Quick Economics Lessons for Christians

The Term: The Economy (aka Gross Domestic Product)

What It Means: Humans have seemingly unlimited wants and needs—but a limited number of resources. This is known as scarcity, and it’s the fundamental problem in economics. The primary way we solve this problem is through market exchanges or transactions: you make something I want or need, and I give you something you want or need in return (we do this indirectly through the use of money).

A transaction simply consists of a buyer exchanging money or credit with a seller for goods, services, or financial assets, usually for an agreed-upon price. Imagine you buy a copy of a newspaper for $3.00. That is a transaction. Now imagine you bought the newspaper company itself for $300 million. That is also a transaction. In both situations you exchanged a good for money (or credit if you didn’t have $300 million in cash).

“All cycles and all forces in an economy are driven by transaction,” says billionaire hedge-fund manager Ray Dalio. “If we can understand transactions, we can understand the whole economy.”

A primary way we think about transactions is by grouping them together. Such groupings constitute a market, which consists of all the buyers and sellers making transactions for the same thing. If you go to your local farmers’ market you’ll find people engaging in transactions that primarily involve agricultural products, such as eggs or vegetables. If you go to the New York Stock Exchange you’ll find people engaging in transactions that primarily involve stocks. Thus we refer to all places where transactions occur for similar goods as the “__ market” (e.g., the stock market, the wheat market, the book market).

An economy consists of all the transactions in all its markets in a given area. “If you add up the total spending and the total quantity sold in all of the markets, you have everything you need to know to understand the economy,” says Dalio. “It’s just that simple.”

When Americans refer to “the economy,” the given area for transactions they’re referring to is the United States. But how can we reasonably talk about all of the billions of transactions that occur in all of the markets in our country each day? We do it by simplifying it into a single economic metric—Gross Domestic Product (GDP).

GDP is often used as a single number that “measures” the economy. Imagine you wanted to put a price tag on the value of all the final goods and services produced by every sector of the economy (e.g., all the crops grown, all the lattes served at the coffee shop, all the hours billed by lawyers, etc.). The total number you’d put on the price tag is the GDP.

GDP and “the economy” are often treated as synonyms. When we say the economy is growing or shrinking, we’re saying the total value of the goods and services being exchanged (GDP) is increasing or decreasing.

Why It Matters: The U.S. economy is merely the sum total of economic transactions. Why does that matter to church leaders? The reason is because we care about the material needs of other people. The biblical standard of economic justice is that everyone has the resources needed for living. If we care about economic justice, we should care about the economy—specifically the growth of the economy—and how it affects the flourishing of our neighbors. Our primary concern with the economy, therefore, is whether it’s expanding or shrinking.

An economic unit (whether a family, country, etc.) is generally better off when everyone is able to meet all (or nearly all) of their material needs and many of their material non-necessary desires. That is why economic growth is so important. While the issue is complex and requires some nuance to fully explain, the simplistic answer is that economic growth matters because people continue to have babies. If we Christians love babies—and want more of them around—we should be concerned about economic growth.

Economic growth matters because people continue to have babies. If we Christians love babies—and want more of them around—we should be concerned about economic growth.

Let’s consider the consequences if there were a long period in the U.S. with no economic growth:

  • Unemployment and poverty would skyrocket.
  • The national debt would increase as tax revenues declined.
  • Banks and other financial institutions would go bankrupt, leading to housing and credit crises.
  • Housing and land prices would sharply increase.
  • Food prices would increase, leading to famine in other countries and hunger in our own.
  • Social welfare programs would have to be scaled back.
  • Federal and state governments would not be able to service their debts.
  • Workers would have to work longer hours to maintain their current standard of living.

In other words, as soon as economic growth stops, economic decline starts. But what causes the immediate decline? In a word: babies. As the population increases, more resources are needed to feed, clothe, and shelter all the new people being created.

We can see this occurring today in countries with low economic growth (i.e., a stagnant or declining GDP). As the population increases, there aren’t enough resources for everyone to rise above the poverty level.

Similarly, in the U.S. we need to create around 70,000 new jobs each month just to keep up with the babies who are growing up and entering the labor market. If the economy does not grow, there will be no jobs for them. In the short term, we can merely shift resources around through redistribution, such as unemployment compensation or welfare benefits, to prevent the unemployed from going hungry.

But without long-term growth—that is, without long-term increases in GDP—a country’s wealth becomes depleted, causing instability and social breakdown. However, if the new workers do find jobs and engage in productive labor, the economy will automatically grow as these laborers buy goods and services.

Because of economic growth we have less hunger, poverty, and disease, and increase in life expectancy measured in decades. It’s also the reason why about 1.1 billion fewer people are in poverty today than in 1970. As a result of economic growth in countries such as China, the number of extremely poor people in the world is three times lower than in 1970.

The number of extremely poor people in the world is three times lower than in 1970.

Growing the economy is not a goal that should be pursued for its own sake, nor is it a means to achieve a materialist paradise. Economic growth is not the chief end of man, but merely the blessing that results from fulfilling God’s dual cultural mandate: be fruitful and multiply, and steward the earth’s resources (Gen. 1:28).

Joe Carter

Published by Intentional Faith

Devoted to a Faith that Thinks

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