There’s a famous Dutch statesman by the name of Abraham Kuyper, and he famously said, “There is not a square inch in the whole domain of our human existence over which Christ, who is sovereign over all, does not declare mine.” And that applies to economics, and to faith, and to work, and vocation. And I’m so thankful for the Kern family and their generous support of The Commonweal Project, and to Dr. Magnuson and Tyler and their leadership, so that we can think about these things in a faith community that we as Christians don’t delegate and say, well, that’s the secular sphere, that’s the work, but we just handle Bible stuff or theology stuff. We realize the Bible informs and helps us understand and process knowledge from every area.
I’m just going to cut to the chase, what I’m going to do today. I’m going to talk about seven economic principles, seven specific economic principles that I’ve learned about by reading the Wall Street Journal, and economics books, and things like that. And I want us to think about economic principles in the idea of–kind of–like a modern-day wisdom literature. If you’re familiar… And thanks, buddy. If you’re familiar with the Proverbs as a form of wisdom literature, you know they tell us about how life normally works, and there are exceptions to those principles about life. Of course, the Bible is unique because it’s inspired by God and everything that it exhorts us to do is approved by God. Everything it says not to do is what God disapproves of. So, I’m not saying that economics is inspired but, analogously, it tells us about the way things in life, through observing the way they normally work, what motivates people to do certain things and what motivates them not to do certain things.
And so, we’re going to talk about those seven principles. And to make them memorable and easy to understand, and to show you that economics is really simple, it’s not some esoteric field like molecular biology or something, we’re going to use children’s literature to illustrate that. And then I’m going to relate it to specific teaching or passages in the Bible, sometimes tangentially, sometimes say look, does this story illustrate the same thing? Sometimes direct exhortation. So, again, seven economic principles. I’ve been doing a doctoral seminar in the Book of Revelation, and it was interesting how this came out to seven; seven economic principles. We’re going to look at children’s literature and then we’re going to relate it to the Bible.
I do think it’s fascinating how many children’s books in America relate to economics. It’s shocking how many of our stories relate to industry, hard work, etc.I feel the need to do a little bit more defense of the children’s literature. Why am I using children’s literature? Number one, it allowed me to use a sensationalistic title. And Sarah Jo probably would not be here if we didn’t have Dr. Seuss in the title. [chuckle] So some people came because of that. Two, pedagogically, pedagogically, we use something easy to understand, to understand something that’s newer and more difficult, makes it seem less threatening. Number three, I do think it’s fascinating how many children’s books in America relate to economics, we’re… [chuckle] As I started thinking about it, it’s shocking how many of our stories relate to industry, hard work, all the principles we’re going to talk about here. And this relates to an article that was recently in the Atlantic entitled “Why the British Tell Better Children’s Stories”. And it was talking about British children stories have magic swords and talking bears and American children’s stories are about hard work and obedience and all this, and you think about, it’s kind of interesting. And then finally, one reason I want to do this is because it saves me research time. I already have all these kids books at home, and I don’t have to go look up a bunch of other stuff. So, there we go.
When I was doing this, it reminded me of a student once who said to me, just in awe, “Dr. Mohler reads a book a day.” And I said sort of nonchalantly, “Well, I read 10 books yesterday, but I don’t want to reveal that the title of one was Where’s Baby’s Belly Button.” [chuckle] So some of you are at that stage of life right now where you may be reading 10 books a day and they may be entitled things like this.
Alright, moving on, the first economic principle I want to talk about is comparative advantage. Again, these are things you’ll read about in economics textbooks, or the Wall Street Journal, or other places, comparative advantage. The principle of comparative advantage means that individuals, companies, and even nations have certain advantages in producing specific goods and services. I have a long definition from an economics textbook here, and this is one of the longest slides we have. So just bear with me as I read this. “When people specialize in the production of goods and services that they can provide at a low cost, they can sell these products to others and use the revenues to purchase items that would be costly for them to produce for themselves. Together, people who specialize this way will produce a larger total quantity of goods and services than would otherwise be possible, and a combination of goods more varied and more desirable than they could have produced without specialization and trade. Economics refers to this principle as the law of comparative advantage. The law is universal; it applies to trade among individuals, businesses, regions, and nations.” Okay, this little clicker went blank again, so I’ll just tell you guys when to turn the slides.
So, what does this look like in real life? Let’s start with the individual. I really like math, and I’m a very detail-oriented person when it comes to money. I opened my first bank account when I was six years old. When I was in sixth grade, I went to a camp and you could choose to do stuff at different stations. And I remember being so excited to learn how to balance a checkbook. So, we have a checkbook slide there. And my wife says I’m a demented person. Later in high school, I was on the math team, and I really enjoyed [chuckle] competing on the math team. It was fun. Now I’m married to my beautiful wife. When we got married, she did not know how much money was in her checking account. Now, to give her credit, it was not overdrawn, but she was not sure exactly. So, we let it sit and go dormant, and then I took over the finances.
The principle of comparative advantage means that individuals, companies, and even nations have certain advantages in producing specific goods and services.Now my wife, on the other hand, has amazing style. She’s a great decorator and she’s a frugal decorator. She’s not a spendthrift wasting money. She’s good with colors, she likes moving furniture, she’s painting, decorating, getting rid of stuff, adding stuff. But I’m more committed to mediocrity in my own personal home and fashion department. So, in our home I defer to her. Her comparative advantage is clearly in decorating; she’s very good at it. She makes a very nice, warm, inviting home. I, on the other hand, I’m better at keeping the bills paid and knowing all the things going on with finances. And what’s true on an individual level of comparative advantage is often true at an institutional level. So, the seminary, for example, used to run Village Manor Apartments, this huge apartment complex. We realized what we’re really good at, our comparative advantage as the seminary is in providing theological education. [chuckle] We can teach the Bible. We’re really not very good apartment managers. Some of you who live on campus may… I hear some quiet amens to that, where we’re still managing apartments. No problem with the people who are doing it, but let’s just be honest, that’s not what we… What we’re best at. That’s not what we specialize in. And so, we pass that on.
