#86 Bidenomics and Economic Reality
The policies of Bidenomics are not grounded in economic reality not the Christian Worldview. It is more a political movement than economic reality.
The reason there are 2.2 billion Christians in the world, is because our worldview fits reality. We believe God created a perfect world, fallen humans have messed it up, and redemption is found in Jesus Christ. The economic implication is that we try to determine God’s creational intent for the scarce resources available to us. Then, we attempt to redeem the world in that direction.
There is no economics without the fall. Before the fall, resources were plentiful. It’s only after the fall they became scarce. And, it is that scarcity that creates economic decisions about how to produce and distribute goods. We believe God has a plan for that. But, in His word, the Bible, the word “economics” does not appear. So, it’s left to us feeble humans to try and figure out what He intends.
In Biblical Economic Policy, Sergiy Saydometov and I have written about Ten Biblical Commandments of Economics that we use as a sort of “Systematic Theology” to try to answer 40 questions about Fiscal and Monetary Policy. Many of those Commandments apply to Bidenomics, as mentioned by the very good economist Greg Ip of the Wall Street Journal.
Mr. Ip’s article April 7 Wall Street Journal is titled “How Bidenomics Seeks to Remake the Economic Consensus.” He begins, “If you studied, practiced or wrote about economic policy in the past few decades you probably absorbed certain rules about how the world worked: governments should avoid deficits, liberalize trade and trust in markets. Taxes and social programs shouldn’t discourage work.”
This podcast will unpack some of the Bidenomics ideas and hold them up to the mirror of the Christian Worldview and the Commandments of Economics from Biblical Economic Policy.
Mr Ip writes that the old view is that Scarcity is the default condition of economies: the demand for goods, services, labor and capital is limitless, their supply is limited. Over time the economy tends to operate at potential, i.e. full employment, so faster growth requires increasing incentives to work and invest. Macroeconomic tools—monetary and fiscal policy—are only occasionally needed to deal with recessions and inflation.
New view: Growth is held back not by supply but chronic lack of demand, calling for continuously stimulative fiscal and monetary policy
So this is the old demand side vs supply side argument. The difference we find in Bidenomics however, is that they believe there is always a slack in demand, so they call for continual stimulus. This just can’t be explained in economics terms. One of the commandments of Economics in Biblical Economic Policy is “Use Honest Measures.” First, if an economy is always operating below the efficient equilibrium level, that IS the new equilibrium! And second, we can’t have continual stimulus, because it has to come from somewhere. If you continually borrow from the future, you won’t have a future. In fiscal policy, the government has no money. It has to come from somewhere. This is in our belief system. Hugh Whelchel said, “God made something out of nothing. Our calling is to make something from something.” You see, Bidenomics assumes we can make something out of nothing. That’s not possible in our Christian Worldview, and actually, it’s not possible in any other worldview either. This is not economic reality.
Inflation and Fiscal Policy
The old view was that when unemployment got too low, there would be more demand than supply of labor and the bidding that ensued for labor would cause inflation. The new view, according to Mr Ip is Fiscal and monetary policy should push unemployment as low as they can because low unemployment doesn’t cause inflation.
As demand exceeds supply of labor, the price of labor gets higher, and this is called inflation. I’m sorry, as Alan Jackson sings, “Here in the real world…..” that’s called inflation. You can change economic policy, but you can’t change economic law. As something becomes more scarce, ceteris paribus, it gets more expensive and increasing prices and wages is the definition of inflation. To assume that low unemployment does not cause inflation is not economic reality.
Debts and Deficits
The old view was that government deficits cause the government to borrow money and it crowds out individual borrowing, because it raises the price of money. Thus, deficit spending should be used only during recessionary periods. I will try to stay off my hobby horse on this one, but it’s hard to do. President Obama’s administration doubled the annual deficit from $500 billion a year to $1 trillion, then when it went back to $500 billion, he looked into a TV camera and bragged that he had cut the annual deficit in half. Then the Trump administration ran annual deficits of $1 trillion. I told my students during those years, “We will look back and ask why we had $1 trillion deficits during one of the fastest economic growth periods in history.” Bidenomics seems to have no limits. At the time I’m recording this in early July, 2021, it looks like the deficit this year might be $2.3 trillion, and we’re not likely to have shrinking GDP in any quarter. Think about it: We’re spending $2.3 trillion that we don’t have, to support a growing, not a shrinking economy. The Commanding Heights by Yergin and Stanislav was made into a three-part documentary. A Russian economist recalls the 1980’s Russian economy and says in a great Russian accent, “You think, either me crazy, or everyone around me crazy.” Yep, that’s what I’m wondering in the middle of 2021. “Either me crazy, or everyone in the Biden administration crazy.”
Here’s how Mr Ip explains the Bidenomics view, “Deficits aren’t harmful and may be necessary. Larry Summers has labeled this secular stagnation. “Modern monetary theory”—which few economists, even on the left, embrace—goes further, arguing deficits never crowd out private investment or raise interest rates.” I have an economic answer for that….Wow! That’s just tremendously stupid. I unpack Mr. Summers’ idea of Secular Stagnation in podcast # 83 and my podcast #31 is titled “The Myth of Modern Monetary Theory.” Both of these ideas are outside the bounds of economic reality.
