The Folly of Biblical Economics: Lessons from Europe that Americans must heed

Moralizing and generalization have always been terrible foundations for public policy.

Conservatives have a point: condemning people who want to get richer as ‘greedy’, and subjecting them to punitive taxation, is a sure path to keeping society dull, impoverished and unfair. Where they are wrong is in interpreting a recession as the inevitable retribution exacted upon a society of prodigal sinners, who must now re-pay their ‘debt’ through austerity. This biblical economic ‘tradition’ is a sure path to greater private losses and public debt.

While one’s view at a concert will certainly improve if one stands up, when everyone stands not only is there no benefit to any but, additionally, each ends up needlessly fatigued. Generalizing from an individually rational act, or even from a personal virtue, to a public policy recommendation ignores the simple fact that what is good for one may not work when everyone practices it.

Nowhere has this been more evident than in Europe. Following the bank bailouts, and the Great Recession that followed after 2008, private liabilities turned into skyrocketing public debt. European governments responded by tightening their belts all at once. The result was even higher debts for each. Just like the view-seeking concert audience that stood up in unison, Europeans realized that what seemed like a good idea individually was, collectively, self-defeating.

Politicians in the United States frequently warn that their opponents’ policies threaten the United States with a fate worse than Greece’s. Americans, therefore, should take a better look at that ancient land. Since 2010, the Greek government introduced the greatest austerity in peacetime ever: a combination of tax hikes and public expenditure cuts that have exceeded 15% of the nation’s GDP. The result? Greece’s public debt jumped from a high 113% of national income in 2009 to a ruinous 176% today. How could such a major, and much applauded, deficit reduction boost debt so much? The answer is simple: Austerity (from the Greek work for ‘strictness’) caused national income to fall by a quarter!

Besides austerity, Greece tried another policy supported by many in this country: a reduction in the minimum wage. The logic should be familiar to opponents of campaigns to raising the minimum wage for American workers: A minimum price for shoes will ‘produce’ unsold shoes. To get rid of any excess supply, of shoes or labor, get rid of the minimum price!

The only problem with this logic is that it is precisely wrong. Just like in the case of our hapless audience, what works for one does not work when universalized. One worker can find employment more easily if she is willing to work for less. But when all workers accept low pay, there is simply not enough demand for the goods and services they produce to keep them employed. Greece has proved this, as private sector employment fell faster once the minimum wage was cut.

Fortunately, America is not in danger of becoming Greece. One reason is that American democracy, despite the vociferous sirens of austerity, features checks and balances that render such austerity unlikely. A second reason is that many conservatives are beginning to recognize that a significantly increased minimum wage has two merits. First, it can help reduce public spending as it will reduce the number of Americans on benefits. Secondly, rather than an anti-competitive measure, minimum wages are as important in the labor market as capping electricity prices in an oligopolistic energy market. For the same reason that a low maximum electricity price optimizes the output of power generating companies, a higher minimum wage can boost employment.

The message to Americans who worry about the federal debt is simple: Ditch austerity and re-think minimum wages.

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20 Comments

  • Dear Yanis,

    first, your concert example is very good 🙂

    But I would like to add my view as a christian, concerning, what you call biblical economics. I see the problem and am trying to look at biblical principles concerning economics more closely. Even if I have not reached a concluding point, I am sure, the biblical picture is not at all one-sidedly supportive for the ideology of free markets and of neoliberals of our times. Yes, in the bible, you have ethics, which point to the personal responsibility and freedom of choice.

    But this is not the only paradigm. The bible also stresses very much the higher responsibility of the leadership, also before God. When Jesus looked at the people with compassion as sheep without shepherd (Mark 6:34), when prophets called the jewish leadership in many chapters to repentance, then what you have is, an emphasis on the responsibility of the leadership over the personal responsibility. But why do have a one sided emphasis on personal responsibility in Christianity today? I think, it is because of the individualist mainstream, which also penetrates the church.

    Everyone knows about the sharing of goods in the first church. But there is more to think about. Think about the counter-cyclical economics of the wise Josef in Egypt (Genesis 41:47-57). Think of the commandment, to cancel all debts every seven years (Deuteronomy 15:1-4) or the commandment “there should be no poor among you” in the same chapter. The bible is not one-sided. Paul writes, that the slaves should obey their masters, but he also warns the masters in Ephesians 6:9 “…you know that he who is both their (slaves) Master and yours (masters) is in heaven, and there is no favoritism with him.”

