May 19, 2004

Is the Market Moral? A Dialogue on Religion, Economics & Justice

2:00 – 4:00 p.m.
Reception Immediately Following
Washington, D.C.

Panelists:
Rebecca M. Blank, Dean, Gerald R. Ford School of Public Policy; Professor of Policy and Economics, University of Michigan; Co-director of the National Poverty Center, Ford School
William McGurn, Chief Editorial Writer, Wall Street Journal; member, Wall Street Journal Editorial Board
Lawrence Mishel, President, Economic Policy Institute
Ramesh Ponnuru, Senior Editor, The National Review

Moderator:
E.J. Dionne Jr., Co-chair, the Pew Forum; Senior Fellow, The Brookings Institution


LUIS LUGO: Good afternoon and thank you all for coming. My name is Luis Lugo. I am the director of the Pew Forum on Religion and Public Life. The Forum is a nonpartisan organization, and we not take positions on policy debates including debates over political economy.

It is my pleasure to welcome you to what we believe will be a thought-provoking discussion of the question, “Is the market moral?” This discussion is a follow-up to a book by the same title coauthored by today’s main speakers, Rebecca Blank and William McGurn. The book is in the back as you were coming in. The volume is part of the Forum-sponsored Dialogue series, which is jointly published by the Brookings Institution and Georgetown University Press.

The series is based on the premise – which you are free to question – that public policy debates are more honest, and certainly more interesting, when the participants are open and reflective about how their religious convictions inform their public lives. Blank and McGurn engage in a written dialogue that does not shy away from, but rather brings to the fore, their religious convictions. As a result, readers come away with a richer understanding of why both authors challenge the dictum of German philosopher Friedrich Schlegel – you remember him in your undergraduate studies – who opined that “Where there is politics or economics there is no morality.”

Although sometimes referred to as the dismal science, economics as a discipline actually grew out of moral philosophy in the 18th century. Our speakers today are not afraid to bring moral considerations back into the discussion of market economies. As you will see, however, they have very different ways of thinking about the relationship between morality and the market, but for my money, those differences only make for a more engaging and interesting debate.

Before I hand things over to my good colleague, E.J. Dionne, a few items of business. This is about the market after all. First of all, I hope you all got a chance – you busy Washington types – to pick up a copy of the executive summary of this volume, which we have produced for you. You can read this, whet your appetite and then you’ll have to read the larger volume, which we also make available, as I said, in the back. In fact, we also have order forms for other volumes in this series and we would encourage you to fill those out and read them for your pleasure. They are not free. You do have to pay a little bit for it. There is a little capitalist in all of us after all.

Also in the back by the registration desk are copies of the September-October ’03 issue of Foreign Policy magazine which contains a feature article on the morality of the market by Martin Wolf, chief economic commentator for the Financial Times. We neither approve nor disapprove of this article, like everything else we don’t take a position, but we are delighted to make this available at the request of our colleagues at the Carnegie Endowment for International Peace. So feel free to avail yourself of one of these.

Finally, I have one small request to make before we get started. Could you please take a minute to make sure that those cell phones are turned off? I very much appreciate it. Thank you. Yes, including the speakers, please.

Now, it is my pleasure to introduce E.J. Dionne who is one of the coauthors of the Forum Dialogues on Religion and Public Life. As many of you know, E.J. is a columnist for the Washington Post. He is a senior fellow at the Brookings Institution, a distinguished professor at Georgetown University, and I like to think most importantly, he’s a co-chair of the Pew Forum on Religion and Public Life. E.J. will introduce our speakers and moderate what is sure to be a very lively discussion.

E.J.

E.J. DIONNE, JR.: By the way, I think Larry Mishel is the one person who’s exempt from the cell phone rule because he’s worried about picking up his daughter at school or something. We support that.

I welcome everyone here today. You are all a rebuke to the notion that all Washington cares about is politics, power and money. Although Becky, being the skeptical economist, said, “Perhaps they were all here to figure out how to get around moral issues rather than how to grapple with them,” which is certainly a possibility, but I don’t think so; not this crowd, looking at you all.

I really want to begin by thanking Becky and Bill McGurn for engaging in this dialogue. We called them up and said we thought that they were perfectly suited to have this debate, as Luis said – and thank you, Luis, for that generous introduction. The idea behind the series is that religious convictions have a great deal to contribute to broader debates about public policy. In our daily newspapers, religion is usually very far away from the business pages. When we think of the role of churches, synagogues, and mosques, we tend to think about them in relationship to a rather narrow and very particular set of issues having to do with personal behavior, family life, sexuality, abortion, gay marriage. But, in fact, religion has always had a great deal to say about what happens in the marketplace.

To say that religious traditions have nothing to say about this is untrue to history. These traditions have much to teach us about the moral underpinnings of economic systems. Religions teach us that we are supposed to be moral in all of our actions and there is no special exemption for activities in the economic sphere. We’re not supposed to lie or cheat or steal. We’re supposed to love our neighbor. If such rules do not apply to economic life then they are meaningless. And I think it’s untrue to the actual working of any society to say that religious voices can be heard on family life but not on the economic underpinnings of the family, on personal responsibility but not on the responsibility of economic actors, on generosity of the spirit but not on the corporal and economic works of mercy.

The title of this book arose out of the Dialogue, and I am well aware that there are some people who would answer the question “Is the market moral?” “No,” and if you are in the audience, I hope you will join this discussion. Becky and Bill conclude that the answer to this question is yes, but within certain constraints: Becky tending to lean toward somewhat more constraints and corrections than Bill. And we chose our partners knowing that both, in some sense, supported market economics – even as they disagree, as you’ll see, on some central issues – because I think they reflect – Becky and Bill – rather well the poles of the economic debate in the United States and in much of the world. At this point in history even socialists and social democratic parties accept the necessity of markets. Such parties are not seeking ways to overturn capitalism, but rather they grapple with how the market and its outcomes can be made more just. And that’s very much the debate you are going to hear today from Becky and Bill.

There is the politician who once came before a crowd and said, “These are the opinions on which I base my facts.” I want to praise both Becky and Bill for basing their opinions on facts as well as their moral commitments. Abraham Lincoln once said of an opponent, “I’ve never seen a man who could fit such tiny thoughts into such a large number of words.” Again, I want to salute Becky and Bill. This is a very compact and, I think, very powerful argument that they’ve put before you as readers of the book and that they will put forward today. And I want to thank our respondents, whom I will get to in a moment.

Let me just get to the business at hand. Rebecca Blank is the dean of the Gerald R. Ford School of Public Policy at the University of Michigan. She is also the Henry Carter Adams Collegiate Professor of Public Policy and a professor of economics. She served as senior staff economist to the Council of Economic Advisers under the first President Bush and was appointed to the Council by President Clinton. She chaired the committee that wrote the statement “Christian Faith and Economic Life,” which was adopted by the United Church of Christ in 1989. Her publications include Social Protection vs. Economic Flexibility: Is There a Trade Off? and It Takes a Nation: A New Agenda for Fighting Poverty.

Bill McGurn is the Wall Street Journal’s chief editorial writer and a member of its editorial board. He earned his BA in philosophy from Notre Dame and a Master’s in journalism from Boston University. He began his journalism career in 1981 as an assistant managing editor for the American Spectator. He served as managing editor for This World Magazine, editorial features editor at the Wall Street Journal, deputy editor of the Asian Wall Street Journal’s editorial page, which will explain his frequent references to Hong Kong both in the book and, I suspect, today. He was Washington bureau chief for National Review and senior editor of the Far Eastern Economic Review. Don’t mob him afterward, but he is also a member of the President’s Commission on White House Fellowships, so he hands out patronage as well as wise thoughts.

Larry Mishel – it’s really great to have Larry here. He is president of the Economic Policy Institute. He has researched, written and spoken widely on the economy and economic policy, with particular attention to how the economy affects middle and low-income families. He is the principle author of The State of Working America, a very valuable overview of the U.S. labor market and living standards that’s published every other year by the Economic Policy Institute. He frequently gives testimony to Congress. You’ve seen him a lot on television and heard him on the radio. Most recently he wrote a paper outlining a plan to stimulate the economy, which a lot of policymakers in Washington took a great interest in. I always argue that our projects are designed to un-closet religious people, un-closet people who are expert in their field but actually have a deep interest in the effect of religious commitments on these matters, and Larry is one of those people.

And, finally, Ramesh Ponnuru, who is a senior editor at the National Review where he covers national politics and public policy. A friend and I were recently having a conversation on the distinction between opinion journalism and propaganda, and again, it goes back to the comment I made earlier: Opinion journalism tries to persuade but is rooted in talking about things that are true; propaganda is indifferent to whether things are true or not. Ramesh, I have found over a very long period of time, falls into the opinion journalist category and not the propagandist category. I’ve never heard someone so willing to admit facts against his position and then be so skilled at overcoming those facts. I really salute you. I mean that as a very high compliment. It’s very worrisome. I wish the facts would just trump you sometimes, but you don’t manage to let that happen.

He’s written for many other publications, including The New York Times, the Washington Post, the Financial Times – this is a really long list – Newsday, the Weekly Standard, the New York Post, and the Washington Times, First Things, Policy Review, the New Republic and Reason. He is the author of the monograph The Mystery of Japanese Growth, which was published by the American Enterprise Institute and the Center for Policy Studies. He’s been a fellow at the Institute of Economic Affairs in London and media fellow at Stanford’s Hoover Institution.

We listed the authors on the book in alphabetical order. That may be a form of injustice, but whether it is or not, Becky Blank will lead off this discussion.

Becky, thank you so much.

(Applause.)

REBECCA M. BLANK: It’s a delight, and I’m truly honored to be here. I must say that it was really intellectually fun working on this series of essays for this book. It allowed me to do something that I don’t get to do very often, which is to bring together two very important parts of my life. I’ve been in a lot of Brookings events and spoken to many of them, and I admit, I’ve never been able to talk about faith and economics in those. So I get to do that today. It’s been fascinating to do some of the hard work, figuring out how far my economics training will get me on some of the moral and ethical issues and how far my religious training will get me on the economics issues, and then to explore that middle ground where they meet.

As E.J. mentioned, I spent some time as a senior economic adviser in the Clinton White House and went through the standard vetting process that you get before these jobs. And, as far I can see, they didn’t pause with any of the large number of academic publications that I’ve done or my policy publications, including quite a few articles on the welfare reform bill which Bill Clinton had signed, many of my articles being somewhat critical of that. What they paused on was my book called Christian Faith and Economic Life – I learned this after I had the job – and sent that to a staffer and said, Make sure there’s nothing here that’s going to embarrass us. And as honored as I was to be offered the job, I must say I was slightly worried when I found there wasn’t anything in that book that gave them pause. Maybe my involvement in this book will put the final kibosh on any future jobs inside government.

But let me start at a place that I think both Bill and I very clearly are – and I want to make that clear, and I suspect he will as well. We both believe that the market is the only viable way to organize a complex economic system that, at least, we have discovered to date in this world. On this fundamental point, both he and I agree. Let me spend a minute telling you the structure of my argument, and, again, I think our disagreement here is one of degree, not of a fundamental importance.

