#79 There is No Free Manna

The Christian Economist

Profligate spending is not Biblical because it violates the scriptural truths about fair measures and stealing.  It harms the poor, the old, and the young.

 

There is No Free Manna

Manna in the desert was free.  Government money in 2021 is not.   Joe Biden is not God, Janet Yellen is not Moses and Jerome Powell is not Aaron.  God does not distribute free manna to the White House every morning. 

Our current federal executive administration is embarking on a program that hurts the poor, the old, and the young in ways that are counter-Biblical.

You will notice that today’s title integrates a famous economics saying “There is no Free Lunch,” with the Old Testament story of the Israelites receiving manna in the desert.  Exodus 16:4 Then the Lord said to Moses, “I will rain down bread from heaven for you. The people are to go out each day and gather enough for that day.

You and I have watched as our governmental leaders spend more and more money.  This will end badly.  For an estimate of how bad it will end, stay tuned until the end of the podcast, it’s my last point. 

Paying people to stay at home, as the Federal government is now doing,  causes the two evils of macroeconomics: Inflation and unemployment.  Both went up this week.  

Inflation

I opened a presentation this week with these slides.  In this first one, all eight of these headlines were in the Wall Street Journal on the same day in late April, 2021.  The second slide “screams inflation.”  Inflation undermines the security of the US dollar, making its value unstable.   That’s a violation of  Proverbs 20:23 Unequal weights are an abomination to the Lord, and false scales are not good.  There is more detail about this in podcast # 67 Free Scales. 

Christians care about the poor, so we are very concerned about inflation.  At first glance, you might think that inflation inflicts the most pain on those who have more money.  But you would be wrong.  The rich can delay purchases of yachts and mansions.  And, they have investment advisors who stash their wealth in investments that go up with inflation: Gold, real estate and stocks.  The poor have to buy diapers and milk on the daily market.  They are the ones who are hurt.  And, they are also hurt by their inability to buy imported products from other countries that are cheaper.  Buying higher priced US made goods doesn’t bother the rich, they can afford it.  The poor cannot. 

When the Federal Reserve Bank was founded in 1913, it had one mandate: Control inflation.  The second mandate: Controlling unemployment was added with the Employment Act of 1946 and further strengthened by the Federal Reserve Reform Act of 1977.   Old foggies like Milton Friedman and Dave Arnott still think the Fed should have only one mandate.  It’s made clear in chapter 22 of Macroeconomics by Gregory Mankiw, where he explains that after fiscal and monetary stimulus wear off, the economy is left with the residual inflation, but unemployment returns to its natural level.  For explanations of why we continue this madness, take a listen to my podcast # 21 Economic Humanism.  The short answer: Politicians spend money because they like doing it.  Theologians call it the fallen nature, economists call it self-interest.

Another headline in early May indicates employment is slowing.  Now, this is only a short-term indicator, but as of this week – I’m recording this in mid-May, 2021 – we are having stagflation.  That’s the presence of inflation and unemployment at the same time.  This happened during the Carter administration in the 1970’s, and should have been the end of Keynesian economics, but it just keeps rearing its ugly head.  

Debt is Serious

US National Debt over $28 trillion is not meaningful.  I’m old enough to remember the quip attributed to Illinois Senator Everett Dirkson, “A billion here, a billion there, pretty soon you’re talking real money!”  In doing research for this podcast, I found that it’s not really clear whether the quippy Senator from Illinois actually uttered this famous phrase.  But, if he didn’t, he should have!  Millions, billions, trillions.   The total national debt is now over $28 trillion.  We need context for this.  So I will offer three:  First, I tell my sophomores at Dallas Baptist University that the mortgage their parents obtained on their house, was based on a percentage of their parents income.  Same thing with the US Government.  Debt as a percentage of our income – which is measured in GDP- is the most meaningful way to measure it.  So let’s look.  When my college sophomores were born in 2000, the US debt to GDP ratio was 58%, it’s now almost 130%.  If my students’ parents obtained a mortgage based on two incomes and one of them lost their job, the percentage of debt to income would double, and their family would lose their house.  The US debt to GDP ratio has more than doubled.  It’s at 130%.  Greece defaulted at 130%.  Now, the US is not Greece, whose GDP is about the same as Missouri or Louisiana.  But it’s not good. 

Second form of context: Per person share of the debt.  The current edition of our economics textbook shows a picture of a crying baby and the caption reads, “What, my share of the national debt is $41,000?”  But, as you can see from the US debt clock, since our book was published, it has increased to  almost $85,000.

