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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Tuesday, November 21, 2006


We extend heartiest good wishes to all our readers for this day. Thanksgiving feels like it should be the special occasion we would commemorate most of all here at Ways of the World. Note though, that in the following prayer -- an old one from an "old" Forward Movement booklet -- we not only give thanks, but we also pray that God will lead us forward in right actions according to God's will. The challenge continues.

Almighty God, we thank thee for all the blessings of this life, and today especially for those that are ours in this free land; for the fruits of the soil, the untold resources of the earth, the opportunities for work and play and healthful living; for liberty in speech and written word, for public education and regard for every person's welfare. And we pray thee that, as we thank thee for these and all thy mercies, thou wilt continue thy good hand upon us and make our nation great in that greatness which alone is pleasing to thee, even the righteousness that is the doing of thy holy will. In Jesus' Name. Amen.

Prayers for All Occasions. Cincinnati, OH: Forward Movement Publications. 1964. Page 69.

Saturday, November 18, 2006

Milton Friedman, R.I.P.

Milton Friedman, who died Thursday at age 94, might be called a "Renaissance" economist: his skill and renown cast a wide berth. For instance, if you give a free-association exercise and say "monetarism", economists will likely return "Milton Friedman". His final article on how the money supply impacts the economy was published on the Op-Ed page of yesterday's Wall Street Journal. In a second role, he also helped to bring to the fore the role of expectations: if you try to reduce unemployment by stimulating the economy through more inflation, workers will catch on that prices are rising more and expect higher wages. Businesses will then need to raise prices more to pay the higher wages. So instead of faster growth and more jobs, you'll get a wage/price spiral. There is no trade-off then between unemployment and inflation, Friedman taught, negating popular ideas espoused by devotees of John Maynard Keynes. Thirdly, among other public policy issues, he devised a scheme for helping low-income wage-earners through a "negative income tax"; this was implemented and remains today in the "earned-income tax credit".

Fourth and perhaps most fundamentally, Milton Friedman was a champion of freedom. As our expression of respect for him, we copy here three quotes from a compilation posted Thursday on the Wall Street Journal's website*. The first is a statement of his vision of the role of government in society, the second a definition of "self-interest" not exactly like the conventional wisdom on that concept, and the third is an expression of philosophy that some might find surprising for an economist.

From a well-known book, Capitalism and Freedom (1962):
[A free economy] gives people what they want instead of what a particular group thinks they ought to want. . . .

The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color the majority wants and then, if he is in the minority, submit.

It is this feature of the market that we refer to when we say that the market provides economic freedom. But this characteristic also has implications that go far beyond the narrowly economic. Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated -- a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.

From Free to Choose, book and PBS series, co-hosted with his wife Rose:
Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy -- all are pursuing their interests, as they see them, as they judge them by their own values.

From a speech in Washington in 1993
I have sometimes been associated with the aphorism "There's no such thing as a free lunch," which I did not invent. I wish more attention were paid to one that I did invent, and that I think is particularly appropriate in this city [Washington], "Nobody spends somebody else's money as carefully as he spends his own." But all aphorisms are half-truths. One of our favorite family pursuits on long drives is to try to find the opposite of aphorisms. For example, "History never repeats itself," but "There's nothing new under the sun." Or "look before you leap," but "He who hesitates is lost." The opposite of "There's no such thing as a free lunch" is clearly "The best things in life are free."

*These selections are taken from the Journal's main site,, which is a subscription service. Other statements by Friedman are available on its Op-Ed site,, which is free to the public.

Monday, November 13, 2006

Archbishop Ndungane

The Most Reverend Njongonkulu Ndungane, Archbishop of Cape Town, visited November 12 at St. Bart's in New York. He preached and also spoke at the "Rector's Forum". Bill Tully, the Rector, moderated the latter presentation. We attended, and herewith follow some thoughts from the Archbishop's presentations.

He talked at length about the division in the Anglican Communion. He is concerned that some of his more vociferous colleagues in Africa are forgetting the very nature of what it is to be Anglican. In both the sermon and the Forum discussion, he described what he calls "the Heartlands of Anglicanism", a modern-day expression for the "Via Media" of Elizabeth's time. The "Heartlands" draws a parallel with the region we would call the Heartlands in this country: "the historic fertile middle ground". In July, the Archbishop wrote to the other Primates of the Anglican Communion some reflections with this title; these ideas formed the core of his sermon. See it yourself here. Rather than diluting the strength of various visions within the Church, the coming together of them in the Heartland, the Middle Ground makes them all the more vigorous as they fertilize each other.

He elaborated on a new version of our famous "3 Legged Stool" which the Archbishop of Canterbury had described earlier in the summer. The Anglican Church has three "strands": "[1] the reformed commitment to the absolute priority of the Bible for deciding doctrine, [2] a catholic loyalty to the sacraments and the threefold ministry of bishops, priests and deacons, and [3] a habit of cultural sensitivity and intellectual flexibility…." Reformed, catholic and culturally relevant strands run through every issue we face together. This makes it complicated for us to grapple with these issues, "messy" to use his word, but ever so rich when we succeed.

Archbishop Ndungane fears the loss of the "middle ground" in the present controversies, and between now and the next Lambeth Conference he hopes to facilitate some movement toward reconciliation. His role at Lambeth in 1998 was as Chair of the commission that dealt with matters of morality and ethics, so he has some experience bringing together diverse voices of the Church on these sensitive issues. Let us pray for him as he moves forward in this work.

