Where the Money Is…

Posted on February 3, 2012 by David Kotter

When the infamous felon Willie Sutton was asked why he robbed banks, he allegedly told the reporter, “Because that is where the money is.” Sutton died in 1980, but if he were still alive he might make a similar quip about modern ATM machines.

The FBI reports that more money is stolen today through data breaches (including compromised ATM systems) than through physical bank robberies. The American Bankers Association estimates that an ATM heist can yield 10 times as much cash as criminals holding up a bank.

This is an interesting development in the light of the 400,000 ATMs presently in service in the United States and more than 2 million ATMs around the world. These machines dispensed $695 billion of cash in 2011 alone. Over the last four decades these ubiquitous machines have been adding convenience (and consternation) for banking customers and lowering employee costs for banks. Apparently, they have also been making it safer for human beings to work in banks by drawing the attention of greedy knaves.

Obviously banks are exploring ways to increase the security of ATM machines. Nevertheless, this provides an excellent illustration of the importance of incentives in economics. All people (even reprobates) respond to incentives. This could be a shopper going out to take advantage of a sale, a taxpayer pursuing actions that will be tax-deductible, or a politician proposing controversial legislation that will generate campaign contributions.

A significant incentive in free markets is the marginal (not average) rate of taxation. The marginal tax rate is how much money the government will take from the next dollar that a person earns. Low marginal tax rates increase the number of people working and actually increase revenues collected by the government. High marginal tax rates discourage honest work and diligent job searches as much as unguarded ATM machines attract thieves.

Posted in Greed, Incentives | 1 Comment

Intersection of Economics and Theology: Part II

Posted on February 2, 2012 by David Kotter

While I am grateful for the helpful contribution of Aryeh Spero’s editorial in the Wall Street Journal (“What the Bible Teaches about Capitalism”), it actually highlights the difficulty of the task of developing a Biblical theology of economics.

For example, Spero provides several quotes from the Bible (which is the only valid foundation for any theology of economics), yet the quotes are short paraphrases without any citation.  This broad-brush approach is helpful in general, but the hard work of theology requires specific quotation and careful exegesis (exegesis is a word theologians use for explaining or interpreting a text).

Spero also appropriately asserts, “the Bible is not a business-school manual.” Unfortunately, he continues to state that the Bible “has nothing to say about financial instruments and models such as private equity, hedge funds or other forms of monetary capitalization.”  In one sense, this is strictly true because these words do not appear in the biblical text. Nevertheless, wisdom allows us to understand principles from an ancient context in the Bible and how these can be properly applied in analogous modern contexts. For example, “insider trading” is a form of stealing and “cooking the books” is a form of lying, and the biblical position is crystal clear on lying and stealing (see Colossians 3:9 Exodus 20:15).

Finally, Spero confines himself to the Old Testament based on his Jewish background. We can be grateful for his contribution yet go on to mine the rich text of the New Testament in building a theology of economics.  The gospel of salvation through Jesus Christ is the most important message of all time. It undoubtedly affects all spheres of life, especially the human interaction inherent in free markets.

This editorial highlights the challenge of the task, gentle reader, but the goal of this blog over time is to take part in (and facilitate) a dialogue to develop a Biblical theology of economics that will serve Christian businessmen and the local church around the world.

Part 1 of 2

Posted in Capitalism, Theology | 1 Comment

Intersection of Economics and Theology Part I

Posted on February 1, 2012 by David Kotter

The goal of Above All Earthly Powers is to explore the intersection of theology and economics, a task that we call viewing “economics in light of the Gospel.”  For this reason it was encouraging to read an editorial in the Wall Street Journal this week entitled “What the Bible Teaches about Capitalism.”

Before delving into the content of this editorial by Aryeh Spero (which this blog will do today and tomorrow), is worthwhile to note that the WSJ editors validate the existence of an intersection of economics and religion.  They do not envision free markets operating apart from a moral compass or without a biblical foundation.

Their point is underscored by the fact that more than 1,100 words are devoted to this editorial, or about a half of a newsprint page. This is especially noteworthy in a newspaper with the highest circulation in the country — 2.1 million readers (compared to USA Today with 1.8 million readers and Above All Earthly Powers with significantly under 1 million readers).

While the entire editorial is worth reading, one highlight is its emphasis on the fundamental goodness of work. Not only is mankind tasked with subduing all of creation, every individual bears the command that six days you shall labor, and do all of your work (Exodus 20:9).  Work is not a result of sin entering the world, but rather people have been inherently created for working and resting.

