Why My Retirement Savings Accounts are Currently 100% in the Stock Market

In his recent post "Stocks for the Medium Run,” Brad DeLong gives a good argument for being in the stock market based on likely future returns. The graph is explained there.

My own portfolio allocation in terms of paper assets hasn’t changed much for a while. Leaving aside checking and saving accounts, my University of Michigan Retirement Saving Account–92% of all my retirement savings–is entirely in Fidelity’s Spartan International Fund. Despite how long it has been since I put a summertime grant through the National Bureau of Economic Research (NBER)–and so how few months’ worth of pension payments it represents–my NBER Retirement Saving Account represents 8% of my retirement savings. This is because Vanguard’s Emerging Market Stock Index Fund has done well over the last two decades or so, and returns build on themselves through compounding.

International Diversification. My reasoning for having most of my retirement savings in an international index fund is primarily diversification. I figure that my salary will go up more if the U.S. economy does well than if the U.S. economy does badly. So my job is like a U.S. stock fund. Therefore, investing in other major countries (mostly Europe and Japan in the Spartan International Fund) is a way to avoid putting all of my eggs in one basket.

Why have 100% of my paper assets in stocks? I am not yet 52 years old. The fact that I am tenured and have quite a bit of pay coming between now and when I retire about 20 years from now also means that only a fraction of my overall resources are in stocks even though almost 100% of my paper assets are in stock. So I don’t feel that what I am doing is all that risky. And even a conservative read of past history suggests that stocks are likely (though not certain) to earn several percentage points more than bonds annually over the next few decades.  

Economists call the asset value of future pay “human wealth.” One of the most overlooked principles of asset allocation and portfolio choice is that one needs to think about this human wealth in choosing how much stock to hold. Thinking about one's human wealth matters in two ways.  

  1. The size of the portfolio including human wealth is larger, so that any given size of investment is a smaller percentage of the total–often much smaller.  
  2. The risks in one's human wealth have to be considered, as I did in trying to balance out my U.S. job with European and Japanese stocks.

Annual Fees. The one other big consideration in my portfolio choices is fees. In my “Monetary and Financial Theory” class, I do calculations showing that for long-term investors, fees of 1% per year can easily reduce the amount of retirement spending one can afford by 10% to 20%. An annual fee of 1% per year is close to being the average level of fees, but it is horrifically high for what most investors are getting, despite mutual fund company claims. 

Vanguard’s fees are generally low for each asset class. Fidelity has a mix of high-fee and low-fee funds. So for them, like most mutual fund companies, one needs to drill down into the fund’s website to look up the fees. (After clicking on SPTN INTL INDEX INS, scrolling down gets to the fees in the third window’s worth of text.) Even then, what they say is not that easy to understand. I hope the following means I am paying 7/100 of 1% of the value of what I have in Fidelity’s Spartan International Fund. Or do I need to add the 12/100 of 1% “management fee” for total annual fees of 19/100% per year?   

Short-term Trading Fee

1.00%

Short-term Fee Period

90 Days

Management Fee

0.12%

Expenses & Fees

Expense Ratio

as of 05/04/2012

0.095%

($0.950 per $1000)

Expense Ratio after Reductions

as of 02/29/20120.07%

($0.70 per $1000)

Expense Cap

as of 09/08/2011

0.07%

($0.70 per $1000)

Expense Cap is a limit that Fidelity has placed on the level of the expenses borne by the fund until 04/30/2013 and indicates the maximum level of expenses (with certain exceptions) that the fund would be paying until that time. After the expiration date, the Expense Cap may be terminated or revised, which may lower the fund’s yield and return.

You should compare this .07% per year (or .19% per year if I need to add the “management fee”) with what you are paying in fees. Vanguard is the only company I know of with a consistent low-fee policy. Fidelity seems to have at least some low-fee funds like mine sprinkled in with its high-fee funds. Many other mutual fund companies are much, much worse than Fidelity with its mix of high- and low-fee funds. TIAA-CREF, an important fund for academics, used to have low fees, but has increased them in more recent years.  

Implications of the Financial Crisis. The combined value of my retirement savings accounts has gone through some large fluctuations in recent years. But I didn’t make any reallocations and kept all of the new retirement saving account contributions from my paycheck going 100% into Fidelity’s Spartan International Fund, and the value of my retirement savings accounts has mostly bounced back to where it was before the fall of Lehman (September 15, 2008). 

I take the view that the Great Recession, as bad as it is, has likely left the long-run future of the economy relatively unchanged. (See “Things are Getting Better: 3 Videos” for perspective, and pay special attention to what Alex Tabarrok says in his TED talk flagged there on the effect of the Great Depression on long-run economic growth.) Given that view, I have often consoled myself with the idea that, since it is a long time before I plan to retire, that for the most part, I own more or less the same stream of future dividends as before the  Financial Crisis of 2008 and the Great Recession. The market price of that stream of future dividends has gone down, but that fall in the market price is only about as important as having the market price of one’s house go down when one plans to live in it for the rest of one’s life. From that perspective, the fall in the market price of my stream of future dividends matters, but not in a big way. (Older people for whom more of the dividend stream will come after their death have to worry more about a long-lasting decline in the market price, since they will want to sell the tail end of the dividend stream to someone younger.)

Of course, if only I had had a functioning crystal ball, I could have done much better. If I think of valuing assets by how much retirement spending they can support, my stocks haven’t gone down that much in the retirement spending I think they can support, but I missed the amazing bull market in Treasury bills and Treasury bonds. If I had had that crystal ball in the past few years, but it refused to function to predict anything beyond today’s date, I would have been out of the stock market in 2008, but I would still be in the stock market now.  

If you think I am making a mistake–or could to better–I am glad to hear investment advice from anyone in the comments section.

Daniel Kuehn: Remembering Milton Friedman

I am flagging Daniel Kuehn’s post for this quotation from a paper by David Henderson:

“In his testimony before the commission, Mr. Westmoreland said he did not want to command an army of mercenaries. Mr. Friedman interrupted, "General, would you rather command an army of slaves?” Mr. Westmoreland replied, “I don’t like to hear our patriotic draftees referred to as slaves.” Mr. Friedman then retorted, “I don’t like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.”“

Isomorphismes: A Skew Economy & the Tacking Theory of Growth

Isomorphismes is one of the most articulate commenters on my blog. His post explores the fact that economic growth usually shows up not as a general increase in income for the same set of goods, but rather as the introduction of a new good or reduction in price for some particular good. This explains some of why people don’t “feel the growth.” People think of getting rich as moving up the ladder to the consumption bundles that those high in the income distribution have. Economic growth delivers something unexpected, which is just as good, but may not be fully appreciated.  

Here are three passages to give you the flavor of this post by isomorphismes:

The picture we are now getting in “the news media” is of rich economies (US & Europe) that have ground to a halt, are not producing jobs, median wages stagnating

… what does capitalism look like in a rich world with many people making low wages?

I think it looks exactly like this: the poor people have a good standard of living in terms of absolute magnitude, but they have little freedom. With a tight budget constraint (near the origin) obtusely and extremely scalening off in various directions of cheap stuff (sox, packaged food with lots of preservatives, canned food [can o’ corn], modular homes, satellite TV, Budweiser beer, … the only way to live like a richie is to buy specifically the stuff that is cheap

… what does a world with high productivity, low wages to many and high wages to some, look like?

  • Most obvious is envy. You are going to watch Americans go live like kings in Thailand, Brits go live like kings in Argentina, mansions in the Gran Canarias, chalets in Andorra and beach houses in Tahiti. All of this will be technologically possible but out of reach for you. So you will be aware that it’s possible and that somebody’s doing it and loving it, but not you.
  • Next is opportunity. The more money our robo-programmers make, the more they are going to want to free up their time and have every service done for them. Massage therapists, personal trainers, life coaches, psychotherapists, cleaners, cooks, upscale morticians, model organic farms that you can vacation on, drug dealers, hoteliers, sycophantic investment researchers, and personal assistants all have opportunities to form the perfect life for the robo-programmers, tending to their every need and desire, and get paid for it. Service economy, ho!

Note: In a link post like this one, where the title sends you to the post I am flagging, the way to get to the page for my post (for example, to leave a comment to my post here as opposed to isomorphismes’s post) is to use the “all posts by date” button on my sidebar.

