An Economy Stunted...

As I write this blog, Wall Street is reacting violently to the news that the US House of Representatives has rejected the $700 Billion financial bailout plan. Astounding news! It’s just simply astounding! I’m almost in shock, although possibly for different reasons than you might think at first.

Look back at Adam Smith, the 18th century economist and author of “The Wealth of Nations.” He knew then, as we should know now in our ‘enlightened’ times, that economics and morality cannot be separated. The better good of man requires that those who have wealth have responsibility. They have responsibility to everyone who could be affected by that wealth and that responsibility must be kept. If it is not, moral and economic problems (collapse?) will be the result.

Adam Smith wrote in “The Wealth of Nations” that the free market, though seemingly chaotic, was actually guided by an ”invisible hand.” In other words that competition in a free market would have a tendency to benefit society by keeping prices low and fostering competition. He acknowledged the natural greed and selfishness of man in the marketplace and believed that intelligent men who worked in a free market would work to keep that market viable in order to keep profits up and maintain their own standard of living. In other words, men would benefit society by keeping the marketplace alive simply out of their own desires for self-preservation.

This “invisible hand” that Smith postulated guided the marketplace as the need for specific goods and services ebbed and flowed. He believed that those periods of ebb and flow were natural and necessary for a free market to exist. Other major economists echoed Smith’s theories. Men like John Stuart Mill, Alfred Marshall and others formed what economist call “classical economic theory”. A major tenet of classical economics is “Says Law” which postulates that supply creates its own demand.

Naturally, other economists came along who disagreed. John Maynard Keynes (pronounced Kaynes) was one who, allowing for Smiths “invisible hand”, believed that allowing that hand to continue without guidance was an undesirable thing. He postulated that the state can and should stimulate economic growth in order to improve stability in the marketplace. He believed that Say’s Law needed revision and he became the father of “Neoclassical theory,” that the two main costs that shift supply and demand are labor and money and therefore adjusting monetary policy would regulate the economy. It comes as no surprise that Mr. Keynes’ “The General Theory of Employment, Interest and Money,” was published in 1936, in the shadow of the Great Depression in which millions of people were displaced due to the huge, global market correction that forced economies in many nations into shambles. He wrote of “micro-level” actions of individuals and companies and aggregate “macroeconomic “ outcomes in the general economy. (I have to be careful here. I once nearly lulled my wife to sleep during a dinner to celebrate our wedding anniversary with this topic. She was not impressed with macroeconomic theory!) His theories changed the way markets in our United States were managed. Where previously the marketplace went on it’s own merry way, unencumbered by governmental interference, it now was kept from the greatest highs and lows in order to protect the people.

Twentieth century economics in America, and other free nations, were modified to produce measured growth with governmental stimulation and hindrance when ‘needed.’ In other words, our government decided that the “invisible hand” wasn’t good enough so it needed some help. The result? Well, we saw moderate and pretty phenomenal growth and some recessions. The growth was allowed to go on by itself pretty well but the when things started looking rough the government stepped in to artificially stimulate the economy, taking the edge off most of the recessions that we have experienced since World War II. Let’s face it, no politician wants to be seen as responsible for an economic downturn!

I tend to believe that there are some laws in this world that just can’t be broken, at least for long! Think - gravity, inertia, human nature.... you just can’t go around breaking those laws without expecting some dire consequences. I believe that Adam Smith and the classical economists came upon a similar law in his theories of economics. A free market must be allowed to ebb and flow in a natural order unencumbered for the most part. If it is not allowed to move as it sees fit, well, imagine the economy as a river that is dammed up without allowing enough water to flow through it - the dam will break and everything down stream from it will be washed away! Our economy has been dammed up and it is in need of a correction in its flow pattern!

The unbreakable law that applies to this economy has to do with human nature. I mentioned before that no politician wants to be thought of as responsible for an economic down turn. That means that there is tremendous pressure for those who lead our country, from regular people who want to make a good living - to do exactly what they really want to do, keep the economy moving up. Bowing to that pressure is human nature. Following that nature prevents market corrections in the natural ebb and flow, building up water behind an enormously overburdened dam.

In reality, nobody wants to live through a recession, much less a depression but it looks as though we may be headed for one anyway. I’m not sure it’s such a bad thing.

I read recently a short blurb that struck me profoundly. It was in an old novel, not one of any seeming consequence but engaging for a short while. I’ll paraphrase it here, “Trials and hardships shape a man. If a man doesn’t have any times of trial or hardship he won’t become the man he should be.” The same can be said about a nation and its economy. Trials and hardships will shape the economy and the nation it is a part of. By limiting the economic low points we have allowed an economy to grow in an immature manner. Its actions and reactions are all shaped by a period of relative ease in which the trials and hardships were lessened. The economy then could not become what it could have been.

Greater men than I have thought this topic through. I don’t have an answer for our current economic crisis and I don’t think anyone else does either. Nobody knows what will happen next but I believe that we have let things go way too far for an ‘easy out’ this time. Jobs are lost, homes are being lost, lifestyles are changing. As a person of faith in this situation I can do little more than pray but then, that is the best thing that any of us can do. (The effectual, fervent prayer of a righteous man avails much.” James 5:16)

Prayer has substance when combined with faith, “Faith is the substance of things hoped for, the evidence of things unseen.” Heb. 11;1. The real question is what should we hope for in this situation? I listened to a country song today that said that the greatest blessing this man had ever received was unanswered prayer! He was singing about an example of how God knows better than we do when we ask for things.

He is right. As humans we don’t see very well! (For now we see through a glass darkly... 1 Cor. 13:11b) The best prayer we can possibly say now is to ask for mercy, guidance and peace. He has every intention of providing those three things for us if we ask!