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Affluent Investor | May 28, 2017

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Family Values Vs. Innovation?: A Friendly “Debate” With Nobel Prize Winner Edmund Phelps

Mass Flourishing

Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change by Columbia University economics professor, Edmund Phelps, is an important book filled with brilliant insights. Any reasonably sophisticated and open-minded reader will benefit from reading it.  But on a point or two, I found myself skeptical, or at least wondering whether I’d misunderstood the author’s intent. One particular point stands out: Dr. Phelps’ statements about family values and traditionalism being the enemy of economic innovation. This issue came up in the form of a friendly challenging of one another’s ideas. It’s not particularly common for an ivy league professor to engage with a relatively unknown columnist in a way which shows openness to being challenged. It’s even more admirable for an economics Nobel Prize winner to do so. In other words, Ned Phelps is no Paul Krugman.

You can listen to the audio of the entire conversation here.

Below is the transcript, which has been edited for clarity:

Jerry: “This idea of more innovation, more lending or investing in innovation… Isn’t there partly a policy barrier? The regulations say that private equity is only for people who are “qualified investors.” You have to essentially be a millionaire in order to get in on private equity. You can’t be an angel investor or venture capital investor unless you’re at a fairly high income level. So that’s partly something standing in the way on a policy level of what you’d like to see more of, is it not?”

Phelps: “Sure. That’d be one of several things to look into. Of course, I suppose it’s still a free country. I would think that somebody could start up a fund that invests in these sorts of IPOs on behalf of lots of small investors.”

Jerry: “Right. You mean an ETF or a mutual fund or something like that.”

Phelps: “Yeah. Why don’t we have that?”

Jerry: “Because the nature of private equity is that you have to give up some liquidity. So if I’m investing in a start-up, a typical private equity fund, you have to wait five or ten years to get your money back. You can’t pull it out in the middle. But the nature of ETFs and mutual funds is [that] they have to be redeemable on a daily basis so they’re required to have instant liquidity. So it’s very, very difficult to do a kind of private equity type deal in a publicly traded environment.”

Jerry: “Let’s talk about work being fun. One of the points that you make is that so much of economics ignores the culture, the prevailing ethic. I think in your book you say that Alfred Marshall and John Stuart Mill don’t have a single sentence about culture in their economic models, but that culture is extremely important.”

Phelps: “That’s right. Certainly it was not in any economics book that I know of, right through the 19th century. I think it was an economic historian, Max Weber, who was the first person to think about how a new economic culture or a new set of values might have profound ramifications for the economy.”

Jerry: “Well, I’m glad you brought up Weber. When I was reading your book, as enchanted as I was, there were times when I found  myself wanting to argue back or push back a little bit, or at least challenge: it was the strong emphasis on the Enlightenment. Here’s a sentence from the book: “The central struggle is between modern and traditional, or conservative, values. A cultural evolution from Renaissance humanism to the Enlightenment to existential philosophies amassed a new set of values; modern values like expressing creativity, and exploring for its own sake, and personal growth for one’s own sake.” But on the other hand, Weber’s probably best-known book is about the Protestant ethic and the spirit of capitalism. And I found myself often thinking that Enlightenment values and existentialism and Nietzschean expressionism were getting too much credit, and Luther and Calvin and the First and Second Great Awakenings — reformed Christianity, evangelical Christianity, or Orthodox Judaism which are conservative and family-oriented — were not getting the credit they deserved.”

Phelps: “Okay. Maybe we should come back to Weber. But let me say that the early literature on the culture that was believed to nourish and stimulate mercantile capitalism, that culture was about thrift and work ethic and all that. It wasn’t my mission to say that Weber got that wrong. Although, incidentally Fanfani and some other historians took issue with Max Weber. But my point, which I think comes at the beginning of one of the chapters, when I’m zipping past Toynbee and Weber and a few others, is that I don’t see that a drive to amass wealth or an outsized work ethic necessarily leads to one jot of innovation. Look at Japan. My gosh, you’ve got quite a work ethic there and I think you have a lot of thrift, too. (Unfortunately, they mostly have to buy government bonds, but anyway.) Yet nobody talks about Japan as having a model spirit of innovation anymore; quite the contrary. So I maintain that — and now I’m simplifying – although Luther and some of these other early figures were important in encouraging individualism, I feel that the West still had a long way to go to cultivate a spirit of innovation, and I think that’s where the Enlightenment comes in a little bit. There is a gradual, mounting celebration of exploration and experimentation – there is the scientific revolution — and a kind of exhilaration at taking a voyage into the unknown. It seems to me all that was developing over these centuries after Luther, after Calvin, after Judaism, Protestantism, and that was essential. It seems to me that was essential for the acceptance of change by the society at large. You’ve got to have that acceptance, you know. It was a necessary impetus for a life of innovation or at least efforts in innovation.”

Jerry: “Yes, certainly. Of course, that spirit of discovery and innovation could as well come from a sense of divine calling. And it seems like in so many cases historically it has; so many of the great explorers and inventors and scientists would point to a religious motivation, a sense that God is creative and we’re made in his image, so we’re creative too.”

Phelps: “That’s interesting. We should take a look at the nineteenth century in that regard.”

Jerry: “The takeoff period is a high-water mark, sort of evangelical religiosity in England and the United States, the two takeoff nations.”