Milton Friedman: Celebrating His 100th Birthday with Videos of Milton

Power of the Market: The Pencil

Milton Friedman on the Basis of the Free Market (Consumer sovereignty)

Milton Friedman on Printing Money (A great deal at 29 seconds)

Milton Friedman on Public Education (Not about vouchers, but about the condescension behind public education.)

Persuasion vs. Coercion (The importance of giving people the chance to hear intellectually diverse viewpoints.)

Free Market Exchange (I love what Milton says in this video about the free development of language, English Common Law, and science.)

The Proper Role of Government (Legally formalizing ethical rules is different from other, more arbitrary legislation.)

Socialism is Force

Why Do We Let This Happen?

Population and Ecology (Milton backs Pigou taxes on pollution.)

Market Failure (Milton recommends careful balancing between concerns of market failure and concerns of government failure.)

Milton Friedman Puts a Young Michael Moore in His Place (Not really Michael Moore–only “a Michael Moore” in the sense of someone like Michael Moore. Milton argues for a finite value of a human life and argues that enforcing laws against fraud is a legitimate purpose of government.)

Corporatism and Medicare (Debate between Milton and Michael Harrington)

Incentives for Immoral Behavior (Pay attention to what Milton says about the decline of corruption in England.)

Redistribution of Wealth (Milton: “As you grow up, you will discover that this is really a family society, and not an individual society.”)

Responsibility to the Poor

Private Charity vs. Taxes

The Robin Hood Myth

In The Robin Hood Myth, Milton talks about his brother-in-law Aaron Director’s Law, saying:

Director’s Law is, that almost invariably, government programs benefit the middle income class, at the expense of the very poor and the very rich.

I take up my lance to tilt against the windmill of Director’s Law in my post “Rich, Poor and Middle Class.”

Note: There are many more videos of Milton out there. Of the ones I watched, I did some picking and choosing, based on a value per minute criterion. I tried to put the videos in a logical order.  

Mark Thoma on the Politicization of Stabilization Policy

Mark Thoma has a new post “Starving the Beast in Recessions” that links to his article in the Fiscal Times: “How GOP Lawmakers have the Fed Over a Barrel.” Mark’s post backs up the concern I expressed in “Preventing Recession-Fighting from Becoming a Political Football” that traditional stimulative fiscal policy–tax cuts or increases in goverment spending–entangles recession fighting in political disputes about the size and scope of government. In that post, I wrote:

By avoiding big changes in taxes or spending, I hope my Federal Lines of Credit proposal can help to depoliticize stabilization policy. 

“Preventing Recession-Fighting from Becoming a Political Football” is a difficult post. For more accessible posts on Federal Lines of Credit, go to my second post “Getting a Bigger Bang for the Buck in Fiscal Policy” or to “My First Radio Interview on Federal Lines of Credit.” I plan to do a set of index posts for my sidebar giving links to all of my posts by topic area soon. At that point, the index post on “Short-Run Fiscal Policy” will link to all of my posts on Federal Lines of Credit.     

Government Purchases vs. Government Spending

I am going to use my blog heavily in teaching my “Principles of Macroeconomics” class this Fall. So I will be posting things I think might be useful for teaching. Click on this link to see a post by Donald Marron that has a great graph to 2012 of

  1. government purchases (=government spending on goods and services)

  2. total government spending (including transfers and interest on the debt)

as percentages of GDP. That is, it graphs 

  1. G/Y

  2. (G+iB+Transfers)/Y

with the fractions expressed as percentages.

Y=GDP

G=government purchases of goods and services

i=nominal interest rate (not adjusted for inflation)

B=government debt (B is a mnemonic for “bonds”)

Google Search Hints

I haven’t yet figured out how to get Tumblr to give me a general search box. So far I have only been able to find a tag-only search box. In the meanwhile, this link is to the best explanation of Google search hints I have seen. I am posting it here partly so I can easily find it again myself. The hint for searching within a blog like this is as follows. If you wanted to search for “teleotheism” in my blog, type into Google 

site:supplysideliberal.com teleotheism

If you then decide you want to search for “taxes” or “redistribution” in my blog, you only have to change the word “teleotheism” to “taxes” or “redistribution”. 

"It Isn't Easy to Figure Out How the World Works" (Larry Summers, 1984)

Update to my post “Dr Smith and the Asset Bubble”: Ever since I wrote this post I have been wracking my brain trying to remember whether Larry Summers told me “It isn’t easy to understand how the world works” as in an earlier version of this post, or “It isn’t easy to figure out how the world works.” At first, I dismissed “figure out” because that is a favorite phrase of mine and I feared I had substituted that into my memory. But I keep coming back to “figure out.” And it occurred to me that maybe one of the reasons I like “figure out” may be precisely Larry Summers using it in this context. In any case I have decided to edit the repeated quotation to the “figure out” form. If anyone knows from Larry’s speech patterns which he would have been more likely to say, let me know.  

By the way, this is a good place to let readers know that I have enough of a random, patchwork, perfectionistic impulse that I routinely allow myself silent edits in my blog posts without an update notification. I am not running for office, I am not on trial, and I already have tenure, so I don’t have to play the game of “gotcha.” In my case, it is my words that matter, not me, and the words that matter are the ones I am willing to stand behind in the end.

But in this case, the “It isn’t easy to understand how the world works” version of the quotation has already gone out into the world and even become the title of a blog post by Kevin Grier—“Angus” at Kids Prefer Cheese, so I feel I need to clearly signal this particular update.  On other occasions, clearly signaling an update helps to drive home the overall point of a post. And if I ever write on some other website, I will follow the norms there.   

Adam Smith as Patron Saint of Supply-Side Liberalism?

I am thinking about adopting Adam Smith as patron saint of Supply-Side Liberalism. As a Unitarian-Universalist and teleotheist (see my post “Teleotheism and the Purpose of Life”), for me “saint” means much the same thing as “hero”: someone who makes the world a better place in a notable way. However, it would do violence to the English language not to recognize the other part of the meaning of “saint”–which “hero” does not share: lack of serious skeletons in the closet.  So this is a crowd-sourcing post. Do you know of any skeletons in Adam Smith’s closet? How bad are the worst things he ever did?

To make the distinction between hero and saint clear, let me say that Andrei Shleifer is absolutely a hero of economics in my book, having done wonderful things for economics–and given the influence of economics, for the world. I find Andrei Shleifer one of the most impressive economists in the world in person as well as in print. But the lawsuit against him put him under enough of a cloud that it doesn’t seem quite appropriate to call him a saint without more information than I have. The influence of this lawsuit on his reputation and his public role has left many non-economists unaware of just how important Andrei Shleifer is for economics. (Note: in my post “Future Heroes of Humanity and Heroes of Japan” I have also promised the status of “hero”–and would be fully willing to consider sainthood in my book–on certain conditions to those in the Monetary Policy Board of the Bank of Japan :)

Since the history of economic thought has not been a focus of mine, my knowledge of Smith’s life was very limited, so I took time this morning to read the wikipedia article on Adam Smith. I didn’t see anything there that I consider a skeleton, but my efforts were well-rewarded with insights into Adam Smith’s life. For example, I learned about the teacher behind Adam Smith’s basic take on things–Francis Hutcheson, “preacher of philosophy”:

Smith’s discontent at Oxford might be in part due to the absence of his beloved teacher in Glasgow, Francis Hutcheson. Hutcheson was well regarded as one of the most prominent lecturers at the University of Glasgow in his day and earned the approbation of students, colleagues, and even ordinary residents with the fervor and earnestness of his orations (which he sometimes opened to the public). His lectures endeavored not merely to teach philosophy but to make his students embody that philosophy in their lives, appropriately acquiring the epithet, the preacher of philosophy. Unlike Smith, Hutcheson was not a system builder; rather it was his magnetic personality and method of lecturing that so influenced his students and caused the greatest of those to reverentially refer to him as “the never to be forgotten Hutcheson"––a title that Smith in all his correspondence used to describe only two people, his good friend David Hume and influential mentor Francis Hutcheson.[17]

I learned that Adam Smith spent time with Hume, as well as Benjamin Franklin and many other important historical figures (two separate passages):

In 1750, he met the philosopher David Hume, who was his senior by more than a decade. In their writings covering history, politics, philosophy, economics, and religion, Smith and Hume shared closer intellectual and personal bonds than with other important figures of the Scottish Enlightenment.[21]

From Geneva, the party moved to Paris. Here Smith came to know several great intellectual leaders of the time; invariably having an effect on his future works. This list included: Benjamin Franklin,[27]TurgotJean D'AlembertAndré MorelletHelvétius and, notably, François Quesnay; head of the Physiocratic school.[28] So impressed with his ideas[29] Smith considered dedicating The Wealth of Nations to him – had Quesnay not died beforehand.[30]

