#91 The Chicken or the Egg
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#91 Chicken or the Egg
God the Creator could choose which came first. In economics, the supply (egg) must come first.
Something from Something
I have repeated this phrase so many times, but I keep repeating it because people just don’t listen. The government has no money. It must take money from its populace. There are multiple Biblical commands to give, but there are no commands to take. Thus, giving away “other peoples’ money” is not a sustainable policy. As Margaret Thatcher famously said, “Eventually, you run out of other people’s money. “
Andy Kessler’s article in the Wall Street Journal this week is titled “Congress Can’t Enact a Chicken.” He writes, “Egg first. As legislators play a game of chicken with “infrastructure” bills, there is a huge misconception about how the economy actually works. Last week Moody’s economist Mark Zandi said more government spending on infrastructure and social programs like Medicaid “will lift productivity.”
Mr. Kessler goes on to state what should be very obvious to any first-year economics student, “An economy has to produce first, then consume.”
Trickle-Down Doesn’t Exist. This is one of the great straw-men often employed by the left. I’ve heard Hillary Clinton say it a few times, “They believe in trickle-down theory.” Someone needs to ask her for a citation. Thomas Sowell says the trickle-down theory does not have an author. Imagine that, a theory without an author. The erudite Mr. Sowell goes on to explain that it’s simply something they made up to give a name to President Ronald Reagan’s economic policy. It seems they didn’t like it because everyone got richer at the same time, or to quote President John F. Kennedy, “A rising tide lifts all boats.” Why the left is against lifting all boats is a question I can’t answer.
Hugh Whelchel said, “God made something out of nothing. Our job is to produce something out of something.” Apparently, the Biden administration’s economists believe humans can make something out of nothing. My experience shows they are wrong.
Mr. Kessler again, “Here’s how capitalism works—pay attention if you took the social-justice version of Econ 101. SIPPC: Save. Invest. Produce. Profit. Consume. Save means postponing consumption, money and time. Only then you can invest, especially your human capital, in something productive. Usually this means doing more with less, being efficient and effective. This is when innovation happens.”
Another phrase I repeat quite often, is “The only thing that reliably separates rich from poor countries is policies that promote production.” The examples are everywhere.
Mr. Kessler continues, “Wealth comes only from productivity, not from giving away money. And despite the Federal Reserve’s dollar printing, profit is the only way real money is created.”
Give, Don’t Take
Christians are commanded to give, not to take. How could a person give without profit? The answer is, she cannot. A person must receive more than the Socialist dogma, “To each according to his needs,” in order to give. That’s why I explain in podcast #2 that Jesus was The Prophet Who Made a Profit.” If he didn’t make a profit, how did he keep the Old Testament commandment to give?
But stayed tuned, because we’re on to something here. The Socialist agenda is designed only for group giving, not individual giving. So if you don’t have what Anne Bradley in Be Fruitful and Multiply called “left-overs” or most of us call “profit,” you can’t give. Here’s a secret the Socialists don’t want you to know: They don’t want you to give. They only want you to receive. Are you beginning to see why Socialism is not Biblical?
The Government or the Givernment?
In a perfect world, we would have no government. James Madison wrote in Federalist #51: If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place, oblige it to control itself. So, we want as little government as possible, right? Further, the government officials who forcefully extract this money from its rightful owners, they are fallen, so they will act in their own self-interest, whenever they are allowed to.
Supply first, then consume. This could lead into a long description of the supply-side argument, that I won’t waste your time making today. Suffice it to say that supply-siders want Government to set the rules and maintain competition, after that, get out of the way.
Demand siders support “the Givernment.” They believe that demand comes first. This is just so backwards, its almost not wasting your energy on it. President Biden’s demand-side thinking is “to rebuild an economy from the bottom up and the middle out.” But workers need good jobs, not handouts paid for by capital-gains taxes. Long-lasting jobs are created by savings invested in new production.
