{"id":5855,"date":"2009-09-23T06:21:03","date_gmt":"2009-09-23T06:21:03","guid":{"rendered":"http:\/\/blog.beliefnet.com\/jesuscreed\/2009\/09\/economics-at-the-jesus-creed-m-1.html"},"modified":"2009-09-23T06:21:03","modified_gmt":"2009-09-23T06:21:03","slug":"economics-at-the-jesus-creed-m-1","status":"publish","type":"post","link":"https:\/\/www.beliefnet.com\/columnists\/jesuscreed\/2009\/09\/economics-at-the-jesus-creed-m-1.html","title":{"rendered":"Economics at the Jesus Creed: Michael Kruse 3"},"content":{"rendered":"

\"WallStreet.jpg\"<\/span>The third installment in a series by Michael Kruse<\/a> about Christians and economics. I think many of us make remarks about economics on the basis of the Bible, but do we understand the economic theory at work in our statements or in our world?<\/i><\/p>\n


<\/i><\/p>\n
Do you know how to make a no. 2 pencil? If not, don’t feel bad. Nobody (no one body) else does either.  <\/span>Consider how a pencil comes to be.<\/p>\n

 <\/p>\n

Raw materials are extracted to create graphite. The graphite is transformed into graphite rods. Trees are grown and harvested. The lumber is processed into wooden cylinders that will hold the graphite. Tin is extracted from the ground. The raw tin is processed and rolled it into tiny cylinders for eraser holders. Raw materials are extracted for the eraser. These materials are processed and shaped into an eraser heads. Dye is created that will go into the paint that will go on the pencil … Getting the picture? Countless people in various locations are accomplishing all these tasks. But there is more.<\/p>\n

 <\/p>\n

Consider the sophisticated machinery involved at every step in this process. Each of those machines contains countless parts made of many different materials. Each of those was made from raw materials that had to be extracted from the earth, processed into components, and then assembled. These machines are also part of making a pencil.<\/p>\n<\/div>\n<\/div>\n


\n<\/p>\n

We can go
\ndeeper beyond this to the machines that created the machines to create the pieces
\nfor the pencil. How about the machines that assemble the pencil?  <\/span>We haven’t even touched on the
\ntransportation and communication infrastructure that allows us to move these
\ncomponents and final products from place to place. There is much more. I’m
\nradically simplifying!<\/p>\n

 <\/p>\n

At each step
\nin this process, buyers and sellers are calculating the supply and demand for
\ntheir one part of the process. But here is the amazing thing: There is no
\npencil czar monitoring the need for pencils and assuring that they are
\nsupplied. No one knows how many pencils
\nare needed and no one knows how to make them<\/i>. The vast majority of
\nparticipants in this pencil making process have no clue that they are even contributing
\nto the ultimate creation of a pencil. Yet through independent responses to
\ndynamic information and incentives (i.e. prices), a sufficient number of
\npencils appear at a reasonable price every day.<\/p>\n

 <\/p>\n

Now take a
\nclose look at items around you … from a stapler, to a book, to a computer.
\nReflect on all the materials and processes that have gone into creating those
\nitems. It is impossible to visualize how these things came to be, yet they all
\nappear with us giving barely a thought to their origins.<\/p>\n

 <\/p>\n

This
\nexperience is new, having emerged in the past two centuries. Throughout most of
\nhuman history households produced virtually everything they consumed by growing
\nthings or by extracting things from the ground.  <\/span>People lived in small communities and trade was largely
\nrestricted to people within those communities. Imagine small communities of 100-500
\npeople attempting to create pencils (much less cell phones or computers) from
\nindigenous materials. It cannot be done. What changed? At least three important
\nshifts happened.<\/p>\n

 <\/p>\n

From undifferentiated labor to specialized labor<\/i>
\n– While there have been artisans from the dawn of civilizations, the great
\nmajority of people have been agriculturalists. Over the past two hundred years,
\nsocieties have developed to where the masses spend years developing specialized
\nskills in occupations for which they are gifted.  <\/span>That makes each task more productive than if performed
\nindiscriminately by generalists. By cooperating with other specialized workers
\nand by engaging in trade, productivity (output per worker) has radically increased.
\nFew people are now needed for agricultural production. Entire new industries
\nspring up fulfilling ever narrower functions.<\/p>\n

 <\/p>\n

From muscle power to machine power<\/i> – Muscles
\n(human and animal) have been the primary (not exclusive) source of productive
\npower throughout most of human history. Machinery powered by steam, combustible
\nfuels, electricity, and atomic reactions, have advanced human productivity
\nbeyond what our ancestors would have dreamed. Machine power also led to the
\ncreation of communication and transportation infrastructure, moving people,
\ncommodities, goods, and information in previously unimagined ways and speeds.<\/p>\n