    So, as with everything: it is easy to – purposely or not – misuse a teaching to justify your deeds. Concerning the bible, we should not listen to those, who are using it, to justify their personal political opinion. And concerning Christians in the US and anywhere else: let’s hope, they can be an independent voice guided by deep biblical understanding, instead of letting themselves be instrumentalized for a political ideology.

    • I agree there. Using the word biblical moralizing could be confusing with otherwise allready confused public.
      Biblical teachings are exactly as you pointed to and are opposite of what biblical moralizers/ fundamentalists are saying.
      Not to mention the everyday prayer of “Our Father” which mentions debt cancelations, but those in power do not even dare to think about it in such a way.

      Since bible teaches about debt cancelation as important to reduce poor’ suffering, what would be an equivalent of present day debt jubilee without damaging bank balance sheet?
      Inflation is a form of mass debt burden reducer. Is it a wonder that when inflation was reduced that debt became overwhelming problem?
      Hence moderate inflation is a great moderator of a capitalist system that depends on debt. And inflation is a product of growing wages, not of money printing as believed.

      Personal bankrupcy is also another form of debt cancelation that does not hurt banks.
      Having an institution of personal bankrupcy as existed before 2005 in USA is another nice moderator of debt problems that plague world today.

    • Pardon me, but though not a Christian I have read the gospels as history and philosophy. But didn’t Christ reject the marketplace-and was he not hostile to the accumulation of capital and the brokerage thereof?
      What you are trying to say in reference to Christ and his teaching is so far from what the story of the life of Christ that it leaves me confused. It seems Calvin and his crowd used and manipulated the story of Christ IN A MOST DISINGENUOUS FASHION.
      But if you are referring to Old Testament economics we are dealing in yet another paradigm tat seems to have no bearing on current economis affairs. In my view
      analogy to the bible does not clarify the issues.

    • Hi wanderingenya,

      he did not generally reject the marketplace, only when it was enstablished in the house of worship. But I did not mean to say, that Jesus supported capitalism… not at all. To the contrary, I wanted to say to Yanis, that what the bible says, is not quite that, what conservatives make out of it. Very simple. Not even the Jean Calvin himself can be misused for such purposes. This point I wanted to support with several quotes from the bible. It is clear to me, as it also was to Max Weber, that his observations target only populations in Germany, of a certain religous background. His “The Protestant Ethic and the Spirit of Capitalism” was not about christian teachings, even though it did highlight the influence of teachings to a certain life attitude.

      It is though very interesting and important in my personal view, to study, if the biblical teachings in fact, support the economic and sociologic ideolog of the religious right in our times.

      I like having challenged your preconceived opinion about what the bible teaches. There is even more interesting material. Your hesitation to use the old testament I cannot share though. It is as important as the new in understanding the christian viewpoint.

    • @Xenofon

      Although Weber based his theory on observations made in Germany, the phenomenon he describes was not limited to some obscure sects.
      Calvin himself was french and working in Switzerland and calvinist principles became dominant in the Netherlands, parts of north-west Germany and France, Scandinavia, Scotland and some regions in eastern europe. Many of his followers had to flee their home countries when the catholic curch accused them and other protestants of heresy (a well-known example being the St. Bartholomew’s massacre of the huguenots in Paris in 1572).
      Calvinism and vartious other branches of protestantism derived from it began to spread all over the world during the seventeenth century. Especially the colonists coming to America often brought them along and many of the different protestant denominations that can be found in the US today were initially based on or influenced by them.

      Although, I think the bible or christianity as a whole are not the problem here. It is people who claim – or even genuinely believe – to be good christians, while committing or supporting actions that go against the fundamental teachings of their religion.
      Jesus may not have condemned what we now call the market economy, or capitalism itself, but he certainly would have objected to worshipping markets like deities and treating economists like their prophets.

    • @Hubert Marcks
      I very much agree. Exactly what I wanted to add. So let’s be more cautious with words and not talk about “biblical economics”. This is not about biblical economics at all.

    • With all due respect to readers’ religious beliefs, the notion of retribution (e.g. “an eye for an eye”) is clearly a central feature of the Old Testament. The idea that austerity is the natural retribution that follows sinful profligacy is central to the Biblical tradition. Indeed, ‘austerians’ utilise fully and purposefully rhetoric that alludes to a Biblical justice. Of course, the New Testament tradition can be seen as quite different. So, I feel justified to use the term Biblical economics, as long as the Bible is thought of as the Old Testament.

