Morality and Science

In so many ways, science promotes truth and justice. We need not rely on unfounded opinions and beliefs. Science can establish moral principles. For example, a few hundred years ago, the belief was that a mentally ill person had been possessed by a demon. The cure was to beat and torture the person until the demon fled. As medical science advanced, it overcame the immorality of unbearable torture by providing scientific treatment for the mentally ill.

A more current issue of science and morality is our economy. It’s often been said that our national budget is a moral statement of who we are. That’s easily true, but what moral choices does science provide us?

In our stressed political polarization, the issue is supply-side vs. Keynesian economics. It’s charitable to call supply-side an economic theory because it’s essentially unregulated greed, not a moral theory.

Supply-side economics existed before under a different name, called laissez-faire. It was an economic policy of free market capitalism that opposed government intervention. Laissez-faire economics peaked around 1870 and produced a wealthy class that historians call “industrial barons.” Mark Twain called it the “Gilded Age.” Workers’ low pay and horrific working conditions made such wealth concentration possible. Child workers were shackled so they could not run away. The history of child labor is an injury to our souls.

We are losing the social progress we have made. The Economic Policy Institute wrote this year that, “Child labor laws are under attack across the country.” That is unconscionable. USA Today reports that, “Republicans push for teenagers as young as 14 to work in restaurants, industrial jobs.”

Laissez-faire economics led to the crash of 1929 and the Great Depression. The stock market and banks were unregulated. President Herbert Hoover was a product of laissez-faire and was reluctant to regulate anything. He believed the economy would correct itself and promised, “Prosperity is around the corner.” But it wasn’t around the corner, and suffering voters elected Franklin D. Roosevelt in 1932. 

Roosevelt appointed an English economist as his advisor, John Maynard Keynes. His theories lifted us out of the Great Depression. His success validated what became known as Keynesian economics. It was much different from the “hands-off” policies of laissez-faire. Under Keynes’s guidance, the federal government took an active role in participation and regulation. Roosevelt regulated banks under the Glass-Steagall Act of 1933. He protected depositors by preventing commercial banks from speculative investments in the stock market. He created the Federal Deposit Insurance Corporation (FDIC) that insured deposits in a failed bank.

Under Keynesian economics, the government invested in gigantic projects like the Hoover Dam, which still provides power to over 1.3 million Americans and water for agriculture for 25 million people. Another massive investment was the creation of the Tennessee Valley Authority, which created jobs and brought electricity to 22 million people in the Southeast.

The list of New Deal agencies that created jobs and infrastructure is long. The WPA (Works Progress Administration) built schools and other projects. The CCC (Civilian Conservation Corps) hired young men between 17 and 24. Their work contributed to America’s national parks through firefighting. They built access roads and worked to stop soil erosion. And they planted millions of trees.

Photographs from the Great Depression captured images of men with signs that said, “I don’t want charity – I want a job.” Roosevelt gave them those jobs.

Money in workers’ pockets creates demand, and demand creates supply. Supply-side economics does not create demand. Agencies like the WPA, CCC, and many others provided workers with the money that created the demand that would reboot production.

An essential feature of Keynesian economics is the “multiplier effect,” also called the “ripple effect.” People who receive money will spend and save, at least in the middle class. The poor save nothing, and the rich save almost everything. In professional jargon, economists call this the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). In practice, it works like this:

Lydia received a $1,000 bonus. Her marginal propensity to save is 20%, so she spends $800 on landscaping and saves $200. The landscaper saves $200 and spends $600 at Frank’s Lawn Supply. Frank needs supplies from Dave’s hardware store, so he spends $500 and saves $100. By the time this cycle plays out, Lydia’s original $1,000 will have generated almost $3,000 of economic activity. 

Beginning with Ronald Reagan, public policy began to turn back to laissez-faire under the new name of supply-side economics. During Roosevelt’s New Deal, people saw the government as something that saved them from despair and improved their lives. President Reagan portrayed the government as evil. For him, the government was “the problem.” He began to erode unions’ strength and gave tax cuts to the rich. His policy was to deregulate. Tax-hater Grover Norquist said he wanted to “reduce government until you could drown it in a bathtub.”

President Bill Clinton was primarily responsible for the Great Recession of 2008. Following the supply-side rule of no government interference in business, he repealed the Glass-Steagall Act of 1933, which had served us well. Clinton gave commercial banks free rein to invest in stocks. He also repealed the regulation of the commodities market. With no government regulation, big banks invested in housing derivatives. Just like the Roaring Twenties, investments boomed. They sold houses to people who could not afford them—to make the growing mortgage market seem like a fantastic investment. And like the Crash of 1929, the truth finally came in the 2008 Great Recession. The housing derivatives owned by the banks were worthless. Fortunes were lost. Banks failed. Retirement investments suffered. Over 30 million people lost their jobs. 

As President Obama began his term, he turned to Keynesian economics to restore national health and put people back to work. And now, with some Republican support, President Biden has laid the foundation for increased employment with good-paying jobs. His infrastructure package will build and repair deteriorating bridges, highways, water systems, etc. 

Joe Biden’s version of Keynesian economics has already created 13 million jobs since he took office. Money in the pockets of all those workers will trigger the ripple effect and give a giant boost to the economy three times over.

In summary, supply-side economics asserts that if industry and investors have more money through reduced taxes and poor labor standards, they will invest their money and produce more. Then everybody will benefit. This is called the “trickle-down theory,” and it does not work. 

Poorly paid and laid-off workers create little demand. Corporations will not produce because they don’t want warehouse shelves filled with unsold goods. They lay off more workers, reducing demand and creating a spiral that brings recession or depression. Instead of investment and expansion, they take their tax cuts abroad. The same with wealthy individuals. Former presidential candidate Mitt Romney keeps his money in the Cayman Islands.

The moral question is whether our economy should benefit all of us or only the wealthy and big corporations. Science says Keynesian economics, with government regulation and investment, is the moral choice. 

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Fred Mittag
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