290: What are the 7 Deadly Economic Sins?

Buck: Welcome back to the show, everyone. Today. My guest on Wealth Formula podcast is Dr. James Otteson. Dr. Otteson is the John T. Ryan Jr. Professor of Business Ethics and the Rex and Alice A. Martin Faculty Director of Notre Dame, the Deloitte Center for Ethical Leadership in the Mendoza College of Business at the University of Notre Dame. He’s also a senior scholar at the Fund for American Studies, a senior fellow at the Fraser Institute, and past President of the Association of Private Enterprise Education. And he is the author of a very interesting book called Seven Deadly Economic Sins: Obstacles to Prosperity and Happiness Every Citizen Should Know, which was released in April of 2021. James, welcome to Wealth Formula podcast.

James: Thank you for having me. It’s my pleasure to be with you.

Buck: So this is fascinating. I think your background is absolutely fascinating. So you’re trained in both economics and philosophy. Is that right?

James: That’s right. Yes. So my PhD is in philosophy. I guess despite that, I teach in a business school. There aren’t many philosophy PhDs who teach in business schools, but it is unusual, but it’s a very fruitful background to have when thinking about business ethics issues.

Buck: Yeah. And these issues are actually quite relevant today, and especially given the polarity of politics and what’s going on with the economy, I want to kind of jump into the book. First of all, what inspired the Seven Deadly Economic Sins concept?

James: Thank you for asking. One of the things that I had noticed, especially teaching in a business school, is that just about everybody has an opinion about economics, about various economics matters. But many people who have opinions, including very strong opinions, have never actually studied economics. Right. Which I think is interesting. And there might be an analogy there to medicine as well. Many people have opinions about medicine, even though they have never studied medicine. But in the case of economics, I think people might be forgiven, because if you look at people who are economists or professional economists, they vote for different parties. They have a hard time predicting when the next recession will happen. They don’t know what the market is going to do. And so I think a lot of times people assume that, well, economists don’t really know anything. And the discipline of economics doesn’t really know anything. And again, I think there might be something of an analogy there to medicine. If you talk to two or three doctors about how to treat something, you might get three different opinions. But the wrong conclusion, I think, to reach is that, well, therefore, medical professionals and economists don’t know anything. And I think that’s true for economics as well. There are a few things that just about every economist, whatever their other views are that they never left agree on. Interestingly, those things that economists tend to agree on, and it’s not perfect agreement. But I would say general consensus. Those things tend to be things that are fairly basic to the discipline. But also, I think if people could learn them and internalize them could actually have pretty meaningful implications and ramifications not only in their own personal lives, but also in their evaluation of policy.

Buck: Yeah. It’s interesting. I was thinking about a great quote. I think that was in your book about Winston Churchill going for opinions. Maybe you could tell that story. I think it’s a good one.

James: Yeah. So the famous saying. And I suppose it’s possibly possible. But the famous saying was he was looking for a one handed economist so that he would never have to hear somebody say. On the other hand, just about every economist will say almost no matter what you ask. The joke is that no matter what you ask, they say it depends where they say. Well, here’s one view. But on the other hand, here’s another view you tell me, is that true about medicine as well? Well, I think there is. And again, I think there are some basic fundamentals, right. I actually talked about this recently on a show where I think in many ways it is harder to be an economist because especially these days, some of the basic tenets of predicting the economy, they’re being artificially kind of the goalposts are changing, right. I mean, what did the Fed used to do in response to various challenges in the economy? It’s almost like right now the initial mandate of the Federal Reserve in the US are not what they are now. Right. The rules are changing, whereas in medicine, at least if the heart stops, it means you’re dead. And that death does exist.

Buck: Right. And that is sort of a different thing. And I think that for me, the way I kind of see the economist role recently, I had Dennis Gartman on who used to write a letter called The Gartman Letter, who’s been writing since the 70s. And I addressed this with him, too. I said, well, gosh, things are different now. And he agreed completely. It’s a different world. And so I think it makes it a little bit harder. So let’s talk a little bit about some of these concepts. What I think are important. And one of them, I think, is very valuable, I think philosophically. The idea that some policy makers may view capitalism as a zero sum game. You want to talk about what that means and what the implications are?

