest of the world should be paying attention.

Matt Bruenig: Fertility Rates and Government Intervention: ” I have been writing on the weird conservative tax plan…

…to give money to every parent who isn’t poor (I, II, III). This is not how it was initially sold of course. My favorite in the genre of extreme deception about the plan came from Reihan Salam who wrote an entire piece… as if he wants to assist all parents: it’s costly to raise kids, kids are important for the future, etc. He never lets on that his actual plan is not a natalist policy… but a policy to give more money to all parents who aren’t poor. The exclusion of the poor from this massive welfare state expansion is curious on a number of grounds. The US has the highest child poverty rates in the developed world precisely because we have pathetic levels of family benefits. Excluding the poor from an expansion in family welfare benefits seems particularly cruel in that context….

The argument is that the government distorts incentives to have children by intervening in the economy via creating Social Security and Medicare. And so this plan to give money to every parent except the poor ones will correct that… hold all else equal in society, but then tick SS and Medicare off and guess as to how many more kids that ticking off would result in. But that does not tell us how many children there would be without government intervention. We should hold all else equal in society and then tick off property law, contract law, securities law, corporate law, commercial law, patent law, copyright law, and every single government economic institution. I’d guess that ticking off all of those institutions, and thereby bringing us to the world ‘without government intervention’… would cause national income to plummet and birth rates to massively spike, maybe to seven children per woman…. It’s such an out-of-left-field argument here that it is extremely difficult to imagine anyone started with ‘let’s end child-having distortions’ and then worked their way to this proposal. What’s more likely is they started with this proposal and then worked backwards towards some argument for it…

Markus Bruckner et al.: National Income and Its Distribution: “Does the distribution of income within a country…

…become more equal as it grows richer? This paper uses plausibly exogenous variations in trade-weighted world income and international oil price shocks as instruments for within-country variations in countries’ real GDP per capita to examine this issue for a large sample of advanced and developing countries. Our findings indicate that increases in national income have a significant moderating effect on income inequality: a one percent increase in real GDP per capita, on average, reduces the Gini coefficient by around 0.08 percentage points, a result that is robust across income levels, different time horizons, and alternative estimation techniques. From a policy perspective, our results suggest that education policies that promote equity and help individuals continue on to higher levels of education could help reduce income inequality…

Patrick Iber: In defeating House majority leader Eric Cantor in his Republican Party primary, Tea Party-identified David Brat has surprised the political world—including Eric Cantor, whose pollsters assured him he had a comfortable lead. (It has also done some damage to the no-doubt partly-true thesis that the difference between the Tea Party insurgents and the “mainstream” Republican Party had narrowed to the point of insignificance.) Brat defeated Cantor in spite of having only a fraction of Cantor’s power, a fraction of his spending, and a fraction of his allies. Journalists and poltiicos have since been scrambling to learn more about Brat’s thinking. Because Brat is a professor of economics and business at Randolph-Macon College, he has left a large paper trail. Many Tea Party-aligned works—such as W. Cleon Skousen’s The 5,000 Year Leap, a dreadful “history” of the United States as a Christian nation—have been offensive to professional standards. Does Brat’s work fit into that category? No.

There is, unsurprisingly, no question that Brat is a conservative. He is to the right of Cantor on most issues. He ran against Cantor’s “corruption,” something that seems consonant with a 2011 essay titled “God and Advanced Mammon—Can Theological Types Handle Usury and Capitalism?” There, he warns of both conservative and liberal hypocrisy and calls for a church that coexists with modern capitalism. (He also writes that he has “the sinking feeling” that someone like Hitler could rise again.)

Brat also administers a $500,000 grant from Branch Banking & Trust Company to teach the “moral foundations of capitalism” at Randolph-Macon, a program that teaches the “free market” principles of Ayn Rand. Brat says that he himself is not a “Randian,” though he says he has been influenced by her works and her perspective. (Rand, of course, was an atheist who thought that belief in God was irrational. One reasonable hypothesis would be that Brat shares Rand’s views of capitalism, but doesn’t accept the anti-religious elements of her worldview.) In an interview in 2010, Brat asserted that “[t]he latest in economic research shows that ethical ideas may matter just as much as traditional economic variables in generating long-run economic growth.”