The old idea was that social programs should be targeted and narrow because money is scarce. You’ve probably noticed, that’s pretty much the assumption of all economics. Mr. Ip explains the new view: Because money isn’t scarce, aid can and should be universal so that no one falls between the cracks. Hold it….if money is not scarce, we’ve reached the end of economics! The entire discipline is out of date because there’s no more scarcity. Christians believe this will only happen when Christ returns. The Biden administration believes scarcity has ended in a fallen world. Christians don’t believe that and economists don’t think that. This is outside the bounds of reality.
Let’s think about this. If no one fails, then how do we define success? Our DBU baseball team was locked in a really good contest with Oregon State to win the recent Ft. Worth regional baseball tournament. Since Oregon is one of the most liberal regions in the US, I expected them to lead a cheer that went, “Go, fight……equal outcome!” That’s because winning and losing are not in the socialist manifesto. That applies to the recent attempt from Bidenomics. If no one fails, then everyone wins. That’s not a good view of reality. And it’s not in the Christian worldview. We believe everyone is offered salvation, but not everyone claims it. Matthew 7: 13-14 “Enter through the narrow gate. For wide is the gate and broad is the road that leads to destruction, and many enter through it. But small is the gate and narrow the road that leads to life, and only a few find it. Oh, and I am wondering outloud if shouting “fight” at a baseball game might get you sent to a re-education camp in Oregon.
Another part of the old view is that social programs should encourage work because that increases GDP, and confers dignity. Mr. Ip explains the Bidenomics view “GDP and paid work are over-rated.” Yikes. By who? Does this mean the Biden economic team has refused payment for their services? Seems like a reasonable thing to do. You have noticed haven’t you, that these goofy economic schemes always apply only to the “little people” and not to the elites? Ronald Reagan noted, “You know economists; they’re the sort of people who see something works in practice and wonder if it would work in theory.” Yea, kinda backwards, isn’t it? That’s what the Biden team is doing. They are implementing their other-reality plans and hoping they can find a theory to support them.
Finally, a point where I agree with Bidenomics. GDP is over-rated. In the classroom at DBU, we explore what other measures of a nation’s success could be used to replace GDP. There’s the Genuine Progress Indicator and the United Nations has a Human Development Index. There’s even a Gross National Happiness measure. My preferred measure is to simply count how many people have received Jesus Christ as their personal savior. And, actually, I think I could make a pretty good argument about how that makes a country better off. But, certainly reasonable people would disagree with me, so we must find a more objective measure, and GDP is a pretty good one.
The idea that work is not valuable is in direct conflict with one of the key findings that Sergiy Saydometov and I made in our book Biblical Economic Policy. Work is good. God is seen working in the very first verse of Genesis where it reads, “In the beginning God created the heavens and the earth.” Then later, He has Adam and Eve working in the garden. We believe that work is good. Bidenomics says it is over-rated. But they are not operating in reality.
Markets and Incentives
The old view is that high tax rates discourage work and higher minimum wages reduce employment for low-skilled workers. Mr. Ip explains the Bidenomics view “Higher tax rates have little effect on incentives, and higher minimum wages have no effect on employment.” Oh my goodness. If increasing tax rates have no effect, then why would you stop? Honestly, I think it would be great if the federal government had more money that they didn’t have to take from individuals. But that’s not reality. The reality is that higher tax rates DO act as negative incentives. This is just too other-worldly to discuss in educated civil society.
Oh, and no effect on employment? Then why are they stopping at a $15 minimum wage? Why not go to $25? Why not $50? The answer is obvious: Because increasing minimum wage discriminates against low-skilled workers who can’t produce value at the minimum wage level. I discuss this in my very first podcast #1 titled The Christian view of Minimum Wage.
I start my Macroeconomics class at Dallas Baptist University by asking a student “How much did you pay for the coffee?” She usually says $3. I turn to another student and ask, “If the price of coffee goes up, will your fellow student buy more or less?” The obvious answer is “less.” I respond, “You’ve been studying economics for thirty seconds and you understand it better than Barack Obama who edited the Harvard Review and was elected President twice. He claims that increasing the price of labor, through minimum wage increases, does NOT lower the demand for labor.” So who’s correct: A sophomore whose been studying economics for thirty seconds or a former twice-elected President of the United States? The sophomore is correct. And in this case, Bidenomics is outside the bounds of reality.
Mr. Ip closes his article with a pretty good summary, “Bidenomics is more a political movement than a school of economic thought.” He’s correct. As a matter of fact, there’s not much “school” there at all.
Mr. Ip again, “The problem with economic policies subordinated to political imperatives is that they have no limiting principle: if $3 trillion in stimulus is OK, why not $6 trillion?”
He’s right, if there’s no economics in economics, then there’s no economics. And if Bidenomics is not based in reality, it’s not consistent with the Christian worldview.
Books Referred Within This Episode:
Biblical Economic Policy https://amzn.to/3zrGano
The Commanding Heights (PBS Series) https://amzn.to/3jTeGBN
To read the full article referred within this video: https://www.wsj.com/articles/how-bidenomics-seeks-to-remake-the-economic-consensus-11617796981?st=1mdtacx8gi3g2w9&reflink=desktopwebshare_permalink