Review of Economy of Grace

[1] Several summers ago, I wandered into the Vanderbilt Divinity School bookstore and was surprised to find a large number of economics titles-more, in fact, than are used in the business curriculum. Curiously, all of the economics books were focused on the shortcomings of capitalism in general, and markets in particular, like those by John Kenneth Galbraith, whose work was popular in the 1950s and 1960s. At that time, Keynesian thought dominated economics, and Democrats dominated the policy debate with a message that markets don’t work, so government should fix them.

[2] It is within this intellectual framework that Kathryn Tanner sets out her alternative to capitalism based on God’s gift of grace. In the first two chapters she develops the theological basis for her alternative, and in the last chapter, she spells out, in somewhat concrete terms, what her alternative is:

noncompetitive possession instead of private property;

free and equal trade;

unconditional giving (welfare); and


[3] Professor Tanner protests that her vision is not utopian; indeed, the back cover calls it a practical and viable alternative to global capitalism. Her purpose in laying out an alternative to start a conversation, presumably with people like me-an economist who wonders why policy analysis comes from the pulpit-about where policy should take us.

[4] If the Lutheran Church is anything like the Episcopal, this conversation is long overdue. Our laity is often at odds with the clergy not simply over the slant of the economic policies that are promoted in and by the Church, but also over whether this is even an appropriate function of the Church. I suspect that this disagreement has contributed to the decline in Episcopal Church attendance and giving. Knowing why it occurs, and if there is anything we can do about it, seems like a worthwhile goal.

[5] So I thank Professor Tanner for starting the conversation, and I will try to respond to the concrete part of her vision laid out in the last chapter.

[6] In the past fifty years, a lot has changed. The field of economics is now dominated by empirical economists who use evidence to estimate the effects of various policies, and we have learned a lot about which policies improve people’s lives, if only in a material sense. For example, Keynesian economics has fallen out of favor, not due to any philosophical shift, but because we discovered that it doesn’t work. And Republicans now dominate the policy debate with a message that even when markets don’t work as well as we would like, government polices designed to fix them usually make things even worse. Plus they are a whole lot more expensive and bureaucratic.

[7] Professor Tanner seems unaware of most of these changes, as evidenced by her citations to a narrow slice of the economics literature, comprised mainly of philosophical and leftist critiques of capitalism.

[8] Most unfortunately, she does not seem to realize that first and foremost, economics is a tool that helps us estimate the effects of various policies. Economists assume that people respond to incentives, and then predict the likely effects of policy from the incentives it creates. For example, when you re-distribute income to those with less, you also create incentives to become needy; likewise, when you tax those who earn more, you simultaneously create incentives to work less.

[9] For example, aid to unemployed workers also creates an incentive to stay unemployed-or at least reduces the incentive to return to work quickly . Policy makers recognize this, and put conditions on this kind of aid by limiting its duration, and by requiring recipients to search actively for new employment.

[10] Professor Tanner does recognize that her policies create perverse incentives, but she dismisses the likelihood that people would respond to these incentives with a single citation to a book written by a lecturer in Government at Brunel University, and ignores the voluminous economic evidence to the contrary. This is the economic equivalent of proof-texting to support a point that is odds with the main themes that run throughout Scripture.

[11] This criticism does not mean that we should abandon our efforts to help those in need. It is just a warning that programs have to be designed carefully-with conditions imposed on aid-to minimize their adverse effects. Professor Tanner’s proposal to make welfare an unconditional entitlement seems naïve at best, irresponsible at worst. Why design programs that exacerbate the very problems they are supposed to alleviate? I have only a lay person’s knowledge of the Biblical notion of stewardship, but I cannot believe this is it.

[12] The one policy proposal of Professor Tanner’s that I come closest to supporting is “free and equal” trade. My support is qualified because I don’t know what she means by “equal.” I would press her for details by asking one question.

Would you support a ban on textile imports made with child labor?

[13] This kind of trade would probably make Professor Tanner uncomfortable and could provoke a protectionist response. So let’s do a little empirical analysis and re-ask the question,

Would you support the ban if you knew that it would cause 50,000 kids in Bangladesh to lose their jobs in the textile mills and become prostitutes?

[14] In my classes I have found that there are two common reactions to this question. The first is to fight it–by denying that the tradeoff exists.[1] The second is to answer emphatically “of course not.”

[15] You can see the difficulty that the tradeoff poses for Professor Tanner’s vision. If she denies it, then her vision is exposed as utopian. But if she doesn’t, then she has to conclude that the import ban would hurt the very people it is supposed to help.

[16] Her proposal to turn private property into something more public has a similar shortcoming. Private property plays a critical role in economic development by facilitating commerce. Without the protection of private property and the enforcement of contracts, wealth-creating transactions are less likely to occur, and this stunts development. People living in countries with low levels of economic freedom (measured by strength of property rights and freedom of contract) are much poorer than those living in countries with high levels of economic freedom.

[17] Interestingly, secure property rights are also associated with higher levels of environmental quality and human well-being. In nations where property rights are well protected, more people have access to safe drinking water and sewage treatment and people live about 20 years longer (to 70 instead of 50).[2]

[18] Finally, I want to address Professor Tanner’s principle of “noncompetition.” The purpose of competition is not to alienate human beings from one another but rather to align the interests of producers with those of consumers. Consumers want higher-quality and less-costly products, and producers have an incentive to provide them because, if they do not, their rivals will.

[19] Getting rid of competition would have disastrous effects. To see this, compare Western Europe, where state-sponsored monopoly churches are almost empty, to the United States, where new and existing churches compete vigorously for parishioners and their dollars. The market pressure on churches prevents a church from moving too far away from its parishioners, lest they vote with their feet and find another church that better serves them.

[20] No one likes the effects of capitalism, and its outcomes will always been seen as unfair by some group or people. Unfortunately, every alternative we have tried is worse. And while no one has tried Professor Tanner’s Economy of Grace, all of its individual elements have been tested, and found wanting.

[21] So where does this leave the conversation begun by Professor Tanner? I fear it leaves us both seeking to be understood.

[1] In 1993, Congress seemed poised to pass Sen. Tom Harkin’s Child Labor Deterrence Act, which would have banned imports of textiles made by child workers. Anticipating its passage, the Bangladeshi industry dismissed 50,000 children from factories. Most of those children did not end up in school but instead fell into prostitution and other “occupations” far more degrading than weaving cloth in a factory. (Bhagwati, 2004)

[2] Norton, Seth. 1998. “Property rights, the environment, and economic wellbeing.” in Who Owns the Environment? edited by Peter J. Hill and Roger E. Meiners. Lanham, Md.: Rowman and Littlefield Publishers, Inc.