Category: Christians Need to Know

comparativeadvantageNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Comparative advantage

What it Means: The ability of an individual or group of individual (e.g., a business firm) to produce goods or services at a lower opportunity cost than other individuals or groups.

Why it Matters: There is a story of the distinguished British biologist, J.B.S. Haldane, who found himself in the company of a group of theologians. On being asked what one could conclude as to the nature of the Creator from a study of his creation, Haldane is said to have answered, “An inordinate fondness for beetles.”

When we examine creation to uncover what it reveals about the character of God, one of the things we discover time and time again is the Creator’s fondness for diversity. Like Haldane, we can see this by looking at biology (e.g., there are more species of beetle than birds or mammals combined). But we can also find it when we turn to economics.

A primary example of God’s enthusiasm for diversity is the concept of comparative advantage. While the definition of the them makes it sounds dull and wonky, comparative advantage is a beautiful, theologically profound norm of creation.

Fully appreciating the nuances of the ideas requires timely reflection. But understanding it can be achieved when a few minutes. In this brief video, economist Donald J. Boudreaux does a masterful job of explaining how, when combined with trade, comparative advantage improves human communities.
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MoneyRoll

Note: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Money

What it Means: In economics, money is a broad term that refers to any financial instrument that can fulfill the functions of money (more on that in a moment).

There are three basic ways to exchange goods and services: gifting (e.g., I give you a banana, expecting nothing in return); barter (e.g., I give you a banana, in exchange you give me an apple); by using money (e.g., I give you a banana, in exchange you give me $1). Money was invented (and reinvented in every culture) because it makes exchanges easier than the barter system.

What Money Is: Money is a shared belief system used to simplify exchanges of goods and services. To be used as money people have to share a belief that the item —whether paper, gold, rocks, etc. — can perform three main functions: be a store of value, be used as a unit of account, and serve as a medium of exchange.

In the next section we’ll examine these functions. For now, here are two examples of how money serves as a shared belief system:
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unemployedNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

 The Term: Unemployment

What it Means: If you consult a dictionary, you’ll find a number of commonsensical definitions for unemployment: the state of being without a job; being without a paid job but available to work, etc. But like many other economic terms, the dictionary definition can vary significantly from how the term is often used. For example, since your teenage daughter, your neighbor’s stay-at-home spouse, or your retired grandfather are without a job, are they considered “unemployed”? In each case the answer is the same: It depends.

According to the federal government, to be unemployed a person must (a) be jobless, (b) looking for a job, and (c) available for work.

People are considered employed if they have a job (whether temporary, part-time, etc.). People who are neither employed nor unemployed are considered to be not in the labor force.

In America, the labor force consists of all persons 16 years old and over who are not serving on active duty in the military and are not confined to institutions such as nursing homes and prisons and either have a job or are looking for work. The labor force is made up of both the employed and the unemployed.

So unemployment refers to anyone who doesn’t have a job, wants one and is available to work, and is actively looking for work. That last part is particularly important because “discouraged workers” are not counted as unemployed. (See below for more on discouraged workers.)
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economyNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: ‘The Economy’ (aka Gross National Product)

What it Means: When people refer to “the economy” they are usually referring to a particular idea—Gross Domestic Product (GDP)—which is itself simply an economic metric. GDP is often used as a single number that “measures” the economy. Imagine you wanted to put a price tag on the value of all the final goods and services produced by every sector of the economy (all of the crops grown, all of the lattes served at the coffee shop, all of the hours billed by lawyers, etc). The total number you’d put on the price tag is the GDP.

Why it Matters: Humans have seemingly unlimited wants and needs—but a limited amount of resources. This is known as scarcity, and it’s the fundamental problem in economics. The primary way we solve this problem is through market exchanges: you make something I want or need and I give you something you want or need in return (we do this indirectly through the use of money). The occurrence of all of these exchanges is what we call “the economy,” which is why we can use the metric that measures the sum of all of these exchanges—GDP—as a synonym. When we say the economy is growing/shrinking, we are saying the total value of the goods and services being exchanged (GDP) is increasing/decreasing.

An economic unit (whether a family, country, etc.) is generally better off when everyone is able to meet all (or nearly all) of their material needs and many of their material non-necessary desires. That is why economic growth is so important. While the issue is complex and requires some nuance to fully explain, the simplistic answer is that economic growth matters because people continue to have babies.
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N_GodDollar_400pxNote: This is the introductory post to a series that explains economic terms and concepts from a Christian perspective. You can find the most recent list of entries listed below under “Latest entries.”

I call it the “Dow Conundrum.” At least once a week, for as long as I can remember, I’ve heard about the Dow Jones Industrial Index (DJIA). But I didn’t really know what it meant or why it mattered. So a few years ago, I decided to ask a range of people, from entrepreneurs to teenagers, if they had heard of the DJIA (all had), if they knew what it measured (most knew it had to do with the stock market), and why it mattered so much that it was mentioned in news reports every day (none of them – not one — could explain it’s significance).

And it’s wasn’t that I picked a particularly economically illiterate sample for my experiment. A couple of years ago Adam Davidson of NPR’s Planet Money wrote,

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