The Bible also demands honesty and even transparency in all of life, and this is especially relevant in free markets.  Spero quotes Leviticus 19:14, You shall not curse the deaf or put a stumbling block before the blind, but you shall fear your God, to make the point that businesspeople should not “act deceitfully or obscure the truth” from those who depend on honest information.

Spero also notes “the Bible is not a business-school manual” which means that discernment and wisdom are necessary to apply these timeless principles to be ever-changing modern environment. It is to this task, gentle reader, that we will turn in tomorrow’s post.

Part 1 of 2

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Moving in the Right Direction

Posted on January 31, 2012 by David Kotter

Racial segregation in US metropolitan areas has reached its lowest levels in in the last 100 years according to a report released by the Manhattan Institute. In other words, American cities are now more racially integrated than they have been since 1910. This is good news.

“Gentrification,” or the economic renewal of inner-city housing, has been an influence in this desegregation. More important is the fact that black people are moving more quickly into suburban areas. In the 1960s, “one-fifth of America’s urban neighborhoods had exactly zero black residents.”  Today, 99.5% of all neighborhoods nationwide have African-American residents.  Further, Hispanic immigrants are moving into all areas of the country.

This is good news for the economy because racial discrimination is economically inefficient. Entrepreneurs are prevented from selling to larger markets because of divisions between people. The wages of workers are held artificially low when they cannot market their skills in all areas because of discrimination. Beyond that, the simmering racism and hatred that lies behind the segregation is a tragic waste of human effort and life.

Racism and hatred are also displeasing to the God who created all the languages of the world and ensured that people would spread out over the entire Earth (Genesis 11:1-9). God freely makes salvation through Jesus Christ available to people without discrimination: There is neither Jew nor Greek, there is neither slave nor free, there is no male and female, for you are all one in Christ Jesus (Galatians 3:28).

The most important reason for integration on earth is to prepare ourselves for an un-segregated heaven. As the apostle John describes in the book of Revelation: After this I looked, and behold, a great multitude that no one could number, from every nation, from all tribes and peoples and languages, standing before the throne and before the Lamb, clothed in white robes, with palm branches in their hands, and crying out with a loud voice, “Salvation belongs to our God who sits on the throne, and to the Lamb! (Rev 7:9-10).  God is most glorified when people of all cultures and languages worship together.

Better get used to it now, gentle reader. At least we are moving in the right direction.

Posted in Racism, Things Keep Getting Better, Uncategorized | 1 Comment

McDonald’s and Me

Posted on January 30, 2012 by David Kotter

I have a mixed relationship with McDonald’s. I know from the nutrition information that the meals that I find the tastiest at its franchises are also the highest in fat and lowest in nutrition for me.  Nevertheless, the Golden Arches are so convenient, so quick, and generally so clean and efficient that it is hard not to stop by to see the clown when I am traveling. And did I mention tasty?

Though many might disagree with my culinary assessment, 64 million customers in more than 100 countries stop by every day for hamburgers, french fries, McRibs, pita bread (Middle East), McRice (Indonesia), and soup (Portugul). These massive sales are growing at a rate of 5% per year despite an unrelenting activist war against the company by advocacy groups who object to high-fat, tasty foods (think Super Size Me).

In fact, McDonald’s lives in a symbiotic relationship with these protest groups. Holman Jenkins explains the unusual relationship between McDonald’s and nutrition advocates: McDonald’s spends 2 billion a year on advertising and brand-building. To build a brand is to create a hostage, and a full-time activist industry has evolved to expropriate a small sliver of this value to promote its own causes.

For example, the American Academy of Child and adolescent psychiatry ran full-page ads demanding the company retire its mascot clown, Ronald McDonald. These ads generated millions of dollars of free publicity for the activist groups for their quixotic attack.  Nevertheless, Ronald is going nowhere.

McDonald’s only changes what it does in response to customer tastes and appetites — generally in a way that defends sales of hamburgers and fries to the public. CEO Jim Skinner frames the health activists concerns this way, “Customers feel more comfortable knowing healthier options are on the menu even if they don’t choose them.” Net income $7.5 billion in 2010 suggests many people must agree with his assessment.  To underscore this point, global sales have grown for the past 92 consecutive months despite the financial crisis.

Even so, there is a problem whenever millions of tons of unhealthy food is consumed every day.  McDonald’s cannot be blamed in a free market for providing a menu that customers find to be tasty. The responsibility lies with the consumer, gentle reader. The Bible is clear that people are morally responsible for everything we put in our mouths: “So, whether you eat or drink, or whatever you do, do all to the glory of God” (1 Corinthians 10:31).  I know it can be a challenge to be a biblically-informed eater, but look for future posts in this blog on how to practically live out commands of eating and drinking for the glory of God and how to end the obesity epidemic.

