Beyond the Morality of Spending and Saving (Money) – Part 2

By Michael Hoexter

Ethics, Moral Advocacy and Economics (con’t)

If we look at the structure of the discourse produced by academic economists after Smith whether in print or in media appearances, moral frameworks provide a structuring role that often outweighs the technical aspect of the content which is presented. Well-known among MMT-oriented and post-Keynesian economists are the arguments of austerity advocates, who ignore the analytically obvious monetary and economic consequences of austerity in pursuit of the seeming virtue of every economic actor becoming a “saver” of money. More subtle perhaps are the views of the more liberal Jeffrey Sachs, for instance, who, along with other left neoclassicals, believes that virtue inheres in everybody paying enough taxes and distributing “sacrifice” equitably. Sachs feels that the US’s poor recent record in producing manufacturing jobs has to do with a lack of vital skills relative to the rest of the world, a view compatible with the structural unemployment views of the Right though subtly different. If Americans were fuller of the virtue of educational attainment and technical training, according to Sachs, the economy would be more prosperous without having to engage in the relatively “sinful” activity of spending on stimulus.

Often it seems that in discussions of ethics and economics, the discourse migrates to one of two poles: either the economist in question doubles down on Smith’s celebration of the pursuit of individual self-interest, or efforts are made to show that in some way, the Golden Rule still applies, implying that the economist presenting the analysis is choosing compassion or is more compassionate than his or her relatively amoral or immoral fellow economists. The former group, who are committed to self interest alone, is for the most part composed of right-wing or “centrist” neoclassicals and “Austrian” economic philosophers while the latter group represents for the most part left neoclassicals. The awareness of left neoclassicals of their own application of ethical rules within the utilitarian calculus of economics appears to be underdeveloped and largely left as a matter of personal taste and perhaps pride. The prolific Paul Krugman, for instance, makes many, in my opinion, ethically sound arguments about politics and economics, but often seems to do so despite or outside of the neoclassical economic framework he relies upon. The inconsistency between Krugman’s ethical/political views and neoclassical economic assumptions weakens his analyses and arguments, but in this he is typical of left neoclassicals.

Modern Money Theory has, relatively speaking, the virtue of explicitly incorporating a recognition of some of its own moral commitments within its economic research program, commitments which also for the most part jibe with it quantitative analysis of economic trends. The idea that economists and government are attempting to serve “the public purpose”, which may be defined via democratic process or via oligarchic maneuvering, or some combination thereof, integrates and makes explicit a moral mission for economics, but leaves open to political struggle whose morality is implemented by the technologies of money, banking, and government finance. The flexibility of the concept of the public purpose and its pursuit enables a relatively sophisticated and somewhat transparent discussion of the values of MMT economists or of other competing economic frameworks within a larger discussion of an overall political economy.

The Morality of Spending and Saving

If we accept that conscious and non-conscious ethical commitments structure economic analyses or their interpretation, it is then not too difficult to discern that austerity advocacy has been built upon the historical influence of Protestantism on the history of capitalism, as observed by Max Weber in his “Protestant Ethic and the Spirit of Capitalism”. Calvinist businessmen, according to Weber’s account, saw in accumulation of money (“saving”) but not spending it, a means to determine whether their souls were saved, i.e. they were one of the “elect”. Since the beginning of the Reformation, Protestants came to differentiate themselves from Catholicism in part by eschewing spending within the church on the production of physical icons and artwork as well as condemning the notion that sin could be absolved via the purchase of indulgences. The relatively high status of saving as opposed to spending and surrounding monetary saving with a religious or semi-religious halo, explains in part how the “meme” of austerity has gained such widespread appeal, especially in countries with a long history of influence by Protestantism, without empirical support for its efficacy.

Additionally, in a debt-deflation/Depression there are also objective monetary conditions for households and businesses that make the ideal of saving, a liquidity preference, more attractive as a microeconomic strategy for those who have the income to save. Economic uncertainty of the sort caused by the debt deflation itself encourages those who have financial means to hold onto or “hoard” resources. Thus an additional “halo” is added to the pre-existing conventional Protestant moral preference for saving.

Being a saver of money, however, in terms of the objective reality of a monetary economy, is a virtue that is much easier for those with higher incomes, i.e. the wealthy, to achieve. There are stories of people of modest means and income who save their way to riches but this assumes, if true, that their relatively meager income in some way exceeded their spartan personal needs. Other means to monetary savings for those with a modest monetary income are their participation in a non-monetary household economy that reduced their monetary spending on necessities. These instances are important ideologically to shore up the view that “everyone can save” or “everyone can save their way to a comfortable life/riches”.

