Economics

Economics is perhaps one of the most important and most debated subjects. It is a subject that everyone has a viewpoint on whether or not it is well-developed or explicitly stated. The discipline of economics used to be more about philosophy than math, but around World War II, Paul Samuelson reinvented the discipline by adding lots of mathematical modeling. This has caused the average person to see economics and economic debates as primarily about numbers and formulas, when in reality, underneath it is about philosophy.

Probably no one has addressed this problem more effectively than Thomas Sowell in his book ‘Basic Economics.’ Instead of wading through theories and curves whose significance you do not understand, you will learn the very straightforward ideas. You may have been acquainted with economics in high school as a very confusing, dry and mathematical subject, and stayed away from it in college out of fear. Or you may have actually gotten through a number of advanced economics classes and mastered the math, without grasping the philosophy and common sense that drives it. “Basic Economics” will fix that problem.

There are several schools of economists, but the great divide in this discipline is how one views the role of government. The modern debate at the popular level centers around capitalism versus socialism. Looking at the economic schools behind this, as a complete simplification, Marxist, Socialist, and Keynesian economists view the government in a positive light. Classical and Monetarist economists tend to view the government in a negative light. If you are looking for a solid and highly readable treatment of the history of economic thought, try Mark Skousen’s, “Making of Modern Economics”

Christians are often confused as to where they should align themselves because Christ and the New Testament place a significant focus on helping the poor. Socialism seems to be a natural offshoot of this kind of thinking. We should take care of the poor, and what better way to do so than to tax everyone in the society and give money to them? On the other hand, this creates a problem — it takes away the incentive to work. If someone gives you free money, you do not need to work for it. It gets more complicated when they promise to take away the free money if you start working. Now you are really motivated to not work. Working is an inescapable feature of life handed down to us from the garden of Eden. Although it is not clear from our complex society, ultimately someone has to work hard in order for us to eat, have clothing, and shelter. Should the people who work to produce our food just give it to us? They work hard while we lead a life of leisure? Or should we have to do some work in return? Paul therefore says “if a man will not work he will not eat.” Work is good. It shows respect to those who produce our food, clothing and shelter, develops character and has a part in causing us to want God and a Savior who promises us “rest.”

Therefore, any system which softens the connection between work and reward is a bad system. The issue with Socialism is not concern for the poor then, or even primarily the government’s role in concern for the poor, as many conservatives will quickly say. The big issue is that it undermines the motivation to work. It undermines it not just for the poor, but basically for anyone who receives from it. The follow on issue is that not only does it encourage recipients not work, it discourages the average person from working too — because some of their money is taken against their will and given to someone who is not working. If we reward people for working, this by nature means that there will be a disparity in wealth. Some people will have more who have worked hard and been responsible with what they earn, and some will have less who have either not worked as hard or not been responsible with what they earned. Disparity is not bad then. What is bad is when people who have a lot have it because they got it unfairly.

“Capitalism” is the bucket into which all modern alternatives to Socialism are put. I find this somewhat misleading because “Capitalism” is a term developed by Marx to critique the market economy. An economy that is based on people who control the financial resources (capital) of the society. They control the “means of production” and use that control to exploit people. Capitalism is the system which embraces that control. I believe that Marx’s critique was more applicable to 19th century industrialization than it is to the service economies of developed nations. In those economies, actually owning the factory was the key to vast wealth, and of course not just anyone could own a factory. You can work your laborers to death, and then go find new ones. This is an obvious problem with capitalism that seems to occur in the first stage of industrialization especially.

To advance the discussion any more we need to talk about absolute versus relative poverty, and productivity. Pretty much everyone in a developed country lives like only royalty could live for almost all of history. Those who are relatively poor in our society have access to food, toilets, clothes, transportation, electricity, etc. This makes them richer than most people in the world. Someone who is “absolutely” poor, is in jeopardy of obtaining their basic needs. Someone who is “relatively” poor has a lot less than others, but is able to get what they need to survive. All of the earth, except some royalty used to be very poor compared to us now. The reason why we are richer is not just technology, it is productivity. Ultimately, everything you own was produced by someone, starting with your food. If it used to takes 1 day of work to feed one person then everyone will have to work constantly just to eat. As it takes less and less work to produce food, more and more people do not have to work to eat and they can go focus on something else, such as building homes. The less effort it takes to build homes, the more effort can be spent on producing goods. the less effort it takes to produce goods the more time can be spent in leisure. As we become more productive, we all become richer in the absolute sense. Technology obviously plays a very important part in this. But so does the economic culture. If the society rewards hard work, they will produce more which will make them all richer. If the society punishes work it will be less productive overall, and therefore poorer. Socialism isn’t the only way that this happens though, crime is a second way. Crime rewards people for taking away from others. If crime grows, the society becomes less productive. There are “legal” ways too, and that leads into the next important component of economic thought.

So we need a society which rewards work, and is highly productive, because it makes everyone better off. Some will have more than others, but all will have more. The more productive we are collectively, the richer we will all be. Conservatives have rightly recognized that socialism and crime punish work, but they have turned a blind eye to the other ways in which this is done — economic exploitation. A very salient example is payday lenders. A recent referendum in my state was to limit the amount of interest that payday lenders could charge their customers down from close to 400% per year to 28% per year. Some hard-core conservative types actually supported the lenders because it was “free market.” This is foolish. The money lenders provide no economic benefit to the society as a whole. They simply take money from poor people by trickery. So instead of the poor person having the money, the money-lender has it. You can see how this is actually very similar to crime. Wall Street money lenders run the same kinds of scams on corporations, pension funds, and big money players. It’s a form of stealing. Work is not rewarded, deceit is.

This leads to another observation: any time there is an uneven balance of power, someone is being taken advantage of, and if someone is taken advantage of, everyone is poorer because of reduced productivity. If the corporation has a lot of power over the worker, then the people will be exploited. If a vendor has a lot of power over the buyer, the buyer will be exploited. And the reverse is also true. Competition is normally a huge help in preventing this kind of exploitation — if you charge me too much, I will go somewhere else, therefore you will not charge me too much. If you pay me too little, I will do something else, therefore you will pay me enough. However, things can become unbalanced, and this is when exploitation happens. Societies that are based on free transactions and markets therefore are not always fair because they are not always balanced, but overall because they have real competition promote the most fairness.

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