Saturday, May 10, 2008

Dear Deacon:

You are correct that economics is a value-free discipline. This is not to say moral values are unimportant, of course, but that the economist observes the economic world as it is and derives his theories based on economic reality as the economist perceives it. The law of supply and demand represents the economist's chief contribution to understanding economic reality.

Christians care about the poor. Christians care about high prices and low wages. Lower prices and higher wages can ease the plight of the poor. Christians are free to donate their time or material resources to various charities committed to easing the plight of the poor. But that's not enough for some Christians; sometimes Christians favor state intervention to reduce prices and increase wages. This is where the law of supply and demand comes in. (I'll leave to one side for now the morality of state intervention aimed at easing poverty; suffice it to say the state employs morally problematic means--taxation requires force or threats of force--to achieve its purportedly moral ends.)

Gasoline prices are very high right now. Some believe the state should impose a ceiling on the price of oil to ease its toll on our pocketbooks. The law of supply and demand states that the market price of oil is set by the supply and demand curves for the product. The market price will drop only when supply increases or demand decreases. For the state to impose a price ceiling below that market price will succeed only in creating shortages, as supply will not meet demand at the artificially imposed below-market price. Perhaps you remember the gas lines of the early 1970s?

A corollary to the law of supply and demand states that imposition of a price floor above the market price for a good or a service creates an oversupply of that good or service. This is the phenomenon observed with minimum wage laws. At higher wages, employer demand for labor will not meet supply. Christians are ill-advised, therefore, to favor minimum wage laws (again, leaving to one side the morality of the state's employing force or threats of forces to set the terms and conditions of employment). Minimum wage laws create unemployment among those most in need of work experience to lift themselves from poverty.

Respectfully, I also find your faith in the public-school system misplaced and more than a little ironic, coming as it does from a Catholic parish's news bulletin. A free market in education will serve the needs of the poor and middle class better than the state monopoly system. Catholic schools, for example, educate students for one-third the cost of public schools. This fact should surprise no one. As monopolies, the public schools are insulated from market discipline; they have virtually no incentive to decrease costs or improve quality, especially when compared to private schools.

Indeed, the incentives for public schools are turned on their head. Public schools get more money when they fail! Underperforming private schools lose money as dissatisfied consumers drop those schools' services and spend their education dollars elsewhere. Charities can educate the poor under a system of privatized education. To favor collectivized education in the interests of educating the poor is as wrong-headed as favoring collectivization of farming and food distribution in the interests of feeding the poor. We all know how agricultural collectivization turned out in the Soviet Union: only the wealthy and politically connected were well fed. Likewise with the public school monopoly: eventually only the wealthy and politically connected will be well educated.

I apologize for composing such long a letter, but the issues you raise are important and complex. If I have piqued your interest in free-market solutions to social problems, you may want to Google "Thomas Woods." Mr. Woods is a traditionalist Catholic who was written many defenses of the free market from a Catholic perspective. (He has also written a sterling defense of the Latin Mass.) A link below will direct you to Mr. Woods' book The Church and the Market.

Yours in Christ,

Tony Pivetta


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