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You are here: Home / Archives for 6 - Culture / Economics

Business: A Sequel to the Parable of the Good Samaritan

November 1, 2013 by Matt Perman

My post today for The Institute for Faith, Work, and Economics.

Here’s the beginning:

When we think of the parable of the Good Samaritan, we tend to think of the importance of charity and giving to those in need. That is one of the chief points Jesus is making. But is it possible that the parable might have something to say about work and business as well?

A Sequel to the Good Samaritan

We are all familiar with the parable of the Good Samaritan. A man is going down the road from Jerusalem to Jericho and falls among robbers. Two religious people see him and pass by, but a Samaritan stops to help (and, it might be added, helps him generously and holistically).

One of the main lessons is: your neighbor is anyone in need. Now, go about the world looking to meet needs, treating others the way you would want them to treat you.

With this in mind, in his book Generous Justice, Tim Keller encourages us to consider a “sequel” to the parable. Imagine that the next day the Samaritan is traveling the road again, and comes across another person bleeding on the side of the road. A few weeks later, this happens again. And then again.

As it turns out, every time he makes the trip from Jerusalem to Jericho, he comes across another person laying in the road. Then he looks up, and sees hundreds of people likewise lying along the road, beaten and robbed. What should he do?

See the whole thing.

Filed Under: Business, Economics

Goldman Sachs, Self-Interest, and Greed

March 29, 2012 by Matt Perman

The Institute for Faith, Work, and Economics recently wrote:

On March 14, Greg Smith, an executive director at Goldman Sachs, announced his resignation in the pages of The New York Times. He described a culture that had become “toxic” and outright callous to the interests of the firm’s clients.

The Institute for Faith, Work & Economics (IFWE) saw the news of his resignation as a teaching moment. Without taking sides, we sought to point out the important and often misunderstood difference between greed and legitimate self-interest.

Their visiting scholar, Jay Richards, and Vice President of Economic Initiatives, Anne Bradley, did this in a very helpful and brief op-ed for The Washington Times. Here’s an excerpt:

On Wednesday, Greg Smith, an executive director at Goldman Sachs, announced his resignation in the pages of theNewYorkTimes. His reasoning: The company’s employees and culture have morphed into a gross entity that sidelines the interests of the client in favor of making a quick buck. By his account, Goldman Sachs‘ culture has become “toxic and destructive.” Mr. Smith no longer wants to be associated with the Wall Street giant. “People who care only about making money,” he argues, “will not sustain this firm — or the trust of its clients — for very much longer.”

Amen! To care only about money is not only unbiblical; it is also — contrary to what many people think — out of sync with capitalism. Contrary to the 80’s movie “Wall Street,” greed isn’t good, and never has been. Greed does not drive the free market, but actually ruins it. What drives the free market is legitimate self-interest — which is very different from greed. Richards and Bradley explain:

This paradoxical biblical principle, that self-denial is in our self-interest, is also an important economic principle. The greedy miser who hoards his wealth closes himself off to greater economic gains. And in a free market, the greedy merchant who swindles his customers is not likely to maintain profitability.

On the other hand, if we seek to meet the needs of others – whether we are hedge-fund managers or plumbers – we are likely to reap personal benefit. Great entrepreneurs who risk their wealth, delay their gratification and successfully anticipate the needs of others can become fabulously successful as a result.

This is the beauty of the free market: It harnesses our narrower self-interest for the common good. Markets bring together the most willing suppliers with the most willing demanders, and exchange takes place. You freely pay the grocer for groceries, he freely sells them, and you both end up better off than you were before.

Read the whole thing.

Filed Under: Business Philosophy, Economics

200 Countries Over 200 Years in 4 Minutes

December 7, 2010 by Matt Perman

A very good illustration from Hans Rosling of economic progress over the last 200 years.

Filed Under: Economics

Why This Stimulus Package Won't Work — And What Will

January 27, 2009 by Matt Perman

There was a very good editorial in the Wall Street Journal yesterday on the current stimulus package heading through congress and why it won’t work.

Here are a few of the key reasons that it won’t work, some of which are covered in the article and some of which are not:

Public Works Projects Do Not Stimulate the Economy

The government has to fund those projects by taking the money from somewhere else (through taxes or borrowing). Thinking that public works will stimulate the economy assumes that the government will invest that money more productively than the private sector would. But that is almost never true.