I learned that Adam Smith was a "prototypical absent-minded professor” who lived with his mother:

Not much is known about Smith’s personal views beyond what can be deduced from his published articles. His personal papers were destroyed after his death at his request.[45] He never married,[47] and seems to have maintained a close relationship with his mother, with whom he lived after his return from France and who died six years before his own death.[48]

Smith, who is often described as a prototypical absent-minded professor,[49] is considered by historians to have been an eccentric but benevolent intellectual, comically absent-minded, with peculiar habits of speech and gait, and a smile of “inexpressible benignity”.[50] He was known to talk to himself,[43] a habit that began during his childhood when he would speak to himself and smile in rapt conversation with invisible companions.[49] He also had occasional spells of imaginary illness,[43] and he is reported to have had books and papers placed in tall stacks in his study.[49]

Various anecdotes have discussed his absent-minded nature. In one story, Smith took Charles Townshend on a tour of a tanning factory, and while discussing free trade, Smith walked into a huge tanning pit from which he needed help to escape.[51] Another episode records that he put bread and butter into a teapot, drank the concoction, and declared it to be the worst cup of tea he ever had. In another example, Smith went out walking and daydreaming in his nightgown and ended up 15 miles (24 km) outside town before nearby church bells brought him back to reality.[49][51]

Adam Smith seems to have been honest. For example, he tried to refund his students’ fees when he had to leave in the middle of a semester:

At the end of 1763, he obtained an offer from Charles Townshend—who had been introduced to Smith by David Hume—to tutor his stepson, Henry Scott, the young Duke of Buccleuch. Smith then resigned from his professorship to take the tutoring position, and he subsequently attempted to return the fees he had collected from his students because he resigned in the middle of the term, but his students refused.[25]

The worst behavior I could find in the wikipedia article was an excessive concern with selling books, according to James Boswell (who is famous for his accounts of Samuel Johnson):

James Boswell who was a student of Smith’s at Glasgow University, and later knew him at the Literary Club, says that Smith thought that speaking about his ideas in conversation might reduce the sale of his books, and so his conversation was unimpressive. According to Boswell, he once told Sir Joshua Reynolds that ‘he made it a rule when in company never to talk of what he understood’.[52]

In terms of Smith’s suitability as a secular saint, the debate recounted in wikipedia is about whether he was a deist or an atheist. But in Adam Smith’s day–before Charles Darwin made it possible to understand the diversity and ingenious adaptedness of life without needing God to make sense of things–being a deist who believed that God started the universe off and let it run like clockwork was the equivalent then of being an atheist today. (Charles Darwin’s Origin of Species came out in 1859–83 years after Adam Smith’s 1776 Wealth of Nations.)

I won’t try to summarize the discussion of Adam Smith’s views, but I definitely see in Adam Smith both (anachronistically speaking) supply-side views and liberal views, in all senses of the word liberal. Compare what wikipedia says about different takes on Adam Smith’s views to my definition of a supply-side liberal in my first post “What is a Supply-Side Liberal.”

Let me address one last point. Some may object to claiming Adam Smith as patron saint of Supply-Side Liberalism on the basis that he is already taken as patron saint (as well as father) of modern economics. But I don’t see this as much of an objection. Catholic saints are often claimed as patron saints of many different domains. And it can be argued that  supply-side liberalism in the very broadest sense of

  1. trying to raise social welfare conceived in a way that counts a dollar to the poor as worth more than a dollar to the rich, while
  2. worrying a great deal about distortions,

is the drift of much of mainstream economics when it turns to making normative prescriptions. And Adam Smith was clearly willing to make normative prescriptions for making the world a better place. I am deeply grateful that, to an important though imperfect extent, Adam Smith succeeded in persuading the world to follow his advice. 

Charles Hill: The Empire Strikes Back

Robert Pollock did this excellent interview with Charles Hill for the Wall Street Journal’s weekend edition. In this interview (which is all I know about Charles Hill) Charles is saying the kinds of things I wish I knew enough–and were articulate enough–about history and foreign policy to say. So this interview will give you a good idea of my foreign policy views.  

By the way, I would be interested to know how many of you who try are unable to read this piece because of the Wall Street Journal’s paywall. Let me know in the comments if you are unable to access it. I don’t think I can do anything about it, but still I’d like to know if you have trouble. 

Charles Murray: Why Capitalism Has an Image Problem

I tweeted that this Wall Street Journal column by Charles Murray is a “must read.” I would be tempted to quote more, but let me devote my fair use exception to this passage giving Charles Murray’s view of the moral basis of Capitalism.  This should be enough to motivate many of you to read the original column:

The U.S. was created to foster human flourishing. The means to that end was the exercise of liberty in the pursuit of happiness. Capitalism is the economic expression of liberty. The pursuit of happiness, with happiness defined in the classic sense of justified and lasting satisfaction with life as a whole, depends on economic liberty every bit as much as it depends on other kinds of freedom.

“Lasting and justified satisfaction with life as a whole” is produced by a relatively small set of important achievements that we can rightly attribute to our own actions. Arthur Brooks, my colleague at the American Enterprise Institute, has usefully labeled such achievements “earned success.” Earned success can arise from a successful marriage, children raised well, a valued place as a member of a community, or devotion to a faith. Earned success also arises from achievement in the economic realm, which is where capitalism comes in.

Earning a living for yourself and your family through your own efforts is the most elemental form of earned success. Successfully starting a business, no matter how small, is an act of creating something out of nothing that carries satisfactions far beyond those of the money it brings in. Finding work that not only pays the bills but that you enjoy is a crucially important resource for earned success.

Making a living, starting a business and finding work that you enjoy all depend on freedom to act in the economic realm. What government can do to help is establish the rule of law so that informed and voluntary trades can take place. More formally, government can vigorously enforce laws against the use of force, fraud and criminal collusion, and use tort law to hold people liable for harm they cause others.

Everything else the government does inherently restricts economic freedom to act in pursuit of earned success….

Note to copyright lawyers: In addition to the fact that I should (if ever so slightly) be raising the commercial value for Charles Murray’s column by posting this excerpt here, I would also argue that my blog as a whole is a transformative work, given how my posts play off of one another. It is not enough to judge whether a single post in isolation is a transformative work. The entire blog must be judged as a cohesive whole.  

On the photos and other images I post on my blog, my main arguments would be

  1. by linking to the original sites I probably help more than harm the owner of the photo. 
  2. I stand ready to remove any images that an owner asks me to remove. 

Note to my readers: I should say that the links underneath the images I put in my posts are my way of trying to provide compensation for my use of those photos. At this point, the links under the images I use are the only advertising I have on my blog (for which I receive nothing other than the benefit of using the image with a clear conscience). I am not in principle opposed to having other advertising, but would want a lot of control over the advertising to make sure it did not detract from the way my blog looks and the themes I focus on. For example, since I am a very satisfied user of the Pimsleur language-learning CD’s that I listen to while commuting, I wouldn’t mind a Pimsleur ad if I could put it low down on my sidebar and the transactions costs for me were low. (I’m in the middle of Spanish Level III, and looking forward to learning French after I finish Spanish Level IV.)

Adam Ozimek: What "You Didn't Build That" Tells Us About Immigration

Adam Ozimek has a new post agreeing with my take on immigration in my post “You Didn’t Build That: American Edition.”  He begins:

University of Michigan economist Miles Kimball has a novel and important and take on President Obama’s “You Didn’t Build That” statement and the ensuing debate.

What Adam adds is to the moral case that I make is to point out how small the costs to current citizens are of allowing additional immigration:

I think this is one of the most important and underemphasized ideas right now. I am constantly humbled at how fortunate any of us are to have been born here, and disappointed at how shamefully entitled we act towards this luck. The idea, for instance, that we should block millions from moving here and vastly bettering their lives because there may be a small statistical impact on some subset of us. On the basis of a 5% wage premium for high school dropouts (who we otherwise neglect in so many other ways) we’re going to exclude others from a privilege we did nothing to inherit? Just as egregious is excluding them because we refuse to either design a policy that allows low-skilled workers to enter and pay their on way (which they could!) or just let them enter and bear the minor cost like we do for low-income natives. (Of course we don’t exempt the high-skilled from paying more than their share, which they do).

