Trickle Down Economics and Income Inequality: Part 1

***This is the first in a 2 part blog concerning the Holy Father's statements about income inequality***

Let’s start with a quiz for my readers:

Which pioneer of free market capitalism developed the theory for “trickle-down” economics?

             a)     Adam Smith

             b)    John Locke

             c)     David Ricardo

             d)    None of the Above

In which work did Milton Freedmen advocate “trickle-down” economics?

a)     Capitalism and Freedom

b)    Free to Choose

c)     A Theory of Consumption

d)    None of the Above

In response to Keynesianism, which Austrian School author and associated work advocated “trickle-down” economics as a means of addressing income inequality?

a)     Hayek – Road to Serfdom

b)    Menger-Principles of Economics

c)     Rothbard-Man, Economy, and the State

d)    None of the Above

If you answered ‘d)’ to all of these questions, you are correct.  So my follow up question is this:  When did “trickle-down” economics become synonymous with free market capitalism?  That is the inherent assumption adopted by Rush Limbaugh in his segment “It’s Sad How WrongPope Francis Is”, where he takes issue with the Pope’s statements in Evangelii Gaudium.  Some highlight’s of Limbaugh’s statements:

   “This is just pure Marxism coming out of the mouth of the Pope.”

    “It's sad because this pope makes it very clear he doesn't know what he's talking about when it comes to capitalism and socialism and so forth”

And what were the Holy Father’s offending words?  “Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world.  This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system.  Meanwhile, the excluded are still waiting.”

Limbaugh isn't alone in his sentiment.  FOX New’s Stuart Varney offered very strong words against the Pope in defense of capitalism.  So somehow, it has been ingrained in the political lexicon of America that “trickle-down” economics = free market capitalism. 

I would like to make the argument that “trickle-down” economics is not proposed, espoused, or championed by Classical, Neo-classical, or Austrian School economic models or theories.  Rather, at its origin, it was used in a negative light and in political terms. 

Its beginning in modern day usage is often attributed to David Stockman (Reagan’s budget director) when he stated supply-side economics was an attempt to sell “trickle-down” economics to the public, and until recently, its most common usage has been as a pejorative.  Liberal economist John Kennith Galbraith said trickle-down theory is “what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.’”  And endless satirists have described “trickle-down” economics as the rich pissing on the pour.

Yet somewhere between today and Stockman needing to disguise “trickle-down” economics under another name, the Left using it as a pejorative against the Right, Republican Senator Hank Brown vehemently denying the GOP’s use of the theory and lamenting its attribution to the Republican party; “trickle-down” economics has become something to be defended by right wing political commentators, because to defend that, is to defend capitalism.    

The Pope wasn't attacking capitalism, and we certainly don’t need to defend it.  So maybe instead of getting defensive against the Pope's remarks, we should view this as an invitation to reexamine how capitalism is being applied in our current political and economic climate and examine if it’s consistent with our Christian principles and Catholic Social Teaching.

Traditonalists and the Pope

***editors note, this post was mostly complete when news concerning the Pope's apostolic exortation "Evangelii Gaudium" was released.  Expect subsequent posts on that letter in coming days***

So it seems the Pope is at it again, making huge ripples in the Catholic blogsphere, and this time seems to be throwing a bone to Traditionalists. And was it the Holy Father said? Well, it had nothing to do with gay marriage, abortion, healthcare, the Syrian conflict, the Iran treaty, . . . No, this time His Holiness made waves in a letter to Cardinal Brandmuller by affirming Benedict the XVIs “Hermeneutic of Continuity”.

I’ll allow my readers a second to grasp the shocking implications of such an affirmation. No? Nothing? Because it seems to be a really deal as I have read no less than 7 blogs bringing this up. One blog has gone so far as to claim this is huge!

Okay, before I get into the specifics of the “Hermeneutic of Continuity”, I need to make a confession to my readers. Deep down I want to be a Traditionalist Catholic, but I cannot. I have tried but I have failed, because I cannot make myself be small minded enough to adopt the Traditionalist way of thinking. I have given up my quest to be considered a Traditionalist because evidently, to be a Traditionalist, the only things important enough to discuss and debate are any real or perceived threats to the Tridentine Mass.

Traditionalists have railed against Pope Francis, in particularly when he told the Franciscans of the Immaculate when he said they could not use the Latin right without permission. This was viewed as a contradiction to Benedict the XVIs “Summorum Pontificum” (which basically allows the use of the Tridentine Mass should be made available to those who want it), and the beginning of the end for the Mass in Latin. Despite the fact that there was more to the story (here and here are good sources), Traditionalists are nonplused.

Traditionalists added more fuel to the anti-Francis fire with the published interview with Scalfari (which the atheist later admitted he put his own words in the Pope’s mouth) which painted Francis as a “spirit of Vatican II” Church doctrine re-interpreter.