It’s true at a higher corporate international level. Up to this point, America and Europe have had the overwhelming dominance… You can switch to the next slide. The overwhelming dominance in building commercial airplanes. If you go to China… I’ve been to China on mission trips, you don’t fly on Chinese airplanes. You fly on Boeing or Airbus. Because they’re not going to crash. Chinese people want to fly on Boeing and Airbus, because the Chinese companies don’t build airplane… They build many fantastic things, but their comparative advantage is not in building the best commercial airplane. Sometimes there’s this wrong idea that America is not building… Manufacturing things that are exported anymore. We do export a lot of items. However, if you buy athletic shoes, very likely they’re going to be made in Vietnam, China, East Asian country, where the supply chain and the labor cost allow these countries to have a comparative advantage in the production of athletic shoes.
If you have an inferior good then you’re going to lose out and there’s a need to switch to the production of another good that will be competitive.Now, when there’s free trade and people with the comparative advantage are allowed to prosper, it’s not good for everybody. The people who make bad airplanes lose, in that case. Russia’s not happy about free trade of airplanes. They probably prefer that people in Russia were forced to buy Russian airplanes. Because if you have an inferior good or you have one that… It’s not made quite as cost effectively or as well, then you’re going to lose out and there’s a need to switch to the production of another good that will be competitive. Let’s think about this illustrated with children’s literature. Okay, next slide. Why does Santa use flying reindeer? Next slide. If you look in the book, The Cajun Night Before Christmas, it’s clear that Santa could employ alligators as well. [chuckle] But if you’ll note from this picture, it’s a lot easier to get down the chimney when you land on the roof right next to it as opposed to having alligators trying to boost you up the side of the house.
Another example, next slide. What happens when the pink crayon in the box refuses to exercise its comparative advantage in coloring princess dresses and instead insists on coloring dinosaurs and cowboys and other boy things? In the book, The Day the Crayons Quit, we read a little letter from the pink crayon to the boy, Duncan. The pink crayon writes, “Duncan, okay, listen here kid. You have not used me once in the past year. It’s because you think I’m a girl’s color, isn’t it? Speaking of which, please tell your little sister I said thank you for using me to color her little princess coloring book. I think she did a fabulous job staying inside the lines. Now back to us. Could you please use me some time to color the occasional pink dinosaur, or monster, or cowboy? Goodness knows, they could use a splash of color. Your unused friend, the pink crayon.” So, what happens? We’ll see the next slide, we see a pink dinosaur to the right and a pink airplane. We have to ask, is this really the most effective use of the color pink? Is this really exercising its comparative advantage?
Do we find the principle of comparative advantage in the Bible? Certainly.Do we find the principle of comparative advantage in the Bible? Certainly. We find the division of labor, that idea from the very beginning, Cain is a tiller of the soil and Abel is a keeper of the sheep. We see in Exodus Bezalel, who’s given specific gifts to construct the tabernacle, artistic gifts that other people do not have. I think on a spiritual level it’s interesting, we see that… It seems that the Apostle Paul says in 1 Corinthians 12-14, “Our spiritual gifts are in some way spiritual comparative advantages.” Because we have certain things that some of us do better than others and we should focus on exercising those gifts and also celebrate and benefit from the gifts of others. So, for example, in 1 Corinthians 12:17-18, we read, “If the whole body were an eye, where would the sense of hearing be? If the whole body were an ear, where would the sense of smell be? But in fact, God has placed the parts in the body, every one of them, just as he wanted them to be.”
We were having breakfast this morning, the group that I’m in with the student discussion group in economics, and we were talking about the current presidential primaries, and how many times you’re hearing this protectionist rhetoric, which appeals to some people, especially those who maybe have been… Who have lost out in an industry through competition. But I really would argue that if you understand what’s going on, it’s really not a move forward for our country or for the world to put up all the walls, and keep out all trade, and insist then that we make everything ourselves. Really, there’s a much… There’s a strength, a benefit in exercising what we do well and benefiting from what others do well, both in the church, the spiritual gifts level and also economically. If we hole up and decide we’re going to grow all our own food, and build our own telephones and all that, I think we’ll be actually living in a less flourishing, enjoyable way.
Second economic principle is signaling. Signaling. This is an economic term, and it means to consume goods and services with the primary purpose of signaling your superior wealth. To consume goods and services for the primary purpose of signaling your superior wealth. An example of this would be the Birkin bag. It’s a purse made by the French luxury company, Hermès. And I typed Birkin bag into Google and I found there are some used ones for sale, none less than $20,000. This one is on eBay for $89,950. It’s hard to see, but it does come with free shipping. So…[laughter]
Now, this is a nice bag. It’s not a $90,000 bag. Most of you have never heard of the Birkin bag, but the ladies who can afford the Birkin bag and those who can almost afford the Birkin bag have heard of the Birkin bag. And they recognize the Birkin bag. Some of them have more than one. If you want to hear about this interesting signaling, this economic status symbol, there’s a fascinating podcast on Planet Money podcast about the Birkin bag. That’s where I learned about the Birkin bag. Signaling I think is illustrated nicely in the Dr. Seuss classic, I Wish I Had Duck Feet. Now, books that he wrote the words… I know there’s probably some Dr. Seuss purists in here who are upset I said he wrote this book. He didn’t draw the pictures to this book, but he wrote the words. And when he just wrote the words, he did it under the pen name Theo LeSieg. Does anyone know that? I thought that was interesting. I looked online to see if I could figure out how to pronounce that correctly. I’m not sure how to pronounce his pen name correctly, but I also found out he went to Oxford and was going to be an English teacher. And the woman that he met and later married encouraged him, “You’re really good at drawing. You should drop out and be an English… You should be a drawer. You should draw cartoons and stuff, instead.”
