Category: Economics

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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t873In a 5-4 decision, the Supreme Court just announced its ruling in favor of Hobby Lobby, holding that, “as applied to closely held corporations, the government’s HHS regulations imposing the contraceptive mandate violate the Religious Freedom Restoration Act of 1993 (RFRA).” The full opinion, written by Justice Samuel Alito, can be read here.

Although there is still much to digest, and although the majority opinion still leaves quite a bit of room for related battles to continue, it’s worth noting that that whatever perceived “narrowness” we see in the decision — confining things specifically to closely held corporations — remains a significant victory, particularly given our culture’s prevailing attitudes about business.

According to HHS, by simply incorporating one’s business in the pursuit of profit — “without in any way changing the size or nature of their businesses” — a company “would forfeit all RFRA (and free-exercise) rights” (quotes from Alito’s paraphrase). The arguments supporting such a view vary, including the principal argument advanced by HHS that corporations cannot “exercise religion.”

Alito dissects this from a variety of angles, and does so rather compellingly. But one of the more noteworthy sections is his refutation of the notion that for-profit corporations aren’t protected by RFRA because they “simply seek to make a profit.” (more…)

Since the era of Adam Smith economists have been asking, “What creates wealth?” One key answer is specialization and trade. On a timeline of human history, the recent rise in standards of living resembles a hockey stick — flatlining for all of human history and then skyrocketing in just the last few centuries.

As economist Don Boudreaux explains, without specialization and trade, our ancient ancestors only consumed what they could make themselves. How can specialization and trade help explain the astonishing growth of productivity and output in such a short amount of time—after millennia of famine, low life expectancy, and incurable disease?

gaplogoThe furniture store Ikea has announced they will begin to base their minimum pay on what’s considered to be a “living wage” in each local area, rather than on what competitors are paying. Similarly, the clothing retailer Gap says it will set $9 as the minimum hourly rate for its United States work force this year and then establish a minimum of $10 next year.

This makes good business sense — but will lead to a lot of bad economic reasoning.

A prime example is the latest column by Slate’s business and economic writer, Jordan Weissmann:

Notably, Ikea isn’t raising prices on its furniture to pay for the raise. Instead, the company’s management says it believes the pay hike will help them compete for and keep talent, which is of course good for business. The Gap used a similar justification when it announced it would raise its own minimum to $10 by 2015.

Which I think hints at something about what would likely happen if the U.S. raised the federal minimum. Conservatives who argue that higher pay floors kill jobs tend to assume that businesses are already running at pretty much peak efficiency, and so forcing them to spend more on labor will lead to less hiring. But left-leaning economists see it differently. They tend to argue that increasing wages can lead to savings for business by reducing worker turnover, for instance, and forcing managers to make better use of their staff.

Both the conservatives and the left-leaning economists are largely correct. Higher pay floors do tend to kill jobs and increasing wages can lead to savings for business by reducing worker turnover. But where Weissmann and other liberals go wrong is in assuming that businesses can still prevent worker turnover when the minimum wage is increased.
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titiaan_abraham_izaak_grtIn our efforts to serve others and do good in the world, we humans have a remarkable tendency to fall short, no matter how carefully constructed or well intended our plans and designs may be.

When failure occurs, economists are likely to point to some kind of knowledge problem, noting that, for instance, Western Congregation X didn’t (and perhaps couldn’tknow or foresee that sending hundreds of free shoes to Developing Nation Y would put several local merchants out of business.

To mitigate these types of ripple effects, we can work to be more careful in a variety of ways, but throughout that process, Christians have a unique responsibility to order our concerns within a particular context of transcendent obedience to a particular God and Savior. “To obey is better than sacrifice,” as Samuel once said, “and to listen than the fat of rams.”

When we seek to do good on behalf of others, we certainly ought to consider the various modes of “natural” analysis and observation — reason, history, science, tradition, etc. — but we are also commanded to consult and consider the voice of God himself, whether delivered through his Word, the inward witness of the Holy Spirit, a prophetic church community, or otherwise.

This is not to call for some form of anxious and nit-picky legalism, of course, though that temptation is sure to endure as well. It’s to say that ours is a service uniquely empowered to stretch beyond the ways of this world, which are far too aimless, far too arbitrary, and ultimately beholden to the self.

When we neglect transcendent sources of knowledge, danger and destruction will persist, both in our spiritual lives and the witness we bear in the world. As the great teacher and evangelist Oswald Chambers once cautioned, “Always guard against self-chosen service for God,” which “may be a disease that impairs your service”:

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In 1820, America’s per capita income averaged $1,980, in today’s dollars. But by 2000, it had increased to $43,000. That economic growth has benefited the rich, of course. But it has also transformed the lives of the poor — and prevented many more from becoming or staying poor.

In this superb short video, the American Enterprise Institute briefly explains the moral value of economic growth.

