Tuesday, March 15, 2016

"Price Gouging" Helps Those In Need: Learning from Joseph

I have written elsewhere about the economic benefits of what is often called “price gouging.” The function of prices in a free market is, among other things, to convey information about the world. When a hurricane ravages a state and the price of ice rises dramatically, that is not the result of greedy capitalists taking advantage of a crisis. Rather, it is a signal about reality. It is easy to say “price gouging is bad,” but the more accurate statement is “hurricanes are bad.” The badness of the hurricane has made goods relatively more scarce, and the prices reflect this reality.

Suppressing price signals by freezing prices and relying on forced rationing in such a case not only misdiagnoses the problem but also delays solutions to the problem. When a hurricane makes the price of ice rise, the price signal incentivizes other’s to increase the quantity of ice supplied. It is as if the bat-signal goes up to people in the surrounding areas to say “we need ice!” The high price means that others can make a profit by supplying ice to the victims of the storm, so many will incur costs themselves (getting the ice, figuring out how to transport it without it melting) in order to avail themselves of the profit making opportunity.

Now it is possible to respond at this point by saying that we, as Christians, should seek to help the poor and victims of disaster for reasons other than personal profit. To a certain extent this is true. There is nothing wrong with individuals loading up their refrigerated trucks, traveling to the affected area, and giving away ice. But when we look at the bigger picture, there are additional benefits to utilizing the price mechanism rather than unconsidered altruism.

First, when our upstanding Christian ice deliverer gives out his cargo, there are multiple possible uses for it. Ice has various important functions especially in a community that has lost electricity, but some are more essential than others. Most would agree that serving the most essential needs of people should be the primary use of this scarce resource. We should seek to make sure medical supplies and food are kept from spoiling before worrying about keeping everyone’s beer at the right temperature. It is difficult, however, for an individual showing up with an essential resource to perform this kind of triage for all those vying for a scarce supply of ice. The price mechanism, is able to perform this function automatically. We can easily see that people who need to keep their insulin refrigerated will be more eager buyers than those who want to make margaritas. By incentivizing people to economize on scarce resources, prices ensure that ice will be available for those who need it most and is not used recklessly by those who happened to make it to the front of the crowd.

Second, if our goal as Christians is to help those in need, then we should ask which mechanism actually helps them the most not which one do we feel best about. Relying on Christian altruism works until we realize that not everyone is a Christian or altruistic (there is significant but far from complete overlap between the two). If we can get even the most greedy, self-centered person to provide an essential good to people in need, that is progress toward our goal. We should not let the presence of bad intentions influence our evaluation of a good outcome (and vice versa).

Lest you think that this is merely economic esoterica lacking biblical support, turn to Genesis 41. Here we have an actual example of a natural disaster causing a shortage of an essential resource: food. There is a famine in the wider region, and in Egypt Joseph is in charge of the response. He has prudently saved up food which is now needed throughout Egypt and Canaan, but what does Joseph do with it. He does not establish an equal ration for everyone and give it away. Instead, he utilizes the price mechanism. There are not many details of the economic design of Joseph’s system, but the text says over and over than he “sold” the food and that people came to “buy” it. See verses 56-57:

And since the famine had spread over all the land, Joseph opened all the storehouses, land sold to the Egyptians, for the famine was severe in the land of Egypt. Moreover, all the world came to Joseph in Egypt to buy grain, because the famine became severe throughout the world.

I suggest it is because Joseph was wise enough to allow prices to reflect the harsh reality of the situation and allocate food in a way that served essential needs while incentivizing economization of its consumption – it is no coincidence that Jacob tells his sons to go buy only “a little more food” when the famine becomes severe (43:2) – is the reason why his policy was successful in sustaining the people through the seven year famine. We should learn from Joseph’s success and do likewise.

Tuesday, August 11, 2015

You Give Them Something to Eat: Charity Is the Responsibility of the Church, Not Of the Government.

There are many Christians who are rightly convinced that our duty is to help the poor and needy among us as Jesus did and commanded. But often such people view government programs as the means to that end. To them, helping the poor means advocating and supporting welfare spending, and opposing welfare sounds downright unchristian. Just a couple examples of this mentality are here and here.
Now of course Christians must be in favor of and actively working to support the poor, but we must do that and not cede our responsibility to the government. Delegating our duty to government is not only historically ineffective, it is a betrayal of that duty. When the apostles told Jesus about the plight of the hungry crowds who followed them, Jesus’ answer was “you give them something to eat.” James writes that we should “look after orphans and widows in their distress” not “give your money to the government and they will handle it.”
The current system is too expansive and involved to remove overnight. I am not saying that we should stop all existing government aid to the poor and replace it with the existing charitable work of the Church. The solution requires a deeper overhaul both of the systems and our thinking. We must stop thinking of the Church as a group of people who share some beliefs and who get together every once in a while to talk about them and recover the mission of the Church to be workers for God’s kingdom of abundance and cheerful giving. Indeed, the early Church was characterized by giving and sharing (though not in some proto-Marxist way, but that is a topic for a different post). Paul constantly moves from talking about the gospel that Jesus is king one moment to understanding the implementation of the gospel to involve voluntary giving the next. But the form that giving takes leaves out any mention of a middleman.
Take Ephesians 4:28 for example Paul says that “thieves must give up stealing” (a strong endorsement of property rights) and instead “labor and work honestly with their own hands, so as to have something to share with the needy.” The alternative to dishonest acquisition of wealth is honest acquisition of wealth so that one may share that wealth with the needy not so that one may pay his taxes and have the government build homeless shelters.
As much is the Church is guilty of ceding its responsibility to the government, the government itself has not made things any easier. Government regulation and programs crowd out existing Church efforts. One way this happens is that when the government takes on the burden of caring for the poor people no longer feel that they need not donate money or time themselves because they have already paid their taxes. Of course charitable giving of all kinds still takes place, but to a lesser degree than if the government ownership of the problem did not create a sense of complacency. Another way that government efforts crowd out the church is by direct regulation of their practices. Many charities and hospitals have found themselves having to choose between conforming with government mandates about abortion or human sexuality and shutting down to keep their conscience clear. If Christian advocates for the poor want to change government policy, this would be a good place to start.

