Jerry Bowyer is a columnist for World News Group and our resident economist and “go-to guy” for all things economic.
This is actually part 3 of a 6 part series on a Christian Economic Worldview. We’ve already talked about “The Ideal Economy” and “What Goes Wrong,” and today we’ll take a look at “Why It Goes Wrong.”
MADE IN HIS IMAGE
This idea of God creating the world and man in his image is the basis on which to understand how the world of economics works. And therefore the alienation between God and man works its way through the entire system, leading to a shrinkage in production, a shrinkage in the amount of wealth created, a lack of investment, and valuations that express a large amount of risk in the stock and bond market. And we make it worse by turning to the state as a new God and this so clearly works itself out in history.
WHY?
Why don’t the people in charge of things see the problem and do something about it?
The reason they don't see it is because they don't want to see it. And the reason they don't want to see it is that these factors that determine economic growth, the relationship of God to man, man to the earth, man to production, economics, finance and politics are based on the idea of being held together by God.
God is the lynchpin of this system. He is the one in whom it coheres and since in virtually every elite center of economic life, financial life, political life, and academia has based its worldview on either taking God and pushing him out of the picture entirely or relegating him, at the very least to someplace far away from relevance to human affairs, to this world where He is a blind watchmaker perhaps or a grandfather who is looking from a distance, not intimately involved with the life of his creation. When the lynchpin is removed, everything falls apart and life doesn't make sense anymore.
THE IMPACT
This has a profound effect on society.
Man is no longer seen as being related to the earth. He is no longer seen as someone who is supposed to work the earth, he is seen as someone who harms the earth. And when mankind engages in the creation and tries to make it something more productive, that is seen as harmful, as a despoilization. As a violation of the pristine nature of the creation. And man is separated from production. We don't see human beings as a source of production. We don't see the emergence of new generations as a source of prosperity. We see high abortion rates or the lack of family creation as the source of prosperity.
So we separate the human race from the production process. And we separate the production process therefore from economics. There's a severing, a disintegration of those cause-and-effect relationships. And we even sever consumption from investment.
THE FOLLY OF KEYNESIAN ECONOMICS
The foundation of modern economics under John Maynard Keynes, the Cambridge apostle, the professor of university professor, who set his life to destroying this classical model, started with the rejection of God as foundational to his thinking and his circle of friends. And ended up denying all cause-and-effect relationships and all basic economic and fundamental principles. And came to believe what his elders had taught him. The superiority of thrift and investment was, to him, a bad thing. That money that's invested is loss to the economy and is bad for the economy. He contended that this creates economic stagnation and he called this the paradox of thrift.
We shouldn't save, saving is bad, Keynes said. So consumption and investment are severed from one another. And we don't see the relationship therefore between investment and the economy. The yield curve, we don't see the relationship between investment and the credit markets. We don't see that the basis of the credit markets is that somebody says, I'm going to work and not eat what I grew today or not eat what I built today. I'm going to defer my gratification in the future. That's the basis of economic growth and that's the basis of capital markets.
And Kane said, no, no, no, we don't need savings to do it. The government can print money. We can have a credit market with no risk and abundant capital without anybody actually saving. And so you have a severing of the relationship between investment and the evaluation of stocks and bonds.
WHAT HAPPENS NEXT?
Then along comes academic portfolio theory, the modern approach to portfolio management. And it says, in the beginning, at the very start of the emergence of this school of thought, which now dominates all of academia and most of the financial sector, the very beginning during the Nobel Prize acceptance speech given by the founder of this school is he says, I'm going to ignore production and I'm going to ignore consumption.
And so how do you value assets? How do you value stock investments or bond investments in a situation like that? If you sever the cause-and-effect relationship, how are you able to say whether stocks are properly valued or improperly valued? And what happens is technical analysis and academic portfolio theory start to look at this market, the stock, and the bond market as being driven entirely by our emotions, by the emotions of the crowd, and by my emotions, your emotions in relation to the crowd.
No objective reality, no cause and effect. And what this does is ignores not only the economic fundamentals, which should determine valuation. Growth is good for stocks and bonds. Inflation is bad for stocks and bonds because investments are promises to give you cash in the future. And if that cash isn't worth anything, then that's a risk to you.
And so what we do is we sever the relationship between government action and investment. And so Wall Street tends to focus on stock and bond markets as being a world under themselves completely insulated from political actions or from economics.
And that is the very basis of the academic dogma of modern portfolio theory. And so what do we have? When we remove God entirely from the picture or relegate Him, we end up with a fragmented worldview.
When cause-and-effect relationships are erased from human consciousness and we're left with chaos, isolated, disintegrated chaos.
Jerry Bowyer is the author of The Maker and the Takers: What Jesus Really Said About Social Justice and Economics.
On today’s program, Rob also answers listener questions:
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Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.
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