It is hard to reconcile the selfish attitudes embodied in the kind of mindset that would lock someone out of this unbelievable American system for the sake protecting an unearned privilege, and for the sake of trying to capture every last ounce of luck for themselves…

And I interpret the following passage from Adam’s post as making the point that the cost to current citizens of allowing additional immigration is especially low, or nonexistent if one includes the dynamic benefits to the economy from immigration:

Ironically it is this open, free, and welcoming attitude we turn our backs on that in large part has made us a great and powerful nation. Where would we be if we pulled up the drawbridge in 1800? Or in 1900? This country would be a shadow of itself, and would’ve turned away many of the great Americans, or their parents or grandparents, who made us who we are.

I do not have the expertise to comment as knowledgeably as I would like on what the actual costs and benefits of immigration to current citizens are, so I very much hope that others in the economic blogosphere will continue to clarify these costs and benefits, so that misconceptions can be dispelled. But I also hope that in talking about the evidence about those costs and benefits that we don’t lose sight of the ethical point that those who desperately want to immigrate to the United States are human beings too, whose welfare counts just as much, ethically, as the welfare of citizens of the United States. Here is the comment I made to Adam’s post on the Modeled Behavior blog

Thanks, Adam! 

In my post, I didn’t emphasize how small the costs to current citizens are from immigration, because I wanted to make a full-throated moral argument that we should allow open immigration even if the costs to current citizens were relatively large: even substantial costs to current citizens could not possibly be anywhere close to the magnitude of the benefit to those allowed to immigrate. Also, I understand that there are many who will never be convinced that the costs of additional immigration to current citizens are modest.

But of course the fact that the costs to current citizens are relatively modest makes the case that much stronger. I have thought about what I would say if someone said to me “But you are a well-off professor, you aren’t the one who would bear the costs of additional immigration.” Given how many times greater the benefits to the immigrants are compared to the costs to current citizens (10, 100, or more times greater, I would think, for immigrants from very poor countries), I would say it was as if my challenger were saying “But it wouldn’t be your suit that would get wet if I jumped in to save the drowning man!"

Milton Friedman's Thermostat: An Econometric Cautionary Tale

I am posting this link to Nick Rowe’s post on “Milton Friedman’s thermostat” because I teach a bit of econometrics in my “Monetary and Financial Theory” class as part of teaching about statistical objects that matter for finance such as variances and covariances. I saw this thanks to Matt Yglesias’s tweet.

Milton Friedman’s thermostat is an excellent example of how one can go wrong if the usual econometric assumptions are false. It is closely related to rational expectations econometrics.   

Saturday Morning Breakfast Cereal

Smartest cartoons I have ever seen. I think many of my loyal readers will like them, and end up smarter while rolling on the floor laughing.  Here is one (illustrated above) that touches on a theme I am working on: how to harness the motives people have other than pure self-interest to reduce the size of tax distortions. Of course, anything we do to make a wonderful world could all be destroyed by a supernova’s gamma ray burst, or by Winnie the Pooh.

The Euro and the Mark

Ken Griffin and Anil Kashyap are calling for Germany to reintroduce the Mark and leave the common currency of the Eurozone.  Although it may not at first be obvious, having Germany leave the Eurozone is in important respects equivalent to the proposal I talked about in my post “The Euro and the Mediterano.”  There I tentatively proposed splitting the Eurozone into two currencies, a “North Euro”–which I imagined the press calling just “the Euro”–and a “South Euro,” which I imagined the press calling “the Mediterano.” Now change the names. Suppose that the North Euro is called “the Mark” and the South Euro is called just “the Euro.” In most economic respects, things are the same: only the names have been changed. Here is a table with the three sets of names:

  1. South Euro      North Euro
  2. Euro                Mediterano
  3. Mark               Euro

The German economy is big enough, and different enough from most of the other economies in the Eurozone, that it is a big shift in policy to split Germany off into what is effectively a North Euro zone.    

Shakespeare has Juliet say “A rose by any other name would smell as sweet.” But the full context suggests some of the same complexities that arise for the different possible names of two currencies in the current Eurozone. Here is what Juliet says on the balcony, with Romeo looking on, unbeknownst to Juliet:

Juliet: 

O Romeo, Romeo! wherefore art thou Romeo?
Deny thy father and refuse they name; 
Or, if thou wilt not, be but sworn my love,
And I’ll no longer be a Capulet.

Romeo:

[Aside] Shall I hear more, or shall I speak at this?

Juliet: 

‘Tis but thy name that is my enemy;
Thou art thyself, though not a Montague.
Nor arm, nor face, nor any other part
Belonging to a man. O, be some other name!
What’s in a name? that which we call a rose
By any other name would smell as sweet; 

Romeo:

I take thee at they word.
Call me but love, and I’ll be new baptiz’d;
Henceforth I will never be Romeo

Although Romeo is fully willing to change his name, what Romeo and Juliet really need to change is the bloody conflict between the Montagues and Capulets that keeps them apart: a conflict the names have come to signify.

In the case of the Eurozone splitting into two different currencies, the politics are quite different between the two cases of splitting into the Euro and the Mark as opposed to splitting into the Euro and the Mediterano. For one thing, German national pride could help propel the reintroduction of the Mark, without the implied economic failure on the part of the rest of the Eurozone holding back the process of splitting the currencies (since the other Eurozone countries are not themselves directly taking an action). So it may be that the reintroduction of the Mark is more politically plausible. This is true even if some other country, say Finland, went with the Mark.

In my post “The Euro and the Mediterano,” for the sake of European unity, I propose that the European Central Bank (ECB) continue to be in charge of both currencies, with an informal arrangement that the represenatives of countries in the North Euro and the South Euro zones have more say in what happens with the currencies in their own zone. There is no reason the same strategy can’t be pursued as at least a figleaf if Germany reintroduces the Mark. Germany could soften the diplomatic and symbolic blow of reintroducing the Mark by remaining within the Eurozone governed by the ECB under a “one central bank, two currencies” system.  

Although from an economic point of view splitting off Germany from the Eurozone (reintroducing the Mark) should be equivalent to splitting off all the countries but Germany from the Eurozone (introducing the Mediterano for all the other countries), thinking of the split into two different currencies in these two different ways hints at two different ways to handle the transition. 

I have been thinking how to handle the transition to two currencies as a result of the comments I received to “The Euro and the Mediterano.” As indicated in some of my replies to comments there, I started thinking along the following lines: since stimulating the economies of the South Euro zone requires some depreciation of the South Euro relative to the North Euro. To avoid having everyone pull all of their money out of the South Euro zone, that depreciation needs to be accompanied by an equal difference in the interest rates between the North Euro and South Euro zones (on top of the difference in risk premium between the two zones that already exists).  But then I thought “Why not do the transition very fast–in fact, overnight?” What would that look like? One one particular night, the night of the transition, every Euro in bank accounts (or their equivalent) in the North Euro zone would become a North Euro, while every Euro in bank accounts (or their equivalent) in the South Euro zone would become 1.5 South Euros. Euro currency anywhere from before the split could simply be equivalent to North Euros. Since each Euro in the South Euro zone would turn overnight into 1.5 South Euros, there shouldn’t be any reason for investors to pull their money out of the South Euro zone.  

But there were other details to worry about. The point of devaluing the South Euro would be to effectively cut the price of goods and services in the South Euro zone, so I thought it might be justifiable to have temporary wage and price controls for, say, a month before and a month after the transition saying that something that used to cost 10 Euros should now cost 10 South Euros, to avoid having everyone multiply their prices by 1.5 on the day of the transition and canceling out all of the effects of the depreciation.  The other detail was what to do with debt contracts. I didn’t want to sneak in a repudiation of some fraction of the existing debt of the countries in the South Euro zone. Since the night of transition could be announced in advance, enough time could be allowed for existing short term debt to mature and subsequent short-term debt contracts to be explicitly written to deal with the transition. That would take care of most of the debt. Long-term debt would be messier, but could be handled in a variety of ways–interpreting “Euro” as “South Euro” in preexisting long-term debt would be an implicit bailout, while interpreting “Euro” as “North Euro” in preexisting long-term debt would avoid an implicit bailout. Whatever was done with debt contracts, it would be crucial that labor contracts saying “Euro” in them are interpreted as pay rates in South Euros.  

Now, suppose we think about the equivalent transition handled as a reintroduction of the Mark. On the night of the transition, every Euro in bank accounts (or their equivalent) in Germany (and, maybe Finland) turns into .667 Marks. Euros in the rest of the Eurozone stay Euros. There shouldn’t be a huge rush of funds into Germany, because each Euro there only turns into 2/3 of a Mark on the night of the transition.