Does the Bible recognize the concept of signaling? Absolutely. David Kotter, in his dissertation, touches on this and he points out, “Paul’s admonition in 1 Timothy 2:9 is an admonition against signaling to some degree. Part of it is modesty, but part of it is signaling.It’s a good thing that he exercised his comparative advantage. He probably would have been a really good English teacher, but he was an amazing writer of children’s books, and drawer. And in this book, the child protagonist is consumed with having other kids admire him because he has something they don’t. Now, to be fair, it’s probably technically not signaling because he’s not purchasing the item they’re impressed with. But he fantasizes about having skills and accouterments that other kids do not have. So, we’re going to read a few pages here. And to really do signaling, you have to have other people. So, he’s got… If you’ll notice in the pictures, there are people that both admire him and people that he really enjoys making envious and the person he enjoys making envious is Big Bill Brown. So, he says, “If I had two duck feet I could laugh at Big Bill Brown. I would say, “You don’t have duck feet, these are all there are in town.” We could write a similar book with the Birkin bag, perhaps. Okay, the next line. So here, he says, “I wish I had two deer horns, they would be a lot of fun. Then I could wear 10 hats up there. Big Bill can just wear one.” Next line, he says, “I wish I had a long, long tail, someday I will, I hope. And then I’ll show the kids in town new ways to jump a rope.”
Does the Bible recognize the concept of signaling? Absolutely. David Kotter, in his dissertation, touches on this and he points out, “Paul’s admonition in 1 Timothy 2:9 is an admonition against signaling to some degree. Part of it is modesty, but part of it is signaling. In 1 Timothy 2:9, we read, ‘Women should adorn themselves in respectable apparel with modesty and self-control, not with braided hair, and gold or pearls, or costly attire.'” So, the pearl, the gold, the costly attire, we know from mosaics, we know from statues, even in Palmyra, which has recently been in the news, from statues that were on tombs, that women would weave their hair, braid their hair with elaborate gold, and pearls were considered extremely valuable. Basically, an ancient Birkin bag, a string of pearls would be an ancient Birkin bag. I’ve got so much money. And from this, we see that that luxurious parading of wealth is a sin.
Signaling is where there are parties that know something represents extreme extravagant wealth. And that object is used to parade that wealth before other people.But we also recognize it’s complicated, isn’t it? There’s a cultural conditioning to this. At one point when I was a kid, and many of you who are my age or older in here recognize that, at one point, having a mobile phone was signaling. It was a… Mobile phones were gigantic, but it was a signal to people, “I’m really, really connected. I have a lot of money.” Mobile phones, you know… Day laborers in Africa and China have mobile phones. It’s not a signal of wealth. Pearls. Pearls are no longer a signal of extreme wealth, at least average pearls. I went on eBay again, after I shopped for Birkin bags, I typed in pearls. I found I could buy an 18-inch string of cultured pearls for $3.99, also with free shipping. So, I’m thinking about bundling the two together, [laughter] and I think it would make a nice gift for my wife. But we see… So, signaling has this cultural element to it. If I took that $90,000 Birkin bag and went to Papua, New Guinea, in some remote village and gave it to a peasant lady, and she used it to collect fruits or something, and she has no idea what it is, and it doesn’t mean anything in her culture, that’s not signaling. It’s where there’s parties that know that that represents extreme extravagant wealth. And it’s used to parade that before other people.
So, we talked about comparative advantage, we talked about signaling. Another economic principle is that of moral hazard. Moral hazard. According to the Economic Times, moral hazard… This is the quote that’s on the next slide. Moral hazard is a situation in which one party gets involved in a risky event, knowing that it is protected against the risk and the other party will incur the cost. I’ll read that one more time. Moral hazard is a situation in which one party gets involved in a risky event, knowing that it is protected against the risk and the other party will incur the cost. So why do teenagers get in lots of car accidents? Of course, they’re inexperienced, and they’re filled with hormones and all that kind of stuff, but there’s also the problem of moral hazard. Mom and dad, in many cases, will pay to fix the car, or if they don’t pay to fix the car, they’re paying the insurance which will fix the car.
Why do teenagers get in lots of car accidents? Moral hazard. Mom and dad, in many cases, will pay to fix the car, or they’re paying the insurance which will fix the car.The teenage children really have a perverse incentive to drive more dangerously because they enjoy all the benefits and none of the economic risk associated with their behavior. Did you know that football used to be played without helmets? It’s dangerous for me to try to speak authoritatively on any sporting subject, but I did listen to an EconTalk podcast about this with a specialist from the Wall Street Journal, Greg Ip, and he goes through all these different things. And one of the things he shares about, which I thought was fascinating, was he said that football used to be played without helmets. And actually, when they introduced helmets, there were a lot more head injuries. This ties in with some current discussion. Now, the reason is it’s creating a situation of moral hazard. The football players thought, “This helmet will take all the shock. I can just do whatever I want with my head. I can bang into people and I’m going to be fine.” And so actually, there was an increase in risky behavior because of the false perception that the helmet would bear all of the risk.