The advantages to the market are many. It provides incentives for productivity. It fosters the efficient use of resources. And many, many aspects of the market require no central direction or authority, which is amazingly useful; they happen “as by an invisible hand,” to quote a very famous economist and moral philosopher. But markets are not perfect systems. Classic economics will tell you there are inherent problems with markets, so-called market failures: problems of how to deal with public goods, with externalities, with inadequate information. All of you who have had Economics 101 should have heard those terms.

All of these reasons are reasons why economists think markets should not operate unchecked, and there is a long tradition in economics arguing about how government regulation of markets, properly used when market failure exists, can enhance competition. Now, there’s quite a substantial debate among economists and a very wide range of opinion about how frequently one sees market failure, and therefore how frequently one should use government intervention and regulation. But that is a part of classic economics, and I do not step out of my role as an economist to put that set of arguments on the table.

There are, however, I think, at least three additional arguments for the involvement of government in markets that come fromt outside of economics. The first of these is that markets are themselves embedded in larger social and cultural systems, and they reflect all of the biases and the problems of those systems. If one group has more political power, inevitably it has more economic power, and conversely, those who are marginalized or excluded in society are almost always marginalized and excluded in various ways in the market. Those who would challenge injustice or name inequities in society therefore necessarily challenge the operation of the market and suggest corrections. Many times those corrections are not just tied to the market; they’re tied to many other larger social changes as well.

The second argument to constrain the market beyond just the classical economic argument: Markets are blind to questions of poverty and need. Markets allocate goods on the basis of people’s participation and what they bring into the market, and some groups of citizens are very young, are very old, are disabled, or for one reason or another have difficulty participating fully in markets. And, therefore, there’s an argument that government must be involved in either regulating markets so that they are more inclusive through such things as minimum wages, or redistributing market outcomes through such things as Social Security or public assistance payments. All of these are distributional arguments that I think you have to make outside of standard economic arguments.

Finally, the third reason to think that markets should be regulated – and this moves me very much into the area of faith and particularly Christian faith, which is my own background as a Protestant: Market models of individual behavior are at the end of the day based on different assumptions than Christian models of ethical behavior. Self-interest in the market is privileged and recognized, whereas other interest – loving one’s neighbor – is not. Individual decision-making is privileged over concern about a larger community or community-level decision-making.

Markets measure well being by the metric of more versus less. More wealth, more choice is always assumed to be better. That’s often correct. When more wealth means less poverty, health insurance, the ability to take a break from work and take a vacation with your family, that is a good thing. But Christian teachings will tell you that more, at least in terms of things, is not always better and that we must think of our spiritual well being as well as our economic well being. So that the appropriate question is not, “Do you have all the things you want?” but, “Are you right with God?” And those two may at times come into conflict with each other. Certainly, it should lead Christians in particular to be very careful about idolizing the market or believing that the market should be completely unrestrained.

So I consider my role in the discussion of all of these issues in the book as that of a faithful critic of the market. Faithful in sort of a dual sense of both believing in markets as a classically trained economist and ascribing to most of the beliefs of that group, but also faithful as someone who comes at this from a Christian and Protestant perspective. To be a faithful and ethical participant in any humanly created system includes a responsibility to recognize its flaws and its failings.

I don’t think Bill and I disagree a great deal about the facts of what I’ve said so far, though we do disagree in how far we go in our criticisms, and I’ll let him speak to that. Now, the danger, of course, of going first is that I’m going to argue with Bill on some things that I hope he’s going to argue back on. You never know quite what he’s going to say, but let me mention a few places where I think Bill and I do disagree and engage in the argument on these.

Bill and I disagree on how virtue – defined as ethical behavior and good outcomes – is and should be expressed in the market. He argues that individual virtue is the foundation of an effectively functioning market. Individuals learn virtuous behavior from their families and their social institutions, of course, including churches; those are very important things that exist outside the market. Individuals then bring that virtue that they have learned in society and in their family and in their churches into the market. Don’t lie, don’t steal, don’t mistreat others, and to quote Bill, “The only real guarantee that a market will function in a moral way is for it to have a properly oriented culture in which to operate.” I don’t disagree with that, but I would go much further. I think you have to go beyond individual virtue. I’ll talk about that in a minute.

Secondly, we disagree on the role of government. He claims that virtue must come from the individual and cannot be imposed by government. To quote him again, “The nature of the market itself precludes any idea of simply regulating it into good behavior.” Strongly suspicious of government’s ability to perform effectively, he is wary of its misuse of power and fears that limiting markets will actually lead to far worse outcomes than letting them operate more freely.

Thirdly, we disagree on whether the market itself is actually virtuous. Bill does say that markets promote civility and therefore markets themselves are actually virtuous, and he argues that effectively functioning markets require cooperation among a wide variety of people. In fact, the rewards of cooperation in the market are so strong that cooperation is reinforced, and therefore markets need civility and peace to function effectively so they promote civility and cooperation and peace. And I also will take issue with that statement.

So, let me talk about each of those a little bit. I absolutely agree that individual ethical behavior matters. I agree on the importance of the family and the church in teaching that behavior is a fundamental cornerstone of an effective society, not just in its economy but in a wide range of other functionings of the society. The social and cultural learned expectations and behaviors of the individual affect the way we interact with each other in many important ways, and markets must rely on individuals to follow the rules, to have some inherent sense of moral virtue. Indeed, you cannot monitor most of the people most of the time. You have to rely on some individual virtues.

But individual behavior alone is not enough. An effective market economy needs more than virtuous individuals. It also needs a set of structures that support and encourage virtuous behavior within the market.

Let me talk about what I think an effectively functioning economic system must have. First of all, to repeat a point I’ve already made to a certain extent, an economic system must have the structures around it that force it to function as promised in economic theory. Individual virtues are not enough to prevent market failure such as the growth of monopolies or poor economic decisions due to inadequate or, even worse, wrong information about a product. You need government to step in when market failure occurs. In some cases this means regulation. In other cases it means that the government actually is called upon to provide services – public immunizations, national defense, the postal service – that cannot be as effectively provided in a way that serves everyone in the private market. So the argument for government that comes out of classical economics is in part an argument that you need those structures in place.

But, to go further, an effective economy also should be inclusive, meaning it should include as many participants in its functioning as possible. It should provide adequate rewards to those who participate in it. If you work, you should be able to support your family. And it should support those who have no capacity in the short run to participate. Markets and their outcomes should be used in ways that assist the most disadvantaged in society. That’s not the only thing the market should do by any means, but it is one of the things that should happen inside an economic system.

Economies should not be judged just on their aggregate wealth but also on their distribution to create inclusion in the community. This again means a role for government to step in and to affect the distribution of society’s economic rewards. Regulations designed to assure more equal rewards to market participants are one example, such as minimum wage laws, regulations about pension and health plans. But you might also alter market outcomes by redistributing resources, such as through government-run food stamp programs, unemployment insurance, enforcement of rules around health insurance. All of those things are important aspects of creating a more inclusive economy.

In addition, markets at some times must be limited. We should not let the market dominate all aspects of our society because not all aspects of our life should be commodified. Therefore, there is a role to limit the scope of markets and only government has the power to be able to do that. There are certain transactions and activities we do not allow. We outlaw child labor. We outlaw slavery. We outlaw certain types of pornography. We outlaw the sale of human organs. In this role the government enforces broadly shared social values to prevent what we consider to be harmful types of exchanges in the market, and to prevent those things from becoming commodities and from entering into the market system.

In all of these, government plays a very key role. I’m the dean of a public policy school, so it should surprise no one here that I actually believe there is such a thing as effective government. There is certainly government failure, as there is failure in any large bureaucratic system, but I have no evidence whatsoever that suggests to me – having been in both worlds at different times in my life – that if you were in large corporate bureaucracies they’re any less efficient or less effective than when you were in large government bureaucracies. The problems are different – there’s a whole set of theories about that that we could talk about at more length at another time – but government failures should not limit the idea that governments are effective in the same way that market failure should not limit the idea that markets can also be effective.

The government does many things effectively every day. It delivers millions of Social Security checks, it delivers millions of letters to very far reaches of the world economy, it provides police and fire protection, it operates community colleges, it enforces building and health codes, and so on and so forth. In many situations the choice is not market operation versus government regulation. It’s not an either/or choice. Rather what we should be thinking about is how the public sector works with and enhances the operations of our economic system. Much of what government does isn’t to interfere with the market but to help grease the wheels of the economic system.

Some of that is the classical argument inside economics of overcoming market failure and making markets operate more effectively. Some of it goes outside of those classic arguments to suggest that government should do things that produce greater equity or greater worker security. You could argue that government interventions to promote equity and worker security not only may produce higher long-term productivity, but those interventions, even though they may create short-term inefficiencies in the economy, may create better support and legitimacy for the entire economic system. The government should be viewed as a partner to the market, not as an enemy.

Now, do markets produce and promote civility? Are markets themselves virtuous? There are ways in which the market promotes cooperation. I can’t argue with Bill here, but my answer is one of “yes, but-.” Certainly, for those who want to establish long-term reputations, to interact with customers again and again, who want to provide particularly high quality or good service with a national advertising reputation, there’re strong incentives to produce good products and to interact well with their clients.

But there are other ways in which the incentives for cooperation or civility do not exist inside markets. Markets focus on monetary rewards. For those with the predilection towards greed, the market can provide the incentives and the opportunities for abusive economic behavior. Defrauding customers and shady bookkeeping, whether by your local corner store or by Enron Corporation, isn’t something that “just happens” because some individuals lack a moral compass. This can be the direct result of an economic system that consistently sends the message that more sales, high profits and greater wealth define economic success. None of these things inherently lead to fraudulent or criminal behavior, but they create a mindset that encourages and gives justification to those with economic power to push the rules further than a virtuous economy – to use the phrase we’ve been using before – might suggest we ought to.

We cannot rely on all individuals to be ethical or, even more problematic, to even define ethical behavior in a similar way, and this is particularly true in a diverse and a heterogeneous society such as that of the United States. You need some outside forces to set rules beyond just the role of individual virtue.

I agree with Bill that a society is needed in which individuals pay attention to basic virtues in their social life together. Any well-functioning society requires individuals be schooled in how to live cooperatively and to treat other people humanely. This is true both for its economy and in other civic spheres. The family and the church play important roles in teaching these virtues, but I do not agree that we can assume this will happen naturally inside the market. Economic systems need to be set up to provide appropriate systems for good behavior, and, yes, I believe at least at certain points in time there is a role for government to try to enforce and to set those incentives in place.

The economy should be organized around the proposition that cheaters never prosper. This requires a legal system that clearly defines what is or is not approved behavior and imposes clear sanctions on unethical market behavior. Companies that treat their workers well should do well. Workers who work harder and better should receive economic rewards. Sometimes this happens naturally inside the market-but not always, and in the book I go into more examples and give a framework as to when this might not happen. I don’t believe the market alone will create the incentives and rewards to foster this behavior. There must be non-market-based structures, public agencies as well as voluntary community associations, such as churches or nonprofit organizations, that supplement, restrain, and at times overturn the results of the market so other social values and priorities have salience at certain points in time.

The government offers one way to construct and to alter organizations and programs to respond to community needs that the market itself will not respond to. Our churches and our community-based organizations supplement the market and supplement government operations and at times even protect us from it. These organizations do many other things well, many of them unrelated to our economic life, but at least one of their organizational purposes is to provide assistance to families, to help them cope with both the problems and the possibilities of the market economy.

