Economics is about more than the economy. It also intersects public and private institutions, culture, religion, morality, and politics. Rob and Jackie explored these subjects with Benjamin Friedman, a professor of Political Economy at Harvard and author of The Moral Consequences of Economic Growth and Religion and the Rise of Capitalism.
Mentioned:
Economics is about more than the economy. It also intersects public and private institutions, culture, religion, morality, and politics. Rob and Jackie explored these subjects with Benjamin Friedman, a professor of Political Economy at Harvard and author of The Moral Consequences of Economic Growth and Religion and the Rise of Capitalism.
Mentioned:
Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, Founder and President of the Information Technology and Innovation Foundation.
Jackie Whisman: And I’m Jackie Whisman. I head development at ITIF, which I’m proud to say is the world’s top-ranked think tank for science and technology policy.
Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF from the broad economics of innovation to specific policy and regulatory questions about new technologies. And whenever we talk about or think about technology innovation in Washington or in any place, you have to put that in the context of economic policy. And so, today we’re going to talk with I think one of my favorite economists, although we’ve never met before, but what I’ve read of Ben Friedman, he is one of my favorite economists. He’s at Harvard and he really has a very different approach to economics that brings in institutions, culture, religion, morality, and I think very important insights for the kinds of debates we’re having in the country today.
Jackie Whisman: Ben Friedman is the William Joseph Maier Professor of Political Economy and formerly Chairman of the Department of Economics at Harvard University. He joined the Harvard faculty in 1972. His newest book, Religion and the Rise of Capitalism is a fundamental reassessment of the foundations of current day economics showing how religious thinking has shaped economic thinking ever since the beginning of modern western economics, and how this influence continues to be relevant today, especially in the United States. Another one of his books, The Moral Consequences of Economic Growth, is one of Rob’s favorites and we’re planning to talk about both. And so, we’re happy to have you here.
Benjamin Friedman: Thank you. I’m delighted to be with you.
Jackie Whisman: Maybe we’ll start in chronological order and start with The Moral Consequences of Economic Growth. Rob’s favorite, he’s going to have a lot of follow ups, but maybe we’ll start with asking what prompted you to write that book?
Benjamin Friedman: It was a surprising development to me. For many years I was teaching, both at the graduate and undergraduate level at Harvard, courses on macroeconomic policy. I’m a macro economist and I thought it would be useful at the beginning of a course one year to give a lecture or two about why all this matters, especially for a country that’s as rich as we are here in the United States. Macroeconomics normally has two main components. One is about business cycles and the other is about economic growth. So to put the two policy questions in light of the fact that a recession normally means a decline of maybe 2% or 3% in our total production, and that lasts for normally somewhere between 9 and 15 months. Why are we so exercised about that? Why is it so important that we think that we have to spend all this time using optimally monetary and fiscal policies to prevent recessions or make them shallower?
Similarly, the other part of macroeconomics is about growth theory. How do we make our economy grow faster? Once again, the question I wanted to pose is, why in a country as rich as ours, we still are so exercised about making our economy grow more rapidly? I just assumed that I would find something useful written on the subject. The names that came to my mind very quickly were people like Bob Solo, Jim Tobin, some of Arthur Okun who was no longer living at the time. But I thought I surely I would just look in these people’s writings or some others and find a few interesting papers that I could read and assign to my students for these lectures.
I looked and I didn’t find anything. I thought, well, that was very puzzling. Then I looked a little harder, and then I looked a lot harder. And even though I looked very hard, I couldn’t find anything that I thought was worth assigning to my students. So I thought, well this is really very puzzling because it is true that economists like me spend a lot of time on those policy issues as if those questions are very, very important. I thought we ought to have a story. I ought to be able to stand up for two sessions or three at the beginning of a course and explain to students why the issue was important.
As I found that there was nothing I could assign on the subject, I said, well, okay, I’ll write something myself. Then that turned out to be a little more complicated than I thought. I kept at it and the result was the book that you mentioned, which I titled The Moral Consequences of Economic Growth. I was using the word moral in a self-consciously 18th century sense; meaning, it’s not about who beats his wife or who’s stealing or who’s abusing what substances, it’s about the character of the society. I persuaded myself that that’s why these policy issues are important in a rich country like ours.