As in the other case of splitting off the South Euro or Mediterano, there are details. Since the point of splitting off the Mark is largely to raise the effective relative price of German goods and services relative to goods in the rest of the Eurozone, we certainly don’t want everyone in Germany to cut their prices by 33% or so on the night of the transition. But saying that labor contracts saying pay rates in Euros had to be interpreted as guaranteeing  the stated rates in Marks would probably be enough to keep this from happening. Because this rule favors workers, it is probably politically easier than the rule with the other mode of transition saying that pay rates in Euros had to be interpreted as pay rates in South Euros.

But it is not all political roses. The savings of Germans would suddenly look smaller in relation to their now higher cost of living, and it might be necessary for the German government to make transfers to account holders based on their account values as of the day before serious discussion of splitting off the Mark began. This would be messy, and it is not clear that the German government can really afford such a transfer, but it could probably be done. What is happening here is very interesting, with or without German government transfers to soften the blow of their reduced value in relation to the cost of living in Germany. The least interesting part is the redistribution among German creditors and debtors, which works in favor of debtors. The most interesting part is that there is a bailout of the rest of the Eurozone hiding in this reduced value of German bank accounts. Why? If the Mark is splitting off, it is natural to interpret debt contracts in the rest of Europe stated in Euros as continuing to apply to Euros, which are equivalent to South Euros in the other naming convention. To avoid an effective bailout, preexisting debt contracts in the South Euro zone stated in Euros had to be interpreted as applying to the North Euro. With this other naming convention, that means that preexisting debt contracts in countries other than Germany would have to be interpreted as giving quantities in Marks to avoid an implicit bailout. If what is effectively the North Euro is called “the Mark," I don’t see how the politics of the South Euro zone could ever allow that.  

So, in addition to changing the effective relative prices between Germany and the rest of the Eurozone, splitting off the Mark from the rest of the Eurozone might actually a way to make a bailout of the rest of the Eurozone politically palatable. Germany gets something symbolic back–the Mark that France insisted it give up as its price for not opposing reunification (see what Martin Feldstein says on this)–while the rest of the Eurozone effectively gets a huge transfer.

A WARNING: Let me end by cautioning against splitting off the Mark with anything slower than the overnight transition I recommend. Trying to introduce the Mark at par with the Euro (1 Euro = 1 Mark) would make financial markets expect a large appreciation of the Mark after its introduction. This would make investors want to put their funds into Marks. Since the nominal interest rate in Germany cannot go significantly below zero (the zero lower bound again), there is no way to stop this rush into Marks by lowering the interest rate in Germany. Such a rush into Marks would be very disruptive. And notice that suffering the disruption from a more gradual transition to the Mark does not in any way avoid the effective bailout. As long as the money currently in German bank accounts is in Euros, its value will fall when the Euro falls relative to the Mark, and any preexisting long-term debt contracts (including debt contracts with the European Stabilization Mechanism) will be worth less in terms of Marks.

Indeed, if the Mark is introduced at par in the near future, it would probably appreciate so fast that even some relatively short-term debt contracts would lose much of their value in terms of Marks, so the implicit bailout might be even bigger. On the other hand, if it were announced that the Mark would be introduced at par after some time, all the other problems would remain, but it would not lead to an implicit bailout, since the bond markets would insist on either debt that is denominated in the not-yet-existing Mark–or in some other "hard” currency–or would insist on high interest rates in Euros.

Will Mitt's Mormonism Make Him a Supply-Side Liberal?

In my post “Rich, Poor and Middle-Class” I made this statement on my own behalf, as a statement of what I believe Supply-Side Liberalism suggests as the right attitude in response to class warfare in the U.S. context:

I am deeply concerned about the poor, because they are truly suffering, even with what safety net exists. Helping them is one of our highest ethical obligations. I am deeply concerned about the honest rich—not so much for themselves, though their welfare counts too—but because they provide goods and services that make our lives better, because they provide jobs, because they help ensure that we can get good returns for our retirement saving, and because we already depend on them so much for tax revenue. But for the middle-class, who count heavily because they make up the bulk of our society, I have a stern message. We are paying too high a price when we tax the middle class in order to give benefits to the middle-class—and taxing the rich to give benefits to the middle-class would only make things worse. The primary job of the government in relation to the middle-class has to be to help them help themselves, through education, through loans, through libertarian paternalism, and by stopping the dishonest rich from preying on the middle-class through deceit and chicanery. (Miles Kimball, “Rich, Poor and Middle-Class.”

The question for this post is whether Mitt Romney (the son of my grandmother Camilla Eyring Kimball’s first cousin George Romney) would agree with my statement in his heart of hearts. For now, I am going to give Mitt a pass on the parts of this Supply-Side Liberal statement on “Rich, Poor, and Middle-Class” that have to do with the rich and the middle-class to focus on what we can guess about his feelings about the poor. Here, I am going to make use of what is literally inside information. I know that until I was at least 37 years old, I believed in Mormonism with all of my heart. And I remember my thoughts and feelings then. (See my posts “UU Visions” and “Teleotheism and the Purpose of Life” for a little more of my spiritual autobiography since then.) This is a key to understanding Mitt, since everything I know about Mitt from any source suggests that he believes in Mormonism with all of his heart. (I would be interested in any evidence anyone has on this subject, as well as the related historical question of what John F. Kennedy believed in his heart of hearts in relation to Catholicism.) Inevitably, what follows will represent my own reading of Mormon scripture and Mormon belief and so will at least serve as a way of telling you about an important influence on my own views about our duty to take care of the poor.  

Because Mitt has shown a willingness to pander to the electorate in the Republican primaries, saying things in this and his previous presidential campaign that seem at variance with what he has said in earlier campaigns for senator and governor, it is often hard to know what he really believes based on his statements. Therefore, I think it is extremely important to draw on a wide range of resources to try to reveal what might be in his heart. My belief that he believes in Mormonism with all of his heart (as I once did, but no longer do) is my interpretive key.    

Mormons believe in the Bible (preferring to use the King James Version) and in three additional books of scripture that they consider the Word of God on a par with the Bible: The Book of Mormon, The Doctrine and Covenants, and The Pearl of Great Price. Searchable text of all of these can be found online here. Although at anything short of the level of high theology, Mormon doctrine on the atonement and saving power of Jesus Christ is totally standard Christian doctrine, Mormonism’s doctrines about the nature of God are so heretical according to the decisions of Christian councils such as the Nicene Creed that many Christians refuse to recognize Mormonism as Christian. The Mormon Church has countered the claim that it is not Christian by emphasizing the official name of the Church: The Church of Jesus Christ of Latter-day Saints and by adding the subtitle “Another Testament of Jesus Christ” to the Book of Mormon.  

Of the three books of scripture that Mormonism has in addition to the Bible, The Book of Mormon is the most important, so I will begin with what it says. Speaking as a Unitarian-Universalist and an atheist (or more precisely teleotheist: see my post “Teleotheism and the Purpose of Life”), let me say that the Book of Mormon is a genuinely moving book, fully deserving of an honored place among the holy books of the world’s religions. In saying this I disagree strongly with Mark Twain, who called the Book of Mormon “chloroform in print.” As a Mormon missionary in the Tokyo North Mission from the Fall of 1979 through the Summer of 1981, after striking up conversations near subway stations and convincing some fraction of those I politely accosted to talk at greater length about religion, the main approach my missionary companion and I took (Mormon missionaries always work in pairs–or sometimes in triples, if the total number of them is odd) was to persuade those we were teaching to read The Book of Mormon and then pray about it, with the promise that God would tell them in their hearts that the book is true if they did. (Many people, including me, have had powerful subjective spiritual experiences when they do this.)  

The Book of Mormon tells the story of an Israelite offshoot being shown by God how to build a seaworthy ocean-going ship and led by God around 600 B.C. to somewhere on the American continents (thought by most Mormon scholars to be in Central America and Mexico, so that they consider Olmec and Maya texts relevant for understandingThe Book of Mormon). In the narrative, because of their relative isolation, this Israelite offshoot was given very clear prophecies of the coming of Jesus Christ centuries later–not only to Palestine, but also, after Jesus’ resurrection, to their descendants in the American continents. 