To conclude – I realized that I don’t have to write a new conclusion because I can quote from my book, since this is about the book. So let me quote from my book in conclusion: “No Christian should find it strange to balance multiple realities. We are called to both live in this world and act in this world but not be entirely of this world. We are called to live with the reality of our sinfulness but also with the reality of grace and redemption. Our interaction with the market economy must have the same balance. A market economy can drive development, decrease poverty, encourage productivity, and reward entrepreneurial energy. But it can also foster greed, dehumanize individual workers, ignore the needs of the unemployed, disabled or elderly, and lead some people to use their economic powers in ways that harm their neighbors as well as the natural environment.

“This is not a simple dualism. Outcomes are not either good or bad. More frequently they are both good and bad. Markets can enrich the lives of some who were previously poor while excluding others. Markets can generate new jobs and encourage the development of new human talents even while they displace or disempower others whose skills are no longer as useful. In these multiple and contrasting possibilities the market economy is no different than any other human condition. The world of business, like the world of government or the world of the church itself, can be a location of sinfulness and abusive power, but it can also be a location of grace.

“Our faith does not call us to turn our back on the market economy and on the good or the bad that it can do. Faith does, however, remind us that we should not overvalue the things of this world or turn towards greed, but we should use our economic capacity in ways that serve God and serve our neighbors as well as ourselves. Faith reminds us that wealth is not an end in and of itself, but a means to improve opportunities for ourselves and our neighbors. Wealth can generate jobs and income and lessen poverty, and it can provide better schools, and it can provide more parks, and that is right use of wealth – to use a theological term.

“There is no need to make an either/or choice between participating in the market economy and being a person of faith. Rather, the challenge is to live in the market but not be wholly possessed by the market. Different people will find the appropriate balance at different points along this spectrum. Those of us, most of us, who are daily in the midst of the world of commerce and consumerism must find ways to acknowledge and make use of the many good things that market economies can achieve while still continually challenging their workings and noticing their failures, working to develop alternative institutions, both public and private, that can nurture our communities, teach and reward virtuous behavior, and treat human beings as more than only economic beings.”

And I’ll stop there.

(Applause.)

MR. DIONNE: Thank you. And Bill McGurn.

WILLIAM MCGURN: Thank you, Becky. Thank you, E.J. I’d like to thank the people of Brookings and Pew and all the people I work with. I really enjoyed writing this with Becky. We hadn’t met until a few weeks ago; I think it was after we were all done. So it was unusual to get to know someone first through their ideas and then to know them as a person second. And it really does help to keep you honest when you’re in a debate and you can’t get away with a cheap line or something that sounds good if no one else is contesting it. So, I want to say it was one of the most enjoyable things that I’ve done.

Before I start: We were given a command to accentuate our differences here, and actually if you read the book, you’ll find in the beginning a lot of the stuff is pretty similar on where we’re coming from. So, we’re both going to accentuate some of the differences. And I’d like to start at where I come from on this, because I think sometimes the angle is not quite as appreciated, that perhaps I don’t explain it as well.

Someone mentioned here before “the dismal science.” One of the things that’s very interesting, if you go back to the origin of the words “the dismal science,” you’ll know it came from Thomas Carlyle. How many people know that it came from a magazine article where it was called, I think, “Occasional Discourses on the Negro Question,” in which Carlyle was using it to attack two groups that were championing the antislavery cause: free market economists and evangelicals. So it has a root that’s quite different in terms of hope and so forth than the way, I think, it’s usually deployed.

Let me start with the theological outline that I think we share. I start, as the Bible does, with Genesis: The Lord created and looked down on His creation as good. This is important because, especially in a market division, we’re not divided into labor and capital, but we’re all supposed to be co-creators with our maker. In many ways I believe that this is one of the key tests of a moral market, the degree to which it allows us all the opportunity to reach our God-given potential. In this sense, wealth is more a spiritual concept than even a material concept.

Genesis, at least in the Christian interpretation, gives us one other hint: we believe in a good God, and from Aristotle on down, we have recognized that though people are fallen, society is better when we all do the right thing, i.e. it’s not just an individual who is better off when the neighbor doesn’t cheat, lie or steal, it’s the whole society. Francis Fukuyama wrote a whole book on this called Trust and if you’ve ever been in some non-trust societies, as I have, in Asia and the Philippines or Lebanon or China, you know immediately what I’m talking about when you don’t have it.

Though there are individuals who will always be better off by getting away with a crime of theft or fraud, society is always worse off when that happens. Partly that’s because to have a civilized society, to walk the streets freely, to enter into deals with one another, to not have to stand guard out front of your house like they do in some slums in the Third World, that requires a reasonable expectation that the people around you are going to obey the law and be relatively decent. As I like to say, born free the capitalist man is everywhere in contract with his neighbor.

Which leads me to another crucial starting point: why I reject the idea that the market is based on greed. I find that idea theologically incompatible with the Christian Creator I worship. Again, in all other walks of life, we recognize that the best social outcome is when people are behaving the best. Even when they don’t – when a fellow employee, for example, disrupts the workplace with lies and deceit or something – we know things would be better if they walked the straight and narrow.

We also know, as Becky pointed out, the market is superior to all other alternatives in terms of creating wealth. Fifty years ago you could probably dispute that – we had big experiments going on – but not today. My idea is that a God who created a system where wealth was only possible when it was based on greed could not be a Christian God. In my mind, a God that created a system where people were wealthy only when it was based on greed would be a monster. It would be perverse. Some people, yes, may prosper materially when they sin and the innocent suffer, but only a diabolical plan could mean that that would spread down to society’s benefit. That said, I believe the market, through competition, handles and tames greed better than most of the alternatives, but that’s a far cry from saying it’s based on greed.

With that said, let me venture into our disagreements. Mostly, as Christians, we understand that the goals are the same. Our disagreement – and it’s real and it’s lively – is our means. If you want to simplify this, probably it comes down to our view of the role of government. If you plotted government intervention at one extreme and Milton Friedman at the other, Becky would probably be more on the one side and I would be closer to the other. From this it would be easy to conclude that it’s only a matter of degree about intervention, and that the happy mean is somewhere in the middle with government tempering the market. Possibly this is how even some of my colleagues see this.

But if so it means I’ve failed in conveying my idea. The idea of a midway point between individual excesses of capitalism and the communitarian excesses of socialism was for years a central premise of a debilitating chapter in Catholic social thought called the Third Way. I believe that John Paul decisively rejected this in his encyclical Centesimus Annus. As Vaclav Klaus, a former prime minister of Czechoslovakia, put it, “The Third Way is the fastest way to the Third World.” The way I like to put is this: The opposite of competition in a marketplace is not cooperation, it’s collusion; and if you look at countries like Latin America, the Philippines, Italy, especially Catholic countries, you see this very clearly. This was a guiding principle of a famous book by Amatori Fansani, one of the founders of the Italian Christian Democratic Party, and I think it leads to something we know as corporatism.

Let me briefly discuss two other checks on the market. The first is accountability. One reason I’m skeptical of government is I don’t believe it has the accountability that the market has. In the market – the market is not perfect but there are a lot of mechanisms. I think one of best examples – the government does all sorts of things – is our public school system. We started out with very noble ideas of educating everyone. We just marked the 50th anniversary of Brown v. Board of Education, but if you look at the test scores and the racial gap between the African-American and Latino students in the inner cities, and white Americans and Asian-Americans on the other hand, there is a tremendous gap. I mean, two-thirds of black and Latino children by age 9 are not at level, and we know if they’re not at level then they’ll never be at level. We’re writing them out of the American dream at age 10. I don’t think any private enterprise would ever survive with 50 years of that, but the public school system has.

Anyway, back to my checks. Having lived in Hong Kong, I’m not a libertarian. I’m sort of a fellow traveler. But the primary job of government, I think, is not to regulate; it’s to guarantee the rule of law, and I think this is clear if you look at the Declaration’s language. The metaphor that I like to use is traffic. We need speeding laws and police officers to catch the malefactors, but most smooth traffic depends on the kind of individual respect for the law – maybe in communion with the laws, a more Catholic way of putting it – that is incomprehensible to a Chinese or Frenchman. Something like stopping for a red light in the middle of the night when there’s no one else coming; Americans are known for stopping, and other people aren’t.

Government has a role, but using government to force the majority is just not going to work. We saw that at its extreme in communism. Becky brings up many things: fair wages, safety, anti-discrimination and so forth, which are all laudable goals to show why we need these regulations or limits on the market. But if you look at the book I can adduce plenty of areas where government regulations ostensibly aimed at some lofty purpose were really designed to insulate some groups from competition at the expense of others.

American unions, for example, discriminated a long time against African-Americans, whom they saw not as brother workers but as competitors. Minimum wage laws in South Africa were used to protect white jobs and price blacks out of the market. Australia, founded by the Labor Party, had as its first plank “Australia for the White Man,” and its laws and labor legislation were mostly directed at keeping out Chinese competition.

In short, I think we can describe our mutual positions as, Becky thinks I’m probably overly confident about the market or naïve about the market, and I probably believe the same in her positions about the government. The title of the book is called Is the Market Moral? and I would like to see a book “Is the Government Moral?” I think it can be, and I think it is in many cases, but to me, because it lacks the same kind of accountability, we need more skepticism going in because we can’t erase it. Again, Becky mentioned mail and Social Security – well, look, where would you rather go: FedEx or a 401(k) plan than the Social Security system and the U.S. Postal Service? Just how you would be treated – as someone that used to go into Washington D.C. post offices compared to a FedEx office – I think tells you a lot. I could go on, but I’m not anti-government, and I don’t want to make this into a libertarian rant against government.

If government isn’t always the best check on the market and individual virtue is not enough, what is? My answer is both my strongest and weakest point: culture. It’s strongest because in the long run, I believe, it’s the only honest and practical answer to some of these problems; weakest because it seldom gives practical satisfaction to those who want to redress a specific problem now. When I say culture, I mean social capital. I believe individual virtue is very important, but culture is not just the sum of ethical individuals or non-ethical individuals. There are cultures in everything we do. I grew up and my dad was a Marine. The United States Marines have a culture. I grew up with a sign on my refrigerator saying, “To err is human, to forgive is divine, neither of which is Marine Corps policy.” So, I’m very acquainted with that culture. The Wall Street Journal has a definite culture. Our universities have a definite culture. We all have definite cultures, and they’re very regulating.

It’s what’s acceptable and what isn’t acceptable. I think Becky mentioned some of the stuff we’re seeing on legislation, on pornography and so forth – the broad social consensus. To me, it is the job of the culture to form that broad social consensus, and I think that consensus is weakened today. I think people that are, say, at least of my values – more or less traditional Catholic values – would be very worried about the way the culture’s going. And if you asked us what – (audio break, tape change) -
-he did not condemn its economic miscalculations. To the contrary, he viewed its economic failings as the result of its faulty anthropology, i.e. its false understandings about human nature. Those understandings must be supplied, not by a government, but by a culture. After all, it wasn’t the government that decreed that men are all “endowed by their Creator with certain inalienable rights.” That understanding was supplied by the culture within which the Founding Fathers operated.