Which I guess is why the Pope subscribing to the “Hermeneutic of Continuity” is such a huge relief for Traditionalists. In short, “hermeneutic” is an interpretative principle that applies to theological matters. In the context of Benedict XVI’s “Hermeneutic of Continuity” and “Hermeneutic of Rupture”; the interpretive principle is as applied to Ecumenical Councils and in particular Vatican II. Benedict XVI argued that it was incorrect to interpreted Vatican II through modernist eyes without an understanding and context of the traditions that have been held before. Rather the proper interpretation of Vatican II, the “Hermeneutic of Continuity”, interprets Vatican II as a continuation of the entire Church tradition. What I find ironic is that Traditionalists use the “Hermeneutic of Continuity” to justify the holding onto the Tridentine Mass, but forget that the “Hermeneutic of Continuity” is a double edged sword and implies that Vatican II is a continued building upon Church Tradition and cannot be dismissed or diminished.

So if Traditionalists want to follow Benedict’s lead in applying the “Hermeneutic of Continuity” to Vatican II and take great joy in Pope Francis doing the same, I say wonderful. Then blow the dust off of Gaudium et Spes take a look at the world and start weighing priorities. Maybe frustration that the priest doesn't have his back turned to the congregation can give way to frustration in our infant mortality problem. In considering where to spend energy and effort, maybe pinning for the Communion Rail can drop a little bit down the list in favor of helping those in poverty. Maybe the Society of Pious X can take a number and the intellectual effort spent longing for their reunification can be spent adding a relevant voice to the healthcare debate.

So I am happy enough with the Pope’s position on the “Hermeneutic of Continuity”. But I've been a pretty big fan of this Pope all along.

Auto-Constructed Catacombs

For me, studying in the Novitiate of the Legionaries of Christ was difficult.  I always chalked it up to me not being called to the contemplative lifestyle but still living in a cloister.  I was always content to "offer up" my difficulties as all faithful Catholics who have subscribed to the doctrine of Redemptive Suffering are taught to do.  It is in stark remembrance that during a retreat, Fr. Bailleres LC gave a particularly fiery talk in which his thesis was if you have not fully given yourself to your vocation as a Legionary, your struggles were self inflicted, and your suffering had no merit.  For the first time in my life since I'd begin "offering up" everything from a stubbed toe to a stressful exam to Christ did I think that perhaps not all suffering could be turned into a "good".

Fast forward 16 years (uhg!) and this weekend's readings and homily were very much about the persecution of Christians, which reminded me about something Goerge Weigel said that made quite an uproar in the Catholic blogsphere.  In a talk that Weigel gave where he was discussing the challanges presented in today's political climate he said, "The challenge also won’t be met by Catholic traditionalists retreating into auto-constructed catacombs."

[As an editors note, Weigel first said, "This challenge will not be met by Catholic Lite. Indeed, one of the most powerful indicators that the Catholic Lite project is finished has been the uselessness of “progressive” Catholicism in the battle for religious freedom this past year and a half, a battle the stakes in which most Catholic “progressives” manifestly have not grasped."  This did not seem to get any uproar on the Catholic blog sphere which may give color to the leanings of what I'm frequenting.]

While I agree with Weigel's statements on the Catholic Lite, I especially agree with him on his assessment of traditionalist Catholics.  I'm as proud of my Christian roots watered with the blood of the martyrs as the next person, but if one's martyrdom is self inflicted, if we retreat to the catacombs of our own accord, does it have any merit?  I've never delved into the theological accuracy of Fr. Bailleres' homily that has been indelibly imprinted on my memory, but my leaning is that the answer is no.

So I think the choice is clear, we as Catholics can become a relevant, constructive contributor in the intellectual debate that is going on around us, or we can retreat into auto-constructed catacombs deferring the conversation to those more convicted in their beliefs and political motivations than ourselves.  I think only one route can be turned into a good. 

Irony on the Left

Being a Life Actuary, I have been painfully aware of the prolonged low interest rate environment for some time. And given that Bernanke and his likely successor as Chair to the Federal Reserve, Janet Yellen both subscribe the Keynesian school of economic thought, there are some who feel low interest rates will be around for some time.

For those of you who haven’t been keeping score at home, Keynesianism holds that high interest rates are bad. High interest rates encourage saving that locks down money that should be being spent, and also discourages borrowing which would enable the purchasing of new homes, etc. In order to keep interest rates down, the Fed borrows about $85 billion a month to buy US Treasuries. Like all things in the world of supply and demand, the more things are demanded and bought, the higher the price goes. And as anyone who has taken a course in finance will tell you: the higher the bond price, the lower the interest rates.

For those of us who’ve refinanced a home, moved, or even bought a car in the last 5 or so years, these lower interest rates are awesome and have made it much easier to make these big purchases; which of course help the economy. Those of us who work in the financial sector of the economy think these low interest rates suck (that is an actuarial term).

