The Optimist

Pennies from Heaven

Is God to blame for the global market meltdown?

For many people, the wild fluctuations of global markets over the past few weeks were simply bad luck or a sign of the looming and dreaded double-dip recession. But for a large number of Americans, apparently, they were a sign from God. A recent survey by Baylor University shows that around 20 percent of Americans see God's hand at work in the economy -- even if they also strongly support a market free of all non-divine influence. "They think the economy works because God wants it to work. It's a new religious economic idealism," study co-author Paul Froese told USA Today.

For these religious economic idealists, the connection between financial success and belief highlighted by the likes of television preachers Jimmy Swaggart and Joel Osteen makes perfect sense. And they've got a rich history of academics backing them up. Max Weber's The Protestant Ethic and the Spirit of Capitalism, for example, has gained new popularity among economists trying to explain why some countries are rich and others poor. But before we begin a search for an unindicted evangelist of the prosperity gospel to replace Ben Bernanke at the Fed, it might be worth having a closer look at the real relationship between God and mammon.

Weber's theory goes like this: Protestants are upstanding and hardworking citizens because they want to make it clear that they are part of the elect. They don't spend money on fripperies, because that would be a sign of Catholic indolence; instead, they invest and become even richer. Hence, Protestant Northern Europe became much richer than the Catholic South.

Most recent reinterpretations of Weber downplay the Protestant-Catholic distinction in favor of Christianity vs. the rest or even just the religious vs. the godless. The Baylor survey provides evidence that a number of Americans have some sympathy with a "neo-Weberian" view of the world that equates any kind of faith with wealth. People who strongly believe that God had a plan for them were also twice as likely to support the idea that "success is achieved by ability rather than luck."

But the Weberian worldview, it turns out, doesn't do a great job of explaining which people or countries are rich and which are poor. Economist Davide Cantoni of the Universitat Pompeu Fabra in Barcelona, Spain, studied the Holy Roman Empire, where the Protestant Reformation began, to investigate whether regions that swung Lutheran developed faster than regions that swung to Rome. The answer: Not at all.

And economists Sascha Becker and Ludger Woessmann of the Ifo Institute at the University of Munich argue that any link from Protestantism to wealth in Northern Europe is due not to the sense (or reality) of being elect, but to the fact that Protestants liked reading the Bible (encouraging literacy).

Some have argued that choice of religion does matter -- it's just that Weber focused too narrowly on branches of Western Christianity. Marcus Noland of the Peterson Institute for International Economics uses global evidence to suggest that Buddhism or Orthodox Christianity may be your best bet if you want to see rapid economic growth. Countries with larger Buddhist and Orthodox Christian populations grew faster than the world average between 1913 and 1998, all else being equal.

For others, the faith-wealth nexus isn't about what name you put on your religion, but about the substance: For example, might those motivated by the fear of hellfire work harder and earn more? The Baylor study suggests that people who believe in heaven and hell are more likely to be satisfied in their jobs, committed to their organization, and motivated by their faith to pursue excellence at work. And these results are backed up by economists Robert Barro and Rachel McCleary of Harvard University, who have argued that countries where lots of people believe in hell see a growth rate higher by 1.0 percent per year.

And yet, as economist Steven Durlauf of the National Bureau of Economic Research and colleagues have pointed out, the evidence of a link is far from clear-cut. Take one example: According to World Values Survey data, only 19 percent of Norwegians believe in hell, compared with 72 percent of Americans, and yet the World Bank suggests the average Norwegian has $5,000 more a year in income (not to mention the universal health care and long paid maternity leaves).

The safest conclusion appears to be that there is no stable relationship between any particular brand of religious belief and economic performance. The Baylor survey's results, meanwhile, suggest that those who strongly agree that God has a plan for them are about half as likely to earn more than $100,000 a year than those who strongly disagree -- evidence that some who assume God is on their side may be categorically mistaken.

Given the widespread disdain for material possessions among religious figures from East and West, perhaps this shouldn't come as a surprise. Being religious may well make you happier. And, if you pick right, it may make an afterlife far more pleasant. But don't expect it to make you -- or your country -- rich.

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The Optimist

The Myth of the Middle Class

The world's most pandered-to demographic is no more economically productive or civic-minded than anyone else.

A little more than 160 years ago, a powerful analysis of the role of the middle class in economic development was unleashed on the Victorian public. It described how monopolistic guilds had been "pushed on one side by the manufacturing middle class" which "developed [and] increased its capital" as it reformed economies and polities. The middle class had "created more massive and more colossal productive forces than have all preceding generations together," the text suggested.

A century and a half later, few subscribe to the political doctrines of that analysis, Karl Marx and Friedrich Engels's Communist Manifesto. Yet the idea of the middle class as central to economic growth and democratization is still very popular. Indeed, the view that "bourgeois" values -- seen by Marx as an important stepping stone on the way to revolution and utopia -- are a vital part of progress to the end of history  is almost universally held among middle-class historians and middle-class political scientists. Why did Britain lead the world in the 19th century? Because of "the great English middle class," answers Harvard University economic historian David Landes in his magisterial book, The Wealth and Poverty of Nations.

