September 26, 2008
On Tuesday I was part of a conference call with Ed Lazear, Chairman of the President’s Council of Economic Advisors, to discuss “the nation’s economic challenges.” The call was oriented to economists and over my head. But you do not need to understand the fine points of securitizing assets, Alt-As, and the LIBOR rate to know that the heart of the problem is bad debts.
“Economics,” said the eminent British economist Lionel Robbins, “is the study of the use of scarce resources which have alternative uses.”
After quoting Robbins, Thomas Sowell in Basic Economics: A Common Sense Guide to the Economy, writes:
What does “scarce” mean? It means that what everybody wants adds up to more than there is. …There has never been enough to satisfy everyone completely. That is the real constraint. That is what scarcity means.
We have unlimited wants. They range from necessities—basic food, clothing, and shelter—to luxuries—caviar, custom tailored suits, and mansions. Our limited resources prevent us from having all we want and economics looks at how we operate in that world of scarcity. How do we use our limited resources to satisfy our unlimited wants?
Because economists study scarcity, it is fair to say that economics had its origin in the Fall. In the Garden of Eden, there was no scarcity. The man and the woman worked joyfully to bring order to God’s creation.
After the Fall, God said to Adam:
Cursed is the ground because of you;
through painful toil you will eat of
it all the days of your life.
It will produce thorns and thistles for you, and
you will eat the plants of the field.
By the sweat of your brow you will eat your
food until you return to the ground, since
from it you were taken; for dust you are
and to dust you will return.
“Painful toil,” “thorns and thistles,” and “the sweat of your brow” is the language of scarcity. Economics was born.
And one day economics will die. When Christ returns and we live in the New Earth under the New Heaven, there will be no more scarcity.
Then the angel showed me the river of the water of life, as clear as crystal, flowing from the throne of God and of the Lamb down the middle of the great street of the city. On each side of the river stood the tree of life, bearing twelve crops of fruit, yielding its fruit every month. And the leaves of the tree are for the healing of the nations. No longer will there be any curse. (Revelation 22:1-3a)
This in no way means that economics is evil or unnecessary. After all, medicine is also a consequence of the Fall that Christ’s return will render obsolete. What it does mean is that between the Fall and the Second Coming, scarcity is a fact of life and so no one gets all he or she wants.
Much of history is the story of people trying to overcome scarcity. We do it by good means—hard work, investment, entrepreneurship—and by evil means—cheating, stealing, conquest. And we do it with debt.
“’Debt,’ simply put,” writes Theodore Roosevelt Malloch in the Trinity Forum’s journal Provocations, “is a means of using future purchasing power to obtain goods or services before they have been earned.” He sees debt as a tool that can be used judiciously with good results or carelessly with dire consequences.
Unfortunately debt, for many Americans, has become the means of salvation. Scarcity says we have limits. Debt can allow us to live beyond our limits (at least for a while), thus artificially narrowing the gap between unlimited wants and limited resources. That is, we begin to believe that debt will rescue us from the effects of the Fall at which point debt becomes a false savior, an idol.
Sooner or later all idols fail or, worse yet, they turn and devour the idolaters—be they on Wall Street or Main Street.
I do not believe all debt is evil and I am not going to advise anyone on financial strategies. Nor do I know what should be done next to repair the U.S. economy with its $13.8 trillion GDP, $10 trillion in national debt, and $40 trillion or so in private debt.
But wise fiscal policy—personal policy as well as public policy—takes into consideration reality. We live in a fallen world of scarcity. An economic utopia where we all have all we want is not an option. And no amount of debt—public or private—will change that fact.
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