James: Yeah. I think that’s a recurring fallacy and recurring what I call economic. I think it’s the first chapter. So it’s in some ways the number one. Right. And so the analogy is if you think about a game of chess or a game of baseball or football, if you have one winner, there must be a loser. And so whatever benefits one person comes or one team is at the expense of the other person or team. So plus one plus minus one equals zero. That tends to be termed zero sum. And I think a lot of people think that that’s the story of wealth, too. If one person becomes wealthy, maybe somebody becomes a billionaire. That can only be by having impoverished other people or extracted wealth from other people. So I benefit myself, but only at your expense. And to be fair, I think there’s a lot of historical precedent for that. Sure, if you think about the so-called great civilizations of human history in the past, you think about the Pharaohs and the pyramids. Well, it took a lot of capital to build those pyramids. Where did they get that capital? Well, theft, slavery conquering usurpation. So they were taking wealth from other places and concentrating it where they were building their pyramids. But similar things are true about lots of human civilizations. The Romans. If you think about the ancient Romans and the Colosseum and the aqueduct, where do they get all the wealth for that? Well, again, by enslaving people, conquering people, taking their things. So for a lot of human history, that actually has been how people have gotten their wealth is by extracting it from others. So they benefit themselves at others expense. But that doesn’t have to be the way that a person can increase in wealth. So there’s a different way of thinking if you go into a coffee shop and you say you’d like a double pumpkin spice Mocha latte or whatever. And it’s $5. You give the barista $5, the barista gives you your drink, which of you benefited from that transaction? Well, the answer is both of you did otherwise. If either one of you didn’t benefit from it, you would have said no thanks and gone somewhere else. So what that means is that you have what economists call a positive sum transaction. Both sides benefit. And in a market economy, that tends to be the way that people actually generate wealth is by having thousands, millions, billions of these kinds of transactions where both sides benefit. And so what you see is that the overall prosperity in a society can increase for everybody. It doesn’t have to be one person benefiting at the expense of another. It can, in fact, be both sides, both parties or all parties to a transaction that can be any kind of a transaction and if you’re buying something, trading for something, you’re partnering with somebody else. All of those transactions can be positive. Some and the real story of increasing wealth that we’ve seen, especially in the last 200 years, to levels that have never existed in previous human history. The real story of that, I think, is these millions and billions of repeated positive sum transactions that improve the positions of all the parties to the transaction. That’s a positive sum. So I think one of the first fallacies and recurring fallacies that people believe about economics is that the only way to become wealthy is by extracting it from someone else.

Buck: Yes. Absolutely. You hear that all the time, right? You hear it, especially now in various voices in the US political system. And there’s this blame for the difference between the rich and the poor widening and one of the ways that we hear it from a policy perspective, of trying to sort of bring that narrowing that gap is through the punishment, I would call it taxation. Why is that a fallacy?

James: Yeah. Well, there are many elements to that one. Maybe I put this in sort of a business context. One of the things that people often say to business people or to businesses is that they need to give back, give back to society. I’m sure you’ve heard that. That’s a fairly common sentiment. But I don’t know if you’ve ever taken a moment to think about what that phrase means. Give back notice that people don’t say that businesses or business people should give. They say they should give back. And if you think about when you were a kid, if your mother said to you, you need to give that back. What does that mean? You did? It means you took something that didn’t belong to you. And now you need to make up for it. You need to atone for it like you sin. Right. And I think a lot of people think that about business generally, that if you succeeded, if you were successful somehow, somewhere along the way, you must have done something wrong. Even if we don’t know exactly what it is you did wrong, you must have done something wrong. And so I think when you hear people today talking about it, I’m speculating a bit. But when you hear people today talk about, well, the wealthy need to pay their fair share. What is a fair share, right. Well, I think part of what might be behind that is the idea that, well, if you became wealthy, we’re pretty sure you did something wrong. You do atone for it. And if you don’t do it voluntarily, well, then we’re going to do it for you.

Buck: What is the reality in terms of obviously, the implications from the economic side here, what is the fallacy that drives this idea that society would be better by punishing the rich? I guess my question here is that what’s the rationale that we would be a better society overall, when we know that capitalism tends to improve the quality of life of people?