Why did the US economy crash in 2008? One of the main explanations that economists give is moral hazard. You probably have heard in the news this language, “Too big to fail.” These big Bear Stearns, Lehman Brothers, Chase, all these large banks and investment firms were under the impression, it seems, that they could take risky, risky, risky, risky investments, and if things really turn south, the US government would come in to prop them up because they were too big to fail. If they fail, they’d be like dominoes falling and the economy would crash, and so there was a… The government, there was kind of implicit guarantee understood apparently by a lot of these financial institutions. So, for example, in March 2008, when Bear Stearns was bankrupt, the Federal Reserve Bank of New York provided emergency lending.
If the Cat is Bear Stearns, Thing One and Thing Two are Lehman Brothers. Someone else will clean up their mess, so you might as well fly kites down the hall.Now, in doing that, in some ways, it was increasing moral hazard, some would argue, because everyone else is like, “Oh, see? We’re going to be okay. If things go crazy, the government will come in and give us the loan that we need.” In the Dr. Seuss classic, The Cat in the Hat, the mysterious feline visitor is able to wreck the house with impunity. When Mother comes back, he will not be there. He’s able to have all the fun and none of the consequences or the risk. Brother and sister will be there. For the Cat, it’s all fun and no risk. Furthermore, in this situation of moral hazard, others are emboldened to enjoy the fleeting pleasures of destroying the house without having to answer to mom. Thing One and Thing Two charge in with their own calamitous contributions. If the Cat is Bear Stearns, Thing One and Thing Two are Lehman Brothers. Someone else will clean up their mess, so you might as well fly kites down the hall.
Does the Bible speak to moral hazard? In Proverbs 29:21, we read, “A servant pampered from youth will turn out to be insolent.” In other words, if you have a servant and you always rescue him from his failures, he never has to bear the cost of them, he grows up assuming that you, as the master, will bear any consequence for the riskiness or wrongness of his behavior, and he will end up being an insolent burden to you. Children as well who are taught not to bear the consequences of their ill behavior can be expected to behave disgracefully. In Proverbs 29:15, we read, “A rod and a reprimand impart wisdom, but a child left undisciplined disgraces its mother.” Holding people appropriately accountable for their ill-behavior can prevent others from going down that path. For example, Proverbs 21:11 says, “When a mocker is punished, the simple gain wisdom.” One of the things, if you listen to the economics news, one of the thing, hindsight is 20/20, but one thing people have claimed is, “Well, if you had let Bear Stearns fail, if you had let this happen, other people would have gotten their accounts in order. We wouldn’t see all of these other problems. It would have been painful for a moment, but then the pain would have been contained rather than spreading.”
Okay. Economic principle number four is creative destruction, creative destruction. According to the principle of creative destruction, as creative humans introduce new technologies and goods and services, the prior inferior goods and services will eventually be surpassed and discarded. And though change is difficult because the person who makes the inferior discarded product may lose his job, we should not mourn the loss of inferior goods. And indeed, it’s this creative destruction that results in better products and ultimately, in a more prosperous world. Seneca Park, about a mile from here, I stopped by there the other day to take a picture of this.
I think most of us realize that creative destruction, as painful as it was, people lost their jobs. As painful as it was, in the end, it was better for society, better ultimately for those people though the transition would be difficult.
This is what remains of a pay phone. It’s a gigantic slab of metal that looks like it could survive a nuclear blast. You wonder what they were thinking. Here’s another picture of it. And it’s maybe not very clear, but if you look down to the bottom, you can even see my shadow holding up an iPhone to take a picture of it, which is really symbolic, isn’t it? Because in my hand, I’m holding a phone much smaller, much more powerful than the pay phone. I don’t have to put in 25 cents. With my Skype app, I can call anywhere in the world, even Algeria or Afghanistan for free. I can listen to music, podcasts. I can learn Chinese on my Mango language app. I can read my Greek New Testament, I can read my Greek New Testament, I can read my Greek New Testament. Yeah, I love it. [chuckle]
I can pay my bills. I could take pictures… I love this. I could take pictures of checks and deposit them without going to the bank. If I’m at a boring lecture where I get a free lunch, I can check my email and Facebook while pretending to pay attention. [laughter]
Right? But now, someone could look at this and say, “Hey, what’s lost here? But when your kids watch Groundhog Day, how are they going to follow the plot? The pay phone is such a big part of the plot. He has to get to the pay phone.” There’s something nostalgic about pay phones. When we saw the threat of these cellphones, why didn’t we create a law and outlaw them? Let those other countries develop them. Let’s stay with pay phones. Can you think about how many hundreds of people lost their job who used to get the change out of pay phones? Think about the loss of those relationships. They have the… They used to bring that change in regularly, deposit it to the bank. Do we really think that would be superior to keep with the pay phones? I think most of us realize that creative destruction, as painful as it was, people lost their jobs. As painful as it was, in the end, it was better for society, better ultimately for those people though the transition would be difficult.
Now, this is a battle that’s gone on over and over again. Why did the French riot over Uber? If you look in the news, why are the French taxi drivers rioting over Uber? Well, the French riot regularly over all kinds of things, so maybe it’s not that important. But it’s creative destruction, isn’t it? Because now, car service is more efficient, it’s cheaper, it’s new. It’s threatening their livelihood. Because it’s… People would rather use it, because it’s better and cheaper, more efficient. Two centuries ago, French artisans who wove cloth by hand were angered by the factories and the looms that were being built around them because it was threatening their way of life. And so, the kind of wooden shoes they wore them were called sabot. And supposedly, I don’t have personal knowledge of this, 2,000 years ago, supposedly they would take their wooden shoes and throw them into the delicate looms to break them. That’s called sabotage. Sabotage, where you throw your sabot into the looms to break them.