It’s not easy and it’s frustrating. Let me take two examples of my own which I think are very frustrating and difficult especially, again, for those of us that have more traditional views: abortion and indecency or pornography in the public square. Let me start with the latter. Since Janet Jackson’s wardrobe malfunction, we’ve seen a lot more interest in Congress for regulations, and the FCC already has the power to do this over the public airwaves. I’m actually inclined to see them exercise a little bit more of their authority, especially in an age where if your company’s CEO can sponsor a radio contest called “Sex for Sam” which features people having sex at St. Patrick’s Cathedral and broadcasting that over the air.

But I think it’s not going to work in an era of cable, if we’re really concerned about the culture. It’s a good inroad and I think we need to use it, but if it just goes to cable, we still have an anything goes kind of culture. And it’s amazing how tolerable indecency and pornography have become. Those of us with children know that some of the extreme market answers – when people say turn it off – is not an answer at all. Unless you’re going to send a kid to a convent on the edge of Spain by a desert, there is just no way to cut that culture off. So it’s a very, very difficult proposition.

I think the answer that I would give is the one that Oscar Wilde gave about war. He said the answer is “not to make it wicked but to make it vulgar.” And I think in the same way that’s the culture’s job. Our regulations are far more effective if we have that broad social consensus, and we have to work for it. And right now we’re seeing some of that reappear in Congress, but if this is just going to be a matter of some FCC regulations, there will soon be a cynicism about those and it’s not going to redress the larger cultural questions.

Abortion is a much stickier answer. If you’re like me and you believe it is the taking of an innocent life, it’s very difficult to conceive that we wouldn’t have a law against it, but in reality, we have no choice but the culture. Given the technology of a very advanced and prosperous abortion industry, even a national law outlawing abortions would hardly stop them. To change laws in any meaningful sense we must first do what Wilberforce and Wesley did in Britain over slavery: change minds. That is much the harder task, which is why both pro-choicers and pro-lifers in practice find it hard to resist the silver bullet, which is a Supreme Court decision which, again, I think would be about as much as a resolution as Dredd Scott was to slavery. You might say that I view a constitutional amendment outlawing abortion as possible only in a society that essentially does not need it.

Yet, even within this framework of markets and competition, there still remains plenty of room for redressing injustices and taking the side of the weak against the powerful. As the leaders of the developing world are well aware, one of the tremendous problems they face is First World protectionism that excludes them from our markets. Even Adam Smith fretted about the imbalance between workers and managers, that whereas the latter were able to organize, the former were not. The flaw in economic justice has to do with the idea that it can be dispensed. As Christians we need to have confidence that justice will be better served by allowing ordinary men and women to realize their talents in an atmosphere of freedom bounded by laws designed to set boundaries, rather than to prescribe every possible instance of undesired behavior.

Regulations, which have a tendency to multiple as people find a way to get around them, seldom work as intended. In this regard, I’d like to say one other point about the private institution that I think both Becky and I share. As a churchgoing Catholic, I’ve often been disturbed by the work of the churches in these areas. I think Becky would agree with me that so much of the Church’s understanding – of the understanding by religious people – of the way markets work is incredibly bad. And, in fact, if their ideas were put into practice in the Third World, where I lived for a long time, people would still be poor today.

If you look in my book, I think on page 60-something, I give a list of headlines. I once went through, looking for the word, globalization in all the Catholic papers, and they all treated it as a catastrophe and not as an opportunity for these people. At least in the developing world what I see is more market failures. People kept out of markets, from competing with someone in the country, from offering it to people like us. We can do all sorts of things: order from all sorts of countries, go work for a foreign company, buy a Toyota. That freedom just doesn’t exist in many of these countries, and I have to say that the church groups, I think, have been very lax about understanding the complications that you would need to have a wise policy. Even if you believe in taming the market, it’s far better to realize what you’re taming and knowing how you’re doing it, and frankly reading the religious press, I see almost none of it. And I won’t dwell on it but it’s definitely in the book – some of the headlines there.

In short, my position is that theologians and economists need each other. Theologians and religiously-informed activists need to have some grasp of how the economy really works if their critiques are to be taken seriously. Conversely, market economists, if they are not to succumb to the same self-destructive hubris as the socialists, need a religiously informed culture to remind them that economics is made for human beings and not vice versa.

Pope John Paul has said repeatedly that man’s destiny is freedom, genuine freedom. We know from the considered experience of the century past that markets work better than control, that markets require law and not simply license. In short, that freedom works, and if we are Christians, that it works not because it sanctions greed but because it is more in accord with our God-created human natures. To reduce this to a question truly about the degree of intervention is to treat it as a purely mechanical issue when the real issue is much larger. Perhaps, I have left the impression that regulating an economy into morality is bad because such an approach imposes too little on economy. What I’d like to leave you with today is the idea that what I really believe is that that kind of approach imposes far too little.

Thank you very much.

(Applause.)

MR. DIONNE: Thank you, Bill. I want to first salute his dad’s service in the Marines, and I’m very glad that the government and the taxpayers put food on your table night after night in your house so that you could grow up to be a big and smart critic of government. (Laughter.)

MR. MCGURN: One of the beauties of capitalism.

MR. DIONNE: Before I call on Larry Mishel, who wants to distribute a copy of his talk, I just want to say a very special thanks to one of our coeditors here, Kayla Meltzer Drogosz. Without Kayla this book wouldn’t have happened, this whole series would not have happened, and because Kayla has been so totally immersed in these words, I reserve for you the right to ask the first question when we get around to it. But thank you very, very much, Kayla.

I also want to thank Christina Counselman, who was with us when we started this series and Katherine Moore, who has done so much work to make this book successful. Thank you so much.

If somebody could come up and just start passing Larry’s manifesto around the room. [The paper Mr. Mishel handed out can be found at http://www.epinet.org/content.cfm/webfeatures_viewpoints_moral_markets_presentation] We’re very grateful to you, Larry, for joining us today. Thank you.

LAWRENCE MISHEL: Well, I truly appreciate this opportunity. And I was just so inspired, I actually wrote out my remarks which I rarely, rarely do. I find what Becky has said both very wise and inspiring, and I agree with her.

The question that the book title has, “Is the market moral?” I think is almost besides the point and not a very interesting question. Markets are a mechanism. They exist in planned economies under – you know, when we had serfs – they are what they are. And I endorse the fact that markets are the predominant mechanism for making economic decisions and allocating resources. That’s not quite an issue with me, nor with Becky.

The key question for me is whether unfettered markets – I think we really ought to be talking about unfettered markets – are the appropriate way of organizing our economy, both in terms of the values we seek to see reflected in our society and for achieving our economic goals. One’s view of unfettered markets shapes how one views the roles of individuals, institutions, churches, government, et cetera, in the economy. Unlike the generic question of “What do we think about markets?” the issues around unfettered markets are consequential and very current. The U.S. economic policy debate is, in fact, dominated by the assumption that unfettered markets work best, a view that’s applied to our domestic economy and to that of other countries through international financial institutions that the U.S. controls or dominates. John Kerry’s recent statement that he is quote, “not a redistributionist” end quote, indicates how dominant this view has become.

I wish to state at the outset that there is plenty of room for applying our values to the economy because an economy can be structured in many different ways and yet achieve the same amount of efficiency. There is not one true formula known only to an economic priesthood or rabbinate which prescribes how an economy should work. This was a conclusion of a book that Becky edited for the National Bureau of Economic Research a decade ago and was mentioned in her biography.

My way of illustrating this point is to note that major European countries have a far different set of policies – social democracy – which includes a strong social insurance system, government provision of many things including health care, higher taxes and far less inequality than we have in the United States. Related to the United States these countries also tend to take more of their growth in the form of leisure over the growth of consumer goods. For those enamored with unfettered markets, these countries are doing everything wrong. Yet, these countries have seen faster productivity growth – a measure of efficiency – over the last four decades.

This is mainly explainable, appropriately, as the fact that these countries are trying to catch up to the United States, who has been the technology leader. So they’re naturally going to be growing faster because they can sort of steal our technology or borrow it. However, many of these countries now have higher productivity levels than the United States. In other words, by a basic measure of efficiency, they are now more efficient, they have more output of goods and services per hour. It appears to me that one can choose different degrees of inequality and maintain the same amount of economic efficiency. And for a group of people of faith, that should not even be the binding constraint because one should also be free to choose less output if, in fact, it satisfies values that we want, such as less inequality.

The discussion in the book was a bit too abstract for me, perhaps because I’m an empirical economist and not very suited to theory. I want to introduce my passion, which is income inequality and social class, and put that out there and try to focus some discussion of how people of faith should deal with those issues.

Simply put, we live in a class society. In this respect we are no different than any other society today or in the past. For purposes of this discussion, let’s just say that there are different groups differentiated by their income and power and that the positions of these groups are strongly maintained over time. It’s not that there isn’t upward and downward mobility; it is just that there’s not enough of it to make having a favorable class position seem like a temporary arrangement. Families are not just sort of temporarily poor and some years later rich. Most people who are rich tend to stay rich, their kids tend to do very well, et cetera.

In this class society there are those at the bottom and those at the top and there are positions in between. It is important to me to note that there has been a dramatic and relatively unique upward shift in income in our country over the last few decades. There has been far more growth of inequality over the last three decades in the United States than any time in the last century, and far more growth of inequality than any other advanced country. Moreover, we are clearly the most unequal of any of the advanced countries.

I have prepared a few tables and charts in the back. I won’t go through them all, but I do want to mention a few things that I find very startling and I want people to wrap their heads around. I’m drawing on research by some people from the National Bureau of Economic Research. This is a blue chip operation based on tax data. The top 1 percent of families had about 9.3 percent of all the income in 1980. By the year 2000 that had doubled to almost 20 percent of all the income. Correspondingly, the share of income of the bottom 90 percent fell, and there was a little bit of gain for the people between the 90th and the 99th percentile. If you translate that into what was the income growth of the various groups, you would find that the upper 1 percent saw their incomes grow from 1980 to the year 2000 by 179 percent while those at the bottom 90 percent rose by just 8 percent.

Okay, just one other sort of metric – they look at the measure of the earnings of top executives relative to the average worker. In 1970 executives made 38 times the average worker, by 1980 it was 100 times, by 1990 it was over 200 times, and in 1999 it was 1,000 times.

Okay, so my question – I just want to put it very bluntly – is, how do we feel about that from our various faiths and how does that lead us to what we’re supposed to do? Because of the high degree of inequality in the United States, even though we have a higher per capita income – not than any country, but other countries – because we are very unequally distributed, the incomes of the people at the very bottom are not higher than those of other countries which have lower average incomes. So that means that the poorest among us have not necessarily benefited from the high incomes that we have.

I’d like to note that although we think of ourselves as a very fluid, mobile society compared to European countries, we in fact do not have more upward mobility than European countries. And recent research indicates that the U.S. has far less class mobility than previously believed, and it hasn’t changed much over the last few decades. We’re not becoming more mobile, and we’re not as mobile as people think. I am not making any extreme claims here. If no one accuses me of saying that we’re living in a caste system or rigid class society, I promise not to ask anyone to defend our society as a pure meritocracy.

One’s class position really, really matters. It greatly determines people’s health, whether they have access to health insurance, what they’re exposed to. It determines how long they’re going to live. It determines where they’re going to live. It explains what their exposure to crime is going to be. It explains what their success in school is going to be and the likely educational attainment of their children and the likely success of children.