As I record this in early August or 2021, the economy is doing well because we’re on a sugar high from monetary low interest rates and fiscal stimulus. When the sugar wears off, the jobs will go away. We need sustainable growth that is built from supply side investment, not fake demand.
Socialists are good at demand, not so good at supply. They can tell you why national healthcare, child care and medicare are demanded, but they can’t figure out how to supply it. Have you noticed, that’s three “cares” in a row? Which reminds me of the famous quote from Art Lindsley, in his book Free Indeed. “The government should punish evil but not do good. The church should do good, but not punish evil.” Folks in the Biden administration apparently have not read Mr. Lindsley’s work.
This is simple supply and demand economics, and there are no easy shortcuts. You can’t have demand without supply. The closing of the economy during the pandemic should have proved that. The stimulus checks – that’s increasing demand – could not be spent on supply, until businesses reopened.
It does not work, but the government continues to do it. What’s that old phrase, “Continuing to do the same thing, while expecting a different result is the definition of insanity?” By that definition, Congressional demand-siders are insane.
I was demanding a smart phone in 1973. It wasn’t supplied until 1992. We’re still demanding flying cars and chocolate without calories, but until they are supplied, demand does no good.
My co-author on Biblical Economic Policy was Sergiy Saydometov. I have tried to get it changed to “Dr. Say,” around Dallas Baptist University, but I have failed so far. That would be appropriate, because Say’s law explains that the supply of one good is demand for another. It’s often simplified too much, into “Supply creates its own demand.” That’s not very accurate. A better way to describe it might be, “Buyers demand something via the supply of something else.” Supply precedes demand. “Egg, then chicken,” as Mr. Kessler writes.
No need to Save?
John Wesley famously said, “Earn all you can, save all you can, give all you can.” It’s the title of podcast #10. You may have noticed, he didn’t say “spend all you can.” That’s not in the Christian value system. Demand side spending steals savings. This is basic economics: A dollar is either saved or taxed, it can’t be both. Taxing removes money from the private sector. So the question should always be, “Where will this money do the most good: In the private economy, or in the hands of fallen government officials?” I fear we have stopped asking that question, because we’ve forgotten the basic truth stated earlier in this podcast, “The government has no money.”
Not Your Father’s Economy
There are two falsehoods that hang on in economics, even though they’ve been proved wrong multiple times. #1: The spending on World War II ended the Great Depression. That statement confuses correlation and causality. They happened about the same time, but spending did not end the recession. It was ending before the war started. #2: FDR’s spending ended the Great Recession. Wrong again. Ben Bernanke’s PhD dissertation work showed that spending extended the Great Recession, it didn’t end it.
Yet, this old “prime the pump” economics fallacy still remains. Even if they DID work, when do you stop priming? This month, the Fed will buy $120 billion worth of bonds, and the economy grew 6.5% in the last quarter. And, on the fiscal side, the great spenders in Congress want to keep priming that old pump. They assume it will only work when it’s being primed. Then, there’s something wrong with the pump. The two lost decades of the Japanese economy are testament to that.
When demand drops, government spending and giveaways make things worse. The only solution to kickstart production is to increase investment and increase jobs by cutting taxes and easing regulation. You may not like President Trump as a person, but his economic policies worked, producing the lowest black and Hispanic unemployment levels since the data has been recorded.
There’s this long-standing question, “Which came first, the chicken or the egg?” Have you ever wondered why it was not asked the other way, “Which came first, the egg or the chicken?” Because in economics, it’s quite clear that the egg came first. There must be supply before there is demand. As Mr. Kessler wrote so clearly in the title of his article, “You can’t enact a chicken.” In Christian economics terms, we would say, God made something out of nothing, but humans cannot. We live in an era where there is too much pride in human accomplishments, and not enough humility giving God credit for His created order. I explain some of this in podcast #21 Economic Humanism.
God could have made the chicken first, humans must start with an egg, you’re welcome to think of it as a nest egg.
Read Along with Dr. Arnott:
WSJ – Congress Can’t Enact a Chicken