Posted in Eating and Drinking, Profits | 2 Comments

Great News: The Middle Class Is Shrinking

Posted on January 27, 2012 by David Kotter

“The middle class has shrunk,” said President Obama on the campaign trail last month, and I agree. In fact, I was delighted to read confirmation that the middle class is shrinking today in an editorial by Henry Nau.  While a majority of Americans likely disapprove of my position, I wish more people actually understood the economic data before forming opinions.

Gentle reader, let us have a look:  Between 1980 and 2007, the world’s total output of goods and services more than doubled. As measured by gross domestic product (GDP), it expanded by about 145%, or roughly 3.4% a year.  During this time more than 50 million new jobs were created in the United States, “massively expanding a middle class of working women, African-Americans and legal as well as illegal immigrants,” according to Henry Nau.

During this time, the percentage of middle-class households (with incomes between $35,000 and $105,000) declined from 24% to 11% of the population of the United States.  However, the percentage of poor households (earning less than $35,000 per year) remained the same.

Where did this missing middle class go? They got richer. The middle class grew smaller during that time because more people made more money in the era of privatization of government, reduced protectionism, NAFTA, and lower marginal tax rates. In fact, during this period an estimated 600-800 million people entered the middle class in China, India, Brazil, and other developing countries.

I am glad for them, because their children were hungry too.  Remember, when in an economy creates wealth, it is not a zero-sum game. Pillaging other people to get rich was what the Vikings (and a lot of other cultures) did long ago, but now ethical global trade can make everyone better off at the same time.

In this light, what would be the best policies in the future to start shrinking the percentage of poor households in the world?

Posted in Capitalism, Poverty, Rich People | Leave a comment

The New Big Apple

Posted on January 26, 2012 by David Kotter

Apple Inc. reported record quarterly earnings for the end of 2011 in what was one of the most profitable quarters for any corporation ever in the history of mankind. In three months Apple created more than $13 billion of wealth, more than double the profits compared to the prior year. This was more than the profits of Microsoft, Intel, Google, and Yahoo combined.

The behemoth Exxon Mobil Corp. had previously earned $14.8 billion in one quarter in 2008, but that was on revenues of $140 billion, or a return on sales of about 10%. In contrast, Apple earned $13 billion in net income on sales of just $46 billion, or an astonishing return on sales of 28%.  As you might expect, the shareholders who legally own this corporation were ecstatic, and the stock price increased more than 8% in one day.

Apple is now twice as large (as measured by market capitalization) as Wal-Mart, five times larger than Amazon, and 10 times larger than eBay. In fact, Apple’s revenue was greater than the entire gross domestic product of the country of Bulgaria… and more than 100 other countries around the world.

Should there be an investigation at this point? Should the executives of Apple be accused of greed and forced to pay higher taxes? Should price controls be slapped on iPhones and iPads? I am confident, gentle reader, that some might think so.

I would rather celebrate this marvelous success. Apple Inc. makes products that makes many people happy and more productive — 37 million with iPhones and 15 million with iPads in the last three months.  Of course, this productivity is offset somewhat by 6.8 million downloads of Angry Birds on Christmas Day alone.

Since the Creation Mandate (Genesis 1:27) is to fill the earth and subdue it — make it useful for human beings — it appears that millions of people demonstrate that Apple is carrying this out when they voluntarily give this corporation billions of dollars.  In fact, Apple now has $98 billion in cash which proves its proficiency in subduing the creation.

What were you doing in the last three months in obedience to the Creation Mandate?  In a future post we will address ways that every individual can be obedient to God in unique ways.

Posted in Adam Smith, Capitalism, Greed, Uncategorized | Leave a comment

Great News for the Environment

Posted on January 25, 2012 by David Kotter

Cascades Tissue Group has announced great news for the environment. This innovative firm now uses 100% recycled fibers to produce white paper without using pure elemental chlorine (which traditionally has been objectionable to environmentalists).  This means that consumers can now use writing paper paper, napkins, toilet tissue, and diapers without sacrificing trees or releasing chemicals into the environment.

This good news for the creation appears to be bad news for some environmentalists who are given to “conspicuous conservation.”  In other words, if writing paper is pure white or toilet paper is too soft, then it is not self-evident to everyone that it has been recycled.

