This is part of the Values & Capitalism Q&A Series.
Art Carden recently answered questions for Values & Capitalism related to economic growth, free-market cooperation, immigration, how Walmart benefits the poor, and more.
Dr. Carden is an Assistant Professor of Economics at Samford University near Birmingham, Ala. In addition, he is a Senior Research Fellow with the Institute for Faith, Work, and Economics; a Research Fellow with the Independent Institute; a Senior Fellow with the Beacon Center of Tennessee; and a member of the Adjunct Faculty of the Ludwig von Mises Institute. He was a Visiting Research Fellow at the American Institute for Economic Research in 2008, 2009 and 2011, and he has taught in summer programs sponsored by the Institute for Humane Studies and the Ludwig von Mises Institute.
Art’s main areas of research are Southern Economic History, development economics, and the effects of “Big Box” retailers like Walmart and Costco. His research has appeared in many journals, including the Journal of Urban Economics, and many websites, newspapers and other outlets have carried his commentaries. He also contributes regular commentaries to Forbes.com and the Washington Examiner.
In your paper, “Christian Ethics, Formal Institutions, and Economic Growth,” you say that many religious scholars and commentators are more concerned with changing “the way the pie is cut, with relatively little attention paid to how pie-cutting activities will alter pie-producing incentives.” Could you elaborate on the difference between pie-cutting and pie-producing activities?
Nobel Laureate Robert Lucas once wrote that “(o)f all the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.” He goes on: “But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.”
The answer is ultimately pretty simple: when people invest scarce time, talent and treasure in new ways to cut the pie, they aren’t producing any additional pie. Their time and energy would be better used coming up with new ways to produce output. As Joseph Schumpeter pointed out decades ago, the real winners from economic growth have been the poor. I’ll paraphrase him: what he called “the capitalist achievement” consisted not of new and better silk stockings for the queen of England but of ever-more, ever-better stockings for factory girls at ever-lower prices.
How have the fundamental propositions of Christian ethics, such as “love your neighbor” and “care for the poor,” impacted your work as an economist?
I spend a lot of time thinking about how the fact that people respond to incentives and the fact that there are no free lunches should direct our compassion. As I tell my students time and again, good intentions aren’t enough. In fact, a lot of policies that have been enacted in the name of “helping the poor” actually make them worse off, on net. Rent controls and minimum wages, for example, leave the poor with fewer gains from trade as a result of the fact that they create shortages (in the case of rent control), they create unemployment (in the case of the minimum wage) and they divert poor people’s time, energy and attention away from production and toward costly searches for scarce apartments or scarce employment opportunities.
I do a lot of what I do and write a lot of what I write precisely because I care about the poor. Free markets and a cultural environment that rewards innovation helped create the modern economic growth that makes our lives so spectacular in rich countries today. As countries adopt the “bourgeois deal,” as Deirdre McCloskey calls it, they are experiencing rates of growth that will someday help them catch up.
I agree with the economist Alan Blinder: we have to combine soft hearts with hard heads. As has been amply documented, policies that are allegedly soft-hearted actually work to the precise detriment of the people we think we’re helping. We should ask ourselves: is it really compassionate to march for policies with disastrous and documented negative unintended consequences and then pat ourselves on the back for meaning well? I’ve said before that poor people can’t feed, clothe and shelter their children with your good intentions. For that, they need real goods and services.
Capitalism is more often associated with competition and edging others out of business, but your video shows how free markets can lead to cooperation. Do you see trade as only a pragmatic result of capitalism, or does it also have moral implications? Are there any other ways free markets serve to build up communities?
Trade is a kind of human cooperation. What are firms competing for? They are competing for the ability to make consumers better off. The big winners, again, are consumers. It is easy to look at the very visible costs of what Schumpeter called “creative destruction,” but there are benefits—and indeed, benefits that are larger than the costs—that are harder to see. It’s easy to see the local Mousetrap Manufacturer who goes out of business because someone has built a better mousetrap. It’s much harder to see the benefits: money consumers were spending on lower-quality mousetraps can now be re-deployed toward something else. If I save money on mousetraps, I might buy more and better coffee. That creates opportunities for coffee merchants. Maybe I just save the money, which means that someone out there is able to get a loan to start that business they always wanted to start.
You argue against the notion that poor countries need more monetary aid from rich countries. Are there any forms of positive assistance that rich counties or citizens should provide?
Absolutely: open borders now, or at least a close approximation. Lant Pritchett’s book “Let Their People Come” convinced me that relaxing immigration restrictions is not just good economic policy. It’s a moral imperative. In the first few pages of the book, he estimates that allowing additional immigration to the tune of about a 3% increase in rich country labor forces would create about $300 billion in additional income for the world’s poor and an additional $51 billion in income for the world’s rich. And yet rich countries are spending $17 billion per year preventing immigration. That’s madness.
After extensive research on Walmart and other big-box retailers, you make the case that Walmart actually benefits the poor. Can you describe how the poor benefit from Walmart’s practices? How would you respond to those who discredit Walmart as an immoral company?
Walmart competes in a globally competitive market for capital and in competitive markets for labor. The thesis “Walmart should just pay more; they could still be profitable” ignores how wages are determined in those competitive markets. First, if Walmart decided to pay more, the long-run effect would be what I’ve seen called “job gentrification:” more productive, higher-skill workers would squeeze out less productive, lower-skill workers. Second, if Walmart decided to sacrifice profits in the name of more charity, they would have a lot more trouble raising capital (and note that at least some charitable giving can be good for the bottom line). Walmart obviously shouldn’t get subsidies from local governments and things like that, but most people who hate Walmart apparently hate them for what they do right.
Several years ago, a few scholars estimated that in 2000, Walmart led to a $4.7 billion reduction in retail wages. In our 2011 paper in the Journal of Urban Economics, Charles Courtemanche and I did a back-of-the-envelope calculation suggesting that consumers’ savings in 2002 from the effect of just Walmart Supercenters was about $177 per household, or $18.7 billion in aggregate. Even if retail wages are lower because of Walmart, the fact that the company helps our dollars go further means we’re better off on net.