Michael Kuehlwein is a professor of economics at Pomona College, where he has taught for the past 24 years. Having grown up in a dedicated Episcopal household, he learned about the Baha’i Faith in his early 20s as a graduate student at MIT, and formally joined the Baha’i community about a decade later. Recently I asked him his thoughts on today’s economic challenges and what role ethics and religious faith might have to play.
FTB: You’ve done quite a bit of thinking on how economic outcomes could be improved with the Baha’i teachings, or more generally with better moral values. Could you share any particular examples?
Sure. One significant problem in developing countries is bribes and corruption. This can act as a tax on economic transactions. It impedes the efficient operation of the government and discourages economic activity. The more expensive it is, for instance, for an entrepreneur to get the necessary licenses to start a business, the fewer new businesses will be started. There was one famous example of an economist, Hernando de Soto, who decided to see how difficult it would be to start a small clothes factory in Peru in the early 1980’s. They had to get 12 different permits, were solicited for 10 bribes (though they got away with only paying 2), and the whole venture took 290 days. The total cost was 32 times the monthly minimum wage inPeru. Pretty daunting!
In the US, on the other hand, starting a business is considerably cheaper and faster. The publication Doing Business 2011 estimates that starting a business here requires only 6 steps, takes only 6 days, and costs a little more than 1% of annual income per capita. The result is that there are approximately 27 million businesses in the US! That is a lot of potential employers, innovators, and taxpayers.
Macro studies also find that countries with higher degrees of corruption grow more slowly and are poorer than countries with honest governments. So honesty, one of the eternal moral values, seems to have significant economic benefits.
Another moral teaching that has major economic benefits is the equality of men and women. Acknowledging that truth leads naturally to wanting to create opportunities for women. This helps economies in many ways. Larry Summers, former President of Harvard and Secretary of the Treasury until Clinton, once said that educating women generated a higher social rate of return than any other investment developing countries could make. More education for women translates into better nutrition and health care for children. It leads to smaller family size, helping to combat population growth. When women join the labor force, they also provide extra income for the family, helping to lift it out of poverty. Singaporeis a nice example of that. The labor force participation rate for women was only 25% there in 1970, but it roughly doubled over the next two decades. That added thousands of new workers to the labor pool, significantly boosting output and incomes there. Today, Singapore is a rich country, in part because they have created employment opportunities for women.
FTB: Since the 2008 crisis we’ve heard a lot about “economic stimulus”, basically that in times of recession governments and central banks can do certain things to incentivize consumers to spend more and save less in order to jumpstart the economy. To some Baha’is this sounds contrary to Baha’i teachings on moderation, detachment from material things, selflessness, etc. What’s your view on whether monetary or fiscal stimulus is consistent with these teachings?
I definitely believe that monetary and fiscal stimulus during economic downturns is consistent with Baha’i teachings, especially if it doesn’t generate a worrisome level of government debt. Aggressive monetary and fiscal policy during recessions can help to restore output to normal levels and generate millions of jobs. It is simply a waste of valuable resources to have millions of unemployed workers as we have today. Compassion for the poor and for the disadvantaged is central to Baha’i teachings, and counter-cyclical government policy is a direct way to help those groups. Often many of the unemployed are in that state through no fault of their own. They are simply victims of larger forces in the economy that reduced the demand for the products that they produce. Attacking cyclical unemployment not only helps those workers, but their families including their children too. Unemployment can be a cruel experience as it effectively denies individuals the opportunity to use their skills and talents and to contribute to society. A person’s job or career is a often a large part of their identity, so when you take that away from them it can make them feel worthless and irrelevant.