Can we create the process of creative destruction? Are we going to be people insisting on using the pay phone, or are we going to be people who are willing to try new things?Just a question here, about the people that we’re raising and ourselves, are we raising a generation of people that is kind of entitlement minded? Like someone’s going to… “You owe me a job, you owe me security.” Or are we raising an entrepreneurial generation? Are we raising people who are expecting to be learning and moving and shifting, or people who think, “You owe me this. And I have to have a 40-year job at GM and a pension,” because we realize that the world’s changed. And I think, of course, if you look at the tenure of the average pastor, pastors probably by experience know they have to be willing and ready to adapt and change, as change often comes to them, even uninvited. There was an op-ed piece in The Wall Street Journal by Daniel Arbess [corrected for accuracy]. He said the future of the US economy, the strength of it is really going to depend on the current working generation and future generations moving from manufacturing and services to information technology.
And so, it’s a question, can we create the process of creative destruction? Are we going to be people insisting on using the pay phone, or are we going to be people who are willing to try new things? The children’s classic tale, Mike Mulligan and His Steam Shovel, who knows this book? This is a great book. Mike Mulligan has a steam shovel named Mary Anne. And they had many years of successful digging. As the story says, “Mike Mulligan always said that Mary Anne could dig as much in a day as a hundred men could dig in a week.” Later we read in the story, “Then along came the new gasoline shovels and the new electric shovels and the new diesel motor shovels and took all the jobs away from the steam shovels. Mike Mulligan and Mary Anne were very sad. All the other steam shovels were being sold for junk or left out in old gravel pits to rust and fall apart.”
I think this is like an economics textbook. [chuckle] It’s a kids’ book from the 1930s. Amazing. But there’s a wonderful twist at the end of the story. Mike and Mary Anne get one last dig and they get to dig the cellar for the Popperville Town Hall. But unfortunately, once they dig it, they find themselves… If you guys want to… In the bottom of the hole and they can’t get out. [chuckle] I’m not going to give all the plot twists away, but wonder of wonders, in this economy of creative destruction, where steam shovels are being replaced by diesel motors, Mary Anne’s steam engine is able to be repurposed as the furnace for the town hall. She’s stuck down at the basement, her productive life is ended, she’s repurposed as the furnace for the town hall. And Mike Mulligan, the book tells us, gets a new job as the town janitor, which from the book seems to be rather…provides for plenty of time of leisure, as he’s sitting there in his rocking chair and reading the newspaper.
A little house of straw seems like a good idea, until a wolf comes and blows it down. A wood house also seems like a good idea, until a wolf blows it down. A brick house, I think we can all agree, is a superior product. Now, again, if all the little pigs have brick houses, that means all the pigs that sold straw are probably going to lose work. Some of them will… The pigs that built wood houses are going to lose work. Really wealthy pigs who still want to live in a wood house or a straw house can hire security guards to stand around it and keep wolves from blowing it down. But we recognize that there’s this process of creative destruction, where newer, better goods and services generally replace old ones, and it can be a painful transition for those who sold or made the earlier goods. Do we find this kind of concept in the Bible? Well, we have to recognize, the Bible… We live in a day of industrialization and technological change and globalization. Very different from the time of the Bible. However, even think about this. Why is there a Bronze Age and an Iron Age? [chuckle]
In the Bible, in the wisdom literature, there’s a recognition of economic uncertainty in this world.Because iron is better than bronze and it replaced it. It was stronger. There was technological change in progress. Creative destruction though at a much, we might say, slower level than what’s going on now. In 1 Samuel 13, it’s interesting. We read that the Philistines had mastered this new technology of iron and were keeping it from the Israelites at that time. And so, it says, there was a creative destruction, process of creative destruction going on with bronze being replaced by iron and the Israelites were being kept from using that technology. We just read briefly here in 1 Samuel 13, “Not a blacksmith could be found in the whole land of Israel because the Philistines had said, ‘Otherwise, the Hebrews will make swords or spears.'” So, all Israel went down to the Philistines to have their plow points, mattocks, axes, and sickles sharpened. And we recognize again that this kind of rapid change was not taking place in society. Yet in the Bible, in the wisdom literature, there’s a recognition of economic uncertainty in this world.
Even in that ancient time, there’s a recognition that one shouldn’t put all of one’s eggs in one economic basket and then expect things to be unchanged. That’s a foolish way to live. It doesn’t reflect the varied and unpredictable world we live in. So, in Proverbs 27, we read this advice, “Riches do not endure forever. And a crown is not secure for all generations.” He’s saying, you need to be prepared for economic uncertainty. Be prepared for change. He says, “When the hay is removed, the new growth appears. The grass from the hills is gathered in. The lambs will provide you with clothing and the goats with the price of a field. You will have plenty of goat’s milk to feed your family and to nourish your female servants.” So, if we want to paraphrase this, we could say, if your current success in a public service sector job falls through, be ready to start a goat milk farm, if you need to. So, you have to be flexible and not rely upon one economic avenue of provision.
Rule of Law
A fifth economic principle to look at, is the importance of the rule of law and the protection of private property. This is very important. These are in no particular order. So, this is probably one of the most important principles to understand, I think. Why are some countries wealthier than others? Economists have repeatedly pointed to two of the main correlating factors between a country’s wealth, are the rule of law and the protection of private property. The rule of law and the protection of private property. The rule of law means that the government acts in predictable and fair ways towards all its citizenry. There’s predictable and fair rules that it applies without arbitrariness, not obscurely or randomly applied. There’s a predictability to life, because one does not have to fear some despotic action where you lose your business, or you’re charged some fee that no one else is charged. Things like that. Similarly, societies flourish when private citizens are able to obtain private property, borrow against the property, live and invest with the confidence their property will not be arbitrarily seized and where their property rights are enforced by law. Famous economist, Hayek, FA Hayek and The Road to Serfdom.