    • Dear Yanis,
      I really hope, you really take some time to read the quotes, I mentioned. Of course “an eye for an eye”, is the OT quote everybody knows. But the OT is not only this 🙂 Try to make a sense out of the whole picture, to which also the quotes belong, that I have used, which you will admit, shake your one-sided view. OT knows righteous retribution, but also knows the concept of forgiveness. Also in terms of debt, as the quotes prove.

      I will agree with you: we have a problem of mainstream (european and american) christianity. But this not equivalent with biblical principles. So, go ahead, talk about “The Folly of christian mainstream economics” and the like. No problem. But I don’t see a base for “bible economics” in your article.

  • There is also a third reason which makes the difference between Greece and the Unided States so obvious. In Greece, the administration system acts such as the long hand of the ECB and German government. Sometimes, whenever I heard rumours and negative comments about the effectiveness of Greek government, I didn’t feel well. Mainly, due to the fact that we always forget the bitter truth. Greece is not a sovereign state anymore. This fact is hidden behind the official property of Greece. “Member of European Union and Eurozone”. If Greece had never been a member of EU, it would have been noticed first!

  • Gianni,

    America had the opposite of austerity, QE1, QE2, QE3, the stock market registered 50 new highs in one year and real estate values went through the roof again. Unemployment is at 6.5% even as companies are massively hiring workers in India and China because of Obamacare. The only reason QE1-3 did not result in inflation is because of China and India putting pressure on wages and employment in the US and possibly because of shale oil and gas. As we are in the Internet age workers in India can do a job remotely as easily as being in the the US. Companies just look at numbers, if the numbers make sense they will take the QE honey in the US and borrow money for nothing and hire the workers where it is most cost effective for them. This is where QE and Obamacare are creating workers in India and China instead of in the US while at the same time they make millionaires in the financial markets. Perverse relations and unintended consequences fired off by economic geniuses.

    In Greece we had full force austerity, unemployment went from 12% to 28%, real estate values are down significantly.
    The worse though is that there is no political party that is capable of saving Greece. On the one hand you have the incumbent parties that have been in the center of all corruption scandals over the last 30 years and on the other hand you have a communist party that is looking for direction in Venezuela and is ready to increase the tax burden in Greece by an extra 10 Billion.

    Note that Greece is a country where all the tax burden is carried by families and individuals and not big corporations. Conveniently the few corporations kept all their deductions while physical persons lost all of theirs. Greece is probably the only country in the world where the government does not allow you to deduct from income real estate taxes, renovation costs and health care costs and that is heading towards even more taxation.

  • Dear Yannis,
    I object to your first sentence. When 85 people have more wealth than the bottom 3.5 billion, a bit of punitive taxation is a very good idea for a world less dull, less impoverished and more fair. Greed is not good and no reward for merit can motivate such numbers. The bible and Christ will agree, so should “conservatives”.

    • Taxing these 85 people at the rate you and I get taxed would have been fine. The problem is that they pay next to nothing – and as a result, some punitive taxation appears in our hearts and minds as the rightful retribution (which is never delivered)

  • (As another forum poster, Aristoteles, also mentioned in a previous thread) I like to think that what we are witnessing in most of the western world’s economic policies is the result of an absurd perversion of Max Weber’s theory of the protestant work ethic.

    According to Weber, the early protestants manoeuvered themselves into a religious dilemma, when they began to embrace the concept of predestenitation and began to believe that everyone’s fate was determined in advance by the Almighty and that nothing they would do during their earthly existence could ever change that.
    While the old school catholics were taught hat God would forgive them their sins if only they repented them sincerely enough and proved themselves as faithful followers of the church, the protestants, especially the followers of Calvinism, Puritanism and their offspring variants who often fled from prosecution to the new world, believed that God had already decided wether they were meant to be saved or damned in the afterlife and they desperately started seeking ways to determine who was predestined for salvation and who was not.
    Weber claims that, lacking any other means of making that distinction, they soon began to regard a person’s fruits of labour as a sign of wether they stood highly in God’s favour. Consequently, those who were successfull in growing their crops and livestock where seen as the ones chosen for a spot at the Lord’s table whereas those who remained poor must have been doomed to fail from the beginning and were therefore more or less deserving of their misery and propably facing even worse punishment in the hereafter. As a result of this, people became desperate to prove their worthiness in the eyes of God – not only to their fellow believers, but also to themselves. While faith dictated that their fate was already determined, they also had to make themselves believe that they belonged to the chosen few and only their untiring efforts to become successfull in their daily work could deliver that proof.