Rob Atkinson: Oh, that’s fascinating. You mentioned Okun which was Kennedy’s advisor as I recall, and maybe Johnson as well. Not to advertise my own thing, I have a piece coming out, actually I hope next week, we’re recording this right before Labor Day, in a journal called The Independent Review. It’s been under review for a while. It’s an article about how the concept or how people view growth has changed over the last 50 years. I quote Okun. I think at one point he had a great line in there where he said, “Growth is the good word.” So there was this sense that growth was very important. Today we’re not so sure sometimes.
But one of the things I think that’s distinctive, Ben, about your book is you write that increases in standards of living don’t just bring us the things we all, okay, well now I get a little bit bigger car, maybe I can get a new iPhone or something like that. So those are all the things that economists tend to think about because economists tend to think about monetary items. If you can measure it in a monetary term, that’s what they measure. But you talk about how growth shapes social and political and ultimately moral character of people. Clearly, the original political economist like Adam Smith thought that way. He had his book The Theory of Moral Sentiment. How much did you build off of those original political economy theorists who didn’t see economics and politics and society as separate buckets?
Benjamin Friedman: I think they were very influential in the line of argument I put forward in this book. The person to whom I would point even more than Adam Smith is David Hume. Hume has this lovely essay from 1741 called “Of Refinement in the Arts.” By arts he didn’t mean things like painting and sculpture. He meant things like manufacturing, which was just getting going in the 1740s in Britain. His argument was that societies that move forward in their scientific achievement, by scientific he meant knowledge, practical knowledge, were therefore likely to move forward in their economic achievement, and were therefore likely to move forward in their moral achievement, where once again I’m using the word moral as Hume did in the 18th century, meaning not the moral behavior of individuals but the moral character of society.
Then Smith picked up this idea. Hume was Smith’s friend and mentor. Smith in his book called Lectures on Jurisprudence, built on exactly the same idea. Smith started from this today very familiar notion of human economic development going through stages in which originally people were hunters and gatherers, and then they became shepherds, and then they became farmers, and then they moved on to what Smith called commerce. Smith’s argument in the Lectures on Jurisprudence is that each of these stages of economic production required different social and legal arrangements.
Moreover, this was not an original idea for Smith. People like Rousseau had talked about it earlier than Smith. So the answer to your question is yes, very much, I was building off of what people in the 18th century in particular had had to say. I think it’s too bad that this is largely dropped out of economics. I am embarrassed that at my university we don’t make economics majors read Adam Smith. What a pity that we don’t. But we don’t. I signed some Adam Smith in my courses and I’m proud that we do. But I wish we had some selections of Adam Smith in the introductory course. We don’t.
Rob Atkinson: Well, I think you’d only assign the part of Adam Smith where he has econometric equations in the chapter, right?
Benjamin Friedman: Well, there were lots of things. Economics has progressed, it’s nice to observe. There were lots of things that we have that Adam Smith doesn’t. But having said that, let me rise to Smith’s defense. He was an amazingly insightful person. There are lots of elements, not on the technique, not on the mathematics, not on the econometrics, but there are lots of very interesting and important economic insights that we have today that if you are willing to live with different language, you will find right there in one or another of Smith’s book. So I came away in part from that project and also in part from my more recent book, just as a great admirer of Smith. What a terrific guy. Incidentally, we’re coming up on the 300th anniversary of his birth. Smith was born in 1723. And so, next year you can be on the lookout for all sorts of programs that are going to go on in different places celebrating his tercentenary.
Rob Atkinson: Smith is one of those guys that, I shouldn’t say one of those guys, one of those economists who a lot of people talk about, a few people have read him.
Benjamin Friedman: I agree with that. I always think that the meaning of an Adam Smith necktie, when I see one, it’s a way of persons telling me that he has heard of Adam Smith, but not read. He has heard of the Wealth of Nations but not read it, and he’s probably not heard of the Theory of Moral Sentiments.
Rob Atkinson: Exactly. It’s a good signaling process.
Jackie Whisman: We hear a lot about growth being problematic, especially recently, and hurting the environment, only going to the wealth. But you make a broader and more interesting claim that growth is key to a moral society. Can you expand on that?
