275 Poverty & Economy

While teaching Ethics in the 1970s I often used, as a supplementary text, Ron Sider’s Rich Christians in a Hungry World.  Written by a Mennonite theologian committed to alleviating hunger and poverty around the world, it challenged readers to thoughtfully address pressing world problems by citing biblical texts and explaining economic structures—generally informed, I now realize, by Marxist critiques (the rich exploit the poor) and Keynesian (deficit spending) prescriptions.  Back then I thought Sider surely knew more than I and properly assessed the issues he addressed.  Two decades later, however, Sider announced that though his biblical perspectives were defensible his economic positions had been skewed by his misunderstanding of free market economics.  Unfortunately, in accord with Sider too many theologians and preachers make economic pronouncements quite untethered to economic wisdom.  

Thus it’s good to consider a book I wish I’d had in the ‘70s written by a fine theologian (Wayne Gruden, PhD, University of Cambridge, now teaching at Phoenix Seminary) and a skilled economist (Barry Asmos, PhD, now serving as a senior economist at the National Center for Policy Analysis) titled The Poverty of Nations:  A Sustainable Solution (Wheaton:  Crossway Books, c. 2013).   Blending their expertise, they seek “to provide a sustainable solution to poverty in the poor nations of the world, a solution based on both economic history and the teachings of the Bible” (p. 25).  They provide a richly-documented and amply-illustrated treatise, engaging and understandable for anyone concerned with rightly alleviating poverty in our world.  

In an endorsement that sums up the book’s message, Brian Westbury, former Chief Economist for the Joint Economic Committee of the U.S. Congress, says:  “I became an economist because I fell in love with the idea that a nation’s choices could determine whether citizens faced wealth or poverty.  Thirty years of research has led me to believe that wealth comers from a choice to support freedom and limited government.  I became a Christian because I fell in love with Jesus Christ.  The Bible says we were created in God’s image and that while we should love our neighbor, we are also meant to be creators ourselves.  I never thought these were mutually exclusive beliefs.  In fact, I believe biblical truth and free markets go hand in hand.  I have searched far and wide for a book that melds these two worldviews.  Asmos and Grudem have done it!  A top-flight economist and a renowned theologian have put together a bullet-proof antidote to poverty.  It’s a tour de force.  The church and the state will find in this book a recipe for true, loving, and lasting justice.”  High praise indeed!  

Asmos and Gruden first focus on the right “goal” to pursue:  increasing a nation’s GDP, which means producing valuable goods and services.   Though popular programs for redistributing existing goods—through taxation or apparently benevolent “aid” programs, or “debt-relief” subsidies for poor countries, or “fair trade” crusades allegedly helping poor coffee farmers, or printing more money—may momentarily appear to reduce poverty, ultimately such endeavors do little to improve economic conditions.  Nor is depending on donations God’s ideal for human flourishing.  “God’s purpose from the beginning has been for human beings to work and create their own goods and services, not simply to receive donations” (p. 72).  Certainly there is an important place for charitable assistance and governmental “safety nets,” but real economic development requires wealth-creation through the creativity of a people adding to their own community’s goods and services.  In short:  “Producing more goods and services does not happen by depending on donations from other countries; by redistributing wealth from the rich to the poor; by depleting natural resources; or by blaming factors and entities outside the nation, whether colonialism, banks that have lent money, the world economic system, rich nations, or large corporations.”  Only one objective should prevail, the “primary economic goal” of “continually producing more goods and services, and thus increasing its GDP” (p. 106).  

To justify their case, Asmos and Gruden carefully analyze and reject eight historical “economic systems that did not lead to prosperity”—hunting and gathering; subsistence farming; slavery; tribal ownership; feudalism; mercantilism; socialism and communism; the welfare state and its illusory equality.    Though certain advantages may be associated with each of these systems, they were all basically stagnant and generally enriched only a small percentage of the population.  Surveying the past, it seems clear that only the “free market” system facilitates wide-spread economic prosperity.  Rightly defined:  “A free-market system is one in which economic production and consumption are determined by the free choices of individuals rather than by governments, and this process is founded in private ownership of the means of production” (p. 131).  