Plus, the government is not our parent. It should not try to take care of us by stepping in to create jobs directly. It’s aim should be to keep us — the citizens in the private sector — maximally free to act. Let’s learn from the 1930s!

Government Spending Does Not Stimulate the Economy

This is really another way of stating point one. It is not spending per se that stimulates the economy. It is spending on profitable ventures which advances the economy. The private sector has a litmus test for knowing what society needs and wants most: profit and loss. But the government has no such means of knowing what is truly most wanted and needed.

I know that profit and loss realities alone do not create a good society — we must also have non-profit enterprises, and yes government does have a legitimate role. But the point is that, in the governmental realm, the incentives are not there to direct government spending toward the specific “stimulus projects” that society truly needs. So it needs to keep such initiatives to a minimum.

The business sector, on the other hand, has a clear test governing how it invests: the ventures that a business invests in must be profitable. But this is not so with government initiatives, since they are funded not by business results (profits) but taxes. And those taxes take money away from businesses and individuals — that is, they take it away from those that invest according to the clear and decisive knowledge of profit and loss.

The Problem is Lack of Supply, Not Lack of Demand

During the depression, FDR and his administration kept trying to figure out ways to stimulate demand. That has it backwards. The problem is never lack of demand — human demand is basically infinite.

The problem is that, when it comes to the economy, you first have to produce before you can receive. My family needs a larger vehicle right now. The want, need, and “demand” are there. Here’s what is not there: the money (or, at least, an amount that would leave us with the savings level we want after the purchase). I need to figure out how to produce the equivalent value of a vehicle before I can actually go buy that vehicle. (Or, alternatively, I need to be confident enough in the economy to take out a loan and trust that my future earnings will be sufficient to pay that off.)

So nobody needs to convince me or anybody else to want various goods and services. The issue is that we need to be able to produce enough in order to purchase them. In other words, supply creates demand. If we define “demand” as the actual decision to purchase a vehicle, rather than simply the desire for one, we see that that kind of demand is created by supply — that is, by my producing something of value, which value I can then “exchange” for the vehicle.

The Solution is Immediate and Permanent Tax Cuts

If the problem is lack of supply, then the solution is not to stimulate demand, but to stimulate supply. Or, if we want to put it another way, the way to stimulate demand (defined as the actual decision to buy) is by stimulating supply.

So how do you stimulate supply? Well, you don’t really need to stimulate that, either. It is a part of human nature to seek to be productive. We have an ongoing thirst to create, make things, and produce. That is a good thing.

The problem is that there are obstacles that interfere with this. Sometimes the obstacles are simply that life is hard. But most of the time, the biggest obstacles are created by the government — unintentionally, of course, and usually in the name of “stimulating the economy” or “making things equitable” and such. What needs to happen is simple: these obstacles that we can control, namely those created by the government, need to be removed. The government has to “back up” a bit.

And that means tax cuts. Taxes are legitimate and necessary. But high taxes are the biggest obstacle to the ability of people and business to produce (excessive regulation is a close second). This is because taxation diverts money away from private sector investment in productive goods and services and into government initiatives. In other words, there is less money for businesses to invest in creating and expanding their goods and services.

There is objective, real-world evidence that tax cuts do indeed lead to a growing economy. We saw this with the Kennedy tax cuts of 1964 and Reagan tax cuts of 1983, for example. Further, the WSJ piece notes that “Research by Mr. Obama’s own White House chief economist, Christina Romer, has shown that every $1 in tax cuts can increase output by as much as $3.” This is in contrast even to the best-case scenario thinking behind the government spending approach to stimulating the economy, which is based on a theory that “each $1 of spending the government ‘injects’ into the economy yields 1.5 times greater output.”

Even if that theory were true, that is still only half of the stimulus created by tax cuts. But, more importantly, it’s not true. As the WSJ piece also notes, “There’s little evidence to support this theory [that $1 of government spending creates $1.50 in output], but you have to admire its beauty because it assumes the government can create wealth out of thin air. If it were true, the government should spend $10 trillion and we’d all live in paradise.”