The extent of inequality also has tremendous ramifications for the type of society we share. A taskforce of the American Political Science Association has concluded recently that inequality in income and resource translates into inequalities in participating and effectiveness in our democracy. As we shape the economy and the resultant income distribution, we are also shaping the very nature of our democracy.

I’d like to respond to Bill’s statement about schooling, which I think will help to illustrate some of our differences. Bill mentions that there’s a big achievement gap between blacks and whites, which there is, and blames it on the government and public schools. We just released a book at Economic Policy Institute on this matter, and we’ve done a lot of different work on this, and I would just like to note that those gaps are present when the children show up in kindergarten. There’s a giant gap by social class and race when the kids show up in kindergarten

And it shouldn’t be surprising that that gets maintained, that children who have worse health problems, whose families move, who don’t have stable housing and move around two or three times as much as middle-class kids, whose parents work in jobs where they’re used to taking orders, learn in a different way than students of middle-class and professional families. And that social class itself has a strong role in shaping children’s success in learning. This is well known in social science as well, going back to the Coleman Report.

Anyway, all this leads me to think that economic issues are just as much values issues as whatever else people talk about as values issues in our political debates. Moreover, the teachings of the various faiths have much to say on economic matters, although no 10 point plan for the economy can be found. I dare say that there’s no reason to believe, at least in my view, that unfettered markets provide us with the type of society our faiths guide us to have in terms of the lives of the poor, the treatment of workers, and the solidarity of our communities. It is left to us to help shape the economy through our individual actions, through collective activities and institutions such as unions, churches and community groups, and through government provision of goods and services, redistributive policies and regulations.

Thank you.

(Applause.)

MR. DIONNE: Thank you, Larry. We wanted our respondents to sharpen the debate. Bless you for doing so. And I especially want to praise your courage for having a chart that compares the United States unfavorably to France, which is not a popular position these days.

Ramesh Ponnuru, thanks for joining us.

RAMESH PONNURU: Thank you, E.J. I’d like to join my colleagues here on the panel in saying that I’m delighted to be here, and I’d like to thank E.J. for his very generous introduction.

I think the book is worthy of very wide attention, and it’s a real testament to the ingenuity of the Pew Forum that they’ve managed to set up a dialogue on markets and religion in which it’s the Catholic who is more pro-market than the Protestant.

I think the title of the book is understandable shorthand, but given the points of agreement that have been expressed here today, the question is better posed as, Under what conditions or fetters, if you like, can the market be moral or more moral? And much of the actual disagreement in the book, as on the panel, concerns not how much the faithful Christian should live, but what kind of governmental response to the market he should favor.

Now, I myself tend to resist analysis of the market or capitalism as though it were a rationally designed system rather than an order that emerges from certain basic rules, such as the private ownership of property. I wouldn’t go as far as one of my colleagues who quipped that “Capitalism is just the socialist term for life,” but I do think that the term tends to conflate different questions. So, for example, it may sound plausible to say something like, free markets hollow out family life by encouraging selfishness, whereas it would sound less plausible to say something like, selfishness would decline and family life flourish more if we had more regulation and government provision of services.

I also tend to prefer the Austrian school of economics, not least because it doesn’t overemphasize the textbook model of perfect competition, especially by using it as a stick with which to beat real world industries. For the Austrian school, the essence of economic life is not competition but coordination. The metaphor of the invisible hand, after all, is a way of explaining how the problem of social coordination can be solved without central direction. People with diverse resources and plans can cooperate in ways that leave them all better off. Hence, Michael Novak’s description of capitalism – his term, not mine – as quote “a creative form of community.”

Both of the authors here acknowledge that there are certain moral benefits that markets produce: increased wealth and choice, for instance, the rewarding of effort, the calling forth of certain talents. But, I think that economic freedom has moral advantages that go beyond these, and I’d like to list a couple of them, borrowing here from Jerry Muller, the author of the The Mind and the Market who lists what he calls the beneficial moral effects of the market.

One is that the market allows for individual self-reliance and the avoidance of dependence on private or governmental charity. Muller notes that Adam Smith’s famous passage about the benevolence of the butcher is immediately followed the line, “Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens.”

Second, this self-support is often also support for one’s family. Selfishness can, of course, undermine family life, but we should remember that what is called self-interest is often the pursuit of the legitimate interests of one’s family.

Third, it provides for self-interested concern for others, and here we have the familiar argument about markets: producing honesty or providing a spur toward honesty and forcing us to think about others’ needs and desires in order to make a profit by satisfying them.

Fourth, it creates wider forms of association. The other becomes a customer. As Voltaire said of the London Stock Exchange, “Here the Jew, [the Muslim] and the Christian deal with one another as if they were of the same religion and reserve the name infidel only for those who go bankrupt.”

Finally, Muller argues that markets call forth new and more complex forms of individuality. Now, Muller acknowledges that these advantages come with dangers. A commitment to family can become civic neglect, what Edward Banfield called “amoral familism.” Solicitude can become inauthenticity, identity can become too protean, but he insisted the advantages are often overlooked and must be taken seriously.

When we come to the question of how to stop bad behavior and encourage sound behavior in the market, I find that I have agreements and disagreements with both of our authors. Rebecca Blank argues that allowing government action only when there is a market failure creates too narrow a scope for government. I agree with that in a sense, but I also think that it creates too broad a scope for government in other ways. Not every market failure should call forth a governmental response. In some cases the cost of fixing the failure may be too high, in others it may just be inappropriate for constitutional or other reasons for the government to act, and in still others, the cost and risk of governmental failure may be enough to dictate inaction.

Too much analysis assumes that the answer to market failure is government and the answer to government failure is better government. One thing we should surely have learned from public choice theory is that government policies don’t fail only because governmental actors are insufficiently wise or insufficiently good. There are structural reasons why certain perverse public policies get and stay on the books. Take, for example, the familiar story in which the costs of a policy outweigh the benefits, but the benefits are concentrated and the costs diffused. Take also the long running scandal of the government’s relative over-investment in the elderly over children.

When Professor Blank writes that economic systems should be set up to reward good behavior, I think she’s neglecting the possibility that the economy is not best conceived as a system that has been set up. When she worries that firms can succeed on the market through bad behavior – she mentions hiring cheaper foreign labor and selling low-quality products to poor families who can’t afford better – I think she frames the issue in a way that obscures the real alternatives. Firing people and hiring cheaper replacements is simply not, per se, immoral, especially when the new hires are seeing their own wages rise. Nor is selling low-quality merchandise, especially when families would otherwise have no access to the goods in question.

I agree that government is obligated to act for the common good and to encourage sound morals. Sometimes that calls for action; the prohibition on theft and fraud served both goals. Sometimes, whether or not it does require federal or governmental action, whether the federal minimum wage should be raised, left the same, lowered, or abolished – depends on complicated empirical and political judgments.

I do think, however, that Bill McGurn’s invocation of the culture as a way of stopping bad behavior is a little too pat. Now, as welcome as a renewed sense of moral responsibility on the part of our corporate class would be, I suspect that a more fruitful path would be to fix the structural problems that led to some of the recent scandals. My own list of such solutions would include ending the tax biases for stock options over stock gifts and regular salaries, and for capital gains over dividends. It would also include making hostile takeovers easier.

But we need to face the possibility that some amount of corporate scandal is inevitable even in a healthy culture covered by wise regulations. In the late stages of booms, the market’s mechanism for preventing some of this behavior – which is sober and conservative creditors and investors – are bound to get a little careless, get burned and then become more careful again until the cycle begins anew. It’s not clear to me that other corrective mechanisms are an improvement on that one.

And I think McGurn’s example of regulation of the abortion industry is inapt. He wants to argue that culture matters more than law, but what he’s actually arguing for is incremental legal restrictions rather than a national ban. The implicit argument is that you change the culture by changing the law and change the law by changing the culture little by little. In my view that is a mostly sound conclusion, my caveat being that the incremental change may require reformers to keep the national ban in mind as a long-term goal. But note that the implicit argument does not treat law and culture as though they occupy two hermetically sealed boxes.

To be sound, his larger point about regulation would have to be reformulated to be something like the following: Regulation works best when it works within and strengthens the positive elements in a culture. And I see no reason in theory why this wouldn’t be true of economic life as well as other issues.

Finally, I think one thing that often trips up these discussions is the lurking idea in the background that if markets are judged to be moral, the status quo is judged to be moral as well. And this simply doesn’t follow. When foreign governments keep people in poverty by denying them customary property rights, when licensure regulations create barriers to self-advancement for the poor in the United States, when tariffs raise the price of children’s clothing and block the legitimate aspirations of people in other countries, when health-care policies create gratuitous tragedies and anxieties for people, when billions of government subsidies go to well-connected companies – none of that is economic freedom or justice in my book. All of it cries out for change, and what a pro-market analysis suggests is that our principle in reform should be to widen the circle of productive exchange.

My view on markets, I guess, is a little bit like what Gandhi is alleged to have said about Western civilization: “It would be a good idea.” And it strikes me that the two policies that have the done the most to fight poverty in recent years have been pro-market policies, so to speak: welfare reform here and free trade overseas.

And one last point. It does seem to me that if we’re talking about the role of churches in the economy, we should consider whether churches are themselves becoming too commercially oriented, in some cases too interested in market share or the gospel of material prosperity. I would be very interested to see what Blank and McGurn have to say about that, and maybe they’ll get to it in their next volume.

(Applause.)

MR. DIONNE: Thank you very, very much. The Earned Income Tax Credit had something to do with that shift in the last 10 years, but never mind. There are a lot of questions I want to raise, but I want to open it to the audience.

What I’d like to do is the following. I want to reserve at the end of the discussion at least 10 minutes where Becky and Bill can reply to some of these comments and to the audience, but I want to move as quickly as I can to the audience. The one note I should insert here, given that the title of this book has come under some criticism, they didn’t pick the title. I did. And Ramesh had the interesting idea that it should be called “Under What Conditions is the Market Moral?” Actually, those words were written in invisible ink by an invisible hand on the cover of this book. You just can’t see them. But if I am guilty, with this title, of intellectual tabloidization, I plead guilty. I still like this title.

By the way, we are making a transcript of this which will be posted on the Pew Forum Web site, pewforum.org.

Sir?

JOE COLLIER: I’m Joe Collier. I live in Northern Virginia but mostly in D.C. I wanted to express a theological concern and then to relate it to the economic issues. I would not want to give God credit for creating the system that we’re operating in, and I think biblically – as I think Mr. McGurn was suggesting – that if God had created a system in which you could only have wealth based on greed, that this would be a cruel God. I guess I see the Fall as reflected in the scriptures as reflecting a situation in which we’ve created those circumstances, and God is about trying to redeem us from it.

So,in that environment, when you were raising a suggestion that the public school system failure in the District – particularly in the book you mentioned the District of Columbia – is a result of government failure, I’d like to suggest that schools can only deal with what they’re given. The students show up, as Mr. Mishel suggested, with what they received from their culture, and they also live in an environment which limits what the schools are able to deal with. So, I’m wondering how the market is going to deal with those issues?

MR. DIONNE: Thank you. Bill?

MR. MCGURN: Well, to the first question, what I mean to say is that the market – I believe it works because it’s more in accord with human nature. Becky and I both agree that the market has been the best at producing wealth. If that comes down to just greed, it just seems like a very perverse God. My view of the market is that the reason it works, is that it most accords within human nature as it is, which is as God created it.