The authors carefully distinguish between the free-market system they support and the “crony” or “state” or “oligarchic” forms of capitalism they reject.  In particular,  to function rightly, free-markets  require the “rule of law” that extends to political and business elites as well as ordinary folks.  Poor countries almost always have poor (i.e. corrupt or incompetent) leaders!   Property must be protected, contracts and deeds must be upheld, and harmful products must be banned.  A free-market cannot work amidst anarchy, so a good if limited government is essential.  And the free-market also needs a stable currency and low taxes to encourage the development of goods and services.  Various aspects of free market economics—specialization, trade, competition, prices, profits and losses, entrepreneurship—are explained and defended. “The genius of a free-market system is that it does not try to compel people to work.  It rather leaves people free to choose to work, and it rewards that work by letting people keep the fruits of their labor” (p. 133).  

Neither one person nor any bureaucracy guides the free-market economy—the collective wisdom of countless individuals making choices enables it to work well.  This meshes well with the Bible’s celebration of “human freedom and voluntary choices” (p. 188).  Freedom is truly essential for human flourishing of any sort.  Thus Asmos and Gruden carefully detail “twenty-one specific freedoms” (e.g. to own property, buy and sell, travel and relocate, trade, start businesses, to work at any job, etc.) that should be protected in any good society.  Sustained by a free people the free-market works!  “With no central director or planner, it still enables vast amounts of wealth to be created, and the benefits to be widely distributed, in every nation where it is allowed to function.  No other system encourages everyone to compete and cooperate, and gives people such economic freedom to choose and produce, and thus enhances prosperity.  Slowly but surely, countries around the world are seeing the win-win nature of a free-market system” (p. 184).  

There is, furthermore, a moral as well as economic component to the free-market.  Obviously  wrongdoing occurs within free-market economies!  No Christian should be alarmed at the reality of sin pervading all areas of human behavior!  But the opportunities for massive corruption are more strikingly evident in socialistic, state-controlled  economies prevalent throughout the developing world.  By encouraging individual freedom and responsibility, free markets recognize the intrinsic dignity of persons created in the image of God who create the goods and services basic for human flourishing.  Such taking care of oneself, acting in one’s self-interest, can be distinguished from covetousness.  As Brian Griffiths says:  “‘From a Christian point of view therefore self-interest is a characteristic of man created in the image of God, possessed of a will and a mind, able to make decisions and accountable for them.  It is not a consequence of the Fall.  Selfishness is the consequence of the Fall and it is the distortion of self-interest when the chief end of our lives is not the service of God but the fulfillment of our own ego’” (p. 208).  

To Rick Warren, who has energetically supported programs around the world while pastoring the Saddleback Community Church, this book merits serious attention from evangelicals.  He’s traveled extensively and “witnessed firsthand that almost every government and NGO (non-profit) poverty program is actually harmful to the poor, hurting them in the long run rather than helping them.  The typical poverty program creates dependency, robs people of dignity, stifles initiative, and can foster a ‘What have you done for me lately?’ sense of entitlement.”  Thus, Warren continues:  “The biblical way to help people rise out of poverty is through wealth creation, not wealth redistribution.  For lasting results, we must offer the poor a hand up, not merely a handout.”  To enable us to do so, The Poverty of Nations “should be required reading in every Christian college and seminary,by every relief and mission organization, and by every local church pastor.”  At Saddleback, Warren says, “this book will become a standard text that we will use to train every mission team we have in 196 countries.”

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For several decades years Henry Hazlitt was one of the most eminent “public intellectuals” in America—writing economic-oriented columns for the New York Times and contributing to other periodicals, publishing books and engaging in discussions with the nation’s leading thinkers.  In the opinion of H.L. Mencken, he was “one of the few economists in human history who could really write.”  At a dinner honoring him, Ludwig von Mises declared:  “In this age of the great struggle in favor of freedom and the social system in which men can life as free men, you are our leader.  You have indefatigably  fought against the step-by-step advance of the powers anxious to destroy everything that human civilizations has created over a long period of centuries. . . .  You are the economic conscience of our country.”  