 <\/p>\n

From small isolated communities of face-to-face
\nexchange to a complex web of global market exchange<\/i> – Centuries in the
\nmaking, hierarchical pyramidal societal structures of ancient societies gave
\nway to human webs of horizontal integration (i.e., “The World is Flat.”) Markets
\nare the information and incentive networks that coordinates billions of economic
\ndecisions, moving resources from less valuable uses to more valuable uses.
\nMarkets are what make possible our economic cooperation with others beyond our
\nsmall networks of family, friends, and acquaintances.<\/p>\n

 <\/p>\n

What has
\nthis meant in practical terms? Using purchasing power parity (PPP) dollars,
\neconomists attempt to normalize economic realities across history. Economist
\nBrad DeLong estimates (using 1990 PPP dollars) that annual global per capita gross
\ndomestic product was about $90 in ancient history. It rose to $109 at Christ’s
\nbirth. Between then and 1750 it rose to $178. Between then and 2000 it rose to
\nmore than $6,600 and that was during a period when the population grew from
\nless than a billion people to nearly seven billion!<\/p>\n

 <\/p>\n

Are we on
\nthe verge of Utopia? Hardly. When annual per capita income rises above a few
\nthousand dollars, international studies show there is no correlation between
\nincreased income and increased happiness. Following Maslow’s hierarchy of needs,
\nsocietal needs shift to less material concerns as income rises. Over the past
\nhalf-century, the U. S. and Western nations have moved into a post-industrial
\npost-materialist age where basic material and safety needs are no longer the
\nprimary concern for the vast majority of the population. Establishing identity and
\nself-expression have become central. Services that involve little material
\nproduction have become more prominent. Endless material expansion will not bring
\nhappiness but material expansion is critical for improving the lives of world’s
\npoor. Furthermore, the “flattening” of the world is leading to major upheaval
\nin the way long-standing societal institutions have functioned in societies.
\nThat is creating a sense of dislocation and chaos with no clear sense of where
\nit all leads. <\/p>\n

 <\/p>\n

Nevertheless,
\nthis post hopefully highlights the centrality of markets as the real time
\nfeedback loop of information and incentives that they are, coordinating the
\nwork of countless specialized workers and industries. Markets are not perfect
\nand since they incorporate both the virtuous and not so virtuous acts of human
\nbeings into the mix they will never generate the Kingdom of God. What tends to
\nseparate economists on markets is how “leaky” they believe the markets are in
\ncapturing all the relevant information and costs (including environmental
\ncosts), and how much management is needed for them to function well. <\/p>\n

 <\/p>\n

However,
\nwhat economists overwhelmingly agree on is the necessity of healthy markets for
\nprosperity. What cannot be overlooked is the profound improvement labor
\nspecialization, mechanization, and markets have brought to human existence.
\nThat improvement is expanding through the world, despite occasional setbacks
\nlike the current recession. Even economists who believe that markets function best
\nwith little intervention don’t deny that markets are imperfect. The question
\neconomists have for the critic is, “What alternative dynamic feedback loop of
\ninformation and incentives do you propose to take their place?”  <\/span><\/p>\n

 <\/p>\n

We will have
\nmore on this revolution in productive capacity next week but for now, as a
\nChrist follower, what opportunities or challenges do you see? Are there
\ntheological implications?<\/p>\n

 <\/p>\n

(Note: The
\npencil example is loosely borrowed from an essay by Leonard Read “I, Pencil. My
\nFamily Tree as told to Leonard E. Read” written fifty years ago.)<\/p>\n

 <\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The third installment in a series by Michael Kruse about Christians and economics. I think many of us make remarks about economics on the basis of the Bible, but do we understand the economic theory at work in our statements or in our world? Do you know how to make a no. 2 pencil? If…<\/p>\n","protected":false},"author":70,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[68],"tags":[],"class_list":["post-5855","post","type-post","status-publish","format-standard","hentry","category-economics"],"yoast_head":"\nEconomics at the Jesus Creed: Michael Kruse 3 - Jesus Creed<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.beliefnet.com\/columnists\/jesuscreed\/2009\/09\/economics-at-the-jesus-creed-m-1.html\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Economics at the Jesus Creed: Michael Kruse 3 - Jesus Creed\" \/>\n<meta property=\"og:description\" content=\"The third installment in a series by Michael Kruse about Christians and economics. 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