The Book of Mormon not only emphasizes a duty to take care of the poor in the strongest possible terms, it takes apart some common excuses for not taking care of the poor. I don’t need to comment much on the next two quotations because they are so clear: 

But wo unto the rich, who are rich as to the things of the world. For because they are rich they despite the poor, and they persecute the meek, and their hearts are upon their treasures; wherefore, their treasure is their god. And behold, their treasure shall perish with them also.  (2 Nephi 9:30)

And also, ye yourselves will succor those that stand in need of your succor; ye will administer of your substance unto him that standeth in need; and ye will not suffer that the beggar putteth up his petition to you in vain, and turn him out to perish.

Perhaps thou shalt say: The man has brought upon himself his misery; therefore I will stay my hand, and will not give unto him of my food, nor impart unto him of my substance that he may not suffer, for his punishments are just–But I say unto you, O man, whosoever doeth this the same hath great cause to repent; and except he repenteth of that which he hath done he perisheth forever, and hath no interest in the kingdom of God.

For behold, are we not all beggars? Do we not all depend upon the same Being, even God, for all the substance which we have, for both food and raiment, and for gold, and for silver, and for all the riches which we have of every kind?  (Mosiah 4:16-19.)

The Book of Mormon not only lays out the duty to take care of the poor, it also stresses the the ideal of social and economic equality, the role of equality in helping to make society prosper, and the evil of inequality. Here is a time when things were good:   

And when the priests left their labor to impart the word of God unto the people, the people also left their labors to hear the word of God. And when the priest had imparted unto them the word of God they all returned again diligently unto their labors; and the priest, not esteeming himself above his hearers, for the preacher was no better than the hearer, neither was the teacher any better than the learner; and thus they were all equal, and they did all labor, every man according to his strength. 

And they did impart of their substance, every man according to that which he had, to the poor, and the needy, and the sick, and the afflicted; and they did not wear costly apparel, yet they were neat and comely. 

And thus they did establish the affairs of the church; and thus they began to have continual peace again, notwithstanding all their persecutions. And now, because of the steadiness of the church they began to be exceedingly rich, having abundance of all things whatsoever they stood in need–an abundance of flocks and herds, and fatlings of every kind, and also abundance of grain, and of gold, and of silver, and of precious things, and abundance of silk and fine-twined linen, and all manner of good homely cloth. And thus in their prosperous circumstances, they did not send away any who were naked, or that were hungry, or that were athirst, or that were sick, or that had not been nourished; and they did not set their hearts upon riches; therefore they were liberal to all, both old and young, both bond and free, both male and female, whether out of the church or in the church, having no respect to persons as to those who stood in need.

And thus they did prosper and become far more wealthy than those who did not belong to their church. For those who did not belong to their church did indulge themselves in sorceries, and in idolatry or idleness, and in babblings, and in envyings and strife; wearing costly apparel; being lifted up in the pride of their own eyes; persecuting, lying, thieving, robbing, committing whoredoms, and murdering, and all manner of wickedness; nevertheless, the law was put in force upon all those who did transgress it, inasmuch as it was possible.  (Alma 1:26-32)

And here is a time when things were bad:

And it came to pass in the commencement of the ninth year, Alma saw the wickedness of the church, and he saw also that the example of the church began to lead those who were unbelievers on from one piece of iniquity to another, thus bringing on the destruction of the people. Yea, he saw great inequality among the people, some lifting themselves up with their pride, despising others, turning their backs upon the needy and the naked and those who were hungry, and those who were athirst, and those who were sick and afflicted.  

Now this was a cause for lamentations among the people, while others were abasing themselves, succoring those who stood in need of their succor, such as imparting their substance to the poor and the needy, feeding the hungry, and suffering all manner of afflictions, for Christ’s sake, who should come according to the spirit of prophecy; (Alma 4:11-13)

The Book of Mormon recounts how, after his resurrection, Jesus came in full miraculous power to teach people in the Americas. At that time, he chose 12 “disciples” who were the equivalent in the Americas of the 12 apostles in Eurasia and Africa. These 12 disciples set up an ideal society, in which all property was communally owned:   

And it came to pass that the disciples whom Jesus had chosen began from that time forth to baptize and to teach as many as did come unto them; and as many as were baptized in the name of Jesus were filled with the Holy Ghost…. And they taught, and did minister one to another; and they had all things common among them, every man dealing justly, one with another. (3 Nephi 26:17,19)

In case the phrase “had all things common among them” (compare Acts 2:44 “And all that believed were together and had all things common;”), a few chapters later, it explains: 

And they had all things common among them; therefore there were not rich and poor, bond and free, but they were all made free, and partakers of the heavenly gift. (4 Nephi 1:3)

In the 19th Century, the Mormons made an attempt at replicating this communal ownership of property. Here is an excerpt from a much longer section of The Doctrine and Covenants laying out details for this communal ownership of propertyincluding an allusion to the sophisticated and subtle principle of a “stewardship” (temporarily assigned quasi-private property): 

It is wisdom in me; therefore a commandment I give unto you, that ye shall organize yourselves and appoint every man his stewardship; That every man may give an account unto me of the stewardship which is appointed unto him. For it is expedient that I, the Lord, should make every man accountable, as a steward over earthly blessing, which I have made and prepared for my creatures. I, the Lord, stretched out the heavens, and built the earth, my very handiwork; and all things therein are mine. And it is my purpose to provide for my saints, for all things are mine.  But it must needs be done in mine own way; and behold this is the way that I, the Lord, have decreed to provide for my saints, that the poor shall be exalted, in that the rich are made low. For the earth is full, and there is enough and to spare; yea I prepared all things, and have given unto the children of men to be agents unto themselves. Therefore, if any man shall take of the abundance which I have made, and impart not his portion, according to the law of my gospel, unto the poor and the needy, he shall, with the wicked, lift up his eyes in hell, being in torment. (Doctrine and Covenants 104:11-18)

19th Century Mormons ultimately were not able to make communal ownership work, although they did better than many other groups who tried. The Mormon Church retreated to the principle of tithing and a “Welfare Plan” to take care of the poor. Tithing, which is taken very seriously in the Mormon Church, means that Mormons pay 10% of their income to the Church. But the ideal of a society with full equality lives on. Mormons (and I) use the word “Zion” to signify an ideal society. This meaning of “Zion” is clear in this lovely passage from the last book of Mormon scripture I listed, The Pearl of Great Price:    

And the Lord called his people Zion, because they were of one heart and one mind, and dwelt in righteousness; and there was no poor among them. (Moses 7:18)

What should be clear from all of these passages and this discussion is that for Mormon Republicans (and yes, there are Mormon Democrats)–even for very conservative Mormon Republicans–it is OK for the Mormon Church to do what it is not OK for the government to do: require that the rich give money that is then transferred to the poor, in cash and in kind. (I don’t think I am going too far in using the word “require” to talk about tithing, since unless someone declares to their Mormon bishop that they have paid 10% of their income to the Mormon Church, Mormons are not allowed to enter Mormon temples, even to see  one of their children get married. Many marginal Mormons have paid tithing in a particular year simply to be able to attend the wedding of one of their children.) This is not a logical inconsistency. After all, in the Mormon view, a Church led by a modern Prophet who receives direct revelation from God can be expected to spend money collected from tithing better than an uninspired government can spend money collected from taxes.

The point I am making is that the duty to take care of the poor is laid out in an unequivocal way in Mormon scripture–the question is only about the means. (1) Voluntary donations and volunteer work to help the poor are preferred, followed by (2) efforts organized by the Mormon Church (using all of the power it has to require things of committed Mormons), with (3) government action to help the poor as by far the least preferred means. But as a believing Mormon, Mitt knows God requires that the poor be taken care of somehow. This is very different from the attitude directly condemned by The Book of Mormon in the passage above: “The man has brought upon himself his misery; therefore I will stay my hand, and will not give unto him of my food, nor impart unto him of my substance that he may not suffer…” This Mormon ordering of the means of helping the poor from best to worst also seems to me an ordering from least distortionary to most distortionary: 

  1. voluntary, 
  2. induced by social pressure (perhaps quite heavy social pressure),
  3. enforced by the threat of jail time.

So there is nothing wrong in principle with this ordering. The one concern I have is with the tendency to convince oneself that voluntary actions and actions induced by social pressure are in fact enough in situations where they are not.  

Other Posts about Mitt:

“Rich, Poor and Middle-Class”

“Corporations are People, My Friend”

Post about Barack:

“You Didn’t Build That: America Edition”

Other Posts about Religion

“UU Visions”

“Teleotheism and the Meaning of Life”(This one has philosophy, cosmology, evolutionary theory, and science fiction, as well as theology.)