In his most acclaimed and influential treatise, Economics in One Lesson (New York:  Three Rivers Press, c. 1946; re-issued in 1961 and updated in 1978) Hazlitt relied on basic common sense to encourage common folks to grasp economic principles and thereby to become better citizens.  With Adam Smith he believed that what is “prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”  Thus the simple difference between good and bad economists is this:  “The bad economist sees only what immediately strikes the eye; the good economist also looks beyond.  The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences.  That bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups” (p. 16).  Good economists, as the architects of the Iroquois Confederacy recognized centuries ago, should propose and implement policies with an eye on “the seventh generation,” not the current crowd.  

Above all, Hazlitt sought to refute some prevailing “economic fallacies” that “have almost become a new orthodoxy” (p. 9).  The fallacies he analyzed were primarily those espoused by John Maynard Keynes and his disciples shaping the New Deal.  Brilliant thinkers such as Keynes are often “bad” inasmuch as they dismiss concerns for the long-term impact of their policies.  They think only of themselves and their immediate problems.  But if we care for others “the whole of economics can be reduced to a single lesson and that lesson can be reduced to a single sentence.  The art of economics consists in looking not merely at they 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 for for all groups” (p. 17).   Unfortunately, folks follow Keynes since he is “regarded as brilliant economist, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: “‘In the long run we are all dead’” (p. 16).

To illustrate his thesis, Hazlitt explains the “broken-window fallacy.  If a baker’s window is broken, he must pay a repairman to fix it.  The repairman thus has more money to spend and that money trickles through the village enriching a variety of people.  What’s not recognized, however, is the baker’s lost savings—money he could have used to buy a new suit or expand his business.  To imagine the vandal’s destructive act could stimulate economic development and add to the community’s welfare is an illusion.  “Yet the broken-window fallacy,under a hundred disguises, is the most persistent in the history of economics” (p. 25).  Wartime spending, for example, certainly seems to stimulate the economy, providing employment and bolstering selected industries, but it does enormous harm in the process.   

So too government spending saps a people’s economic strength.  Though continually “presented as a panacea for all our economic ills” by politicians such as Franklin D. Roosevelt and Barack Obama, in the long run all such expenditures must be paid for by someone, someway, some day.  Just as a broken window stimulates certain activity and enriches certain workers, so too does government spending.  “The government spenders forget that they are taking the money from A in order to pay it to B.  Or rather, they know this very well; but while they dilate upon all the benefits of the process to B, and all the wonderful things he will have which he would not have had if the money had not been transferred to him, they forget the effects of the transaction on A.  Be is seen; A is forgotten” (p. 37).  

The “Forgotten Man” was more fully described by William Graham Sumner in 1883:  “‘As soon as A observes something which seems to him to be wrong, from which X is suffering.  A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X.  Their law always proposes to determine what C shall do for X, or, in the better case, what A, B and C shall do for X . . . .  What I want to do is to look up C . . . .  I call him the Forgotten Man . . . .  He is the man who never is thought of.  He is the victim of the reformer, social speculator and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid on him’” (p. 195).  To which Hazlitt adds:  “It is C, the Forgotten Man,who is always called upon to stanch the politician’s bleeding heart by paying for his vicarious generosity” (p. 195).  

But since people rarely want to pay more taxes politicians generally resort to printing and spending more money.  Their grandstanding easily garners votes in the next election and often appears to help a nation, but the invisible wheels of inflation will surely (if slowly) destroy her, for “inflation itself is merely a form, and a particularly vicious form, of taxation” (p. 31), ultimately harming most those least able to afford it.  Most surely it is “the opium of the people” (p. 174).  Yet throughout human history:  “Each generation and country follows the same mirage.  Each grasps for the same Dead Sea fruit that turns to dust and ashes in its mouth.  for it is the nature of inflation to give birth to a thousand illusions” (p. 171).  

In a series of short chapters, Hazlitt explains and condemns a variety of government policies and programs—government loans (whether for houses or schooling); subsidies (for both farmers and businesses); “full employment” (attained only under totalitarian regimes) ; regulations (whether for industries or favored species); protective tariffs (always favoring special producers rather than consumers); foreign aid (whether military or economic); “parity” prices (beloved by farmers); government price-fixing (whether during WWII or under Richard Nixon); rent control (favoring an elite, enriched class of renters) ; excessive union wage-rates (the constant goal of both the AFL-CIO and NEA); minimum wage laws (inevitably costing jobs and harming production); unemployment benefits (skyrocketing under Barack Obama); “just” prices and wages (arbitrarily set by bureaucrats rather than established by the market); etc.  