The story of businessmen or entrepreneurs as “super savers” is complicated by the heterodox “revelation” by Schumpeter that the advancement of credit is a critical element in the story of the growth of businesses and in the business cycle. That credit creation creates money which is used by entrepreneurs (and consumers) violates the notion of a purely “earned” savings by investors or entrepreneurs that forms the basis of business investment. It is no wonder that otherworldly neoclassical economic theory has an unrealistic theory of banking, a theory, which among other things, upholds the “Protestant” romance of savings.

“Spending” relatively speaking in a culture that is heir to the Protestant Reformation, is fraught with sinful or “Catholic” resonance. To spend is, seemingly, to give up a chance at becoming one of the “elect” or at least a successful self-made capitalist, in the idealized story of capitalists without bankers or investors. Luther’s objections to the Catholic Church’s practices revolved in both respects around spending: the sale of indulgences and also the accumulation of various costly artifacts and artworks by the Church. The relative “austerity” of early Protestant culture became a line of demarcation of the non-Catholic cultures of early modern Europe.

Later, the Protestant dominated cultures of Northern Europe and North America would become leaders in the creation of a world economic system based on capitalism and would repeatedly run into the limits of the “preference for saving” inherent in Protestant culture. The invention of a consumer culture in the 20^th Century as well as increased government spending and demand management, helped gin up demand for goods via spending that would not be afforded by the ideal-imagined or the real-actual community of individual savers.

While within a Protestant worldview it is difficult to attach the concept of morality to anything but “saving” in the duality “spending vs. saving”, spending in the broadest sense also can be seen, from pre-Protestant and pre-capitalist cultures to today, as a social virtue. Spending can represent or be the prelude to the giving of gifts, a fundamental element of human relationships in all parts of the world and throughout history. Spending creates an atmosphere that relaxes the boundaries between people. Spending as well as gift-giving has also been a means by which people compete in status competitions, including the famous potlatch of the Northwest Indian tribes. Thorsten Veblen observed how conspicuous consumption became a means to assert one’s status in a society which was no longer defined by hereditary or role-based status.

An operative moral preference within academic and popular “folk” economics that is attached to saving over spending creates a fundamental imbalance in Protestant-dominated or -influenced capitalist cultures which is typically counter-balanced by a number of phenomena that are now familiar:

Development of a consumer culture that cajoles and seduces participants in the economy to spend more
Development of consumer finance that enable spending beyond income
Development of an export-oriented economy, enabling saving at home but encouraging spending elsewhere
Government demand management and stimulus on both a regular and on a conjunctural basis.
Habitual tourism by middle- and higher-income residents of Protestant-dominated lands in parts of the world that represent to them an escape from the pervasive, “pinched” morality of saving over spending in their home countries.

In a debt-deflation/depression in which we currently find ourselves, these counterbalances are undermined and the imbalances in the system are exposed.

A Reality Beyond Conventional Morality

Finding the nexus between economic analyses and our most persistent ethical and existential problems is a critically important endeavor but the confusions created by applying simple, inherited moral categories to spending and saving have created over the last several hundred years an economic impasse, through which we must now navigate. Economics has created a “preference for savers” (much as liberation theologians enunciated in the 1960’s a “preference for the poor”) that places economists in the role of wealth “coaches” for those economic actors whose incomes enable them to save. A coach is not hired to be objective or think systemically but to help create the conditions of success for a given (partisan) team or individual.

The missing term in the simple parables we use to underline the importance of saving vs. spending is income. Savers as a statistical group, must have, in net and on average, higher incomes, in order to save. Monetary saving, in the active sense of the word, an increase in the (monetary) wealth of an economic actor, requires surplus income which is always more likely for those who have a higher total income. The ideological pleasing notion of a Protestant “work” ethic, with the word “work” somehow injected into Weber’s concept of the “Protestant ethic”, suggests that the saving and higher income of the virtuous capitalist is entirely the result of productive “work” rather than from rents collected or active exploitation of the work of others. An introduction of the reality of income into the simplified morality tale of spending and saving leads inevitably to questions of the sources and distribution of income which can cloud the virtuous halo of the “saver”. Additionally attention to income and income disparities leads inevitably to consideration of conflicts over income distribution and justice, which also should be legitimately the focus of economic inquiry.

Drawing out the implications of Keynes’s work as well as the paradox of thrift of biblical origin, MMT economists point out that monetary savers of whatever income level cannot save without the “surplus” spending of others. In macroeconomic terms, across an entire monetary system, spenders and savers are linked and must move in concert: spending must go up if saving increases overall in net. If one group saves more, overall “dissaving” (spending of savings + immediate spending of income + government spending + increase in private debt) in other areas of the economy must go up. The only sources of secular rather than cyclical growth in this otherwise “conservative” monetary system (not in the political sense but the sense of a quantity being conserved) are the creation and spending of money into the system by a currency-issuing government or the cycle of issuance of private debt with eventual credit writedowns (for the most part forced by governments) in the resolution of a debt crisis.