On the second point, I think the market has a lot to say about it because I think those of us that are for choice would like to give some of these students the opportunity -

MR. DIONNE: You’re talking about educational choice, right?

MR. MCGURN: Educational choice.

MR. DIONNE: I don’t want anybody to misunderstand your position, Bill.

MR. MCGURN: Right. I went to a public high school not a parochial school. And it’s just very interesting to me that there are always a thousand reasons for failure, and I accept that there are family cultures and that there are a lot of influences on poor performance, but it is so bad now. I mean, it has reached such catastrophic proportions for our minority groups especially in the urban centers. And all these people in Congress would never let their own kids set foot in these public schools, but they deem them okay for these other people.

I find it very interesting that most people that are worried about inequality want to say this kid has to stay in this public school where he is assigned and has no choice getting out and can’t go to the private school where my kids go. And that’s the position of a lot of the United States senators.

Q: (Off mike.)

MR. DIONNE: Just very quickly, if you could.

Q: (Off mike.) If you would provide enough to redress not just the opportunity for a child to go to school, but to address the situation that the child is growing up in, then I would take seriously the notion of school choice. But it seems to me that it’s a hollow one if you’re going to give $7,000 – that there are not enough schools -

MR. MCGURN: Do you know what my tuition is for my kids in a very affluent neighborhood of New Jersey? It’s $3,400. There are a lot of parochial -

MR. DIONNE: Is this at a parochial school?

MR. MCGURN: A parochial school. The total cost is $4,000. There are a lot of schools in the District of Columbia that for $7,000 would give kids a lot of education. I think there are a lot of other issues that go into this, but to me some of the inequalities that Larry mentioned are a result of the economy now rewarding skills in a disproportional way. That if you’re skilled you can make a lot of money, and the people that don’t have skills are going to suffer, and I think that the key to giving them skills is an education. A proper education is to me right now the fundamental civil right to whether you’re going to participate in these benefits or not. There are a lot of other factors; I don’t want to diminish any other factors.

And for E.J., I just have to say it gets worse. My dad, following the Marines, was an FBI agent, so we lived on government – and he use to say crime has been very good to us. It put six kids through school. So we benefited from a lot of social malfunctions.

MR. DIONNE: Thank you for that, Bill. It makes me all the more in favor of the public sector, to know that.

Larry wanted to say something, and also Becky, if you want to get in on the school issue or this question, and then I think you had the next question.

MR. MISHEL: I think that there’s a lot of people who want to apply market principles to public schools and end up with voucher programs. I think the overwhelming evidence from actually existing voucher programs is that kids who get vouchers don’t actually do better than kids who didn’t get vouchers. And that the case for voucher systems now – which is far from proven – is that the competition of the schools fearing to lose students will therefore do better because of market competition. I think that’s far from certain.

I guess what I think about this education thing is that it doesn’t stand outside of – I want to be very blunt about it – the class system. If you really want to help black kids catch up to whites in terms of their educational achievements, their test scores, their attainment, then we have to think about ameliorating poverty, which I don’t think is a skills problem. I think you have to deal with housing. We ought to make sure that every kid has health insurance. And if you’re not doing that, I don’t think we’re really going to be serious about giving kids an opportunity to escape their situation.

MR. MCGURN: Just to clarify before Becky gets into it. It’s different forms, there’s charter schools and so forth. And it’s about letting some bad schools get out of business. If there were private schools that were as miserable and failing as some of these public schools, they wouldn’t be in business. So, there are a lot of forms that that can take. It’s not just one area.

And in terms of class, I haven’t really mentioned it too much – I usually bore with E.J. with it – but in Hong Kong where I was, I knew people – after World War II a million refugees came into Hong Kong. And one night, Christmas Eve 1954, I think it was, 60,000 were left homeless by a fire in the slums. These were real slums with all sorts of pathologies – crime and different families – and those kids got an education. I think when you scratch these arguments pretty much you’re saying these kids are uneducatable.

And you see these people – there was no social net. They eventually put in a housing program which now they’re trying to get away from. There was no net and they got an education. They got it mostly through a corporate voucher that the missionary schools – the Lutherans and the Catholics – half the kids in Hong Kong go to Catholic grade school. They were given the voucher to set up a school.

So, I don’t buy the argument that you can’t give people a minimum education despite their pathologies. I think you can teach kids to read and write and so forth.

MR. DIONNE: Larry, we’ll have a chance to come back to this.

Becky, did you want to come in here? And then, if you don’t mind, I want to go to this lady on the corner, because my view of her is blocked by this podium and I don’t want to lose her. So, but Becky go ahead.

MS. BLANK: I just wanted to say something – I’m very much in agreement with Larry and what he said about the schools, but the schools are a classic example where the private market at some level cannot function. The schools have to take every person who walks through the door, period, and I don’t know a single private school that operates under that system. Those who are most needy who walk through the door, of course, are those who need the most compensatory education and typically come the families that have the fewest resources; not jut the fewest monetary resources to spend, but many times the fewest skill resources to bring in the family in terms of helping their children either because of languages difficulties, for whatever set of reasons, many of them often related to poverty and class.

And at some level you’ve got to have the government involved in the type of redistribution that you necessarily do once you say you’re committed to public schooling for every child in the United States. How you then do the details we can argue about, but this is one where you don’t have any way around having deep government involvement in this.

MR. DIONNE: Thank you.

Q: Thank you. I’m having a hard time grasping the concept that Mr. McGurn raised that Mr. Ponnuru sort of reinforced, that the market, if it’s minimally regulated, sort of achieves its own level of morality. I mean, I must be wrong. I must not understand something, and I guess -like you said just now, that it’s more in accord with human nature, and I’m just having a hard time understanding that and wish you would clarify it a little, please.

MR. DIONNE: The most dangerous questions have “I must be wrong” in them because they have a real challenge in them. Thank you very, very much for that question.

MR. MCGURN: I think that in my view it’s not the same as saying the market is moral. The market is competition. If Becky and I are in the same business and we’re competing with each other, we’re competing for Ramesh’s vote and so we have to do something to please him. One of us has to please him more, and that leads to more civilized behavior.

Again, when I lived in Hong Kong, you go into a company – or a dinner, you go to a restaurant, it was so much better than going into China where they don’t care. And frankly even living in Europe for three years – trying to go into a restaurant in Belgium where there’s no tips – people are forced to be civil – it forces a certain behavior to accommodate it.

That’s what I mean when it channels greed. It doesn’t eliminate greed, but I can’t just get Ramesh to buy my product without appealing to him some way. I am forced to compete with you by appealing to a third party to please another party.

Now, there are problems with that. I can please someone by offering them hardcore pornography. But the point is that my behavior is – that I have to please him, which is why as customers, we’re a lot more indignant when we go into a place as a customer and we get bad service. We’re very indignant. We don’t like it when someone’s rude to us.

MR. DIONNE: Can I – oh, go ahead, because I want to follow your question also.

Q: (Off mike.) I really think you’re talking about two different things then. I mean, pleasing a customer versus addressing the needs of people who are shut out of the economic system, they’re two different levels of morality, don’t you think?

MR. MCGURN: Yes, and I don’t know -

Q: They’re not the same at all.

MR. MCGURN: They’re not the same. But I don’t know whether you’ve been in a place where they have been shut, in a place like the Philippines or China, and watched a market come in and give people the chance to own their home, to feed their children, to get an education, to have regular clothes rather than plastic sandals on them. You see all these articles on the Third World and the market and how exploitative it is. Go to a factory and ask them what it’s like since the factory moved in. They want more factories to move in because here’s the second part that marries them: If you are a worker and you’re selling your labor, you want more people competing for your labor. If the job I have now is the only job I can get, my employer can treat me any way he wants.

Again, in Hong Kong they had 2 percent unemployment. Do you know how good secretaries were treated because they could walk across the street and get a job for $10 more a week? It doesn’t necessarily force you to be good, but it forces you to do that. We live in a very wealthy country, and to me the failure isn’t to bring people into the market. And what I see in Third World, frankly, is more people excluded from markets, and I see their leaders. What do they want? They want foreign capital to create jobs and they want foreign know-how.

MR. DIONNE: Bill, could I ask a follow to this question? Let me give you a hypothetical and then I want Becky to get into this also. Hypothetical: I run a burger chain. I end up serving lots and lots of tainted burgers. It turns out that there’s something systematically wrong with the way I am buying hamburger. A bunch of people die. Eventually the market will pummel the stock of my burger company – people will stop buying at my burger joint. However, a bunch of people will die before that happens.

Is the market any substitute for the FDA in my example – for the Food and Drug Administration? Do we not have regulation because the market in this case may solve the problem but not in exactly the way we’d like the problem solved?

MR. MCGURN: Right. No, it’s a good question but let me get back to clarifying my point. I am not against regulation – (audio break, tape change) – a right way of behavior rather than force them all in one way.

So I’m not against regulations in any sense. When we make value judgments at the end, that is trickier to do when you’re making a value judgment about redistribution. I think on safety, there are fewer issues on that. Of course we’re going to have a regulation, but I would say even in those regulations we have to worry about unintended consequences and what you do with them. So I’m not saying to substitute. There’s no sense in substituting. I’m just saying that it’s not as simple as when I see, as always, here’s the problem; here’s the regulation.

When I look at the corporate scandals, to me they’re like the seven deadly sins. There’s nothing secret. I mean, they might have had elaborate structures. They’re keeping stuff off the books, they’re giving false statements and so forth, or they’re robbing from the pot. I mean, these are not complicated – they might have done it in complicated ways, but these are not complicated things, and everyone recognizes those as bad when they’re exposed. I don’t think that it takes a new regulation to do that. Some people would argue, like with the accountants, that the SEC regulations of these audits has actually made people too complacent that there was a government seal of approval on it. So I’m just saying there are different ways of looking at it, different degrees.

MR. DIONNE: Becky, I just want you to come in because I think her question goes very much to the argument you make in the book.

MS. BLANK: I’ll be quick because there are a lot of hands. I guess I think the argument that the market is self-correcting along many of these lines, there’s a lot of economic theory that’s very consistent with this, but I’m reminded of the phrase that in the long run we’re all dead – a lot of these self-corrections are things that only take place over a great deal of time. The real problems you see in the market are often those cases where people can hide information or know something that others don’t. For decades companies had serious information about the harm of asbestos but did not release that information, and therefore you have workers who die or are seriously physically disabled because of that. So the fact that under certain circumstances the market can be self-correcting, that competition can be self-correcting, doesn’t address many issues – typically the long term here is much longer than I suspect most of us, at least certainly I, am willing to accept.

And the second related piece of this is the market is embedded in the larger society. If the larger society discriminates, the market discriminates. And the market is not going to compete away that discrimination if everyone assumes this is the way to behave. The government discriminates as well often in that situation. But the question here is not that what the market does is always right, but that indeed when social norms start changing, you have to criticize the market in the same way that you’d criticize other social institutions, including the government, and have to do things that change them. That won’t happen naturally, or it won’t happen fast in many cases.

MR. DIONNE: I want Bill to hold that thought because there are a bunch of hands. I’d like to bring in a number of people at the same time – not simultaneously, one after another. The gentleman up here, the lady over there, and that gentleman with the beard.