In the book’s final edition Hazlitt addressed “the lesson after thirty years.”  In short:  little has changed since 1946.  Economists and politicians continue to pursue deficit spending policies that inflate the currency and cannot but harm the nation in the long run.  Thus within a century the American dollar has shrunk to a nickel!   

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As he watched Roosevelt’s New Deal bear fruit in Lyndon Johnson’s Great Society (whereby a tenfold growth in government activities took place), Henry Hazlitt protested the mushrooming power and size of the federal government and its necessarily dictatorial “Planned Economy,” setting forth his objections in Man vs. the Welfare State (New Rachelle, N.Y.:  Arlington House, c. 1969).  He noted that FDR’s generation of politicians had promised not only to “bring perpetual full employment, prosperity, and ‘economic growth,’ but solve the age-old problem of poverty overnight.  And the end results not merely that accomplishment has fallen far short of promises, but that the attempt to fulfill the promises has brought an enormous increase in government spending, an enormous increase in the burden of taxes, chronic, deficits, chronic inflation, ‘Social Security’ has brought an ominous increase in social insecurity” (#92).

Basically Hazlitt tries to help the reader understand the short-sightedness of welfare state economics.  There simply cannot be “salvation through government spending” because the deficit spending involved is no better than “creating money out of thin air.”  It wrongly equates income (or money) with goods and services, which are the only true measure of a nation’s wealth.  Nor can we evade the ominous consequences of indebtedness by arguing (as did Harvard’s John Kenneth Galbraith and kindred “liberal” economists) that “we owe it to ourselves.”   Unfortunately, as David Hume observed two centuries earlier, such rationalizations regarding “contracting debt will almost infallibly be abused in every government.”  And rather than repay the debt governments inflate (and thus debase) the currency—effectively repudiating it!  Putting “it bluntly, the government’s creditors have been swindled” (#254).   

Swindlers of all sorts succeed by subtly misleading their victims, and “the welfare state can arise and persist only be cultivating and living on a set of economic delusions in the minds of the voters” (#527).  Among these delusions are the worth of minimum wage laws, price controls, consumer protection regulations, relief programs, Social Security, guaranteed annual income, guaranteed jobs, the negative income tax, and various “soak the rich” endeavors.  The swindlers assert, through the mouths of prominent politicians, that “social justice” demands those who can pay for the welfare state be forced to do so.  Listening to such rhetoric, almost all voters assume the “rich” are people much richer than they—only later to they awaken to the fact that they themselves are the “rich” who must pay the bills!  Admitting they will rob Peter to pay Paul, they imagine they are only depriving the “rich” Peter of his property.  

President Lyndon Johnson once said:  “‘We are going to try to take all of the money that we think is unnecessarily being spent and take it from the “haves” and give it to the “have nots” that need it so much’” (#3022).  The main mechanism for doing this is the progressive income tax, established by American Progressives in the 16th Amendment a century ago.  Those promoting it fully understood its baleful economic prospects, but they wanted to use it for social transformation.  “In the Communist Manifesto of 1848, Marx and Engels frankly proposed ‘a heavy progressive or graduated income tax’ as an instrument by which ‘the proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeois, to centralize all instruments of production in the hands of the State,’ and to a make ‘despotic inroads on the right of property, and on the conditions of bourgeois production’” (#1537).  

In fact, “the government has nothing to give to anybody that it doesn’t first take from someone else, and most all welfare state policies illustrate  “the shrewd observation of the French economist, Bastiat, more than a century ago:  “‘The State is the great fiction by which everybody tries to live a the expense of everybody else’” (#1028).  Doing so inevitably leads to disasters such as was evident half-a-century ago in Uruguay, which embraced “democratic socialism” a century ago or in Venezuela today.   The cost of living balloons and the GNP declines.  Ultimately, the welfare state cannot but destroy the economy!