Benjamin Friedman: I will, but first let me pause on definitional matters. My definition of growth, and the growth for which I allege a positive moral consequences in the book with that title, is not just a matter of whether the GDP is increasing. The index that I look at is the median growth. When I discuss it in non-arithmetical terms, the way I define it is an improvement in the standard of living that’s broadly shared across the society. This is not a story about super rich people. It’s not a story about people in the top 10% of the income distribution. It’s also not a story about people in the bottom 10% either.
Looking back on that book, I’ve been criticized on both sides. Some people want to say I should have paid more attention to the fact that GDP gross and well, it’s all accruing to people in the top 10%, Let’s call that growth. I don’t. Conversely, I took a lot of criticism for people who wanted me to spend a lot of time on what’s happening to people at the very bottom. I didn’t do that either. I’m looking at the broad swath of middle of the income distribution for a country. And so, built into my definition of growth is something about the fact that it’s shared. Something about the distribution. Oh, that’s one part of it.
Now what are these positive characteristics that I associate with growth is things like openness of opportunity, whether the opportunities to get ahead or just sons and daughters and nieces and nephews of people who are already at the top or other people. It’s fairness, question of generosity. It’s all good and talk about opportunity but we know that there are people who for one reason or another are not going to be able to take advantage of the opportunities provided. What about them?
It’s issues of tolerance. Tolerance with respect to what? Well, as Americans, we would think about race relations. We would think about religious prejudice. We would think about ethnic tensions. Then finally, the issue that I highlighted in the book and in retrospect, I’m sorry I didn’t highlight even more, was commitment to democratic institutions, which for people in some countries means development of whole new institutions, but for us means commitment to the democratic institutions we’re lucky enough to have inherited from our forbears. I think all of these things are intimately tied up with whether the millions of people right in the middle of the income distribution are getting ahead in their material standard of living or not.
Rob Atkinson: It’s almost like you could say that scarcity makes people scared. When you have that, the opposite of fear is hopefulness and expansion, if you will. I was struck by, I’ve read a lot on my own about the history of the rise of Hitler and where did that come from and you have a great chapter in there. You talk about that. One way you can make a very strong case, which I think you do, I don’t want to overstate your case, but that Hitler was vastly enabled by their depression.
Benjamin Friedman: Oh, I think that’s right. There’s a standard myth which I go out of my way to rebut in the book, that the rise of Hitler had a lot to do with the German hyperinflation in the early 20s. I think that’s simply wrong. The hyperinflation was over by 1923-24 at the latest. As late as 1928 and 29, the Nazi party ranked 10th. That’s not a typo. Tenth. Not a verbal typo. 10th among the parties competing in the German electoral system. The Nazi party was getting only 2% of the vote. And so, between 1928 and 1933, something very important happened. Well, what was it? It was the Great Depression. Germany and the United States where the two countries that were most hard hit by the Depression. Not that we didn’t have threats in this country, but we went in another direction. I found that so interesting that as you say, I devoted a whole chapter of the book to thinking about why Germany went in one direction and the United States went in a different direction.
Incidentally, if I’m allowed on this podcast to offer an advertisement.
Rob Atkinson: Sure.
Benjamin Friedman: The young man who was my research assistant for that chapter has a brilliant book out himself on the rise of Hitler to power. His name is Ben Hett. He is now a professor of modern European history in New York. Ben has a wonderful book called The Death of Democracy, and I really recommend it. You might ask why did I have to have a historian as my research assistant. The answer very is very simple. I don’t read German. And so, I knew that I needed access to the German language sources to do what I wanted to do in that chapter, but I don’t read German and it didn’t make any sense for me to go off and learn German. I’m not good at languages anyway. So I asked my friends in the history department, could they provide somebody from their program to be a research assistant, and the person they provided was Ben Hett. He was terrific as a research assistant and his book is terrific, so I’m glad to be able to give his book an advertisement.
Rob Atkinson: No, that’s great. I’ll take a look at it because as I said, I find that period fascinating and just in terms of how something as horrible could have come about. Oftentimes the economic part of that is overlooked, and you didn’t.
