08 Dec The Bible and Economic Science
When my son Santi was four years old, he asked me about the story of David and Goliath. Playing the role of the “know-it-all dad” (as he calls me), I explained to him about a book with two parts: the Old Testament and the New Testament. In the Old Testament, I told him, there are many battles and fights like the one between David and Goliath, while in the New Testament, the central message of Jesus Christ is love.
Then I recounted how David defeated Goliath and, after the event with the stone, how he went on to cut off his head. I concluded the story with my interpretation of the Bible: “So, my son, the Old Testament shows what human beings are like—full of battles, fights, and conflicts—while the New Testament focuses on how human beings should be, with love for one’s neighbor as a central part of the message.”
“What do you think, son?” I asked him. Santi leaned in and whispered, “I like the Old Testament better.”
Years later, when I was working in South Sudan, I told this story to a good Canadian friend (a deeply religious person), and he told me he shared Santi’s perspective. He said he also preferred the Old Testament: “Because it’s more human,” he told me. “The New Testament is too idealistic,” he added.
Coincidentally (or not?), economic science can also be divided into two similar parts. Positive economics, which seeks to describe reality as it is, and political economy (also called normative economics), which deals with how things should be.
Positive and Normative Economics
Positive economics is filled with mathematical models, econometric techniques, statistics, probability estimation, neural network models—all the tools that help us understand reality. For example, in the past, we used mathematical tools, set theory, and preference relations to comprehend human rationality; today, we attempt to understand the same rationality through tools from psychology and/or neuroscience. All of this serves the same purpose: to understand human economic behavior.
Normative economics, on the other hand, attempts to outline criteria for how things should be, based on the results of positive economics. Here, more “philosophical” questions arise: Who should receive help from the state? How large should the state be? What are the criteria for distributive justice (if any)? Contributions from thinkers like Rawls, Sen, and Harsanyi are essential pieces in this complex epistemological puzzle.
An Example: Natural Gas Royalties
An example will help illustrate both sides of economics: the debate on natural gas royalties.
Using the tools of positive economics, we can determine how much revenue regions will receive from royalties in a given year, what future income projections look like, how royalty income fluctuates with international oil prices, and even the impact of natural gas royalties on GDP or employment. In other words, we can attempt to understand how things are. Econometrics, statistics, and models are all welcome here.
With the tools of normative economics, we can address questions like: Is it good for a country to rely on hydrocarbon royalties?
There are arguments in favor:
These are our resources, and therefore, we should make use of them.
They may be the only source of wealth available at the moment.
To maintain the capital stock of the economy, it is necessary to reinvest these royalties into other forms of capital, such as human capital, through better education.
However, there are also arguments against:
The “rentier delirium” it provokes teaches our children that there’s no need to work—just hold out your hand for the royalties to “fall.”
Instead of using their intelligence to create new ways of earning money, citizens may use it to lead groups and control how these royalties are spent.
Relying on natural gas royalties does little to protect the environment; in fact, in the pursuit of more royalties, people may turn a blind eye to CO2 emissions.
A Shared Human Question
The tension between positive and normative economics reflects a broader human question: What is the world like, and how should it be? These are fundamental issues that shape our understanding of ourselves and our societies.
Economics and economists have something to say about both.
S. Mauricio Medinaceli Monrroy
December 8th, 2022
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