Note: On Mitt’s genealogy, see this from Familypedia. I am named after our common ancestor: Miles Park Romney.

Teleotheism and the Purpose of Life

I am a lay Unitarian-Universalist preacher. Since 2005 I have given a sermon every year at the Community Unitarian-Universalists of Brighton congregation. This is a sermon I gave on March 30, 2008. Please give this sermon a try. I think it has much in it that will be of interest to a wide range of readers: philosophy, cosmology, evolutionary theory, and science fiction, as well as theology. And nothing in it depends on believing in God at all.

You will learn a lot about Unitarian-Universalism from the fact that this sermon was very warmly received. To explain the emphasis on Christianity in this sermon, let me say that both Unitarianism and Universalism (which later merged to form Unitarian-Universalism) were historically Christian, though the decision to put freedom of thought first broadened them beyond those historical Christian roots.

Update: You can see a video of this sermon here

Abstract:  In a recent book, Dinesh D'Souza takes on the arguments of recent bestselling atheists, including Richard Dawkins, Daniel Dennett, Sam Harris, Christopher Hitchens and Victory Stenger.  I agree in important measure with both sides of this debate: I accept the standard scientific picture of the universe laid out by Dawkins, Dennett, Harris, Hitchens and Stenger, but agree with D’Souza–and Rodney Stark–that many of our most cherished ethical, political and even scientific ideals stem from our religious heritage.  This motivates the question of how far apart an enlightened atheism is from the relatively enlightened version of Christianity that D’Souza presents. 

As an enlightened form of atheism, I turn to teleotheism.  Teleotheism is the view that God comes at the end, not at the beginning, where I am defining “God” as “the greatest of all things that can come true.”   In this view, the quest to discover what are the greatest things that are possible is of the utmost importance.  The best of our religious heritage is just such an effort to discover the greatest things that are possible. 

Many recent books advocating atheism have made the bestseller lists.    I have enjoyed reading many of these books, including The God Delusion by Richard Dawkins, Breaking the Spell: Religion as a Natural Phenomenon by Dennett, Daniel, The End of Faith by Sam Harris, God is Not Great by Christopher Hitchens and God: The Failed Hypothesis by Victor Stenger.  So I was intrigued when I saw that Dinesh D’Souza had written a book attempting to defend Christianity against my favorite authors.  Instead of talking past each other, a believer in the Biblical God and nonbelievers were in a real dialogue!  I was not disappointed.  Though, as you will see, I disagree with much of what D’Souza writes in What is So Great About Christianity, D’Souza has understood and digested the recent spate of atheist books well enough that his summary of the arguments of the atheists persuaded me all over again to doubt the existence of God.   So he is fair in representing the arguments of his opposition. 

As an aside, let me say that real dialogue, and real attempts to understand those who think differently are especially important in a political season like this one.  In my own view, we are lucky this time to have three potential presidents [Hilary Clinton, Barack Obama and John McCain], each of whom would be a credit to our republic as its leader.  But in the heat of political competition, many of us will be tempted to recoil in disgust from the sincerely held political views of some of our acquaintances.  I hope that instead we can try to understand and appreciate the things these people care about that lead them to support one candidate or another.  Although we may disagree on political choices, I think it is usually possible to understand and even learn from the concerns that lead people to a particular choice. 

In the debate over God, there are many voices that are less temperate than D’Souza.   Every time I see Ann Coulter’s book “Godless” on a bookstore display I have to laugh because she uses the word “Godless” as if it is a bad thing.  She attacks liberalism by calling it a “godless religion,” but I stood up here a year ago saying that “godless religion” is exactly what we need so that those who don’t believe in God can also get the benefits of religion.  But I feel we need to constantly improve godless religion and agnostic religion beyond the current level.   If godless religion and agnostic religion are to be fully competitive in the religious market place, they must have deep theology and a profound power to propel people to goodness, build strong religious communities, and provide experiences of transcendence. 

Because Unitarian-Universalism combines a respect for its religious heritage with a firm commitment to freedom of thought, I believe there is a better chance of creating an agnostic religion that lives up to this standard with Unitarian-Universalism than anywhere else.  But I do not think we are yet up to the standard the world needs us to reach for the sake of future history. 

Today, I am going to talk first about theology and science, then about precious things.  Propelling people to goodness, building strong religious communities and providing experiences of transcendence fall under the heading of “precious things” at the end.

Since “theology” is Greek for words about god, it might seem strange to talk about the need for a deeper theology for godless religion.  But I think it is important for those in a godless religion to talk about God.  Let me explain why.  

Let me start with Pascal’s wager, which Dinesh D’Souza thinks is a good reason to believe in God.  Blaise Pascal was a 17th century French mathematician and philosopher who did some of the early work on probability theory that is the foundation of statistics.   He argued that one should bet on the existence of God because if there is a God, believing in God makes the difference between heaven and hell, while if there is no God, it is not so bad to be wrong.  One may have wasted some time and money on a false belief in God, but nothing approaching the danger of hell and the prospect of heaven on the other side.   When I was a Mormon, before I went too far toward unbelief, I considered carefully whether God would punish me for not believing in him.  I decided that despite my imperfections, I would not punish one of my children harshly for not believing in me.  Therefore, a perfect, loving Father in Heaven would not punish me if—doing my very best to figure things out—I came to doubt that he existed.  Deciding that God—if he existed—would not punish me for my honest beliefs was and is a key ingredient to my being an atheist. 

In general, even aside from Pascal’s wager, deciding whether or not to believe in God depends heavily on what one thinks God would be like if he did exist.  This is one reason I can see that thoughtful atheists still need to think about God.  Later I will talk about other reasons thoughtful atheists need to think about God, even if God doesn’t exist.

The definition of God is often squishy.  I remember vividly attending a Reform Judaism Yom Kippur service as a college student, just to see what it would be like.  The rabbi said “Many people think they don’t believe in God, but God is just the idea of goodness.  So they believe in God without realizing it.”  By that standard, I am certainly a believer in God.  At the other extreme, there are enough details in the Bible about the Biblical god for me to feel quite confident that the god described in the Bible, taken literally, does not exist.

One of the biggest gaps in the arguments for the existence of God given by people like D’Souza is the leap from the existence of some superbeing, which the arguments have some force for, to the existence of the specific god described in the Bible.  For example, invoking Kant and Hume on the limits of knowledge, D’Souza argues that we can’t really know there isn’t a god, so why not believe?  Let me run with this argument, and even lean in the direction of the existence of a superbeing, and I can easily get to a totally reasonable place that D’Souza would not be happy with because the superbeing is not the god of the Bible.  

There are at least two ways in which the standard scientific worldview is consistent with the possibility of a superbeing.   These possibilities are both common themes in hard science fiction.  Hard science fiction is science fiction that focuses on things that are genuinely possible given what science we know.  One of these hard science fiction themes is reminiscent of traditional Christian theology, while the other is reminiscent of Mormon theology.  

Traditional Christian theology, put into a hard science fiction straightjacket, is like the idea that we are all software programs inside a superbeing’s computer.  There is no way to know this is not true.  If it is true, miracles would just be a special case in the programming.  The normal laws of nature could be as simple and regular as they are simply because that was easier than programming more complex laws for the default case. 

Mormon theology, put into a hard science fiction straightjacket, is reminiscent of the idea that we are watched over by benevolent aliens from an advanced civilization.  Not only is this plausible, it is even possible to argue that it is likely.  There are a lot of stars in the Galaxy, but even at a fraction of the speed of light, it would take only a small fraction of the time since the Big Bang to get from one end of the Galaxy to another.   If evolution often favors intelligence, why couldn’t intelligent life arise several times in our galaxy?  If any intelligent life has arisen before us, chances are it arose many, many millions of years before us, simply because it has been billions of years since the Big Bang.  So it is not a big stretch to have aliens from an advanced civilization reach Earth.  The big issue would be Fermi’s paradox:  “Where are they?”  “If they are here, why they are hiding themselves from us?”  and whether they are benevolent or not.   If they are here, they don’t seem to have destroyed us, which is something.

To me these are important religious questions, but science fiction is not always recognized for the serious theological speculation that it often is.   A truly open-minded search for God would consider as many possibilities like this as possible, but instead, the focus is usually the much narrower one of whether certain ancient religious texts are true or not.  Looked at without preconceptions, and without regard to which will get you laughed at in polite company, which is harder to believe?  The possibilities laid out in hard science fiction, or the god of the Bible?  By all means, let’s be open-minded about whether God exists or not, but not just about the God of the Bible. 