His works make clear that the intersection of religion and capitalism has long been a matter of interest and concern. And though the published work mentioned above shows no signs of meeting high academic standards, he did earn a Ph.D. in economics in 1996 from American University. His dissertation was called “Human Capital, Religion, and Economic Growth,” and situates itself in the large debate about why some countries are rich and some are poor. Like many dissertations in economics, it is split into three semi-related chapters, at least some of which were later published as journal articles.

What ties the dissertation chapters together is an interest in the stock of total social knowledge within nations. Brat believes that this aggregate “research and development” capital does a great deal to explain the differences between rich and poor nations: the more, obviously, the better.

The first chapter of his dissertation is concerned with “[Research & Development] Spillovers and International Convergence,” and focuses on R&D “spillovers” from those that do the research to those that don’t, and finds that these spillovers contribute to the convergence between rich and poor economies. It also argues that the effect of research and development capital is stronger than the effect of human capital, defined in a limited way as investments in secondary education. The second chapter of the dissertation, “Inequality among Nations,” examines changes in inequality between 1960 and 1988. He finds that global inequality worsened over that period, and attributes the differences to R&D investment. In the absence of “spillover” that he explored in Chapter 1, he argues, inequality would be even worse.

But why, he asks at the end of the chapter, are human capital inputs such as scientists so unevenly distributed throughout the world? It’s a question that he addresses in the third chapter of dissertation, which, by appearances within the text and also given his subsequent career, seems like the most personal. (It also takes up about half of the pages of the dissertation.) In chapter 3, “Science and Religion in the 19th Century,” Brat contributes to a debate in historical sociology that stretches back to Max Weber about the role of religion in economic growth. (Weber, though briefly discussed, is shockingly not cited in the dissertation.)

Like Weber, Brat believes that Protestantism shapes other social institutions in a way that leads to economic growth. For Brat, however, it is not so much that Protestantism inculcates personal thrift and hard-work, but, more importantly, that it is most compatible with the rise of science. Brat’s hero of economic growth is not the Calvinist farmer or shopkeeper, but the Protestant scientist.

The chapter examines the rise of scientific education in (Protestant) Germany and England and contrasts it with Catholic France. The basic findings are that Protestantism stimulates scientific production by influencing educational institutions, the organization of the state, and philosophical modes of thinking among scientists. Yet in making the case, Brat is forced to confront the weakness of his own evidence. He catalogues a variety of mild effects attributed to Protestantism on education and the state—and, in particular, in limiting the state in England and allotting a large share of R&D to private industry. (My own view, in my capacity as an historian, is that “Protestantism” is probably not even the right category of analysis for what he is trying to accomplish.)

Nevertheless, his examination of France leads him to conclude that “Protestantism is not a necessary condition for the advancement of science.” State support, such as existed in France, is sufficient in the short-run, he concludes, but only Protestant-derived states provide the right kind of government structure to provide stability over time, as well as the decentralized environment that can produced good science and research. There is, it must be said, much that is dubious and little if anything that is original in this chapter. Everything is based on the work of other historians and economists; there is no real additional contribution. There is a huge amount of hand-waving in the chain of causation from Protestantism leading to constitutional republics leading to educational institutions leading to good environments for research and development leading to economic growth. It is certainly not the dishonest hack-work of a Skousen, but neither is it scholarship worth much consideration. The conclusion that Protestantism was indeed important for economic growth, though the effect was not large compared to other factors, does show some degree of intellectual restraint.

But although the pieces are not connected in the dissertation, it is troubling to place the three chapters together. First, because challenging questions for a self-identified “free-marketer,” such as why the state has been so central to the research and development that he believes drives economic growth, are totally unexamined. But more importantly, the question posed at the end of chapter two, about why some countries lack of research and development capital, is given an implied (but not explicit) answer in the third chapter: they have the wrong religion.