For the future, continuing worldwide growth through closer integration in the 21st century will "depend on what can be done for the great global middle," suggests U.S. President Barack Obama's former economic advisor Larry Summers. It is hard to think of any greater shibboleth in American politics; in January 2010 Obama convened a task force dedicated entirely to its needs. But this isn't just an American mania; it is worldwide. Indian Prime Minister Manmohan Singh, for example, has called for "thinking people … from enlightened middle classes" to play a larger role in public life.

But is there any evidence to support the argument that the middle class is so vital to prospects for stability and economic growth? In fact, the middle class exhibits little more of the entrepreneurship or social progressiveness that is typically ascribed to it than do poor people.

And who, exactly, is in the middle class? That is a matter of some confusion. In their paper, "What Is Middle Class About the Middle Classes Around the World?" MIT economists Abhijit Banerjee and Esther Duflo use a historical estimate based on the British middle class, which is often thought to be critical to Britain's rise as a world power. They suggest that income for a family living off the wages of a clerk in his 30s in Britain in 1825 would be about $10 per person per day in today's U.S. dollars. They define a middle class as people with incomes between that level and the global poverty line of $2 a day. Economist Homi Kharas at the Brookings Institution, meanwhile, uses a definition stretching the other direction from the $10 mark, between $10 and $100 a day. Nobody is middle class according to both definitions.

And that terminological inexactitude illustrates the fact that, regardless of where the line delineating the middle class is drawn, there is not much evidence of the politicians' well-worn claim that people on one side of it are more productive, creative, risk-taking, and public-spirited than those on the other side. Take the entrepreneurialism for which they are so often celebrated. Banerjee and Duflo suggest that the majority of enterprises owned by people earning between $2 and $10 a day worldwide are shops. Many of those shops sell the same small stock of goods as the ones just down the road: basic foodstuffs, sweets, soap, and a few other products. They make a few sales a day; in India, surveys suggest their average profit is somewhere around $133 a year. These are not enterprises that are going to become the next Infosys. The same lack of potential -- and ambition -- holds true in the United States. According to survey evidence from economists Erik Hurst and Ben Pugsley of the University of Chicago, "most small businesses have little desire to grow big or to innovate in any observable way." They just want to provide an existing service to an existing customer base.

What the worldwide evidence suggests is that becoming middle class doesn't suddenly turn you into an entrepreneur or an innovator. Indeed, quite the opposite is true: The reason that most in the middle classes are richer is because more of them have stable 9-to-5 jobs, with weekly or monthly paychecks. By contrast, poor people are more likely to work in casual labor, usually paid by the hour, often going stretches without employment. We may talk about every new graduate into the middle class as a potential next Bill Gates, but the fact is that most more realistically aspire to be the next Walmart associate.

Conversely, if an income below $10 a day condemned people to listless apathy, then nobody would be rich today. A hundred years ago, the great majority of people in even the richest countries earned less than that in current dollars. In fact, the World Bank's study Moving Out of Poverty, which interviewed 60,000 poor and near-poor people across 15 countries, demonstrates that the idea of a "culture of poverty" is considerably at odds with the activities and attitudes of most poor people themselves. They are confident about the future despite often having to run multiple microenterprises to get by.

It is true that middle class people do have somewhat different attitudes than poorer people. A Pew Research Center study of the attitudes of the global middle class -- there defined as people who had incomes greater than $4,268 per year -- found them less likely to prioritize freedom from poverty on a list of freedoms that also included freedom from crime and violence and freedom of speech and religion. No surprise there -- you're surely less likely to care about the problem of poverty if you aren't poor.

But the values traditionally thought of as "middle class" -- the value of investing in education or of political rights, for example -- are widely held by people who are out of that class by whatever definition you chose. Everyone values education, enough so that primary-school enrollments are reaching universal levels in even the world's poorest countries. If 80 percent of the majority-poor population of Africa thinks that democracy is the best system of government, then it isn't a middle-class value in any traditional sense of the word. The democracy protests of the Arab Spring, meanwhile, were set off by a Tunisian man forced into life as a harried street vendor for lack of other opportunities. It was sustained by a reserve army of the young unemployed -- not by middle-class Tunisians safely ensconced in the few large government-favored firms.

If, rather than looking at the confused economic literature on the subject, you just ask people what class they are, then large proportions everywhere plump for the middle. Ninety-one percent of Americans self-identify as upper-middle, middle, or lower-middle class. And even in much poorer India, 48 percent of people self-identify as middle class according to the World Values Survey -- a proportion about 10 times higher than that suggested by a definition based on an income of $10 a day or more.

Given that so many people consider themselves middle class even in the world's poorer countries, politicians worldwide are surely wise to praise the wonders of middle-class values as a result. But the rest of us should know better. Instead, let's celebrate the fact that people are not waiting to reach an income of $10 or even $2 a day before they play a role in upholding democratic values, ensuring their children go to school, or helping to sustain economic development -- which helps to explain why political rights, education, and growth are spreading even to the world's poorest countries and communities.

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