Book Review: James D. Gwartney et al.
Common Sense Economic
Gina Lee
College of Arts and Science, Liberty University (Graduate Student)
Understanding Economics
In Gwartney’s book, Common Sense Economics, there are six sections to highlight.
When looking at the meaning of economic study, we find that it is about choices. There are 12 key concepts brought to light at the start of Gwartney’s book. These concepts help in the understanding of economics. Five of those concepts can be mentioned here.
First, we learn of incentives and choices, scarcity and opportunity costs, marginal benefits, and marginal costs, and the value of trade. These key concepts explain that “all costs are opportunity costs.” Gov’t legislation such as tax subsidies can reduce market incentives, thus government cannot eliminate cost but merely shift them. (2016, pp. 9-11).
Secondly, we come to the concept of providing others with value and the importance of goods and services. We find that the destruction of goods and services can only be detrimental to an economy (p. 32). While trying to keep prices from falling, limiting supply can be destructive government policy; this can affect the very people central planning claims to help. Moreover, an economy’s progress comes through the means of trade and investment. Through these means, there is a better way to achieve economic growth; a sound economic environment is essential (p. 34). The “invisible hand” of self-interest is there to benefit both the producer and the consumer (p. 37).
Economic Growth
The third concept to summarize from Gwartney’s economic analysis is economic growth. This section points to the importance of economic institutions, as regards to a sound legal system, private ownership, and competition that breeds innovation (p. 61). Gwartney suggests that the limit of government regulation encourages economic growth, and that capital needs to be used to create wealth in a free market economy. Monetary stability and low tax rates are essential. Trade, as well as the need for healthy economic institutions, will keep an economy in a growth state (p. 72).
The Price System
The fourth concept is the price system. The principles of the price system are analyzed. We learn that price brings the buyers and sellers to an equilibrium price, which is balance (p. 20). We learn how profits direct business and how entrepreneurs will prosper when they consider the market and efficiently bring the consumer into the marketplace with sound and efficient production. Paying attention to secondary effects of decision making is essential to economic productivity.
Government Intervention
Fifth, is the analysis of government intervention. Gwartney makes the point that the government’s main essential duty is to work within its two functions of protection and production. Central planning lacks what the market can see. The eb and flow of the market changes too often for the government to control and fix economic issues (p. 113).
Lastly, Gwartney’s research and study suggests that the government should provide an environment where the market can successfully create economic value and growth. Good policy is essential for this to happen. “[T]he economy is far too complex to be micromanaged” (p. 155). There are constant changes taking place within the economy, thus central planning does not collect enough information. Market prices “inform” the investors (p. 154).
Application
The economic concepts in Gwartney’s book can be likened to three areas of government intervention seen in the current federal and state governments. We see this in price control, regarding the minimum wage of $15; government relief or aid that pays people to stay at home; and the raising of taxes to pay for budget deficits caused by “pork-barrel legislation” (p.127).
Where there is price control it creates a barrier for many small corporations to profit under their new-found expenses; thus, letting go of workers is many times the only option. Price control, when it comes to wages, can have sometimes have difficulties that can be avoided only by companies with the technology to work without human capital, thus a disparity happens amongst entrepreneurs, and small businesses.
Regarding central planning and relief aid, government assistance has created an environment where many employers cannot higher workers even if they wanted to; this is due to the lack of incentive for potential employees to go back to work. The government is simply paying people to stay home. Unemployment rates have risen due to the fact of costly government overreach. The debt created in the United States economy has brough on inflation and an ever-increasing deficit. There are no net benefits to American citizens but only benefits to those who desire intervention, as well as benefits for the policy makers. Whether it is free education or free healthcare, government assistance does not direct policy makers towards productivity and economic efficiently like the market can. We know that “market activity is based on mutual agreement and voluntary exchange”; however, political allocation adopts policies that people in non-agreement are forced to pay for; it’s a majority rule benefit for the central planners. “[P]olicies favored by a majority do not always make a society better off (p.122).
Raising taxes to create a “free” 3.5 trillion spending bill only adds to the inherit downfall of burgeoning bills. Enterprises that create capital want to see more of their net worth. Living off another man’s work will only last for so long before there is economic decline. We find that “[g]overnment failure is present when the incentives confronted by political participants encourage counterproductive rather than productive use of resources” (p.125). One can see more incentive for there to be federal control overs states; the federal government seeks to rationalize its spending through rhetoric that claims all expenses are paid for, thus free. But as we know there is no such thing as a free lunch. As David R. Henderson writes in “TANSTAAFL, There Ain’t No Such Thing as a Free Lunch”, “[w]hen someone offers you something for free, he or she usually expects something in return” (2014). There is usually a catch.
Biblical Principles of Economics
When considering biblical principles while looking at economic decision making, one can find principles that contradict current central planning as well as current rhetoric. In our culture one can find that the dilemma of injustice is remedied through the transfer of wealth; partiality is thought to be remedied by considering reparations to a certain people group, even if those sins of partiality were not from the current generation. The lack of sustained motivation to provide for one’s own household is remedied by government handouts; however, we can use principles in scripture to keep a biblical worldview.
Isaiah 1:17 states that we are to “[l]earn to do good, seek justice, correct oppression; bring justice to the fatherless, plead the widow’s cause” (English Standard Version, 2008); but does this mean we give the responsibility to the government? These words come from the prophet Isaiah to God’s people. Israel was called to be a light to the world; though Israel was unfaithful, God would continue to fulfill his purpose through them. What the church can do to show Christlike justice, is not a call to look to government intervention.
I Timothy 5:8 states this: “But if anyone does not provide for his relative, and especially for members of his household, he has denied the faith and is worse than an unbeliever” (English Standard Version, 2008). This passage contains a clear message that it is not biblical to choose not to provide for one’s own household. When one looks at issues such as welfare or unemployment, we can find that current government intervention is not encouraging a thriving market with people incentivized to work hard and achieve. The United States central planning has brought the idea of the free market very far from its original state; the production of capital is evident, but a true free market is not visible. Sheldon Richman, in his lecture “Capitalism vs. Free Market”, would suggests that if a society does not have a free market, it does not have capitalism (2010). A culture of earning and working hard to provide for oneself and their family is lost under the government’s hand of intercession.
Colossians 3:25 reminds us that those who do wrong will be paid back; they have what is due. “For the wrongdoer will be paid back for the wrong he has done, and there is no partiality” (English Standard Version, 2008). With God, there is no favoritism. He expects His people to be impartial as well, not treating one group of people better than another. Expecting for people to pay for past sins of another generation is unfair; it is in and of itself unjust; whether we are increasing taxes for the rich to pay for the poor or giving reparations for one people group because of the sin of a previous generation, it is all blurring a picture of true justice. Policies such as these do not soundly remedy the economic issue it is trying to solve, but only makes issues more complex.
In final summary, Gwartney points his readers to the fundamentals of economics. The reader can learn key concepts for a thriving economy. Not only do we see the foundation needed for economic growth, but we see the problems within central planning and government overreach; we see the need for a continual return to the Constitution and a true free market.
References
English Standard Version. (2008). Crossway Bibles.
Gwartney, James D. (2016). Common Sense Economics. St. Martin’s Press.
Henderson, David R. (2014). TANSTAAFL, There Ain’t No Such Thing as a Free Lunch. Econlib. https://www.econlib.org/library/Columns/y2014/Hendersontanstaafl.html
Sheldon, Richman. (2010). Capitalism vs. Free Market [Lecture Series]. The Future of Freedom Foundation, Fairfax, Virginia, United States.
Faith, Family, Dance, and Lemonade 