Some of you guys are reading that. He says this, “Nothing distinguishes more clearly conditions in a free country, from those in a country under arbitrary government than the observance, in the former, of the great principle known as the rule of law. Striped of all technicalities, this means that government, in all its actions is bound by rules, fixed and announced beforehand.” Let’s just read that again. “That means that the government in all its actions is bound by rules fixed and announced beforehand. Rules, which will make it possible to foresee with fair certainty, how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of that knowledge.” Now, there’s a chart here, and this is from the CIA World Factbook. I got it from Jay Richard’s book, and it shows the correlation between the strength of property rights in countries and their average wealth of a citizen. So, the vertical column, the up and down, is the average, the per capita GDP.
Economists have repeatedly pointed to two of the main correlating factors between a country’s wealth, are the rule of law and the protection of private property. The rule of law and the protection of private property.So basically, if you take all of the value of all the goods and the services in the country and divide them by the population. And so, the higher up, the wealthier the country. And then the horizontal, the left to right. The further you go right, the stronger and fairer the laws or property protection. So, if you look, there’s outliers, but the general trend, the stronger and fairer the rules of protection of private property, the wealthier the countries are. It allows for humans to creatively flourish in the way that God intends for us to. So, on the other hand, when there’s a despotic government, which wrongly seizes people’s property. If you want to know what this looks like, just Google Venezuela economy and you’ll see how bad it can get. It’s kind of crazy. When you have a despotic government which wrongly seizes people’s property and arbitrarily mistreats them, human life does not flourish.
And when we look at our Dr. Seuss literature, we see that apparently these principles also apply to turtles. In Dr. Seuss’s book, Yertle the Turtle, Yertle, sort of representing the despotic government here, arrogates to himself the right to arbitrarily boss others around and seize their freedom by forcing them to stand on each other’s backs, with him finally on top. Essentially, Yertle is a dictator who seizes from his subjects, their freedom, and thereby squashes their creative potential. Now, here we see another scene from the book with Mac at the bottom of the Turtle pile, and he observes quite philosophically, “I know up there on top, you are seeing great sights. But down here at the bottom, we, too should have our rights.” Quite a nice little economics lesson about the rule of law and the protection of private property.
In the Ten Commandments, we read, “Thou shalt not steal.” Exodus 20:15, a command not to steal assumes, implies the right to private property. It’s a right supported by many other regulations throughout the Bible about stealing, punishment, restitution. Also, many places dealing with judicial disputes in the Old Testament are very clear that favoritism should not be shown to the poor or to the rich. Neither crony capitalism or liberation theology causes a society to flourish.
Law of Unintended Consequences
Okay. Economic principle number six, the law of unintended consequences. One of the reasons to study economics is to understand how humans respond to different incentives. And often times by changing one little thing in an individual’s life or church or institution or government, we create a cascade of effects that we did not anticipate. And this is… We didn’t coordinate this, but that’s really the economic lesson of Henry Hazlitt’s book. It’s a great book. I’m biased because I like to read stuff like this, but it’s really fun to read. And this is… I have a quote from Henry Hazlitt. He says, “The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy. It consists in tracing the consequences of that policy not merely for one group, but for all groups.”
Economics asks, “Well, what’s the long-term effects of that policy?”So, for example, one of the examples that’s often given in economics books about this, and if you get this book, you can read about this there. It’s about rent control. Rent control. This is like if you have a big city, it’s just getting really expensive in New York. Some city magistrates say, “Hey, this is out of control. People can’t afford to live here anymore. We’re going to make a rule. Everyone in this borough or this district here, the maximum rent is $1,000. And you can only increase it 5% a year.” “Yay.” And everybody is cheering. That sounds like a good… It sounds like you’re protecting people. It sounds like a good short-term solution. Economics asks, “Well, what’s the long-term effects of that policy?” And this has been studied by a lot of people. But one of the things that happens is the people who normally would build more housing, which would relieve… You have a problem, you don’t have enough housing, so it’s expensive.
The people who would normally, real estate investors who normally come in and build more housing, don’t want to build more housing because they’re afraid that someone’s going to come in and arbitrarily make the cost of the housing below what they need to make money. They’re anticipating the low rate of return or arbitrary rules of government. Secondly, the owners of the current housing maybe are not bringing in enough income to maintain it well, so the housing turns into a slum, that pattern. They have very slim profits. Oftentimes, they’re not able to maintain it. Thirdly, you really… You think you’re helping the people there, but you’re encouraging them to make their primary decision now, “How do I stay put here because I have cheap housing?” So, they forego employment opportunities, other opportunities, so they don’t want to lose their spot in the housing. And so, you’ve perversely incentivized them to be immobile.
There’s a Swedish economist who studied rent control, Assar Lindbeck. And he famously said, “In many cases, rent control appears to be the most efficient technique presently known to destroy a city, except for bombing.” So, we talked about one of the things with economics is, you don’t just think about, “Hey, this is helping in this way, but what does this incentivize? What incentives does this give to other people? And what are really the long-term effects of this?” You think about this with the government providing guaranteed loans for students. It seems like a great idea, but then you look at, how does that affect universities pricing and selling their courses, and all this? It really incentivizes a university to balloon in many ways administratively, and to overcharge because their consumers are guaranteed money, right? And so, and oftentimes, these schools I think, there’s an incentive to advise students unwisely because you don’t bear the risk that they have to have. They’re carrying those loans for the rest of your life, and not you.