[Part 1 is here.]

Some might answer any defense of the free economy by pointing to the housing and financial crisis that came to a head in 2008, holding it up as proof positive the free economy is a wrecking ball swinging through communities and leaving all manner of economic and cultural destruction in its wake. The financial crisis did enormous damage, but the major drivers of the crisis were a series of public policies that manipulated the market in pursuit of certain desired ends.

It all began modestly enough. The federal government built incentives into the tax code in favor of taking out a home mortgage. Many local governments also provide property tax breaks to home owners unavailable to renters. While people who are forced by circumstances to rent might question the fairness of such tax breaks, these measures are seen by most as relatively benign. Eventually, however, other top-down manipulations of the housing market were piled on top of these tax breaks.

The U.S. government offered implicit backing to mortgage giants Fannie Mae and Freddie Mac so that the companies understood that if they got into financial trouble, Washington would bail them out. This allowed Fannie and Freddie to offer low interest home loans to high risks borrowers, since the companies knew the government would come to their rescue if too many of these borrowers started defaulting on their loans.

The government also passed regulations that actually pushed mortgage companies, including Fannie and Freddie, to provide home loans to people with bad credit—subprime loans.

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It seems like nowadays everyone has a connection to someone who brews their own beer. Grand Rapids recently was named Beer City because of its lively microbrewery scene so this is especially true here. While this hobby can be very enjoyable and refreshing be aware that taking your hobby to the next step could be more difficult than you would imagine. Recent regulations have made it harder than ever for new craft beers to enter into the consumer market.

Entrepreneurs are the building blocks of all economies. Every company must come from somewhere to create what they are today. This can easily be seen by looking at any company from Apple all the way to Nike. The problem is that many large companies are now being protected from competition from small businesses by unnecessary regulations. (more…)

Integrated Justice - front cover (1)Christian’s Library Press has released Integrated Justice and Equality: Biblical Wisdom for Those Who Do Good Works by John Addison Teevan, a book that seeks to challenge popular notions of “social justice” and establish a new framework around what Teevan calls “biblically integrated justice.”

The term “social justice” has been used to promote a variety of policies and proposals, most of which fall within a particularly progressive economic ideology and theological perspective. Educated in economics, theology, and intercultural studies, and with extensive experience in both politics and the pulpit, Teevan has witnessed these tendencies firsthand, proceeding to dissect the host of flaws, gaps, and inconsistencies therein.

Teevan’s unique and creative approach will surely interest the most experienced of “social justice” interlocutors, but his writing is also highly accessible for those just getting warmed up. Weaving together thought and action from a variety of directions and points in history with remarkable clarity, Teeven concludes with a refreshingly integrated economic, philosophic, and biblical framework. For young evangelicals in particular, who have lately become fond of leveraging “justice” vocabulary toward a variety of aims and ends, Teevan’s unique blend of careful analysis and practical application offers a particularly relevant challenge to the status quo.

Teevan explores a variety of areas and ideas, ultimately pointing the way to a framework wherein the pursuit of justice is expanded beyond mere economic redistribution, restoring many of these activities to the realm of personal stewardship through which “to whom much is given much is required” (Luke 12:48). (more…)

Randy Lewis

Randy Lewis and his son Austin

Those with disabilities face unique challenges in the workplace and with regards to vocation. As I recently wrote regarding the story of Jamie Bérubé, a young man with Down syndrome, we ought to be more attuned to these challenges and respond accordingly, rejecting limited notions of “value” and instead viewing all human persons as creators and contributors.

I was therefore heartened to read the story of Randy Lewis, a senior vice president at Walgreens, whose son, Austin, faced similar obstacles as someone with autism, but who responded by creating new opportunities for Austin and others like him.

Lewis outlines the full story in his book, No Greatness without Goodness, but offers a good summary in a recent article for Christianity Today, beginning with the change that took place in his own perspective:

As a parent and an employer, I saw the obstacles that people with disabilities face in securing employment. They may not be able to get through the on-line application process, may not interview well, may not be able to learn the way we are used to training, may have inconsistency in their employment history. They face death by a thousand cuts. And the unkindest cut? The belief by 99.999% of us that people with disabilities really cannot do any job as well as a typically-abled person.

Watching my son progress taught me that we underestimate the abilities and contribution of people on the margins. Seeing the way Austin is dismissed or ignored by others gave me the courage to stand up for those who are unjustly overlooked and ignored. Loving my son helped me understand the pain of parents everywhere who lie in bed at night worrying about what will happen to their children after they are gone. A job could change the arc of a life. A job could provide independence. It could mean friends and a social life. A job could be a source of satisfaction and purpose. (emphasis added)

Lewis became so moved by the untapped potential of his son that he decided to take action, pursuing a real, tangible way for those with disabilities to add value in the marketplace. (more…)