It is true that individual economic actors (individuals, families, businesses, governments, non-governmental organizations) can be relatively judicious in their spending and, over a certain income, can reserve or invest money or liquidity for later expenditure in a way that increases benefits to them over the medium and longer-term. This virtue is not to be dismissed as trivial or inconsequential within economics. But this propensity cannot be seen as the sole driving force of the economy that an economics unconsciously steeped in the Protestant ethic suggests. The entire supply-side movement in right-wing economics implies that increased stocks of savings among the richest drives productive investment. We have seen that in fact, these stores of saved money, enabled by lowered taxes, tend to be used to reinforce a Ponzi economy, in which bets on the prices of existing assets or derivatives thereof, attract these savings more than the riskier endeavors of creating or delivering a real service.

Therefore a moral valuation of spending or saving in a broad-brush manner, either explicitly or implicitly, distorts the reality of how monetary economies function on a macro-level. Spending and saving are neither “good” nor “bad” either by implication or by explicit evaluation but are part of the broader transactional nature of monetary operations of individual economic actors in most developed economies. They are in fact complementary functions of that economy and efforts to privilege one over the other, in a macro-view of the economy, lead to inevitable distortions of reality and, if shared by elites, to unnecessary cruelty on a mass scale.

Invidious comparisons between the spendthrift ways of Americans and other cultures that appear periodically in the American media and in academic writings, overlook the macro-economic realities that support net savings by households. Sheldon Garon, an historian and Professor of East Asian Studies at Princeton, is only the latest in a long line of commentators who wring their hands over the profligate ways of Americans. In a blog post summarizing his latest book, Garon notably overlooks the policies that actually enable higher savings rates in countries like Japan, China or Germany: government deficits and current account (trade) surpluses. In some nations, substantial social programs and low-cost health care are further indirect aids to savings. While the pro-savings policies of which Garon approves no doubt help, the attraction to the narrative of individual virtue and its promotion fits into the “Protestant”, neoliberal-neoclassical framework which is blind to macro-social and macro-economic dynamics.

Systems Level Ethics and Individual Ethics

Because our reality is complex and layered, different types of thinking are required to understand reality at different levels of organization. If we are “for ourselves” and for ourselves (and our immediate families) only, our ethical orientation might look something like that of the “Protestant” saver who seeks to maximize his or her income and save as much money as possible. The project of neoliberalism attempts to generalize this orientation to that of society’s leadership and to every impulse that we might have as human beings: among others the Protestant “not-spender” is the epitome of virtue. This political-economic project of glorifying the monetary saver is entirely naïve in terms of the actual complex layering of systems that compose our world, including human beings and the societies we create.

Alongside any individual ethics we might choose for ourselves and to promote as virtuous within our societies, the need exists for a systems-level ethics that comprehends what happens when all these savers, would-be savers, all income-earners, unemployed people live in the same society and interact with each other. Such an ethics cannot be a simple derivative of an individual ethics but must instead use the tools of empirical social science to determine what is in fact just and effective to promote overall social welfare. “More is different” applies not only to the epistemology of the complex layering of physical and social systems but also to the ethical systems which guide us through ambiguities involved in studying them and acting upon and within them. The notion of the public purpose, introduced by John Kenneth Galbraith and adopted by Modern Money Theorists, is one such conceptualization of a systems-level ethics.

Economics as a profession and academic discipline straddles the divide between individual-level and system-level ethics. The differentiation between microeconomics and macroeconomics traverses an epistemological transition between self-focused economic actors that are oriented towards their own personal and organizational motivations to systems that deal with macro-social and macro-historical trends and dynamics. Attempts to “micro-found” macroeconomics and ignore system-level ethics and dynamics represent a retreat from the challenge of holding distinct categories separate in one’s mind between the macro-level and micro-level.

The goals for such a systems-level ethics are up for debate but here is a starting list of the primary goals for such an ethics given the challenges of our time:

Full employment
Mitigating the effects of human civilizations on vital eco-systems
Installing a non-carbon energy base for modern society based on relatively plentiful renewable resources
Mitigating the effects of social and economic inequality
Provision of high quality public services in the areas of healthcare and education

Using a single scalar (monetary) quantity like GDP as a measure for the achievement of these goals is obviously insufficient and inaccurate.

We know that realizing these goals requires an institution like government to face the system-level challenges to which individuals are unable singly or in spontaneous aggregates (like in markets) to address. The contention that currency-issuing governments should act like individuals or businesses (by saving its imagined store of money in a time of private over-indebtedness, low aggregate demand, high un- and underemployment and underinvestment in climate and energy solutions) is an error on the part of austerity advocates that sends us backwards in social evolution and will, in time, impoverish us all.