In the modern classic If You Give a Mouse a Cookie… the boy in the story discovers that if you give a mouse a cookie, he’s going to want a glass of milk. And when you give him a glass of milk, he’ll want a straw. And when you give him the straw, when he’s finished, he’ll ask for a napkin. And if you read the book, it goes on, and on, and on. By the end of the book, we find the mouse is well overfed, and over-entertained, and you’re exhausted. There’s all sorts of unintended consequences from a little action. And part of thinking carefully and well about economics is asking, not just, “Does this solve an immediate need, but what am I creating long term?” How does the Bible speak about unintended consequences? Well, the Bible warns that actions we take today can have many long-term consequences for us and for our children that we don’t anticipate.
Proverbs warns in Proverbs 6: 10-11, ” A little sleep, a little slumber, a little folding of the hands to rest, and poverty will come on to you like a thief and scarcity like an armed man.” And you say, “Well, there’s nothing wrong with just take a… It’s a nice day. I feel like staying home, and just playing video games today in my dorm room.” And then you discover you’ve got a pattern of playing video games two or three hours a day. And then you discover that you’re not doing so well in school. And then when you finally graduate, you wonder why none of your friends and your professors know who you are or want to recommend you to a ministerial position. There are patterns and things in life that we embrace that, oftentimes, have dangerous long-term consequences that we’re only partially aware of.
Final economic principle, and then we can have a little discussion and I’ll give you a recommendation. If you like thinking about this stuff, I can recommend one or two steps of next reading or listening to. Monetary policy. It’s a very strange thing to live with the fiat currency, F-I-A-T. A currency that is just by decree. In other words, the reason that a $10 in your wallet, is worth $10, is our federal government printed the number 10 on there and told you it was worth $10. [chuckle]
Venezuela is an example of a place where monetary policy is out of control.It’s a really strange thing if you start thinking about it. How the federal government manages this supply of money through printing, distribution, interest rates, policies with banks and bonds is known as Monetary Policy. The glossary economics textbook for monetary policy is this, “It’s the deliberate control of the national money supply, and in some cases, credit conditions by the government. This policy establishes the environment for market exchange. One of the main goals of monetary policy should be to maintain a stable value to the currency”. So, what that basically means is that there’s very slight or little, very slight inflation or none at all. So that means if you go to McDonald’s this year and you can buy two happy meals for $10, probably even have some change left over. When you go next year, you’d like to buy two happy meals for $10, or maybe just $10.20 or a little bit more, you’d expect that. But you wouldn’t want to go to McDonald’s next year and by two happy meals for $40, or for $200, or for $20,000. And that’s what goes on in places where monetary policy is out of control. Venezuela, Google Venezuela. [chuckle]
And you’ll discover what monetary policy out of control looks like, sadly. And then you end up with the President of Venezuela on TV saying, “Everyone should keep chickens, I’m keeping chickens myself”, and you see, this is how society is falling apart. Our own country, I think, currently has very stable inflation rate, however it would appear, I think most economists would say the way our massive national debt and unsustainable levels of social programs are really, in the future, endangering the stability of our currency, the value of our currency. Now, if there’s no other benefit to be in the lecture today, except the free lunch. One of the benefit… And this. I’m going to recommend an awesome book to you, an awesome kid’s book. I looked online, I was looking at it and it said like, “Interest level through second grade”. I’m like, “I’m almost 45 and I love this book. What’s that say about me?”. But there’s a delightful book called Roxaboxen. Anyone know this book? It’s a great book.
And one thing that makes this book great is it’s the reflections of an elderly lady recorded by like her granddaughter or something. So, it’s a true story. And there are these people who lived, I think it was like in New Mexico or Arizona or something like that. They lived in a neighborhood together, all these kids, and you can change to the next slide, and across the street was a hill with all these abandoned boxes and rocks and bottles. And they created this whole little city, a whole little society that they lived in and they named it Roxaboxen. And so, you had different, everyone had their own little land and everything, it’s really a great story. Kids, you know, it’s the kind of stuff…
They even had, of course, as children you could have pretend whatever you want. So, they had pretend ice cream to buy, pretend horses or you got in trouble at a pretend jail they put you in, you had to pay fee to get out of jail. What was the currency in Roxaboxen? Next slide. This is Marian, the Mayor of Roxaboxen. Apparently, the more forceful Mayor, by right of force, how things happen with children. Says, “When Marian dug up a tin box filled with round, black pebbles, everyone knew what it was. It was buried treasure. Those pebbles were the money of Roxaboxen. You could still find others like them, if you looked hard enough. So, some days became treasure hunting days with everybody trying to find that special kind. And then on other days, you might find just one without even looking.” So, in Roxaboxen, that we have a very stable supply of money, with only very slight increases.
People long for stability today, which is why they invest in cryptocurrencies.There’s a desire to be safe, to have a money that is not in danger of being abused and losing its value through government ill behavior towards money supply. Someone finds one here, finds one here, required by hard work so that prices remain relatively stable, there’s no hyperinflation. And you can see people longing for that today, investing in things like bitcoin, they’re looking for some place, I mean that’s completely speculative. But there’s this desire to be safe, to have a money that is not in danger of being abused and losing its value through government ill behavior towards money supply. Now, in Bible times, people mainly used gold and silver for currency. It’s true, however, that someone people would still cheat each other sometimes with this. So perhaps someone is giving someone five-shekel weight of silver, but the scale is kind of tilted or flawed. And they really only give them four, four and a half.
Proverbs 11:1, we read, “The Lord detests dishonest scales, but accurate weights find favor with him.” So, it’s different. It’s on an individual level. It’s not a government… There’s no fiat currency in ancient times, but what we see is the Lord is displeased on an individual commercial level with people presenting one thing and actually giving someone less. I would suggest that if the Lord disapproves of individuals diluting the value of money, diluting the value of currency and thus harming the recipients, the government also has a moral responsibility to not harm its citizens through diluting the value of their currency. I realize this is not played out at the same conscious level of deception of an individual trade transaction.