Obviously we can’t have this conversation without talking about where we are today. You mentioned there’s a risk, I think I’m maybe paraphrasing or even quoting, a risk of retreating into rigidity and intolerance once enough of a country’s citizens lose the sense that they’re getting ahead. I know there’s a lot of argument that Trumpism is related to this, but I would argue this is not a right or left thing. There’s a lot. The rise of left wing populism could be related to the same kind of thing where a lot of people don’t feel they’re getting ahead.
Then you also write, you say you fear a deterioration of American society if broadly shared growth does not happen once again. The problem I see it is, it’s not even that we’re getting growth with that that’s not broadly shared. Our growth rates have been quite low, at least in terms of productivity, and we’ve had challenges with broadly shared growth. What’s your sense on that? There’s a whole debate about that with, I’m blanking on his name, the economist who basically says that growth is over. I’ve been on panels with him and there’s a big debate about all of that. I’m just curious, what your-
Benjamin Friedman: Are you talking about Bob Gordon at Northwestern?
Rob Atkinson: Bob? Yeah, Bob Gordon. I think Bob is overly pessimistic. I’d just be curious, Ben, your thoughts on that. How likely are we going to get back to more better rates of growth broadly shared and how important is it that we do that?
Benjamin Friedman: Well, first let me take up the question you raised 30 seconds ago. I very much agree with your characterization. Ever since, call it the year 2000, we’ve been in a period of stagnation in the United States. Stagnation to repeat from before, not for the gross domestic product, but pretty much stagnation for the standard of living of the broad bulk of the population. Crudely put, we had very slow but positive aggregate economic growth from, call it 2000 up to the great financial crisis. Then during and after the great financial crisis, we had negative growth and then recovery, and then halting growth. Now only in the last year or so we’ve had some more, actually two or three years, we’ve had some more robust growth.
But throughout this period we have had a problem of the distribution. So going back to the period of 2000 up to the great financial crisis, even though the gross domestic product total output was improving at some decent but not spectacular rate, enough of the fruits of that growth were accruing to people already at the top that the middle of the distribution folks that I’m interested in were not getting ahead. Then during the great financial crisis and the recession after that and the slow recovery, people in the middle actually lost ground. It’s only in this last couple of years of more robust growth that people have finally, finally started to move ahead of where they were 20 years ago. Now, as I tried to document in the book, we’ve had periods before in which the American public have gone 15, 20 years at a time without improvement in their living standards and the outcome has not been pretty.
Now to address your issue, I think many of the pathologies that we are seeing today on both the right and the left, although I think it’s more visible on the right, are indeed not just pathologies, but they are the predictable pathologies that emerge anytime a society goes for a period like 15, 20 years without the public having a sense of getting ahead in its material standard of living. Therefore, this question that Bob Gordon focuses on of whether we are likely to see again the kind of growth that we saw in the strong pro-growth periods of the past will return, I think is absolutely crucial.
Bob, as you point out, is way on the pessimistic end of the spectrum to pick somebody who’s way on the positive end, who often is paired with Bob in debates. I would point to Eric Brynjolfsson now at Stanford. Eric is a great techno-optimist. My field is not knowing about technology. And so, when I teach my students about these things, I assign Bob’s papers and say, “Look, that anchors the pessimistic side of the spectrum.” I assign Eric’s papers, I say, “This anchors the optimistic side.” I just don’t know. I’m not good at this. I don’t have technical training and it’s not my field of economics. And so, I’m not prepared to make a prediction of what the growth rate is going to be over the next generation or two. But for exactly the reasons that we are talking about, I think it’s going to make an enormous difference not just to the material wellbeing of American citizens, but to the moral character of our society.
Rob Atkinson: Oh, exactly. I have a bet that I’ve made with somebody, there’s a really fun bet site called The Long Now Foundation that Stewart Brand set up. If you win, you donate money to charity, so it’s not like individuals. But I have a bet with somebody and a very wonky economics bet, and I said, “By 2024, we’re going to have consistently 2% or more labor productivity growth.” So I’m between Eric and Bob. I think things are going to get a little better. I don’t think we’re going to go to 3% or 4%, but I don’t think we’re going to stay at zero either or one, I should say.