James: Yes, that’s a good question. I think actually there might be two connections. What I call economic sins going on in thinking about that. One is what I call the inevitable fallacy, which is the idea that no matter what policies we have or what we do, growth will always happen. Progress will always be the next iphone will be six months away, no matter what, no matter what we do, no matter how we change incentives or policies or anything else. And I think that’s clearly a fallacy just like the Soviet Union. Yeah, prosperity is something that takes time and is difficult to generate, but it’s easy to destroy, and it can happen very quickly. But I think there’s another what I call economic sin that might also be involved. I call it the good is good enough fallacy. And what I mean by that is that suppose somebody says to you, look, if I took 50% of your wealth, however much wealth you have if I took 50% of it, look at this good thing. I could do with it, and maybe I give it to charity, or maybe I start a business or whatever it is I’m going to do with it. Let’s just suppose for a second that whatever I propose to do with it actually would lead to good results. It would be a good thing that I could do with it, but that by itself doesn’t close the case that we should actually take that wealth from you, because the other part of it is, what would you have done with that same wealth if we hadn’t taken it from you? In other words, you always have to think about the concept of what economists call opportunity costs. We have limited resources. We don’t have infinite resources. So anytime you put any resources to one end or spend money on one thing as opposed to something else, it doesn’t have to just be money. It could be things like your time or your talent. If you put them in one direction, that means you cannot also at the same time put them in another direction. So before you decide on any particular course of action, you have to ask yourself, Well, what else could we have done with those resources or what else would have happened with those resources? What other good things could have come about? And then you have to compare them. If you allow me, I’ll just give you a quick example of that. A few years ago, my son, who was a teenager, decided to make the case to me that we should buy a Ferrari. He was a teenage boy. So you can imagine he laid out the case for why we should have a Ferrari. All the great things he thought would happen for him. And in his life, if we had a Ferrari, and after laying out all those things he said, he concluded with, therefore, we should buy a Ferrari. And I said to him, okay, thanks. I appreciate the argument. But you haven’t thought about opportunity costs. And he said, Well, what’s the opportunity cost? I said, Well, if we bought the Ferrari, we might, for example, have to give up our house. Or maybe I couldn’t send you to College or your siblings to College. Now, he probably didn’t care so much about his siblings going to College, but him going to College he cared about. So that’s another example of this good is not good enough fallacy. The fact that something could lead to a good end doesn’t mean you should therefore do it. And I think you can apply that to other things. If we’re thinking about a multi trillion dollar infrastructure bill, let’s suppose for the sake of argument that whatever is in the bill would actually be good things. People might contest that. But if you just stipulate to that for the sake of argument, it still doesn’t necessarily prove that you should do it, because you have to ask yourself, Well, what would those trillions of dollars have done otherwise if we had left them in the hands of taxpayers? If the infrastructure bill we’re contemplating now? So one number is three and a half trillion dollars. Well, that’s a lot of money. $3.5 trillion is about $10,000 for every man, woman and child, every person in the United States. So for a household of four, that’s $40,000. So what you’d have to do is to compare, well, whatever good we would do with that is it better more important lead to greater benefit in people’s lives than what say that family would have done with the $40,000. And if you aren’t thinking about that and aren’t asking that question, then I don’t think you’re having a full accounting of the situation. You’re not making a full case for it.

Buck: It’s curious. I think fundamentally what I found. I think it’s reflected in what you’ve talked about a little bit already is this concept that overall about the morality of wealth and that even if you go to biblical phrases of the love of money is the root of all evil, there’s something deeply ingrained, at least in our Western culture that runs in parallel with capitalist sentiment. And you see that go way back in Christianity with the banking system and all these. As a philosopher, I know you’ve thought about this, and it’s not necessarily something that’s in your book, but I’m curious how you relate some of the historical elements of Judeo Christhristian Western society with these kinds of things that we’re seeing now. Hopefully that’s not too obtuse of a question, but I’m curious.