Sir, wait for the mike, and tell us who you are.

MIKE CRUSE: Hi, my name’s Mike Cruse. This is, I guess, sort of the other side of the earlier question. This is I guess particularly to Dr. Blank. If you could have a society which had the same efficiency as the market, which had the government regulation keeping the poisoned hamburgers off the market and things like this, is there anything to recommend a market – sort of a mitigated market society over this maybe efficient command economy?

MR. DIONNE: A cooperative commonwealth?

MR. CRUSE: I ask this just to try to get a handle on, do you actually think there is any positive moral value in the market itself other than just being a very efficient engine?

MR. DIONNE: Hang on to your answer to that. That’s a great question. Let me go to that lady over there, and then that gentleman right there. Just try to make some notes because I want to bring in as many folks as I can before we close. Please.

ANN MARY: Hi. My name is Ann Mary. I work for ChemData Corporation. And Brookings Institute put out a brilliant book in 1997 called Atomic Audit, and in that book it was estimated that the cost of our weapons of mass destruction atomic bomb program, up until ’97, was about over $5 trillion, a huge sum of money for America.

I notice that in this discussion everyone seems to be ignoring the kind of white elephant in the room, which is the cost of our military, our military expenses, and the huge industry that pushes war in our country. Under the Fifth Commandment, as Bill remembers, because I also attended Catholic school and am baptized in the Catholic Church, it’s called “Thou Shall Not Kill,” and “Thou Shall Not Kill” means not under circumstances that we decide we should kill, or kill because someone attacked us, or kill whatever. It’s just “Thou Shall Not Kill,” period, in my Church, the Catholic Church. And in fact the pope sent a representative, an ambassador to the Vatican, to mention that to George Bush before the war started.

So the huge expenditures that we’re spending now on two wars, on killing people, have not been addressed here at all in terms of the economics of that, and I’m a little disappointed in everyone for not addressing that.

MR. DIONNE: Thank you, ma’am. This gentleman over here and then the gentleman in the blue, and then I’ll go the other side. Yeah, go ahead. If you could also be very brief in your questions and comments.

ERIC GRABER: My name is Eric Graber. I’ve not heard the word democracy mentioned. I’m wondering if anybody would comment on that. And it seems to me that perhaps there’s a mechanism there for correcting some of the excesses of what we get from the market. A leading example would be Sarbanes-Oxley. And also I’m thinking a little bit about technology in the future as we go to a system that perhaps we can all – (off mike).

MR. DIONNE: Thank you. I do know that Larry used the word social democracy.

Sir, in the back, and then the gentleman with the beard over on the – right there.

Q: I’m hoping someone can explain the morality of the minimum wage, which hasn’t been increased since 1997 – $5.15 and hour – although most of us in the room are accustomed to at least a 3 percent increase each year and Congress has granted themselves about $20,000 since they last passed the increase. How is that we figure that the people at the bottom can subsist on nothing much more?

MR. DIONNE: Thank you, very much.

And, sir, why don’t you stand up so they bring you the mike right away? Thanks.

RICHARD BEVERE: My name is Richard Bevere. I wanted to pick up on Bill McGurn’s point that he would rather control Hollywood and TV than Congress and the presidency. And my question is, would you make an economic success of it? (Laughter.) And if not, could that be because some of the same human nature that contributes to the success of market economies is at work in the economy of entertainment?

MR. DIONNE: We not only have thoughtful but also witty audiences. Thank you very much.

Becky, why don’t you start with that gentleman’s question, and mix in any of them, the war, the minimum wage, democracy?

MS. BLANK: I’m sure that I didn’t promise to take on Hollywood. I don’t have to answer that one. I’ll leave that one to Bill. (Chuckles.)

So why do I think the market is good, outside of its efficiency? And let me say, I don’t want to dismiss efficiency here because efficiency is very important. When you have centrally directed systems, it goes, and it goes in a big way and everyone bears those costs. And there are a lot of examples of that, which I won’t get into citing, but happy to talk to you about it afterwards.

The other thing, though, that I think markets do as well as efficiency is productivity, and they reward entrepreneurship. They reward people who want to go out and be inventive, to try to look for new techniques and new inventions and new technologies, and that’s very important. I mean, there is a reason why the United States has been at the front of technological progress, and some of it has to do with the way we run our universities and other things, and that’s not unrelated to state governments, but some of it also has to do with a market system that really does encourage individual entrepreneurship. I think that’s separate from purely the efficiency argument, but I take both of those as being quite important, and both of them are then engines for wealth accumulation. In turn, the market, I agree with Bill, has been the primary reason why poverty, not just in the United States but around the world, has gone down in the last 20 or 30 years – not everywhere, but in many, many countries where the market has been allowed to operate with the reasonable balance between it and the government.

MR. DIONNE: Democracy, war, and the minimum wage?

MS. BLANK: Yeah, democracy, war. I mean, I think there’s a reason why we haven’t addressed the issue of the military in this discussion. I don’t know if Bill would disagree with me on this or not, but the military largely exists outside of a lot of market issues. The military is a political decision by this country as to how much we value national defense. National defense is a classic example of a good that cannot be provided through the market, that must be provided by the government. Therefore, the amount of it that’s provided and the way that it’s provided is set through a legislative and political process. We make decisions as to how big our military is and what sort of wars we fight, and those are largely not market decisions.

So we can argue about the economics of how the military operates within those bounds, and that’s a whole other conversation which I’m happy to have, but I think it becomes not as central to the discussion about markets just because the military is largely a government-provided service, which then in turn creates a whole series of suppliers and often monopoly suppliers, and that has its own set of issues.

Democracy: highly important. There are a lot of people who want to argue that democracy and markets go together and the two reinforce each other, and I think there’s some evidence of that. There is some evidence that you could use to argue against it. Democracy is one of the reasons why I think there are corrections on government failure. Bill said that’s a problem: How do you correct government failure if you can correct market failure? Democracy is one way in which you correct government failure. You boot the rascals out. You demand reform through the political process. And I think that happens all the time on the government side. It’s a different process than that which regulates markets in some ways, but it has some of the same regulatory aspects underneath it and particularly in more advanced economies. I think there’s some evidence that actually less democratic regimes might have been more effective at generating the start of development. I think there’s quite a bit of evidence – we don’t have a lot of observations on this because there aren’t that many countries, but it’s at least consistent with the argument that more advanced economies get along better with sophisticated democratic systems.

MR. DIONNE: Minimum wage, quick -

MS. BLANK: Oh, minimum wage. I’m a big supporter of minimum wage. I think one of the reasons you run a minimum wage has nothing to do with economics; it’s a social value that says if a person works, they ought to earn enough to support a family. We want to reward work. We want people to be part of the mainstream economy. You don’t want to drive them out of the economy; you don’t want to drive them into the underground economy. You pay a minimum wage as a result of that. In the long run you’ve got a far better and healthier economy.

The other reason you run a minimum wage is that it demands that employers create the jobs so the worker is worth whatever minimum wage is being paid. You don’t just pay them piecework, you don’t run a sweatshop, because that way you can keep all the equipment down and if people produce 50 cents and hour, you pay them 50 cents an hour. The minimum wage basically works against really low wage and poor working conditions by saying if you employ a worker you’ve got to give them the wherewithal and create the productive environment whereby they produce that minimum wage, which in turn is enough for them to support a family. And it’s one of my examples where I think you want government, because you want to impose that type of restriction on the market.

MR. DIONNE: Hollywood mogul, Bill McGurn – (laughter) – who will also call for privatizing the military in keeping with his broad set of principles.

MR. MCGURN: Well, what first?

MR. DIONNE: Whichever way you want to go.

MR. MCGURN: First, on the Hollywood, I think that’s the problem. I mean, I think it’s easy to pander. I mean, we have a pornography industry that’s huge because it’s easy to pander to taste.

On Hollywood, in terms of the cultural – let me just say that I know from some studies that G-rated films are the highest-grossing of all time, a lot more profitable than R-rated films. If they’re doing it on pure market principles, I’m not sure that they’re following the wisest course. The G-rated films – I mean, that’s why The Passion was such a surprise because it was an R-rated film, and I think it’s probably different from most R-rated films.

So it’s a good question. I don’t know. But I think that my point was they have a lot more influence. And I see it in my house. My children don’t listen to Britney Spears, don’t do this – and they know the lyrics to all these songs. You can’t shut it off. My point is that it’s more ubiquitous, that we have a reasonably controlled environment for my daughters and yet they’re exposed – they go to parochial school and they’re exposed to all these things, and it seeps in. So it’s just a matter of which has the more wide-ranging influence. I saw my daughter imitate someone smoking that she had seen from a movie, and it’s incredible how they mimic things, and to me always the soft sell, cultural sell is a lot more influential than the hard, direct sell, that you can get people to take on things that way.

MR. DIONNE: Do you want to stop there?

MR. MCGURN: Or whatever -

MR. DIONNE: Well, you have another run, and then what I’d like to do is open up one last round, if everybody could be fast, because we want to end on time. We’re having a little reception afterwards, so you can continue.

Let’s just – if you could go to the various hands.

MR. MCGURN: Just one point that I think I agree with. I mean, I have to say Larry would be disappointed. When I was in Hong Kong we would rail against the Hong Kong government for being too interventionist. But in Hong Kong the debate – there was a real debate in models, Hong Kong versus Singapore, and Singapore, whatever you say about it, is a very interventionist economy. They intervene in the housing market; they intervene in every sector. And they have social goals that they want for different reasons, as a small place. And I think they do it probably as well as anyone can do it, given their goals. But their costs are not as efficient as Hong Kong.

They go into these things and they go in with a lot of skepticism, and they say, what are going to be the downstream effects? And they’re very complicated. When they control the housing market then they’re looking at what that does for credit. For example, their housing, they have a Chinese majority, 3 percent Indians and another 10 percent Malays. They want mixed communities, so you all get this private housing that you own in a public housing thing. What do you do when someone wants to sell? The Indians can only sell to Indians. That reduces the equity for them. So I’m just saying it’s very complicated and you can make those choices.

Public schools, just back to one system. We can agree public education is a social good that Americans want and have expressed. There are different vehicles for delivering that good that I think do not necessarily mandate the government actually running their own schools.

MR. DIONNE: Thank you. I won’t be able to get everyone in, but let’s try. The lady back there, right behind you, right there. Would you please stand up? This lady over here. Go ahead. If you could be brief that would be great.

Q: Hi. First of all, thank you very much for this discussion. I’ve learned a lot to chew on today. I think there’s an inherent threat, though, discussing religious morality as opposed to secular morality. And although I’m not well versed in Christian theology, I know that in orthodox Christianity, for instance, it is one of the basic tenets that you’re not supposed to make money off someone else, which makes the stock market basically immoral.

Second of all, I think it’s really interesting to talk about the morality of the market in terms of foreign policy and foreign trade as opposed to domestic, and if you could just maybe take this example: If our largest trading partner is Canada, and let’s say that we’re having a problem with the American lumber industry and so we decide to blacklist Canadian lumber companies in order to promote our own economy. Is that immoral because we’re in a sense crippling the Canadian lumber economy because we’re their largest trading partner but we’re promoting our economy, which is self preservation and also good for the smaller workers across the country.

MR. DIONNE: I know we mentioned, Bill, we’re both against that.