Having said that, it isn’t necessarily consumer spending that needs to be stimulated during downturns to get the economy back on track. Most recessions are caused by declines in investment spending, so recoveries usually rely on investment spending rebounding. That is where expansionary monetary policy can be quite useful. Because it operates through the channel of lower interest rates, it encourages businesses to purchase more machinery, plant, and equipment. This not only boosts the demand for goods and services in the economy, helping the economy to extricate itself from a recession, but it makes workers more productive in the future, which raises wages and incomes. Fiscal policy, such as tax cuts and government spending, can also focus on investment such as public infrastructure, rather than more consumer spending. Consumer spending is quite high in the US already, even now, so boosting investment is an attractive alternative.
In my mind, issues of moderation and detachment have more to do with how we spend our money and resources. Abdu’l-Baha said something to the effect that being rich is fine as long as you spend the money to improve humanity: helping the poor, providing schools and education, paying for health care, etc. It all depends on what the money goes towards. So I don’t see anything inherently wrong with earning high income. I think that income has the potential to do much good in the world.
FTB: A lot of people look at our current economic malaise as fundamentally a moral failure. This is especially true regarding how people see the banking crisis of 2008 which triggered our recent recession, which is often blamed on the greed of banks, mortgage lenders, or even individual borrowers. How much of the economic stagnation that we now find ourselves in do you think is fundamentally a moral or ethical problem?
Greed was undoubtedly involved in the financial crisis. Some unscrupulous banks and mortgage brokers made loans that they knew were unlikely to be repaid. Individuals were also complicit: some bought homes they could not afford, betting that home prices would rise enough to effectively bail them out. But, of course, greed and self-interest are always around in plentiful amounts. I’m not sure that attributing the crisis to greed is that helpful. It’s a little like blaming fires on oxygen. Oxygen is necessary for fires, but it’s almost always around so it doesn’t help much to explain why fires occur when and where they do. Greed is kind of like that.
I actually think that the crisis was due more to hubris and overconfidence. Many analysts were convinced that even subprime loans would mostly be paid off as long as housing prices continued to rise. And because housing prices nationwide had not fallen since the Depression, they thought that the chances of that happening were essentially zero. They came up with clever ways to concentrate the default risk of mortgage loans into junior class mortgage-backed securities, leaving the senior class bonds safe and with a AAA rating. These bonds became very complicated, with some known as CDO’s (collateralized debt obligations) and CDO’s-squared having tiny bits of potentially millions of loans in them. It became almost impossible for ratings agencies to measure their riskiness, though that didn’t stop them from trying. Their estimates proved to be wildly inaccurate. So my particular take on the crisis is that it was due more to arrogance and complacency than to rampant greed. Wall Street players can be very confident, and in this case I think their overconfidence cost them (and us) dearly. So given that arrogance is a type of moral failing, I guess I would agree with this question. But it wasn’t just ethical lapses. There were also just some honest mistakes made by bankers, homebuyers, and government regulators. I think that Alan Greenspan was a good man who wanted nothing but the best for our economy. But he clearly underestimated the need for stricter regulation of mortgage loans. Even he admitted he had made mistakes after the crisis unfolded.
FTB: You’ve written that “globalization can be a means for significantly uplifting the material condition of humanity, but it requires moral and spiritual guidance”. What would you say to socially-conscious individuals who argue that we need less, not more globalization?
I would suggest, first of all, that opposing globalization is probably a losing proposition. Every indication is that it is here to stay. Revolutions in transportation and communication and with them, the widespread transfer of money, goods, ideas, and even people across borders, have radically changed the world in irreversible ways. Technology is forcing us to realize that the world is a pretty small place and that we are all intimately interconnected. And as we get to know one another better, interacting more with each other becomes natural and desirable. So I really don’t think that globalization can be halted, though there have been periods in world history when protectionism temporarily interfered with the process.