    As their often exiled communities grew and evolved from argrarian to urban cultures, success naturally was less and less judged by the results of manual labour but by the accumulation of individual wealth, which leads Weber to the – nowadays rather disputed – conclusion that the invention of capitalism itself was a result of this particular development of protestantism.
    Since they were thinking in terms of a religious belief system rather than attempting a rational analysis of human society, it was only natural that they went on to develop a work ethic that fitted this concept of divine pre-judgement mixed with the constant need for self-affirmation and thereby created the ultimate incentive for everyone to literally work themselves to death, which actually made some of them become quite successfull while also elevating them to a state of high esteem within their congregations.

    At this point the already rather twisted concept, at least in my opinion, ultimately becomes its own perversion because, as faithful christians who were generally more familiar with scripture due to a higher level of literacy than their competitors from other branches of christianity, those early members of the protestant elites should have been aware of the obvious disdain that Jesus Christ had shown towards the accumulation of material wealth at the cost of others and of his criticism towards blatant disregard for the suffering of those less fortunate, as described many times in the holy Bible. In fact, some of the chief figures of protestantism at the time explicitly condemned the pursuit of material wealth. But that obviously didn’t stop many of their initial disciples from following their path of accumulating earthly riches. After all, according to wide-spread belief, that path had been laid out before them by the Lord himself and they were revered by their peers for proving that they were worthy of his eternal love.

    Now, one could think that that was then and this is now and that modern societies do not cling to such ancient beliefs anymore. But to me, listening to some representatives of our modern day elites explaining why they deserve to be at the top of the food chain while the rest of the world does not, their arguments sound awfully familiar to those of their puritan forerunners. Not a single day goes by without at least one of them talking publicly about how there were no free lunches, how inequality was an inevitable fact of nature, how idleness and refusal to show enthusiasm on the job were signs of a dubious character, or how those left behind in the rat-race to success were to blame for not running fast enough.
    The big difference today is that nobody needs to openly involve supernatural powers anymore to get these points across. Except for some evangelical fundamentalists and other religious zealots, we have erased God from that equation and put in a crude version of social darwinism as a substitute, according to which it is all part of human nature, without ever looking for any empirical evidence to support that assumption. But still, the very few studies and reports there are about the 1% all show that among those who have made it to the top, there exists a mutual feeling of entitlement owed to the notion that it was through their own hard work alone that these people achieved their high socio-economic status, regardless of the fact that most of them were born into already wealthy families. And the first thing anyone who is seriously aspiring to join their ranks does is to shield themselves in the same belief. As a result, in the eyes of the elites and those who feel like they belong to them, any critizism of inequality, be it between individuals or whole nations automatically turns into a personal affront and a denial of their efforts to better themselves and to prove their worthiness in the eyes of society and, well…nature?

    What Professor Varoufakis describes as biblical economics also ties in nicely with this modern variant of pre-enlightenment tradition. At least to a non-economist like me who likes to think too much, there seems to be a familiarity between the kind of tautological statements that govern so many theorems of neoclassical economics, leading everyone to believe in self-fulfilling prophecies which have a tendency to turn out to be true because everyone strives to make them so, and the circular reasoning within the protestant work ethic that finds nothing wrong with working hard to be successful for the sole purpose of proving that one was destined to succeed anyway.
    The defenders of austerity can not help but evoke ethical questions in their endeavours to lead national economies to salvation, even though they may never voice them directly or even be aware of these impications. In order to sell the whole concept to their voters, who are mostly suffering the dire cosequences, they need to rely on the same kind of morality that has been forged within many north-western societies over the last five-hundred years. Within that quasi-religious framework it is again only logical that, for example, deficit countries must prove themselves worthy of salvation by a higher power – In that case: ‘the markets’, by tightening their belts and working harder in order to accept them as members of the global elite of chosen peoples, just the same as individuals need to show more effort proving their efficiency – the level of which is also to be determined by forces beyond their reach – to be accepted as productive members of society. It all boils down to the eternal dichotomy between saints and sinners. We may not conciously think in those categories anymore, but most of us living in the industrialized northern hemisphere were still raised within an ethical framework derived from variations of that belief system.