By the way, while I think about it, this lady over here and the gentleman who raised the issue of democracy, Robert Dahl, the great political scientist, in a book called On Democracy, he has two wonderful back-to-back chapters. The first is “Why the Market is Necessary for Democracy,” the second is “Why the Market is a Problem for Democracy,” and think there’s a great paradox that Dahl unpacks, but I won’t go into it.

This lady here.

AMBER SAMPSON: My name is Amber Sampson . I’m a student of social work and economics. My question addresses the assertion that culture is the greatest check on markets. It seems to me that there can be an argument made that markets create cultures, the classic example being birth control, where its production and proliferation has led to a lower age and higher level of sexual activity, and to an entirely different understanding, social understanding of sexuality than before its availability.

MR. DIONNE: Thank you. And then this lady over here, and I’m sorry for the gentleman in the back. You come up afterward and ask your question.

Ma’am?

Q: I’m concerned about the way the market deals with gentrification. I live in a neighborhood where people who’ve lived in apartments for decades, even generations, are being forced out by major repairs, which will result in higher rents that they cannot pay. At the same time, I know a private property owner who feels so hemmed in by government regulations that she feels it almost impossible to deal with her property and put more property on the market, which would be useful in a neighborhood where there’s tight supply.

I want to know from the first speaker what would be the appropriate role of government, and from the second speaker, is there a way that culture can deal with the problem that the market has now created with gentrification?

MR. DIONNE: Thank you all very much. What I’d like to do is go to Ramesh, Larry, Bill, and Becky, just to reverse the beginning order for closing comments, including their responses to these questions.

Why don’t you start, Ramesh?

MR. PONNURU: Sure. Closing statements. I guess the -

MR. DIONNE: You can just solve this lady’s interesting dilemma on gentrification if you want. It’s a very good question.

MR. PONNURU: Yes, although I am paid to have opinions about everything, there are actually exceptions to this rule, and I simply don’t know enough about the subject to say anything intelligent about the subject. By the way, that is a sentence that you are not going to hear very often in Washington, D.C.

MR. DIONNE: That’s why we love you.

MR. PONNURU: I guess that there are two broad points I would make. I think that one of the things that Bill and I are both responding to is the idea that, sure, we all agree that markets work, that markets are efficient as a way of allocating resources, but that they’re sort of a necessary evil, and what I think we’re trying to do is suggest that there are actually moral virtues that it calls forth and promotes, which is not to say that the outcomes produced by markets are uniformly the ones that are required by justice.

And the second point – I don’t think that either one of us is making an argument for sort of unfettered or unregulated or minimally regulated markets. Now, as it happens, both of us tend to have a very strong skepticism about regulation. But the point is not so much that we shouldn’t have a minimum wage; the point is that you can’t make a simple deduction from moral demands to that policy conclusion.

I learned economics really from a textbook by Alan Blinder, who is a liberal economist who served in the Clinton administration. He was for many years a skeptic of the minimum wage, accepting the conventional wisdom really that the minimum wage throws people out of work. Then he saw some studies that changed his mind so that he now thinks that the job loss is not as substantial as he had once thought, and he has revised his policy conclusions accordingly.

But my point isn’t which side of that empirical debate is correct, it’s just that the empirical judgment does matter; that you can’t simply say – I mean, I think Professor Blank would acknowledge this, although she spoke slightly loosely when she said it’s a matter of values; it’s not a matter of economics. Well, if it really were the case that raising the minimum wage 10 cents was going to triple the unemployment rate, then that would have to be a relevant consideration in judging the morality of that action.

And that’s sort of all that I’m suggesting here, that you can’t simply say that to have a moral market you have to have a more regulated market or a less regulated market. It depends.

MR. DIONNE: Thank you.

Larry Mishel?

MR. MISHEL: One reason I really looked forward to this forum is, as someone who studies labor markets and inequality and has frequently gotten the question from reporters, you know, so why should we care, this had to be a setting, it seemed to me, that people had to care in some way. And I guess I’m going to ask Bill some questions that you can answer because I want to engage you on all this.

I guess I was looking for in your speaking and in your writing a highlighted concern for the downtrodden, and what are we supposed to do, and how are we supposed to respond to the fact that there was a vast increase in inequality, and whether it was skills or not, in this setting, what are we supposed to do about it? And even if the solution is education, are just charter schools and vouchers or some kind of competition, you think, sufficient to deal with the scale of what I see as a problem? And I guess that’s what I was hoping to be able to really engage in here, and I’ll stop there.

MR. DIONNE: Okay, so live up to that challenge, Bill. Go ahead.

MR. MCGURN: Well, first of all, Larry, it’s one of the things that people that are pro-market really deeply resent, the idea that they’re not representing the downtrodden. I mean, I want people to be able to choose schools. I spent my life in the Third World, and we resent this kind of question that assumes, you’re against this, therefore you’re against the downtrodden. One of the things about these inequality measures is they don’t always measure the same people. You’re probably familiar with the California RAND study that found actual workers – you have a quintile one year, and then in 20 years you measure that quintile at the top. It’s not necessarily going to be the same people, and a lot of people at the bottom are people starting out or retired, so they look poorer than they are, and there is more mobility.

You probably are better familiar with a lot of these studies than I am. I find it fascinating that people that worry about inequality and stuff are just so adamant when we see this – I mean, it’s just one example, but in a choice on letting some African American mother choose the school that she wants, and we’re all saying their kids can’t be educated, they’ve got so many problems. Why not just let her have the chance, for less money usually – the costs that we’re spending in the District of Columbia is, what, $11,000-$12,000? It doesn’t count capital expenditures. Let her have the chance to pick the school for her children. To me that’s a case to the downtrodden, and I frequently see people that oppose that, and their own kids would never be caught dead near one of those schools.

So I’m not saying that’s you; I’m just saying that as someone that deals with this, the assumption is, okay, now for the dark forces of capitalism that don’t believe. You know, the people throwing rocks through Starbucks’ windows out in Seattle look pretty well dressed to me. I didn’t see too many Malaysians; I didn’t see too many Chinese down there. A lot of these people I think are actually hurting the people, sometimes through good intentions that they intend to help.

I mentioned the book – I think Becky would agree – we witnessed over the world a billion people rising out of poverty. And you can say that doesn’t mean anything, but I tell you, if you lived in China in’84 when I first went there, and you saw no cars on the road, you saw people locked into jobs and so forth, and you go now and see people with cell phones and stuff, you wouldn’t say it’s nothing. It would be a big thing.

So I think the question is about how we deliver these services, and when we have a government program, I think that we have to be skeptical. E.J. mentioned quite rightly I’m on this patronage thing; we pick White House fellows. And I think I’m the ideal person for it because I sit there thinking, we’re rewarding very wealthy people. We really shouldn’t have this program at all. And if we’re going to have it, probably the best person to serve on it is someone who really is skeptical about the purpose, because it’s a drop in the bucket for most things.

But basically, we’re giving people a leg up who are already talented, who are already at the top. So I just think that when we approach this we can’t go from A to B. The answer to poverty is the minimum wage the answer to this is that. We find unintended consequences, and we have to be skeptical, and we have to look at the question of how they’re implemented. I think when we get to those questions we frequently have more agreement than not once this has come up, but it’s a very complicated thing, and it’s very hard to reverse things when the government does it.

MR. DIONNE: Thank you, Bill. I always like to think of people’s statements in terms of distorted newspaper headlines, and so I was thinking of yours: “Wall Street Journal Editorial Writer Endorses Chinese Communist Economic Policies.” (Laughter.) And, “White House Panel Judge Calls for Abolition of Fellowships, Says They Don’t Deserve Them.”

MR. MCGURN: Right. (Laughter.) Not only do they not deserve it, they shouldn’t have it.

MR. DIONNE: Becky Blank.

MS. BLANK: I don’t want to hear what the headlines are when I’m done here.

I just want to make two points, both of which relate to some of the questions and issues that we’ve just discussed.

Point number one is, there’s never an easy answer here when you start talking about markets, morality and government. And the issue always comes back to one of balance. And foreign trade and gentrification, both of those examples are perfect examples where there’s both good and bad. Foreign trade: On the one hand, I am enough of an economist to believe – I think there’s very clear proof on this – it both improves things in the United States and improves things in the developing world as well, on average, but there are losers from foreign trade, and it’s not a costlessly good thing. And therefore, I think on the one hand you ought to encourage and allow trade; on the other hand you ought to have policies in place that do something to recognize and compensate and deal with those losers.

I’d say exactly the same thing about gentrification. Gentrification is both good and bad. It’s good to have property values go up in a city that needs that. It’s good to have your housing stock improved and new developers come in, but it’s bad because people get displaced from their long-term homes and communities get disrupted. Therefore, as much as I want to encourage development in inner city communities, I’m also quite willing to think about grandfather clauses in terms of keeping some tax rates for ongoing citizens down to their historical levels. I’m also willing to enact some mixed-use housing requirements under certain circumstances when developers come in. The issue here is one of balancing the market forces with the recognition that those market forces create some losers, and in some situations, not always, not everywhere, you want to do some compensation for that.

To turn the tables onto the other side of the government policy, I’d say exactly the same thing about the minimum wage. I’m a strong supporter of minimum wages, but I would get to a point pretty quickly, if you kept pushing the minimum wage up, where I would say no more, because I think there are negative aspects to higher minimum wages as well. We aren’t there, I don’t think, currently in the United States, but other countries have gotten to those levels of minimum wages where they actually became destructive to the labor market and really created problems of disemployment for less-skilled workers.

So the issue is how far do you go, and that’s always a nuanced debate in which well-hearted people of faith and of intelligence can seriously disagree on the question of how far do you go. That’s what makes Washington run in some sense, is some of those debates. So that’s comment number one.

Comment number two: Here, I want to go back to the issue that Ramesh talked about and that was raised over here in terms of the – just to use the academic term, the endogeneity of all of these things. I really do take issue with Bill’s comment that culture is what should drive things, and we need to create a culture that creates the restraints that are necessary. Culture is endogenous. The market creates culture just as culture in turn comes back and affects the market, and in turn the government is a piece of this mix as are our churches and all the other associations that are out there.

In the situations where we believe that there is a need for change – take an example of serious exclusion of women from top jobs, or Jim Crow-type laws, both laws as well as tradition that exclude groups of racial or ethnic minorities. You don’t only want to change the government, though you clearly want to do that because Ramesh was exactly right: When you force changes in behavior, over time it changes attitudes. But it’s also true you want to work on attitudes as well. You want to work through your churches, you want to work through your community organizations, because when you change attitudes, then you change behavior. And that’s exactly why it’s so hard to talk about this stuff. To go back to the point I started out with, there isn’t a simple solution. You’re always working on a whole bunch of margins at once, and you want to push the market to be there, you want to push the government to be there, you want to push the churches to be there.

MR. DIONNE: Thank you very, very much. At the end of our book we quote one of my favorite people, Bryan Hehir, who talks about a social vision “that seeks to preserve freedom and to provide space for private initiatives and institutions, and yet does so in a way which guarantees that the basic needs of the person, every person, are met and satisfied.” That is a very demanding standard, and I am very grateful to Larry and Ramesh, and to Bill and to Becky especially, for their work on this book, for pushing us to argue about that.

Thank you all for coming, and please join us at the reception.

(Applause.)

(END)