But the good news is that globalization (and this is a very Baha’i perspective) has the potential to be a very powerful force for good. For one it can help to lift poorer countries out of poverty. Poor countries often don’t have the money to modernize or the technology or the managerial experience or the necessary distribution networks. Foreign companies and capital can provide all of that. Rich countries can provide markets for exports from developing countries. Almost all of the growth miracles in the world in the past 50 years (e.g. Taiwan, Singapore, South Korea, Hong Kong, Ireland, China, and others) have relied heavily on exports to grow their economies. The result is that poverty is shrinking worldwide. As Benjamin Friedman reports in his book The Moral Consequences of Growth, the fraction of the world’s population living in dire poverty (less than $2 a day) has declined from 44% thirty years ago to 19% today. Life expectancy is up, infant mortality rates are down, educational attainment is rising, and health care is improving. There is much to be optimistic about.
On the other hand we know that conditions in developing countries can still be horrific. Millions of people die each year from easily preventable diseases, around a billion people in the world don’t get enough food to eat, air and water pollution is endangering the health of many people, and working conditions can be inhumane (everything from locked exits in factories to the denial of bathroom breaks and the demand for sexual favors to remain employed). Even if one believes that free markets and trade are helping these countries, it doesn’t necessarily follow that governments should adopt a hands-off approach to the process. We have rules and regulations here in the areas of worker safety, pollution, hiring and firing practices, minimum wages, the quality of our food and drinking water, consumer safety, and many others areas of the economy. It stands to reason that citizens of poorer countries deserve similar protections. Businesses can be part of this by treating their workers well (which can boost productivity and profits), by not producing dangerous products or secretly polluting the countryside, and in general operating ethically.
Like all Baha’is, I believe that unity is a very powerful idea. If we all work together to tackle global problems such as global warming, pollution, overfishing, war, species eradication, and poverty and to develop renewable energy we can transform the world. But it will require cooperation, good faith, and hard work. Baha’is can be at the vanguard of those efforts.
FTB: Within the sciences (including the social sciences) it seems sometimes topics like morality, ethics, or spirituality are seen as irrelevant. Have you confronted this in in the economics field? If so, have you been presented with any challenges from being a Baha’i?
It’s true that we don’t talk much about morality and ethics in economics. Economics likes to think of itself as a positive science, objective and free of value judgments. We leave the normative statements to others. And in my teaching I try not to push my values on my students, though I’m sure they seep out. But I’m okay with that. I am content to point out in class that fiscal and monetary policy has the potential in some cases to alleviate unemployment and raise incomes, though there are also risks involved. We talk about things that countries can do to foster growth and lift people out of poverty. We discuss why inflation can be harmful and what the costs of high government debt are. We learn how some government programs can have undesirable side effects, such as rent controls, which hopefully sharpen my students’ understanding of the complexity of designing good policy. We talk about the arguments for and against active vs. passive policymaking and I leave it up to the class how they feel about it. So in the classroom I’m satisfied to help students learn what we as economists think we know about how economies operate and what opportunities are available to raise living standards. Generally their idealism and concern for others leads them to want to use this knowledge to make a difference in the world. They often find this information liberating and exciting, which is rewarding. And all of this I feel is consistent with being a Baha’i and emphasizing education, science, and an independent investigation of the truth.
Incidentally, some people have a rather distorted view of economics and assume that it is all about making money. But the reality is that lots of economists are concerned with sustainability, poverty, unemployment, opportunity, and equity. The field is quite broad and allows for many diverse opinions and interests. What ties the field together is an emphasis on rigorous analysis, well articulated theories, testable hypotheses, and empiricism.
It is true that the Writings discuss the advantages of several economic concepts including one world currency, a common system of weights and measures, profit-sharing, the importance of agriculture, and free trade. I am able to touch on some of these ideas in my classes, though I don’t do research on them. I don’t push the ideas on my students, but suggest that there may be advantages to them. But we also talk about counterarguments to them. I suspect that my discussion of them is not very different from many of my non-Baha’i colleagues. Issues of equity and fairness do come up in discussions about what to do about problems such as global warming, but often I find that students already have an impressive worldview on these matters and don’t need much input from me. I basically view economics as providing us with tools that can be combined with moral, ethical, and spiritual concerns to address important societal problems. So I haven’t found it difficult to combine my Baha’i beliefs with my field.