Let me leave aside for now the possibility that there are superbeings that are relevant to our choices of what to do.  Indeed, even if there are powerful superbeings in existence who are aware of us, one of the simplest reasons for them to be hidden is that they want us to act as if they don’t exist.  If so, it would be the will of the gods that we be atheists or at least agnostic in relation to them.

In the absence of God, our creator would be the laws of physics and the principle of evolution.  Dinesh D’Souza argues that the Big Bang is evidence for God.  I thought his science was outdated.  In order to explain why distant galaxies are so uniformly distributed across the sky, cosmologists rely on the theory of cosmic inflation, in which a small patch of false vacuum can grow to a region trillions of light-years across in a tiny fraction of a second.  This patch of false vacuum keeps growing, but islands within decay into matter and energy in what we locally call the Big Bang.  Once the Big Bang is embedded in this larger picture of cosmic inflation, the universe is big enough that almost anything that can happen will happen somewhere.  But one must be careful to remember that the universe is vastly bigger than the tiny piece that we can see with our telescopes.  Almost everywhere in the universe is so far away that light has not had a chance to reach us from there yet.  Given the vastness of the universe, it is almost a certainty that life would arise somewhere, even if the beginning of life is a very improbable event on any given planet. 

To his credit, D’Souza accepts evolution, but he underestimates it.  Contrary to what he argues, it is straightforward to explain the evolution of morality.  For at least a million years, our ancestors have been choosing who they want to hang out with, ally with and have children with.  Those who are trustworthy, loyal, helpful, friendly, curteous, kind, obedient, cheerful, thrifty, brave, clean and reverent are often chosen as allies and mates, helping these traits to survive and prosper in the population.   My friend Randy Nesse has worked out some of the details of this story of the origin of morality.  Darwin began his argument for evolution by pointing out the power of the selective breeding that farmers use to domesticate animals.  Randy pointed out that in many ways human beings seem more like domesticated animals than like wild animals—and with good reason: we have been domesticated by the choices other proto-human beings made about whether to hang out with our ancestors.  

The key difference between evolution as our creator and the god of the Bible is that with evolution the best comes at the end, not at the beginning.  There was no Garden of Eden—only primordial soup in a warm pond.   But heaven is still possible; we and our descendants just need to build it.  

The first task is to decide what we want.  The medieval theologian Anselm defined God as “that than which no greater can be thought” and proceeded to argue that God must exist since something that exists is greater than something that doesn’t exist.  Therefore, the greatest of all things must exist.   It is my understanding that modern philosophers reject Anselm’s argument on the basis that “existence” is not an ordinary attribute like being massive or being photosynthetic.  Existence has a special status in logic.  So let me do a riff on Anselm by defining God as “the greatest of all things that can come true.”  God is the heaven—or in Mormon terms, the Zion, the ideal society—that we and our descendants can build, and god is a reasonable description of the kind of people who make up that society.   But what does a heavenly society look like? 

Let’s start with the easier question of what an ideal human being looks like.   Here I look to Jesus.  Not the historical Jesus, but the imagined Jesus who is the projection of every good human trait, as valued by our culture.  It makes all the sense in the world to ask “what would Jesus do” even if one believes that the historical Jesus was only a man, since “what would Jesus do” is a good shorthand for what our culture thinks a good person would do.  This is an example of the way in which many of the highest ideas of goodness in Western Culture are embedded in religious language. 

Just as our culture’s ideas of the ideal human being have been embedded in the image of Jesus, many of our culture’s ideas of the ideal society have been embedded in the image of heaven or of the holy city.  D’Souza’s book is at its best when it is listing the good things that may have come from Christianity: separation of church and state, limited government, the rule of law, the free market, the affirmation of ordinary life, valuing the relief of suffering, the idea of limiting war, a higher level of respect for women than among the Romans, the idea that all humans are of equal value and equal before the law, emphasis on individual freedom, and even the idea that nature can be understood because of the divine spark within us.  D’Souza writes: “The life of the West, Nietzsche said, is based on Christianity.  The values of the West are based on Christianity.  Some of these values seem to have taken on a life of their own, and this gives us the illusion that we can get rid of Christianity and keep the values.  This, Nietsche says, is an illusion.  Our Western values are what Nietzsche terms ‘shadows of gods.’  Remove the Christian foundation, and the values must go too.”   I agree that many of our values come from Christianity, but I believe that we can honor the best of those values without thinking that God exists. 

The key to understanding our religious heritage and the clues it provides for the greatest things that might be possible is to realize that wonderful things are truly wonderful, whatever they are made of.  There is something wonderful about a tight-knit religious community, whether it is based on a belief in God or not.  A rose can be just as beautiful when one knows it is made of evolved molecular machinery.  Consciousness is just as amazing even after one realizes that is made of the interactions of quarks, electrons, and photons.  So much the better for the quarks, electrons and photons.  Spiritual experiences that break down the barriers between self and nature can still be transcendent, even when we realize they involve the suppression of the part of the brain that deals withthe self-other distinction.  In general, information, whatever substrate it is embedded in, and however well science can explain its transmission and processing, seems to have something of the divine to it.  

Teleotheism is the idea that God comes at the end rather than at the beginning.  If God is the greatest of all things that can come true, then we and our descendants can build God and Heaven.  The first step is to envision the greatest good that we can imagine.  Next, we need to assemble relevant knowledge, so we can build on a solid foundation of the truths about human nature and the Universe.  Finally, we have to step out into the unknown, exerting the faith to act when we know something might be possible but don’t know for sure that it is.  I agree with the Existentialists that having been thrown into existence by physics and evolution, we have to choose our own purpose to life.  Can there be any greater purpose to life than working toward that day, that fine day, when God and Heaven do exist? 

Books:

Dawkins, Richard.  The God Delusion

Dennett, Daniel.  Breaking the Spell: Religion as a Natural Phenomenon

D'Souza, Dinesh.  What’s So Great About Christianity?

Harris, Sam. The End of Faith

Hitchens Christopher. God is Not Great

Stark, Rodney.  The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success

Stenger, Victor. God: The Failed Hypothesis


Don’t miss my other Unitarian-Universalist sermons on my blog

Also, don’t miss Noah Smith’s religion posts:

  1. God and SuperGod

  2. You Are Already in the Afterlife

  3. Go Ahead and Believe in God

  4. Mom in Hell

  5. Buddha Was Wrong About Desire

  6. Noah Smith: Judaism Needs to Get Off the Shtetl

  7. Why Do Americans Like Jews and Dislike Mormons?

  8. Render Unto Ceasar

  9. Original Sin

  10. Islam Needs To Separate Church and State

  11. Noah Smith—Jews: The Parting of the Ways

  12. Noah Smith: You With the Fro

  13. The Fight of the Ages: Pain and Death

  14. Noah Smith: Sunni Islam is Failing

Other Posts on Religion:

Posts on Positive Mental Health and Maintaining One’s Moral Compass:

Milan Kundera on the Contribution of Novels to the Liberal Imagination

Reblogged from Mills Baker’s blog “meta is murder”:

“Suspending moral judgment is not the immorality of the novel; it is its morality. The morality that stands against the ineradicable human habit of judging instantly, ceaselessly, and everyone; of judging before, and in the absence of, understanding. From the viewpoint of the novel’s wisdom, that fervid readiness to judge is the most detestable stupidity, the most pernicious evil. Not that the novelist utterly denies that moral judgment is legitimate, but that he refuses it a place in the novel. If you like, you can accuse Panurge of cowardice; accuse Emma Bovary, accuse Rastignac—that’s your business; the novelist has nothing to do with it. Creating the imaginary terrain where moral judgment is suspended was a move of enormous significance: only there could novelistic characters develop—that is, individuals conceived not as a function of some preexistent truth, as examples of good or evil, or as representations of objective laws in conflict, but as autonomous beings grounded in their own morality, in their own laws. Western society habitually presents itself as the society of the rights of man, but before a man could have rights, he had to constitute himself as an individual, to consider himself such and to be considered such; that could not happen without the long experience of the European arts and particularly of the art of the novel, which teaches the reader to be curious about others and to try to comprehend truths that differ from his own. In this sense E. M. Cioran is right to call European society “the society of the novel” and to speak of Europeans as “the children of the novel.””

Milan Kundera, Testaments Betrayed