James: No, not too obtuse at all. No, I think it’s closely related. If you think about take that phrase that you mentioned, the love of money is the root of all evil. Sometimes people often leave at the beginning of that they just say money is the root of all evil, but actually still love of money is the root of all evil. And I think part of what’s behind that is that people who is the idea that what can happen is that people can take the getting of money to be the most important thing or the top priority in life. And if that’s the top priority in life and everything else bows to it, then that can encourage people or incline people to engage in all sorts of immoral behavior in order to get more money. I think the mistake that that phrase points out is that money is not an end in itself. It’s a tool to an end. It’s a means to an end. So what matters when I think when you’re morally evaluating, say, a person or a person’s behavior or the behavior of an organization or an institution, what you need to look at is, well, what are they doing with the resources they have with the time, talent and treasure they have? What are they doing with it? Not whether they have resources, but what exactly are they doing with it and then even taking a step back? You also have to ask, I think, well, how did they get it? Whoever it is you’re evaluating, how did they get it? I mean, to take a contemporary example. So how much is Jeff Bezos worth now? What’s his net worth? 192,000,000,000, something like that. That’s a lot of money. So if you want to say, well, is it immoral for one person to have that much money? I think you have to in order to answer that question, you have to ask yourself a couple of questions. One is, well, how did he get it? Did he get it from through deceitful measures, defrauding people, stealing from people, extracting wealth from people? In other words, through zero sum transactions where people didn’t have a choice, that this was stolen from them, et cetera. That’s one kind of case. Or did he get it through mutually voluntary and mutually beneficial transactions that were positive stuff? That’s a completely different moral question. And I think if you’re going to ask about the question about inequality, which is connected, I think with this desire for wealth and how this can lead to various kinds of vices, I think you have to ask that question. One of the dangers, I think that that phrase, the love of money is the root of all evil. I think one of the dangers that that is pointing out is that throughout history, there have been an awful lot of examples of people actually engaging in very immoral behavior, profoundly unjust behavior as they seek to arrogate to themselves wealth and resources and power. That’s certainly true. But that’s not the only way to generate wealth. And in fact, I would say that’s not really the way to generate any kind of honorable wealth, the honorable wealth or prosperity. What I would call genuine prosperity. Genuine prosperity comes about through mutually voluntary and mutually beneficial transactions, which is a completely different story.

Buck: And that’s the reality of most certainly, I think most success stories in modern day America. Obviously, you can get to some that may be a little bit shady, but it seems to me and I think you address this a little bit in your book, too. Is that one of the original deadly sins, envy, and that seems to be the cause of anticapitalism in the first place.

James: Yeah, that’s called one of the Seven deadly sins for a reason. I think I suppose they all are, but that one, too. And I think that’s one of the things that’s characteristic of all seven of the Seven deadly sins is that it’s very difficult to master all of them. Just when we think we’ve mastered one or two, we realize we’re susceptible or engaging in others. But envy is one of them, I think, for a reason. And that comes up, I think in discussions of equality, when we ask about or when we’re worried about great inequalities in wealth is the Fairfax. I’ll give you a sort of a hypothetical scenario. Suppose you have two people and one person is worth 100 times more than another person without knowing anything else about that. Do you think that it’s necessarily the case that the society must be unjust in which one person can have 100 times as much wealth as another person? Or is it possible that that difference did not come about through injustice, that it came about through cooperative, mutually voluntary, mutually beneficial transactions? If you’re inclined to say no, it must be unjust, then I think it’s incumbent on you to them to say, well, where exactly is the injustice? What did the person do to get the wealth that that person should not have done? In other words, was their theft? Was there deceit? Was their fraud? Was there conquering lands or whatever the injustice was, you’d have to point it out. And if you can’t point it out, if the only thing that bothers you about the inequality is the bare fact that some people have more than others, then I think that raises the question that you’re asking, which is, is it really just envy? Is that what you’re upset about? And if it is, then that’s something that I think speaks to the Salines of that particular of the Seven deadly sins?

Buck: And I feel like these days there certainly is a wave of cultural stigma against being wealthy or rich or whatever. How do you propose maybe reversing that or protecting yourself against that stigma?