Benjamin Friedman: But even where you say you are, that is going to highlight the importance of the distribution question. Because when growth is very rapid, even with some degree of widening of inequality, it can still be true that people in the middle of the distribution are getting ahead quite nicely. By contrast, if growth is very sluggish, as you’re suggesting, positive but not too spectacular, then the distribution question becomes very important. Because in a slow growth society, like what you seem to be suggesting, if the distribution continues to widen, that just doesn’t leave a lot of room for people in the middle to be moving forward. So if you’re right, then the corollary of your prediction, I think, is that the distribution question is going to be very much at the top of the American agenda.
Rob Atkinson: I guess it depends on what your definition of good is. I look at our productivity growth now, it’s kind of 1.2, at periods we’ve had 3. So I was betting against a pessimist, so I said, “Well, at least have 2%, which is a lot better than we have now.” So in other words, I’m a little bit more optimistic going forward. I think we’ll have a little bit more growth, which will make it easier to deal with that. Jackie, do you want to, maybe, we’re running close on time, but I do want to ask one last question about your new book, which is also very, very interesting. I have to say I’m only about halfway through it, Ben, but so far I find it fascinating.
Jackie Whisman: We’re talking about Religion and the Rise of Capitalism, and you write that from its inception as a recognizable intellectual discipline. Economics has been influenced by religious ideas. Tell us about that book.
Benjamin Friedman: The standard story of the origins of modern western economics, and again we’re talking about people like Smith and Hume and their contemporaries, the standard story is that economics was and is a product of the Enlightenment. And since we conventionally think of the Enlightenment as a movement away from thinking in terms of a God-centered universe to what we today in our vocabulary would call secular humanism, the standard view is that it therefore follows that religious thinking had nothing to do with economics.
I believe that that’s simply wrong. And so, in the first half of the book, I try to show that people like Smith and Hume, even though they were not individually religious believers, people like Smith and Hume were very powerfully influenced in their economic thinking by what were at the time new and powerfully contended, hotly contended, lines of thinking in the English-speaking Protestant world in which they lived. In particular, the key element in this on which I focus is the movement away from belief in predestinarian Calvinism. This was a kind of rolling phenomenon. The movement away from belief in predestination was at its height in England in the latter part of the 17th century. It was at its height in Scotland, Smith and Hume were Scots, that at its height in Scotland in the early to middle part of the 18th century, just when they were coming into young adulthood and forming their view of the world, and it was at its height in America in the latter part of the 18th century, which not coincidentally is when the American Independence movement took off. And lots of people have commented on that.
Well, the argument in the first half of the book is that this movement away from belief in predestination opened the way for Smith and Hume and others to have a much more optimistic, much more expansive view of the role for human action, human choice, human agency, and that this enabled them to come up with the ideas that became modern western economics.
Then the second half of the book, which focuses more on the United States, traces the way in which down through the 19th and the 20th centuries and right up to today, even though the economy changed, and therefore, of course, the questions that economists were asking changed as well. Religious influences continued to shape economic thinking, of course in different ways as the discipline matures. And I think this is most evident today in our public conversation in the United States and our debate over economic policy. All sorts of dimensions of that public debate are easier to understand if we look at the way in which issues are correlated with people’s religious views.
So that in brief is the book. Again, it goes against the grain of this standard view that religion just doesn’t have anything or didn’t have anything to do with it.
Rob Atkinson: That’s exactly why I really have enjoyed reading your work over the years because it’s bringing this new, more complex and richer assessment to economics than just this kind of very narrow utilitarianism, standard mathematical view that says that we’re all automatons that are utility maximizers. To some extent we are, but we’re also moral animals as Smith said. I wish we had more time, but we don’t so I want to thank you. That was really a great conversation. Really enjoyed it.
Benjamin Friedman: Thank you. I’ve enjoyed talking with you both. Thank you very much for inviting me.
Jackie Whisman: That’s it for this week. If you liked it, please be sure to rate us and subscribe. Feel free to email show ideas or questions to podcast@itif.org. You can find the show notes and sign up for our weekly email newsletter on our website, itif.org, and follow us on Twitter, Facebook, and LinkedIn @ITIFdc.
Rob Atkinson: We have more episodes and great guests lined up. New episodes drop every other Monday so we’ll hope you’ll continue to tune in.