Economics in Light of the Gospel

Above All Earthly Powers

Category Archives: Capitalism

Intersection of Economics and Theology: Part II

Posted on by Posted in Capitalism, Theology 1 Comment

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

Intersection of Economics and Theology Part I

Posted on by Posted in Capitalism, Theology

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

Great News: The Middle Class Is Shrinking

Posted on by Posted in Capitalism, Poverty, Rich People

“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?

The New Big Apple

Posted on by Posted in Adam Smith, Capitalism, Greed, Uncategorized

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.

Great News for the Environment

Posted on by Posted in Capitalism, Environment

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.

The Secret Document that Transformed China

Posted on by Posted in Capitalism, Communism, Incentives 1 Comment

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.

Bad Things Happen to People Doing Bad Things

Posted on by Posted in Capitalism, Greed

The FBI arrested four people today and charged them with securities fraud and conspiracy as part of an expanding investigation into a “criminal club” of insider trading.  The Wall Street Journal reports that since late 2009, the government has secured 56 guilty pleas or convictions out of 63 people charged with insider trading.

In related news, the Financial Industry Regulatory Authority (FINRA) fined a Citigroup Inc. unit $725,000 today for  disclosure lapses and violations of rules designed to protect investors from Wall Street conflicts of interest.  FINRA as the largest independent regulator of securities firms assessed the fine as part of its mission to ensure the securities industry operate fairly and honestly.  Even so, the problems were “largely the result of programming and technical errors and deficiencies” and there was not any indication that the investor research reports of Citigroup were biased or affected by the issues.

In other news, tens of millions of people in business quietly made honest profits by serving customers with desirable goods and services at competitive prices.

Perhaps you didn’t see the last story involving the overwhelming majority of law-abiding capitalists because it was not widely reported.  Nevertheless, all three of these news stories are good news. It is good when the FBI catches the bad people and stops them from doing bad things. It is good when independent industry regulators ensure precise compliance with good practices. And it is fundamentally good and pleasing to God when people earn an honest profit by subduing the creation for the benefit of others.

Don’t believe the critics, gentle reader, who would throw the baby of capitalism out with the bathwater and accuse all members of free markets of unbridled greed. Self-interest drives free markets, greed harms relationships but still drives markets, and crimes and violations are punished, and that’s a good thing.

Are You Destroying the Economy of the United States?

Posted on by Posted in Adam Smith, Ayn Rand, Capitalism

Rick Moranis frets over this question in an ironic piece from the Wall Street Journal, and in the process he raises several helpful questions which touch on the intersection of economics and morality.  His day of discontent began with grinding coffee beans at home and he wondered whether he was harming his local coffee shop with his individual effort.

Mr. Moranis used a German-brand coffee grinder made in China.  Should he instead have bought an American-brand kitchen appliance made in China?  He made his own granola for breakfast but was concerned about layoffs that he might be causing from not purchasing a more expensive manufactured cereal in a box.  People need jobs, right?

To get to work he jumped in a cab – not helping at all to offset the MTA budget deficit nor ensuring the employment of the unionized transit workers.  Through the rest of the day he was bitten by a dog, encountered a suspected terrorist, and looked to all the cable news channels to help clear up his confusion and guilt.  The whole amusing story is worth perusing.

Nevertheless, gentler reader, key questions remain.  Are we selfish to save money by not consuming commercial products?  Do we have a duty to patronize stores?  To tip big?  Or, in fact, is it self interest that drives a free market and leads to the best outcomes for everyone?

One of the goals of this blog over time is to investigate the differences between greed (one of the seven deadly sins, according to the Catholic church), selfishness (not much better than greed if you ask your mother), and self-interest (which guides the invisible hand, according to Adam Smith, or is the highest moral virtue, according to Ayn Rand).  Without a doubt, the Bible has much to say on this topic as well.

Gentle reader, you are invited to take part in this dialogue in the comment sections of any post.  You are especially invited to download the free Kindle version of Anthem using the link to the right (a dead-tree 50th anniversary edition is also available at the link for a nominal sum).  This provocative book by Ayn Rand presents one set of answers to the questions that troubled Mr. Moranis today over his morning cup of coffee.

How Fracking is Changing Your Life

Posted on by Posted in Capitalism, Impact of Ideas

If the term “hydro-fracturing” or simply “fracking” is not already familiar to you, gentle reader, then you are missing one of the significant economic developments in our lifetimes.

This new technology for using water, sand, and chemicals to fracture shale formations deep in the ground is releasing enormous quantities of natural gas from unexpected parts of the country.  The production of onshore natural-gas in the United States has increased about 50% over the past five years, while the price has fallen more than half,  from $8 to under $3 per million British Thermal Units (the standard unit for natural gas purchases).

What does this mean?  More than half of American households (who use gas to heat their homes) can expect to save hundreds of dollars as the cost of staying warm is forecasted to fall by about 20%.  Steel companies and plastic makers are building new facilities in the United States (think jobs…) so they can take advantage of the inexpensive fuel to compete globally.  More natural gas power plants also means cleaner air for everyone.  Of course, many companies are earning increasing profits from drilling wells.

It also means that we are better obeying the creation mandate (Genesis 1:28) to subdue the earth and make it useful for human beings.  Therefore, the newly developed “fracking” techniques seem to be fundamentally good and pleasing to God.  What do you think?

 

The Brownie Pan Economics Lesson

Posted on by Posted in Capitalism, Profits

Do you crave the gooey center pieces from the brownie pan, or is your passion for the dense, chewy edge brownies?  I prefer the latter, and apparently so do tens of thousands of others.  In 2010, a company called Baker’s Edge sold more than $2 million worth of brownie pans specially designed to make every brownie in the pan an “edge brownie.”

In the same way, the Wall Street Journal reports that Nathan Wratislaw loves extra marshmallows in Lucky Charms cereal. In fact, he loves them so much that he purchases more than 1,000 pounds at a time — a semi load.  He then sells most of the marshmallows (one hopes) to other marshmallow aficionados who suspect the leprechaun is stingy in adding the sweet charms to the cereal.

Who needs these things? No one.  The mere fact that such subtle delicacies are even produced is a lesson in the creative abundance of capitalism. Economists agree that firms in “monopolistic competition” market structures (such as the breakfast cereals or baked goods) continually produce marginal changes to products in hopes of slightly increasing the pleasure of the customers.  Success or failure of a firm can depend on attention to precise details such as the difference between a center brownie and an “edgie.”

The apostle Paul called for Christians to “serve one another in love” (Galatians 5:11) and it is best if this comes from a sincere love of Jesus Christ. Nevertheless it is interesting to note that even if it is not sincere, free market competition favors the companies that best approximate this command in serving the needs of consumers.  Gentle reader, I would not argue that every desire of a consumer should be met by the market (after all, we are affected by sin). Even so, we can be grateful that free markets in the United States produce not only an abundance of nutritious food, that also never-ending array of subtle delicacies.  Brownie, anyone?