As previously mentioned, it is both logistically and legally unrealistic to think that the current system can do a 180 very quickly, but Christians should at least stop making it seem like government welfare is proper response of the Church to the poor and hungry. Rather we should begin to implement Jesus’ command that we give them something to eat.

Monday, June 22, 2015

You Cannot Serve God and Poverty

 In Luke 16 and its parallel in Matthew 6 Jesus explains his parable about the shrewd servant by stating “You cannot serve God and wealth.” The translation of the last word in that sentence is much controverted; it could equally be rendered money, possessions, or mammon, but even as it stands in the NRSV, I want to completely affirm Jesus’ statement. It must be recognized, however, the saying does not lend itself to the common usage of this passage as an indictment of capitalism. Jesus’ position isn’t that wealth should not be pursued or that wealth is inherently bad; he only states that you cannot serve two masters. The point is that wealth should serve us – not us it, and we should serve God. From this point we may begin to pull back the curtain on the “Jesus as socialist” agenda.

It is quite true that you cannot serve God and wealth, but you also cannot be both anti-poverty and anti-wealth. Jesus is passionately concerned about the impoverished, and in order to stop being impoverished, one must gain wealth. Material poverty, by definition, is the absence of material wealth. Speaking of the evil of wealth while hoping to end poverty is an irrational position. A man who is poisoned cannot hope to live if he refuses the antidote.

Of course there is always a danger of greed and idolatry of wealth. Often wealth is misused even by those in the Church. Wealth and power often go together, and I think Jesus would agree with Lord Acton’s observation that power tends to corrupt people. But decrying wealth because of its potential corrupt is like decrying medicine because of the potential for overdose. It can be misused in some cases, but in the case of the disease of poverty it is the only known cure.

This leads another controversial saying of Jesus about money; that “the love of money is the root of all kinds of evils.” That is what 1 Timothy 6 says. It does not say that money is the root of all evil. It does not even say that the love of money is the root of all evil; the plural “evils” is found in the Greek. The words of Paul (or whomever wrote this particular letter) dovetail perfectly with Jesus’ critique in the synoptics described above. Making money the goal; loving it or serving it (as Jesus said) will lead to trouble. Money should be a means to the end of serving God’s kingdom, and when it is used in that way, it is good.

When businesses make profits that is the signal that they are creating wealth. Not only have they made something that their customers value (and thereby made them better off) they have also produced wealth, the antidote to poverty. Of course it is possible and desirable for impoverished people to make this antidote themselves whenever possible. But often times wealth injections from those with some to spar are possible as well. These include the great charitable works of the Church; they are often carried out by “non-profit organizations” but these depend upon others making a profit in order to fund them through donations.

Again the temptation to misuse wealth is always present. There are major questions to be answered about wealth distribution and the role of the Church and governments in that realm. Surely there could be more charitable giving of wealth than there is now. But before that conversation can take place, the wealth itself has to be produced. And for this task, more is better. We should beware of serving that which we create rather than him who created us, but that does not mean we should not create.

Saturday, June 6, 2015

Isaiah 55: Milk Without Money

In Christianity, the ultimate future for the world is a renewed creation with new heavens and new earth. In that new creation there will be no economists.

Isaiah 55 presents one of the most picturesque descriptions of the new creation, and the first verse invites the reader to “buy milk without money and without price.” With this sentence, the economy is has gotten one item smaller.

Since economics is the study of scarce resources which have alternative uses, there is no need for it where there is no scarcity. Economics does not have much to say about the allocation of sunlight or air (in most case) since these are so naturally plentiful that everyone can use as much as he or she wants without depleting the total amount by any great amount. They are non-economic goods.

Most goods are scarce, however, and their relative scarcity and market value are represented by prices. Prices simply convey information about who wants what goods and what they are willing to give up to get them. In a monetary economy these prices are given in terms of money.

Isaiah says that milk will simply have no price and can be bought without money, which indicates that it is a non-economic good in the new creation. Milk will be as ubiquitous as air or sunlight; it will no longer be scarce.

Milk is not the only thing that is overflowing in Isaiah’s vision. The chapter goes on to conclude saying “instead of the thorn shall come up the cypress. Instead of the brier shall come up the cedar tree…” This passage harkens back to Genesis 3 in which human sin results in the earth being cursed so that the ground brings forth thorns and briers and must be worked to produce useful plants. Since the earth stopped bringing forth abundant produce, there was scarcity. Adam couldn’t grab fruits and vegetables left and right anymore; he had to work for them. But in the Isaianic vision, that curse will be finally undone and the new earth will no longer produce thorns and briers but myrtle and cedar. When creation is put back on track it will once again produce abundance on its own; there won’t be scarcity anymore.

And there is the end of economics. Since scarcity will become a thing of the past in the finished new creation, all goods will be non-economic goods. Economists will be out of a job, but not to worry; the milk there is free.