James: That’s a good question. That’s a hard question. I think one of the things we have to think about is or we have to contemplate is that before you can say distribute wealth or redistribute wealth or give to charity or help people who are poor, there has to be wealth to distribute. So before you can engage in redistribution. There has to be something to distribute, which means you have to generate wealth. So we have to think about what are the institutions? What are the attitudes and behaviors that actually lead to the creation of wealth, not just its redistribution. And we tend to focus today. I think a lot on redistributing wealth and not on the creation of wealth. And wealth doesn’t get created in a vacuum. It doesn’t just naturally happen. It doesn’t just naturally occur. It has to be created by human beings with human labor. So I think we have to think about, first of all, the production and creation of wealth, not just the distribution or the redistribution of it. But the other thing I might add, is if you think about an example, I remember a great philosopher and statesman, Bono, of you, too. I don’t know if you know who that is. Yeah, sure. But I heard him say once, this was many years ago. He said that one of the things he thought was different between America and Ireland. So he’s Irish from Ireland. He said, in America, maybe this is the way it used to be. I don’t know if you can decide whether it’s still this way today. But he said that in America, people will look at the rich person living in the big mansion on a Hill. And we’ll say one day that’s going to be me. So don’t blame me as the messenger. This is what Bono said, Bono said. But in Ireland, what people do is they look at the rich person living in the mansion on the Hill, and they say, one day I’m going to get him. And those are two very different ways of viewing the world. And I think if we can make a joke about it, but I think the important thing about that or the kernel of truth about that is that really the way the path to general prosperity is for all of us to improve our situations, not one person at the expense of another or not punishing some people because they succeeded or are succeeding more than we are, but rather to celebrate one another’s successes, be thankful for the fact that other people’s success can, even if only indirectly, also enable me to succeed to a greater degree. And then all of us can try to get better together.

Buck: It’s interesting. You say that because I feel like that is sort of the change about there is a little bit of a change in the American dream. That element, right. I do think that in general, I agree with Bono about this concept that Americans look at the mansion. I can be that person. We have a cultural setup that makes it more possible to do that. We have stories. I’m a child of poor first generation immigrants, and I’m doing quite well. And you just don’t see that in a lot of others. There’s not as much social mobility, but there’s something that seems to be changing, and I don’t know if you agree with that or not. But what is driving the change in sentiment that we are seeing today in the US that is different from maybe what I experienced as a kid in the 80s and 90s. And do you think that’s just a wave, an undulation in the history of this country, or is this kind of just here to stay?

James: Yeah, I think culture changes and it will continue to change. But maybe one thought that I believe I’ve noticed about the changing in the culture over the last many years, which I think speaks to your point is that at a certain point in America’s past and maybe for most of America’s history, it wasn’t that people thought that or didn’t realize that certain groups, immigrant groups, African Americans in the United States, that they weren’t unequally disadvantaged by laws and by custom and by practice they were. But there was an idea I think that more people had in the past and fewer people have now that although each of us is informed by our identities, our identities and our positions in our history, but we’re not determined by them, so it’s possible to overcome them, to rise above them. And so there was an idea that no matter how hard things might be, there’s still an opportunity for you to work your way out of it or work your way above it. I think what we might be seeing is more and more people who are doubting that who think that whatever your history or background or situation, however good or bad it was, those things really are determinative of who you are, and they limit what you can become or what you can achieve or what you can accomplish. And so if they think that those things are limitations on opportunity, then I think they began to see the world to go back to basically where we started in zero sum terms, that if you succeed, it means I can’t. And so I need to get what’s mine. You’re going to try to get what’s yours rather than seeing us all in a kind of cooperative venture to increase overall prosperity and freedom for everybody.

Buck: The book, again is called Seven Deadly Economic Sins: Obstacles to Prosperity and Happiness Every Citizen Should Know, where do we get the book? I assume pretty much everywhere?

James: You can get it just about anywhere. It’s available on Amazon. It was published by Cambridge University Press, so you can get it on Cambridge’s website, but it’s also available on Amazon in physical copy and even in digital copy.

Buck: Oh, fantastic. Is it on Audible?

James: Not yet. We’re working on that. We’re working on it.

Buck: I hope you read it yourself. You have a great way of explaining things. James, thank you so much for being on Wealth Formula podcast.

James: Thank you very much, Buck. It’s a pleasure to be with you.

Buck: We’ll be right back.