For Africa, of course, development is of paramount importance, and the Millennium Development Goals (MDGs) were the other main issue of the Archbishop's discussion. He advocated a tactic that appeals to us: consulting directly with the people who should benefit from these goals. "We don't want a handout," he quoted them. "We have brains and skills, we just need resources." The aspect to which he gave the most emphasis is education, especially for girls. Attention to poverty and disease is also significant, but universal access to primary education seems to be first on his list. Progress on the some of the other MDGs would follow from this one. Anglicans from around the world will gather in his country in the Province of Gauteng (Johannesburg and Pretoria) next March in a meeting intended to create energy toward achievement of the MDGs.

During the "Q & A", a woman in the audience explained that she had just returned from work on a project in Malawi, and she said she was deeply touched by the hospitality of the people there. How could he account, she asked, for such outreach from people who have so little? "Africans always have hope," he replied. "They always believe things will get better."

In coming weeks, here at Ways of the World, we'll pick up on this issue, which has a high priority with our new Presiding Bishop. So Archbishop Ndungane's appearance here in a New York church forms a fine introduction. It was inspiring and encouraging to hear him speak so strongly on issues that matter to all of us.

Saturday, November 11, 2006

Plan Ahead

Over the past several months, Ways of the World has included a series of articles on consumers and their everyday use of money. In response to a Resolution passed at June's General Convention, No. A102 "Culture of Debt", we've talked about how much debt consumers bear, what they buy and why they buy it, and how much they save.

All of this is good to know about and it raises further questions about stewardship that will concern us again in the future. But in one sense, these discussions have been more complex than needed. Some brand new survey work just being reported by researchers at Dartmouth College and the University of Pennsylvania puts these issues in a much simpler context:

"Have you thought about your retirement?"

This question is part of the "Health and Retirement Survey" conducted every two years by the University of Michigan. The Social Security Administration helps fund this work, and we will also visit it later on when we look at the country's aging population. For now, Annamaria Lusardi (Dartmouth) and Olivia Mitchell (Penn's Wharton School) composed a section of it to study the wealth of people who are nearing retirement age. Their questions were asked of participants aged 51-56; the latest result – for 2004 – is compared with the same age group in the 1992 version and described in a Working Paper published just a few weeks ago by the National Bureau of Economic Research*. Lusardi and Mitchell want to know about the adequacy of people's assets as they approach retirement. How do people who have some retirement wealth differ from those who haven't saved much or might even be net debtors?

The question "have you thought about your retirement?" had four choices of answer: (1) hardly at all (2) only a little (3) some and (4) a lot. In both survey periods – 12 years apart – people who thought about retirement even "only a little" had 2.2 TIMES as much net worth as those who had "hardly thought about it at all". The accumulation of net worth by people who said they think about retirement "some" or "a lot" was larger, but only modestly.

So thinking ahead – "only a little" – during our peak working years before age 50 is a potent factor in helping us plan for retirement and build up assets toward that later stage in life.

Interest on Interest
As well, the act of "planning" is less complicated than we might believe. Apparently, according to this analysis, we just need to understand one basic notion: compound interest. Another survey question:

"Suppose you have $200 in a savings account that pays 10% interest. How much would there be in the account at the end of two years?"

Stop here and answer this for yourself. Of the nearly 2,000 people polled in 2004, only about 360 got the right answer. Of those who missed, about half made the same mistake: they didn't realize that in the second year, you get interest on the interest you received in the first year, so you don't merely add $20 each year. The amount of interest you earn increases every year and continues to do so as long as you leave the interest in the account:

Year 0 $200.00
Year 1 10% x $200.00 = $20.00 $220.00
Year 2 10% x $220.00 = $22.00 $242.00
Year 3 10% x $242.00 = $24.20 $266.20
Year 4 10% x $266.20 = $26.62 $292.82

Seeing this compounding effect helps put in perspective the investment returns open to us. Note too that the interest on some debt, especially credit cards, also compounds! So you are paying interest on your interest!

Social Security and Other Pensions
Participants in the Health & Retirement Survey were also missing other important, but very fundamental facts about their retirement finances. Only 40% had any clue how large their social security benefit might be. Further, more than half believe they will be eligible for the full benefit at an earlier age than the law now allows.**

Many respondents did not know what kind of private pension plan their employer offers: defined benefit, defined contribution or hybrid. Fewer than half knew when they would be eligible to receive these benefits.

It's Never Too Soon
So basic facts are important. These come through in "planning" of even the most rudimentary kinds. What Lusardi and Mitchell found is that people who take care to learn just these simple facts are making measurable progress toward accumulating the resources they'll need for retirement. We can consult Suze Orman and The Motley Fool and other financial advisors (and Ways of the World will do so!) but a journey of great distance begins with the first step. Here it is. Think ahead. Think about your retirement. Think about saving more and debting less. Learn the provisions of retirement plans you already have. Do these simple things when you're 45 or even younger; it's never too soon to start.

*Annamaria Lusardi and Olivia S. Mitchell, "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth". Cambridge, MA: National Bureau of Economic Research, Working Paper 12585, October 2006.

**The Social Security Administration (SSA) is now sending us all annual statements with this information. If you discarded yours or believe you never got one, you can request one. Visit the SSA website:

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