I would suggest that if the Lord disapproves of individuals diluting the value of money, diluting the value of currency and thus harming the recipients, the government also has a moral responsibility to not harm its citizens through diluting the value of their currency.But I do think, those moral norms should inform monetary policy. Okay, this has just been a smattering of ideas related to economics to maybe get you interested, show how it’s not hard to understand, show how it overlaps at points with things in the Bible. Sometimes different, sometimes, almost exactly the same. So, we just have about just a few moments left. But I want to see if anyone has a question or thought, and then if you want to go ahead to the next slide I have some suggested podcasts for people. If you… I like to listen to these when I’m running. Planet Money is really a lot of fun to listen to. Freakonomics as well. EconTalk is longer, it’s not quite as polished, but it’s very informative. And then some books I recommend are Economics in One Lesson. We didn’t coordinate that but Henry Hazlitt back here: Common Sense Economics. And Money, Greed and God by Jay Richards. Maybe you could switch back and forth between those two slides slowly in case people want to write those down. Does anyone have a comment or question, anything you want to add? Yeah. Oh, yeah, Steve.
Audience member: I was going to ask if you had an opportunity to recommend a children’s book to the current presidential candidate…
Plummer: Yeah. What children’s book would I recommend to the current presidential candidate? Yeah. [chuckle]
Plummer: Yeah. I’m thinking of Proverbs about answering a fool according to his folly. I just don’t know that… Yeah, that’s a great question. I did think… I don’t know if it’s wise for me to comment on that. [chuckle]
Plummer: I think a number of the different things we said here, especially about protectionism, the idea that… I have a friend who’s in real estate, and he’s a successful real estate guy, and he told me, “I read this book it says I need to grow my own food and do all this stuff.” I’m like, “That’s ridiculous. You need to build another 300-person apartment complex, make a ton of money doing it, do it nicely, give 300 people a wonderful home and use that money to buy food wherever you want. And you need to use that to hire someone to clean your house and cut your lawn. You don’t need… You need to do what you do so well.” And that’s true on a national level too. We…
On an individual level the pain is quite great. When I drive I think it’s the interstate, I fly into Atlanta and drive down to Auburn to teach, you can see the old loom, the mills, the shirt mills and stuff are abandoned, and those people lost jobs, that’s very sad. But then you see these huge new Kia plants and other things that are growing, I think we have to prepare people for a globalization change where there’s a lot of change and we expect life to be filled with change and we embrace it and we’re risk takers, and as Christians we can do that knowing that our loving Heavenly Father is always with us and will provide for us. We don’t have to be afraid. Any other thoughts, questions, comments? Yeah.
Audience member: Do you think that the emphasis on free trade hurts local economies, and that maybe undermines the [speaker fades]?
Plummer: I think that there’s always, when you have free trade, there’s always individualized pain. There’s going to be places that really benefit and there’s going to be places that are hurt. Most shoemakers in America are out of business, but LL Bean still makes shoes, they do quite well, New Balance makes shoes. If you… To stay competitive you have to be really good at what you do. We were talking about this at breakfast and someone was like, “You know back in the day, when all the cars were American, all the American cars.” And we said, “Yeah, but the American cars were really pretty bad then too, weren’t they?” The reason they got better is because they had the competition of Japanese. American cars are much more reliable because of that competition, and cars that were not good or not cost effective went out of business.
But on an individual level the stories can be quite traumatic. The farmer loses his farm… I listened to this what’s this lady who’s a country music singer, Price, I can’t remember her first name, I was listening on NPR about her, and she’s like, “All these stories in my songs are true. My father was farmer, he lost his job and got… Prison guard.” That’s a traumatic, sad story. I guess what you have to say is, “If we choose… Do we want to have government subsidies to help farmers who aren’t competitive?” And I think most of us would say, “Well the alternative is… We never celebrate anyone’s loss, but the alternative is not desirable.” Yeah. Dr. Coppenger.
Audience member: Is there a good kind of signaling in a way that, when you described this at the chapel yesterday you talked about coming back to campus… [overlapping conversation]
Plummer: Yeah. Yeah. Yeah. Well it’s not about excellence. Now with signaling, it’s about excessive wealth, excessive consumption. Ridiculously excessive. We’re talking about $90,000 purses. We’re talking beyond paying a premium for excellence, to paying a premium for, “You can’t have this, and I can.” I think David Kotter in his dissertation talks about, “What’s the extra cost if you have the Rolls Royce, to coat the little symbol on the front in gold?” I think we can all agree that that would be signaling and luxurious parading of wealth. That… And I don’t personally know people who buy $30,000 shirts, but I talk to people who know people who do that. How can a shirt cost $30,000? But apparently there are people in this certain high fashion world where you get the individually made item and people know, it’s crazy. That’s crazy.
Audience member: But it’s not just showing, we’re substituting…[overlapping conversation]
Plummer: No, yeah thanks for that, that’s a very good correction because it’s not like, “Well I’m going to drive a 1982 Tercel because I… ” I personally, it’s probably too much to get into here, I don’t think it means someone can’t have a luxury car even, but I do think there comes a point where you have to say, is this providing an excellent, wonderful thing or is this an excessive parading of wealth in front of others? And that’s one thing that Dr. Kotter in his dissertation, which you can access free through our library, goes into specific principles to try to determine where that line is drawn. I’m getting signals that not that I’m signaling wealth, but signals that my time is up. So, I’ll be here later, and I’ll be happy to talk to you guys who had your hands up.