Phelps: “Yes, although I think atheism was growing over the 19th century.”

Jerry: “Yes, but very, very much a minority religion.”

Phelps: “Right. Look, one of the things I do say in the book related to this point is that one of several motives for the desire to innovate, to create stuff that will be embraced by society and change practice — it’s not just the ego wanting to show the world that you can make a difference and that you have what it takes and so forth. It’s also a desire to give something to the world. And you could say, “Well, maybe that’s a religious feeling or maybe it’s a humanistic feeling.” For the time being I’m content to take the position that hasn’t been demonstrated that religion was a necessary ingredient in all this. But if it turns out to be another necessary ingredient: okay, so be it.”

Jerry: “I find the sociologist of religion Peter Berger very helpful on this question of religion as a creative force. Of course, there are differences, right? There’s a more corporatist, say, Roman Catholic view.”

Phelps: “That’s right… Which is probably inimical to innovation.”

Jerry: “Yes. You say a lot about family values in the book as kind of a problem, and I guess by that we’re talking about sort of a clanish, patriarchal, ‘it’s a sin to move away from the family and to move to a different state or a different country’… That that’s sort of old world, almost more a Mediterranean than say British or American concept of family values, [and] is an innovation retardant.”

Phelps: “I still think that. By the way, if there’s anything I said about my book in the past three months that has gotten me in a little bit of hot water, it’s mentioning family ties. I think there’s kind of a resurgence of family ties, a resurgence of attaching importance to family ties and community and all that. Now, that’s just my take on the rhetoric that I hear in the recent decades. I’ll be interested to see whether people feel I got that right or not. For me these traditional values – some of them, not all of them – get in the way. By the way, did you notice that one of the three Norman Rockwell paintings that was auctioned at Sotheby’s last week was one of his magazine covers and it showed a young man in his early twenties leaving his childhood home… The title Rockwell gave it was Breaking Home Ties. Rockwell evidently identifies this as a very American phenomenon when the young person has to flee the nest and “wing it”… has to fly on his or her own. It seems to me that to the extent that public figures and a whole bunch of influentials are arguing against that, they’re incidentally shrinking the human resources made available for attempts at innovation.”

Jerry: “So, I assume you’re referring to communitarians and distributivists and other traditionalists who are making that critique of your idea of breaking away.”

Phelps: “Exactly. I suppose it’s right to say that the people who are offended by that hypothesis we’re talking about are traditionalists. Some of them are communitarians, some of them just believe in the centrality of the family which I assume means that the individual is a little less central than would otherwise be the case.”

Jerry: “Let me just make an observation to you on this family matter, and then I’ll ask you to just leave us with whatever you like. I forget who but some historian, some economic historian [and] I’ll see if I can find the quote, has pointed out that the puritan revolution and what happened in the United States in the 1800s and England was they looked at the biblical teaching that a man shall leave his father and his mother – from the book of Genesis and then Jesus later repeats that in the Gospels – and cleave unto his wife and the two shall become one flesh as a repudiation of the tribal, patriarchal family so that you break away and form a new family, and that that is one of the engines of economic growth associated with the puritan revolution and then later on with the industrial revolution.”

Phelps: “That is very interesting, Jerry. Really interesting. I think that’s from Mill, isn’t it?”

Jerry: “I think it is. I think it’s kind of a synthesis between your view in the book and not getting in trouble with people who want to defend the family. It’s more a defense of the nuclear family than it is of the old world tribal family.”

Phelps: “If you don’t use that in the column, can you send it to me?”

Jerry: “Yes, I’ll find it and send it to you and then you feel free to use it.”

Phelps: “Thank you very much.”

Jerry: “Okay, so let’s just leave the last word to you. Is there anything that I should have asked you, or anything that you wished I’d asked you, or anything you want to leave us with about your book Mass Flourishing, or just anything else that’s on your mind?”

Phelps: “I wrote the book because I think it’s important that we gain a better appreciation of the modern economy that sprung up in a few lucky countries and a few blessed countries in the 19th century, and realize what we’ve thrown away in America and Britain and Germany and France sometime in the middle of the 20th century, and how important it is to get that back.”

Jerry: “Well, the book Mass Flourishing is a great place to start. Professor Edmund Phelps, thank you so much for taking the time to be with us today.”

Phelps: “Thank you very much.”

 

Article originally published on Forbes.com.

Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.

Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.

Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.

Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.

Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.

Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.

Jerry lives in Pennsylvania with his wife, Susan, and the youngest five of their seven children.

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  • I just read the outline and did not hear the entirety. But conclude we likely cannot regain what was, for many reasons. We live in a world of finite natural resource and that has changed tremendously and can never be fully reversed. And the idea that technology will save us from ourselves is not at all a proven paradigm. We may well be making huge assumptions in a limited time frame, still yet to play out to fruition. I think what most consider technology is actually a sort of crutch many hang their hats on. If we ask the people at Chernobyl and Fukushima what they think of our wonderful scientific achievements we might have a very different reference point and conclusion? And are we to expect that more Apple trinkets and gadgets will save us all due to ever faster ability to text and say nothing while shopping? Many ways to view what is taking place these days. I see the systems breaking down, largely die to the complexities and of course many years of lies and distortions from many parties in the world of elite power brokers. Simple will be better IMO. I think technology will fail us and has already started. But that is just me.

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