    The germans, who happen to be among the most staunch defenders of this concept of economic self-flagellation, seem to have a historical bias toward this kind of black-and white thinking and the need to prove themselves worthy of salvation by a higher power, which is propably what led a german sociologist to come up with that theory in the first place.
    Ever since the eighteenth Century when the prussians, who were in some ways quite akin to those early protestants, united a loose agglomeration of small nation-states into what later became two infamous empires, there had been quite a revival of the early calvinist beliefs, especially within the then more industrialized and prosperous northern regions of Germany. One could even go as far as claim that the Nazis, despite their often displayed contempt for religious teachings other than their own pseudo-religious ideology, still profited from the germans’ deeply rooted false understanding of selfless dedication to their work as a sign of devotion to a higher principle. When that last empire finally collapsed, all the germans felt they had left to their name was again their faith in hard work and that was what they thought to be the foundations on which they were rebuilding the country. Since that effort eventually turned out to create what we now call an ‘economic miracle’ in the nineteen-sixties, it seemed like, despite the terrible sin of war and mass murder they had commited, the germans were still in God’s good graces.
    Maybe this notion still remains within german society, at least on a subconcious level, which somehow would explain the similarities between german conservatives and the american right – although the latter tend to regard their economic success more openly as a proof of God’s favour. Essentially, both seem to feel like there was some kind of entitlement bestowed upon them by whatever they believe to be running the universe, to tell the rest of the world how to prove themselves worthy of salvation and they seem to have embraced that mission completely.

    P.S.: It may be a coincidence, but I still find it interesting to point out that Chancellor Merkel is the daughter of a protestant pastor and that the german head of State, President Gauck, used to be one himself. And despite both of them being former citizens of the explicitly anti-religious GDR, unlike many other east-germans they have never abandoned their faith. After all, Ms. Merkel, the godmother of austerity, is also the head of a party that calls itself the ‘Christian Democratic Union’ and Mr. Gauck still sounds and talks like a pastor who is trying to teach his flock to accept their fate and be thankful for the opportunity to prove their worthiness to their betters by working more and earning less, recieving the divine blessing of the freedom to complain about it without being imprisoned as their only and just reward.

  • Yanis, regarding

    “European governments responded by tightening their belts all at once”

    provided that we share the same understanding of belt tightening, mine is: spend less than before, which European governments exactly did this? I think that Greece governments cut back expenditures, but which other governments?

  • Is this the article of rounded corners or what? Are you preparing an address to some conservative caucus? 🙂

    You could also point out that the effects of other “applauded” policies of Greece with “unexpected” consequences:

    – Greece fully adopted globalization (de-industrializing as companies moved abroad and cheap asian goods flooded its market)
    – Greece, as soon as it adopted the Euro, invested heavily abroad (“invaded the Balkans and Turkey” was the phrase) despite a current account deficit (which “everybody knows” was due to excess consumption…).
    – Greece did not tax bubbling real-estate prices in an over-supplied market (that would be market intervention… tsk, tsk)
    – Greece is now taxing real-estate at unworldly rates as prices are collapsing (after all, this is a “progressive tax”!!)
    – Greece adopted a foreign currency (and renominated its public debt to it)
    – Greece will not revert to a national currency (*shock* that! would be un-european!…)
    – Greece privatized its state enterprises (with their revenue streams leaving the country)
    – Greek budget surplus will–in this election year at least–be distributed to suffering low-pensioners (young low-or-no-wagers are again getting f*cked of course, after all they tend to vote “wrong”…)
    – Greece is reluctant to declare default (so it is inflicting wounds to its society in order to keep the pretense)
    – Greek bankrupt banks are still “private” (what, are you a commie?) AND “guaranteed by the state” (but of course, they are “too big to fail” ™…)

    … (I will stop here, as I am starting to get depressed)

    At a meta-level:

    A major reason economics is not and will not any time soon become a respectable science is that the economics community hasn’t found the guts yet to clash with powerful opinion and interests. This would entail using strong language to denounce economic stupidity and hypocricy, a large dose of self-cleansing is required as well, and is generally a nasty and unpleasant business…

    “Hard sciences” were once like that; but at some point, their practitioners found it in themselves to clash with power (in their case it was mostly the Church and faith-based “knowledge”). Then, not only did these sciences flourish, but other small things happened as well (the Renaissance, the industrial revolution, revival of democracy etc). I expect a great leap forward for human societies, when (if?) economists finally get the guts…

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