The federal government has added 30% of GDP in extra fiscal deficits in only two years.  The Congressional Budget Office projects that in 20 years almost 30% of all yearly fiscal revenues will have to be used solely to pay back interest on government debt, up from a current level of 8%. More taxes simply won’t be enough to bridge the gap, so pressures to monetize the deficit will inevitably rise over the years.

Stealing

That’s inter-generational theft.  You and I are stealing from our grandkids.  Ginger and I have seven grandkids.  In the last 12 months, national debt has gone from $25 trillion to over $28 trillion.  Each of our grandkids shares has increased about $9000, from $76,000 to $85,000.  That will make them poorer every day for the rest of their lives.  I unpack some of these details in chapter 11 of Biblical Economic Policy, the book I wrote with Sergiy Saydometov.  

The third context requires one more look at the US debt clock.  The fourth largest item in the Federal budget is interest on the debt.  That buys nothing.  As interest rates increase, that number will balloon.  Fed Chairman Jerome Powell has promised not to increase the interest rate until 2023.  I’ll have more to say about that in the last point of today’s podcast. 

I’m “the Christian Economist.”  Christians – really all religious people – care about the means,  while economists almost always concentrate on the ends.  Uncontrolled spending is a violation on both disciplines I study: It’s stealing as a means and its inflation as an end.

It’s also taxation without representation, because as US citizens, our grandkids have accumulated debt without the ability to vote. 

So, if profligate spending hurts the poor and the old and the young, who does it benefit?  That’s easy: The politicians who do the spending and the people they spend it on, whose votes are bought by the spending.  Benjamin Franklin said, “When the people find that they can vote themselves money that will herald the end of the republic.”

Economic Policy and Economic Law

You can change economic policy, you cannot change economic law.  The Biden administration’s spending of upwards of $8 trillion dollars violates economic law, and the country – mostly the poor – will pay for it, via the inflation I mentioned in point one of today’s podcast. 

Writing in the Wall Street Journal, one of my favorite economists, Greg Ip compared “sane classical economics” with the current insane barrage from the Biden administration.  He states that Modern Monetary Theory is fake, and I unpack some of the details in podcast #31 The Myth of Modern Monetary theory.  His very last statement at the end of a very good article reads, “Bidenomics is more a political movement than a school of economic thought.”  It brings to mind the song “Here in the real world……” by Alan Jackson.

I was in Russia in 1993, just after their devastating inflation cycle that robbed retirees of their lifetime of savings. This is chronicled in The Commanding Heights by Yergin and Stanislav, and I saw it personally when I was there.  Young people can still earn money at the higher wages produced by inflation, so there is less pain for them.  The old cannot work anymore, so they have to buy higher priced goods, with their inflation-savaged money.

Inflation hurts the poor and the old.  

Where will it all end?

I promised you a prediction, and it’s not good.  

In the short term, there will be a recession.  This week, inflation is predicted and unemployment is growing.  My prediction is that run-away inflation will cause the Fed to break their promise about continuing lower interest rates.  That will cause a recession.  It will be a rerun of the play we saw in the 1970’s when Fed Chairman Paul Volcker increased interest rates to lower inflation, which caused a recession. 

Long term: Will we roll down a hill, or fall off a cliff?

Sorry for this rather simple diagram, but it’s very accurate.  My prediction for many years has been that the government would continue to spend, which would be monetized by the Fed printing money to pay for it.  You don’t have to know economics to understand that each time you print more of these, they all become worth less.  As the Fed prints more, they will have to raise the price of Treasury bills to get investors to buy them.  As they increase the price, they will have to print more, and as they print more they will have to increase the price.  This is a downward spiral that will take the US dollar, “Down a hill.”  

The second prediction is more dire.  It is that investors – many of them from outside the US – will stop buying US treasuries. The Wall Street Journal reported this week, that foreigners have continued to be net sellers of US Treasury bills.   In that case, the US economy will fall off a cliff.  That’s why you’re seeing the increase in prices of gold and crytocurrencies. 

When I get my students all depressed about this, I close the lecture by reminding them that it’s only money.  Because of the money that your government is spending today, you will be poorer for the rest of your life.  You will have a smaller house and fewer cars, you will eat out and travel less often.  But it won’t take away your salvation, your church, your family nor your friends.  

I’ll close with another Country Western song, this one by Travis Tritt, “I find myself praying, more than I ever did before.”  I’m praying for our country to change its vulgar spending to reduce devastating effect it will have on the poor, the old, and the young.