From here I am going to use a broad brush to paint the ironic contradiction I alluded to in the title of this blog. Generally speaking, economists in favor of Keynesian policies tend to be more liberal. I would also generalize that union support is also a liberal platform. The irony can be seen when realizing that one of the most beloved union benefits, the defined benefit pension, is killed by low interest rates. Pensions as a benefit are very attractive yet are becoming more and more rare. In the simplest form, a pension is a guaranteed income based off of your final salary (or average of several years of final salary) times a percentage per year of service. The employer is required to fund these pensions while the worker is employed; with the level of funding and contribution method being defined in the plan. The funding level each year is an actuarial calculation that takes into account assumed future salaries, terminations, deaths, years of service, retirement age election, etc., and present values those benefits. As with all actuarial calculations, when interest rates go down, the present value of future cash flows go up (I originally attempted to throw in some actual formula’s but thought I’d be kinder to my readers.) So while Keynesianism is winning out as the practiced economic policy for several terms running, pensions are taking it on the chin.

So while its fun to vilify the politicians around Detroit's Pensions and to demonize Scott Walker, it should be noted that regardless of the ancillary issues going on, there is no way around that pensionless workers are laying in a bed made my leftist economic policies. 

The Pope Continues to Challenge

Back in September, The American published this interview with Pope Francis, which contained some very interesting comments concerning homosexuality and how the Church cannot focus on simply a few specific issues. 

In response to the Holy Father's comments on homosexuality, more traditional Catholics bloggers and Facebook posters have bent over backwards to diminish the Pope's words along the lines of, "Well, the Holy Father didn't say anything that contradicted Church doctrine."

Wow!  Really?  Was that a concern?  Common Catholics, aren't we kind of riding this Mathew 16:18 thing to the end?  Does it appen that every time His Holiness talks there is a great big holding of breath until we can dove tail everything the Pope says into our predetermined focus at which point there can be a collective sigh of relief?  If that is the case, I really think that we're missing out.  There was never a question if Pope Francis was going to break Church doctrine, and so if that is all people were looking for, they were really missing the point.

But what I found more interesting in that interview was when the Pope said, "We cannot insist only on issues related to abortion, gay marriage and the use of contraceptive methods.  . . . The church’s pastoral ministry cannot be obsessed with the transmission of a disjointed multitude of doctrines to be imposed insistently."  These words probably got less play overall, but I think they prove very challenging to us American Catholics who in the name of our faith, are actively supporting a party who at least on a platform level, are aligned on the first two issues.  And while there is a strong temptation to go back to that interview and blog about the finer nuances of the Holy Father's words, it isn't necessary, because he has reinforced his message through Archbishop Vigano's address to the American Catholic Bishops where he said, "the Holy Father wants bishops in tune with their people,” saying that when they met in June, Pope Francis “made a special point of saying he wants 'pastoral' bishops, not bishops who profess or follow a particular ideology."

These thoughts echo one of the Holy Father's homilies where he says, "The faith passes, so to speak, through a distiller and becomes ideology. And ideology does not beckon [people]. In ideologies there is not Jesus: in his tenderness, his love, his meekness. And ideologies are rigid, always. Of every sign: rigid.
And when a Christian becomes a disciple of the ideology, he has lost the faith: he is no longer a disciple of Jesus, he is a disciple of this attitude of thought… For this reason Jesus said to them: ‘You have taken away the key of knowledge.’ The knowledge of Jesus is transformed into an ideological and also moralistic knowledge, because these close the door with many requirements.
The faith becomes ideology and ideology frightens, ideology chases away the people, distances, distances the people and distances of the Church of the people. But it is a serious illness, this of ideological Christians."

There are a multitude of ways to construe what the Pope is saying, but given his consistency of message, and the fact that he expressed these words in anticipation of Vigano's address to the US Bishops, to me it seems there is a clear challenge to Catholics.  Are we following our faith, or a GOP ideology?  And in following our faith, how do we balance what the Pope instructs in proclaiming the Gospel and being "ministers of mercy above all" with Pope Benedict saying that not all moral issues have the same moral weight and in voting one needs to follow the hierarchy of values.

Again, challenging words by the current Holy Father.  My hope is that instead of trying to diminish what Pope Francis is saying, there will instead be an effort to meet the challenge. 

First Blog Ever!

Welcome to the Actuarial Catholic blog. 

As the name of this blog suggests, I am both an Actuary and a Catholic.  From the Actuary standpoint, while a majority of my posts are going to be on religious, social, political, theological, and philosophical issues; my education is in mathematics and actuarial science.  So unless I am posting about insurance, I am not doing so as an expert.  And even then, if its on the subject of health or car insurance, that's really not my thing either.  So really, I intend to post on things I know little about.

The Catholic part is just that.  I subscribe to a very specific set of theological teachings, and am doing my best to live what I believe to be God's Will for me as revealed through His Son and the Church he founded.  How I live my life is a direct attempt to follow in that direction.

So these blogs are my attempt figure out these things that I have no level of expertise in.  And I am hoping my readers will help me along the way.  Thanks for reading, and please comment away!