Religion and Economics III: The Hoary Objections to Capitalism

We keep pulling¯out of bleak embers¯the objections to the American economic system that were already cold thirty years ago. Recycled from generation to generation, they never seem to pass through the fires of critical thought.

For instance:

• The people of the United States, 5 percent of the world’s population, are consuming 26 percent of the world’s energy. Greedy Americans!

The problem here lies in the term energy . At the time of the U.S. founding, what did people mean by energy? The human back, horses and oxen, paddle wheels, pulleys and ropes, soon thereafter steam engines, peat, coal. That was about it. After passage of the Copyrights and Patents Clause of the U.S. Constitution, many new forms of energy were developed. These included how to ignite anthracite coal (hotter and slower burning than bituminous coal, anthracite made skyscrapers and ocean-going cruise ships possible); how to harness electricity; the invention of the gasoline engine, together with the discovery of how to refine crude oil into gasoline¯and how to find, drill for, and pump oil from deep below the earth’s surface. Nearly all these things were invented by Americans.

The first oil well was drilled in the Middle East¯by an American and British consortium¯not until about 1909, thereby transforming an ancient, useless nuisance (sticky tar) into an enormous source of new wealth. Liquid gold! And rendering the poorest countries of the world into some of the richest. Where people used to say, "Poor as a Bedouin," they now say, "Oil-rich Arab sheiks." To be sure, the motives of the British in 1909 may have been for their own self-interest; but whatever their motives , the drilling of those wells gave the Arabs unprecedented national wealth themselves. The Arabs lacked the technology, skilled workforce, and capital to have drilled those wells for themselves.

Then came the invention of nuclear power, again by Americans. Beyond that, Americans have discovered that there is more energy in a gallon of seawater than in a gallon of crude oil, in the form of hydrogen. And they are working on how to harness hydrogen safely and cheaply for heating homes and factories and for fueling autos.

In brief, 5 percent of the world’s people have invented nearly 100 percent of the modern forms of energy and have already¯according to the critics’ own numbers¯distributed some 74 percent of it to others. And we have to do still better. There is no need to feel guilty about having invented so many new forms of energy and having made them abundantly available to the whole world. Admittedly, we can do still better. And we will. Besides, we use our share of this modern energy to create goods and services for abundant export, and to invent new industries and new technologies, which also benefit others far beyond our own shores.

• Income inequality is growing quickly, as the rich get richer and the poor get poorer, especially in the United States.

This repeats mindlessly false accusations even older than the writings of Karl Marx. Instead of consulting ideology, it is more useful to think clearly and to check the real numbers. In the United States, look first at the people in the bottom 20 percent of income. Who are they?

Forty years ago, a large part of them were in male-headed households, in which there was one worker (usually the male) at a low wage. Today, more than two-thirds of poor households are led by women, about half of them widows and almost another half unmarried mothers with children. Often these poor female-headed households have no full-time worker at all. Where there is no work, there is no income of the sort counted by the government.

In short, the demographic composition of the lowest 20 percent has changed dramatically in the past forty years.

Even so, the Congressional Budget Office (independent, although supervised by Democrats) has just reported that the earning of the lowest 20 percent are about 80 percent higher, in real terms, than they were about fifteen years ago in 1990. This is, of course, because the welfare reform act brought millions in the bottom quintile back into paying jobs. This seems to me like a good, Christian thing to do.

Incidentally, the middle class also gained significant ground between 1992 and 2005, in large part under President Clinton but going even higher under President Bush. The median family with children earned $8,500 more in purchasing power (after inflation) in 2005 than in 1990. Put another way, the level of income of the bottom half of the population moved much higher in about fifteen years. The steady progress of the middle-class family, as well as of the poor household, is also a good outcome, is it not? The CBO also reports that the average income for poor households increased by 45 percent just between 2001 and 2003, the weakest two years of this fifteen-year cycle.

Meanwhile, we tend to ignore the impressive fact that the bottom 20 percent in America is constantly being replenished by dirt-poor immigrants. These, in turn, year by year, rise steadily out of poverty, only to be replaced by a new wave of poor immigrants. In other words, the persons in the bottom 20 percent keep changing, as millions steadily move up from that bracket, and millions more immigrate in. This also seems to me a favorable omen for important Christian values.

• Globalization is bad for the poor of the world and reduces the number of jobs in America.

It is true that some concrete industries in some parts of America are hurt by globalization. Overall, though, this country has gained some 29 million new jobs since 1992 (twenty million under Clinton and more than nine million under George W. Bush, through 2006). During the era of globalization, in other words, job growth has been spectacular. The unemployment rate is also remarkably low, 4.6 percent. Median, average, and overall income levels have been rising, not falling. A higher proportion of the lowest 20 percent is employed than was the case fifteen years ago. Some concrete cases aside, it is hard to show that globalization is hurting employment in the United States.

As for the poorest countries of the world, globalization has brought in a swiftly rising tide of hope, growth, and opportunity. In 1980 the poorest continent in the world was Asia, with soaring poverty rates in India and China. Then those two nations became capitalist systems and entered the waters of globalization. They thus launched the greatest gains against poverty ever seen on this earth¯after 1980, a half-billion Indians and Chinese moved out of poverty. The eminent economist Jagdish Bhagwati writes: "Poverty declined from an estimated 28 percent in 1978 to 9 percent in 1998 in China. Official Indian estimates report that poverty fell from 51 percent in 1977¯78 to 26 percent in 1999¯2000." For China and India, globalization has been an indispensable benefit.

Economists today list four different components of the new meaning of globalization:

1. A dramatic drop in transportation and communication costs

2. The shrinkage of the world into one small "village"

3. A single global market

4. Steep increases in cross-border trade

While globalization is all these things, it also has an interior dimension. Globalization has changed the way individuals experience themselves and the way they think. People everywhere are much more keenly aware of worlds far beyond their borders.

I confess that I find none of these components objectionable, from a Christian view of economics. If the poor of the world are to be liberated from the shackles of poverty, it seems plain to me that they must be "allowed into the circle of development"; join in economic solidarity with the wealthier nations; and subsequently benefit from the upward draft of liberty, trade, and closer communications. In short, globalization is patently good for the poor of the developing world. It certainly seems better for the poor than any previous alternative. That meets the test of Christian realism.

Michael Novak has been a member of the First Things board since its founding and was the winner of the Templeton Prize in 1994. He has held the George Frederick Jewett Chair at the American Enterprise Institute since 1980. His recent articles and pathways to his books can be found at www.michaelnovak.net .