It is easy to see the basis of his interest in the relationship between religious values and ethics and economic growth, even in a nearly twenty-year-old dissertation. But his thinking shows no sign of having grown more complex in the intervening years, and the interview he gave in 2010—in which he states that “ethical ideas may matter just as much as traditional economic variables in generating long-run economic growth” suggests that the modesty of some of the dissertation’s claims has fallen away.

It has left him, perhaps, with the kind of immodesty and conviction that led him to believe that he could challenge an incumbent Majority Leader—and win.

Lars P. Syll sends us to Joseph Stiglitz’s 2009 Minsky Lecture: The ‘Neoclassical Synthesis’–A Religious Belief: “The advocates of free markets in all their versions…

…say that crises are rare events, though they have been happening with increasing frequency as we change the rules to reflect beliefs in perfect markets. I would argue that economists, like doctors, have much to learn from pathology.We see more clearly in these unusual events how the economy really functions. In the aftermath of the Great Depression, a peculiar doctrine came to be accepted, the so-called “neoclassical synthesis.” It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief. The idea was always suspect…

The thing is that the originator of what Joe Stiglitz calls “the neoclassical synthesis”–the *fons et origo of what Stiglitz regards as a major intellectual error–was none other than John Maynard Keynes himself:

In some other respects [my] foregoing theory is moderately conservative…. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary…. Our criticism of the accepted classical theory of economics has consisted… in pointing out that its tacit assumptions are seldom or never satisfied…. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment… the classical theory comes into its own again… then there is no objection to be raised against the classical analysis of the manner in which private self-interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed… there is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition respectively… there is no more reason to socialise economic life than there was before….

The result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’, but to indicate the nature of the environment which the free play of economic forces requires…. But there will still remain a wide field for the exercise of private initiative and responsibility. Within this field the traditional advantages of individualism will still hold good.

Let us stop for a moment to remind ourselves what these advantages are…. The advantage to efficiency of the decentralisation of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed…. Individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that… it greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life… the loss of which is the greatest of all the losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices… colours the present with the diversification of its fancy; and, being the handmaid of experiment… is the most powerful instrument to better the future.

Whilst, therefore… adjusting to one another the propensitv to consume and the inducement to invest would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism, I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative…

There are, I think two lessons that can be drawn from big depressionz. You can draw the Keynes lesson, which is also the Milton Friedman lesson, that if only you can stabilize the trend of aggregate demand (and compensate for externalities either through clever Pigovian taxes or ingenious Coaseian carving of property rights at the joints) then the competitive market system does absolutely fine. You can draw the Stiglitz lesson–which is that such a gross market failure in the large tells us that every single market everywhere in the world is probably riddled with smaller-scale market failures, and that comprehensive and detailed governmental structuring of institutions at ever level–macro, mess, and micro–is necessary in order to properly promote the general welfare.

In some ways the difference can be overstated. As Ariel Rubenstein and Michele Piccione likes to point out, the “jungle” equilibrium in which the strong do what they can and the weak suffer what they must has as strong a claim to Pareto-optimality as does the market equilibrium, and the frameworks of property, contract, tort, and criminal law that underpin the market equilibrium are all by themselves extraordinary and mighty governmental and societal regulatory interventions vis-a-vis whatever bellum omnium contra omnes one might call the “state of nature” in libertarian theology.

But I, at least, cannot help but interpret the declining intellectual fortunes of Milton Friedman’s doctrine over the past generation as in large part a reflection of the fact that the Friedman-Keynes position is unstable: that one either follows today’s Republican Party and Prescottian Chicago School and becomes a market fundamentalist and thus for consistency deny that the government can do any good, or one moves toward a comprehensive skepticism of markets without an additional clever technocratic layer of regulation imposed in addition to property, contract, tort, criminal, and clever macroeconomic policy to make Say’s Law true in theory even though it is not true in practice.

Why this is the case I do not know. I am trying to think about it…