Fortunately, progressive capitalists have found a solution to this problem. This involves adding brown pigments to non-chlorine bleached diapers to drive home the environmental message.  These products need “visual differentiation,” says Louis Chapdelaine, the product director of a company specializing in eco-friendly household cleaning products and paper.

Likewise, Cascades makes its new Moka brand toilet paper out of 20% recycled corrugated boxes to to create the perfect brown color — not too “dark brown” or “gray and dirty.”  When the company pitched this product to distributors at a recent trade show, it was evident that it would be perfect for customers who “want softness, but also want green credentials.”  This product is aimed at the people who “like to be green, but they don’t want to compromise. They don’t want to pay more. They want the same quality.”

It is important to be concerned for the environment, because “The earth is the Lord’s, and everything in it,” (1 Corinthians 10:26) and we have been made stewards to care for God’s creation. Even more, “The heavens declare the glory of God, and the sky above proclaims his handiwork” (Psalm 19:1).  Through the grandeur of creation we learn more about the glorious creator of all things and it is important to preserve this display of the greatness of God.

For this reason, gentle reader, I would argue that we should focus more on pleasing God than being admired for the color of our recycled tissues.

Posted in Capitalism, Environment | Leave a comment

End of an Era for Japan

Posted on January 24, 2012 by David Kotter

Japan imported more than it exported in 2011 and in a dramatic turnaround recorded its first annual trade deficit since 1980. This looks like the end of an era of for one of the world’s greatest export engines, since the trade deficit is expected to continue in 2012.

Demographically low birth rates mean the people of Japan are aging rapidly and its population ranking has fallen from seventh in the world in 1990 to tenth in the world today.  It is increasingly difficult for Japanese manufacturers to be competitive in light of rivals from China or South Korea whose products are often equal in quality and much lower in cost.

Further, energy costs in Japan have increased by 17% for corporate customers because electricity is being generated with expensive oil rather than the pre-tsunami nuclear power plants. Ongoing trade deficits and a weaker currency might make it a challenge to finance Japan’s debt burden that is already larger than Italy’s as a percentage of its total economic output (GDP).

Nevertheless, Japan is still a wealthy country with the third largest economy in the world and ¥250 trillion in foreign reserves. It is a formidable competitor with worldwide reach, so it cannot be discounted completely.

When I was in business school in the 1980′s, all management attention was focused on Japan as it showered the world with cars, electronics, and semi-conductors. No one would have predicted this news three decades ago, yet it encourages one to pause and remember how trade was once dominated by Egypt, Greece, Rome, Spain, and Great Britain before the United States today.

For the United States to avoid a similar decline, we must focus on higher education in the STEM fields (Science, Technology, Engineering, and Mathematics).  Further, fiscal discipline to reduce the national debt will be essential.  What else should we do? Gentle reader, you are welcome to enter the dialogue with your suggestions in the comments section below.

Changes in economies are important because they directly change the livelihoods of individuals and bring temptations to greed or the despair of poverty.  Above all, change reminds us to look to the good God:  he makes nations great, and he destroys them; he enlarges nations, and he leads them away (Job 12:23).

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The Secret Document that Transformed China

Posted on January 23, 2012 by David Kotter

Why should you invest eight minutes of your life to hear an eye-witness account of the economy-deadening effects of communism  or its devastating impact on the human spirit?  Because fewer and fewer people in the United States have first-hand experience with communism.  For instance, students graduating from college this year were not even born during the cold war.  Some people are secretly tempted to admire communist countries. 

After all, China’s economy has been growing at about 9% per year for the last three decades.  The Planet Money podcast exposes the truth behind these figures with an interview with the farmer who started a capitalistic movement on the failing collective farms of China.

Eighteen farmers agreed to divide the collective land into family plots with the understanding that each farmer would have the right to keep the fruit of his individual plot.  If they had been caught in this anti-communist agreement they would have been killed.  Without this agreement to adjust the incentives to work, they likely would have starved to death.  Courageously, they all signed the document and it was concealed in a bamboo tube in the roof of a hut.

What could not be concealed was the tremendous abundance of the next harvest.  The exact same farmers on the exact same plot of land produced more grain than the previous five years of combined.  Such is the impact of unleashing the incentive to work in a free market.  

Independent of any other moral failings associated with totalitarian communist governments, the lesson of history clearly shows that free markets release individuals to carry out the Creation Mandate.  Gentle reader, listen to this podcast or read the transcript.  Then, review it again with a friend so you both can be grateful for the freedoms of market economies.

Posted in Capitalism, Communism, Incentives | 1 Comment