Again, there do need to be taxes. But a 35% corporate tax rate and 35% individual tax rate for top earners is far beyond what the founders would have envisioned (in fact, we did not even have an income tax for the first several generations in our nation’s history). We are in absolutely no danger of taxing businesses to little. There is a lot of room for taxes to come down, in turn resulting in greater economic growth.

Some object that this is not a true picture of the corporate tax burden because many transfer their money to tax shelters (for example, see this article at Smart Money). But that is precisely part of the problem as well: corporations and individuals end up moving portions of their income to less productive tax shelters, which thus also diverts money away from more productive uses. It is ironic that you even see this done by wealthy individuals that espouse the “need” for higher taxes — they call for higher taxes, while at the same time seeking to minimize their own tax burden through various tax shelters.

Let’s affirm that is a good thing, not a bad thing, that people want to minimize their tax burden. Of course most people want to minimize the taxes they pay. We try to minimize the amount we have to pay for everything — we never want to pay more than we have to, whether at the grocery store, Target, or anywhere. That’s part of the reality of living in a world of finite resources, and it is a good thing.

The really incredible thing is that reducing taxes not only syncs with the good and natural human desire to see as little of our income as possible removed from us through taxation, but also frees up people and businesses to more fully invest in productive initiatives, thus expanding the economy.

But the tax cuts need to be permanent, because otherwise they cannot lead to a permanent change in behavior. Further, they need to be immediate and “on the margin”:

To be genuinely stimulating, tax cuts need to be immediate, permanent and on the “margin,” meaning that they apply to the next dollar of income that an individual or business earns. This was the principle behind the Kennedy tax cuts of 1964, as well as the Reagan tax cuts of 1981, which finally took full effect on January 1, 1983.

If the Obama Democrats can’t abide this because it’s a “tax cut for the rich,” as an alternative they could slash the corporate tax to spur business incentives. The revenue cost of eliminating the corporate tax wouldn’t be any more than their proposed $355 billion in new spending, and we guarantee its “multiplier” effects on growth would be far greater. Research by Mr. Obama’s own White House chief economist, Christina Romer, has shown that every $1 in tax cuts can increase output by as much as $3.

This is not hard. Obama could solve this recession in a day. Propose a tax cut bill that cuts taxes immediately, permanently, and “on the margin;” shepherd its approval through Congress (which is controlled by his same party), and then the day that he signs it into law, the recession will be solved. The effects would take many months to be felt, for sure. And the bad loans do need to clear out as well. So I’m not saying the recession would end that same day. But the healing would begin immediately, and would lead to a true and lasting recovery via the quickest route possible.

Filed Under: Economics

John Piper on the Economic Downturn

January 20, 2009 by Matt Perman

Very helpful and very wise:

(HT: DG)

Filed Under: Economics

Obama: The Economy Will Get Worse Before it Gets Better

December 7, 2008 by Matt Perman

“President-elect Barack Obama said the U.S. economy seems destined to get worse before it gets better and he pledged a recovery plan ‘that is equal to the task ahead,'” according to an article today on Fox News.

The part that scares me here is not that the economy will get worse before it gets better. The part that scares me is the pledge of a recovery plan “that is equal to the task ahead.”

Recovery plans can do good, if founded on sound free-market principles of tax cuts that spur investment (rather than tax cuts aimed to stimulate spending — the kind that Obama has been talking about as one part of his plan, where we all get $1,000 or so in the mail).

But when recovery plans are misguided, they do a lot of harm. A lot of harm. For more on this, see my previous posts Five Myths About the Great Depression and The Great Depression as We Know it Was Avoidable.

Filed Under: Economics

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What’s Best Next exists to help you achieve greater impact with your time and energy — and in a gospel-centered way.

We help you do work that changes the world. We believe this is possible when you reflect the gospel in your work. So here you’ll find resources and training to help you lead, create, and get things done. To do work that matters, and do it better — for the glory of God and flourishing of society.

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About Matt Perman

Matt Perman started What’s Best Next in 2008 as a blog on God-centered productivity. It has now become an organization dedicated to helping you do work that matters.

Matt is the author of What’s Best Next: How the Gospel Transforms the Way You Get Things Done and a frequent speaker on leadership and productivity from a gospel-driven perspective. He has led the website teams at Desiring God and Made to Flourish, and is now director of career development at The King’s College NYC. He lives in Manhattan.

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