Since 1990 extreme poverty has been cut in half worldwide and is continuing to plummet. The Brookings Institution projects that this kind of poverty might more or less disappear by 2030. Globally, infant mortality, malnutrition and illiteracy are all declining.
How did this happen? More global trade, more economic freedom and more innovation. Free markets, in other words.
Unfortunately, many Christians and other people of faith still think there’s something unsavory about a free market economy (or what some call capitalism) and pine for some unrealized alternative. In the meantime, they support economic policies that do more harm than good.
This is a tragic mistake, based not so much on a flawed moral vision as on economic ignorance. The good news is that you don’t need an advanced degree in economics to sort things out. You just need to learn to ask — and properly answer — eight simple questions, and to recognize the economic myth that corresponds to each question.
1. Can’t we build a just society?
In seeking a more just society, we must avoid the “Nirvana Myth,” that is, comparing the market economy with an unrealizable ideal.
Though the kingdom of God is already present in some sense, we can’t fully bring it about ourselves. That’s God’s job.
So when we ask whether we can build a just society, we need to ask: Just compared to what? It doesn’t do anyone any good to tear down a society that is “unjust” compared to the kingdom of God if that society is more just than any of the ones that will replace it.
2. And then what will happen?
We all want to do the right things for the right reasons. Economically, though, only what you do is important, whatever your reason.
That’s why, when it comes to economic policy, we have to avoid the “Piety Myth” — focusing on our good intentions, rather than on the real and often-unintended consequences of an act or policy.
Well-meaning people have supported all manner of bad policy — price and rent controls that create shortages, high minimum wage laws that harm the poorest of the poor, foreign aid that funds dictators — for noble motives. The motives didn’t change the result.
To avoid this, we should always ask, about any act of policy: And then what will happen?
3. Doesn’t a free market foster unfair competition?
In 2016 the two leading presidential candidates treat free trade as a dog-eat-dog competition, where winners always create losers.
This is the “Zero-Sum Game Myth,” which leads many to think that the government should “protect” domestic businesses, raise tariffs on imported goods and somehow redistribute wealth.
But while some competition is a part of any economy, an exchange that is free on both sides, in which no one is forced or tricked into participating, is a win-win game. When we buy bananas from Nicaragua far more cheaply than we could grow them ourselves, that doesn’t create a harmful “trade deficit.” We give them dollars we value less than the bananas, and they give us bananas they value less than the dollars. We’re both better off as a result. That’s a win-win.
4. If I become rich, won’t someone else become poor?
A similar idea leads people to think of the wealth in a free economy as a fixed amount of material stuff — money in safes or gold bars in a vault. Since two firms competing for one customer can’t both get the customer’s money, we might think the whole economy looks that way: Peter gets rich by impoverishing Paul.
A common image of this “Materialist Myth” is a pie. If one person gets too big a slice, someone else will get just a sliver.
But this isn’t how a free economy works. Over the long run, the total amount of wealth in free economies grows. The “pie” doesn’t stay the same size. In a genuinely free market, someone can get wealthy, not merely by having someone else’s wealth transferred to their account, but by creating new wealth for themselves and others.
5. Isn’t capitalism based on greed?
Friends and foes of a free market often claim that it is based on greed. In truth, Adam Smith and other free market thinkers did not believe this “Greed Myth.” Rather, Smith argued that a properly functioning market can channel not only legitimate self-interest but even greedy motives into socially beneficial outcomes. And in a fallen world, that’s just what we should want.
Rather than inspire miserliness, a free market encourages enterprise. Entrepreneurs, including greedy ones, succeed by delaying their own gratification, by investing their wealth in creative but risky ventures that may or may not pan out. Before they ever profit, they must first create.
6. Has Christianity ever really embraced free markets?
In several places the Bible condemns charging interest on money. So for centuries Christians, along with pretty much every traditional culture, forbade charging interest on money loans.
But eventually the West developed banking systems with deposited money. They charged interest on their loans to offset risk, and they also paid interest to the depositors for the risk they assumed. This system allowed wealth to be created much more quickly than it had been before. Christians eventually realized that such loans were different from an ancient Hebrew charging interest to his poor kinsman on money that wasn’t doing anything anyway.
Still, some Christians continue to treat banking, and any work with money, as if it were the root of all evil. That’s the “Usury Myth.” The love of money may be the root of all evil, but money itself is not.
7. Doesn’t capitalism lead to an ugly consumerist culture?
Many Christians hear “capitalism” and they think “ugly.” This confuses capitalism with consumerism, which we might call the “Artsy Myth.”
In truth, the sorry symptoms of consumerism aren’t unique to capitalism. Rather, they derive mostly from the materialist worldview that seems to be everywhere. What sets capitalism apart from other economic systems is not consumption, but rather the requirement that some wealth be saved, risked and invested. That means that consumerism is, in the long run, contrary to free market capitalism.
8. Do we take more than our fair share? That is, isn’t our modern lifestyle causing us to use up all the natural resources?
It’s true that since there’s a finite amount of oil, at some point we will run out if we keep consuming it at current rates. But the “Freeze-Frame Myth” — which says things will stay the same — won’t happen. Long before oil becomes really scarce, oil prices will rise so high that it will no longer be an economical form of energy. That high price will encourage explorers, inventors and entrepreneurs to seek out new forms of energy to replace oil. This is what has happened historically with every resource.
We don’t just use resources. Using the raw materials God has created, we create new resources. That’s why economist Julian Simon once said man is the “ultimate resource.”
• Jay W. Richards, Ph.D., is an assistant research professor at the Busch School of Business and Economics at The Catholic University of America, executive editor of The Stream and a senior fellow at the Discovery Institute. For more on economic myths, see his book, “Money, Greed, and God: Why Capitalism is the Solution and Not the Problem” (HarperOne, 2010).
Copyright © 2017 The Washington Times, LLC.