The Invisible Hand of God

05/01/2015 01:36 pm ET | Updated May 01, 2016

"When the happiness or misery of others depends in any respect upon our conduct, we dare not, as self-love might suggest to us, prefer the interest of one to the interest of many." Adam Smith, The Theory of Moral Sentiments, Book 3, Sec. 1, Chapter 3.

"(What) improves the circumstances of the greater part (of society) can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged." Adam Smith, The Wealth of Nations, Book 1, Chapter 8.

"The United States has the highest poverty rate, the greatest income inequality, and the greatest wealth inequality of any major developed economy in the world." Edward Kleinbard, WE ARE BETTER THAN THIS: How Government Should Spend Our Money (p 98).

America ought to be better than these statistics imply. It's time for us to live up to the moral values espoused so long ago by Adam Smith. The real Adam Smith, that is.

I've just finished a dense but important and surprisingly readable book by a University of Southern California professor of tax law, Ed Kleinbard. I had the privilege of enjoying a vegetarian lunch with him last week at USC's Good Karma Cafe. He was eager for me to do what I could in the faith community to spread the message of his recent book. And I'm eager to do so, because there is good theology lurking amid the wonky details of tax and spending policy in WE ARE BETTER THAN THIS.

It's the theology of Adam Smith, the 18th century Scot who is credited with inventing modern economics. His name is regularly invoked in support of untrammeled free-market capitalism. In Smith's The Wealth of Nations, he coined the phrase "invisible hand" to describe the way that free markets adjust supply to demand in meeting human needs. Modern market triumphalists celebrate this "invisible hand" as the free market itself, and inveigh against state interference with it. But in Smith's other major work, The Theory of Moral Sentiments, he argued that the happiness of individuals and of society as a whole depended in large measure on interventions by the state, outside the workings of the market.

Reading Smith's work as a whole, it's clear that the "invisible hand" was not the market itself. Adam Smith's "invisible hand" was God's. It was Divine Providence, benevolently directing what is good for human beings through the market, but also through the state's role in protecting vulnerable people for whose needs the market could not provide. (Read Kleinbard's recent article about Adam Smith in Commonweal Magazine.)

Ed Kleinbard urges that the U.S. government raise modestly more tax revenue without radically changing rates, by eliminating many tax breaks and making other careful changes to the system. With that greater revenue, and with other structural reforms, the government should invest heavily in strengthening our social insurance programs for the poor, the unemployed, the elderly, and other vulnerable people. Better social insurance would manifest the "invisible hand" by encouraging entrepreneurial risks: people would know that failure would not result in abject poverty. Kleinbard also prescribes substantially greater investment by the federal government in transportation, schools, and other infrastructure. This would create a large number of steady middle-class jobs that could not be lost off-shore, and would result in improved economic efficiency. His book offers rich lodes of factual support for these positions. He drills deep into the arcana of America's tax codes, he parses out the statistics revealing America's poor report cards on income inequality, healthcare spending and outcomes, and wages. He concludes: "The important question is not the progressivity of our tax system, but rather the progressivity of our country's fiscal system - the net of its spending and taxing." (p 355) Kleinbard argues that the answer to income inequality is not so much the progressivity of the tax code, but the level and nature of government spending. He proposes that a return generally to the tax rates of the Clinton era, coupled with elimination of exemptions such as high-value home mortgages and charitable giving, would generate enough revenue for the government to balance its books and make large and needed investments in and for the people.

Kleinbard's idealism is tempered by realism accrued in his tenure as the Chief of Staff of the U.S. Congress's Joint Committee on Taxation. Having seen Congress in action and inaction, he understands that some things he'd prefer are pies-in-the-sky. In his book he makes a strong economic case for the US to adopt European-style universal single-payer health care, but does not factor this into the proposals in his book. The super-heated right-wing ideology that dominates Congress today has taken off the table the obvious solution to runaway costs and fundamental injustice in our health care system.

And this gets back to Kleinbard's awareness that America's problem isn't the lack of solutions, it's the lack of moral commitment to pursue them. "... the market triumphalist agenda is fundamentally more anti-democratic than is generally perceived. It is their success in disguising their self-centered, slightly paranoid, and anti-democratic impulses behind the garb of concerned deficit hawks or protectors of our moral backbones from the siren call of cushy unemployment benefits..." (p 408) Greed has become a creed. Kleinbard observed, in his own experience as a tax adviser, high-wealth people "who shared the view that they sincerely loved money, that money was attracted to them because it sensed their love, that they knew how to take care of money and give it a good home, and that less affluent individuals would horribly mistreat that money. I sometimes thought that these fortunate individuals stayed up at night ironing their dollar bills, so that they would look neat and tidy. If there is such thing as the declining marginal utility of income, someone forgot to tell these folk." (p 343)

Hence Kleinbard opens each of his chapters with quotes from the real Adam Smith - the one who understood both the values and the limits of the market. Smith believed in a God who cared about the practical welfare of people, a God whose will was followed by those who put the good of all above the selfish interests of individuals. After his avalanche of fact and analysis, in his final words in the book, Kleinbard appeals to our morality as a people: "We can afford to be better citizens to one another. When will we honor Adam Smith and Thomas Jefferson? When will we choose to govern ourselves in ways that are most likely to effect the happiness of our whole society?" (p 413)

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Associate Dean of Religious Life, University of Southern California