Economics 101

Christian Economists Talk Faith and Economic Freedom in the U.S.

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Christian economists Anne Bradley and Joe Connors have talked with us before about a variety of important economic issues. Today they share their thoughts on the well-being of the U.S. in 2016 and the role the church can play in improving it.

What are your thoughts on the state of economic freedom in the U.S. today?

AB: In 2000, the U.S. was number two in the world. Now we’re sixteen or eighteen, somewhere around there.

JC: That’s right.

AB: That trend is continuing. I think we’re headed in the wrong direction concerning economic freedom. Unless we make some big reforms, we’re going to continue to decline. The average person needs to care about this because it’s going to affect their ability to provide for their families and do what God has created them to do using their creativity to have jobs, open business.

Before we get to the how and why of all that, what is this index you’re talking about? What do we mean when we say “economic freedom” What does it mean in concrete terms that the U.S. slipped from number two to where it is now?

JC: The index is trying to measure economic freedom, and the way to think about it is in four broad categories: the ability to make your own choices in life, where you want to work, what you want to buy; economic transactions are essentially determined by markets – markets facilitate that exchange; that your property is protected from aggression from others; and exchange is voluntary.

What the scholars do is they go and get a bunch of objective data – forty-two different points – data sources from the IMF, the World Bank, the International Country Risk Guide, tons and tons of data sources. They measure on a scale of one to ten, one being not very free, ten is the most free. They scale it over five areas: the size of government, how much government spends as a share of the economy; the quality of legal institutions and rule of law; how monetary policy affects your ability to live out your life; your ability to trade internationally; and your freedom in terms of financial credit, labor markets, and regulation – in many countries it takes over a year and a ridiculous permitting process to start a business.

So when we talk about economic freedom, we’re talking about those four big ideas, and they’re measured by those five categories. All we’re trying to measure is do people have or not have the freedom to make these decisions for themselves?

And the U.S. has been slipping since 2000. 

JC: It turns out, and this is the scary thing, that the decline in the U.S. has largely been in area two, the quality of our legal institutions. That’s where we’ve had the biggest decline. That is one of the most important aspects of economic freedom. If you want to know if a country is rich or poor, look at the quality of their institutions. It is very hard to find a wealthy, prosperous, thriving country with a bad legal system. It just doesn’t exist.

AB: You tend to have what we call an informal economy, when you can’t go to a court. Say something steals something from you, and you can’t go to a judge who is independent, who is subject to the rule of law. Then you have a whole system of bribes and paybacks and schemes.

And this report is saying that’s increasing in the U.S.?

AB: Well, the fragility of our legal system is increasing. So we’re getting worse on this metric.

What is causing that?

JC: The encroachment of both federal and state governments into the areas where judges and legal experts usually reign. You have the overuse of eminent domain. You have the overuse of federal power to adjust bankruptcy laws.

AB: He’s the empirical expert, but there’s a lot of correlation between  that category, the legal institutions, and the level of regulation in a society. The more special interests can get involved in making laws, the more they use the law to secure their own interests. How does this  manifest itself? Through regulations which make it hard for a new mom and pop business to enter an industry because you’ve got these regulators using the legal system to block people. Anti-trust law is another part of what Joe’s talking about. It results in regulations that protect insiders against outsiders. It’s funny because that’s the exact opposite reason anti-trust laws were established, but we’ve found that over its history most anti-trust cases are brought by people already in the business, not the people the who want to get into the business.

This gets to a bigger issue of what I call cronyism, some people call it crony capitalism – which I don’t really like – another word for it is corporatism, which is where you have big corporations with excess capital that can hire lobbyists and all these attorneys to try and negotiate with lawmakers to twist and shape the law to their own advantage.

A great example that we’re hearing about – it’s a bad thing, but it’s a good example – is hair-braiders. As Christians, we want them to be able to use their gifts and talents to do what God has called them to do. What we’re finding is that the salons are teaming up against independent hair-braiders, often black women who are braiding in their homes – no chemicals, no scissors, nothing dangerous, just braiding hair – and in many states it’s now becoming illegal unless you have 1,500 hours of cosmetology. You’re basically telling these women “Too bad. You can’t even enter this market unless you have enough money to go to cosmetology school.”

JC: Most people don’t understand this side of regulations. Regulations are the source, are one of the biggest problems with cronyism. It’s a violation of the rule of law. The rule of law is that everyone is equal before the law, but that’s not the case in these instances. It’s not just hair-braiding. What these regulations end up being used for is keeping competitors out of business so established firms can make more money.

In most people’s minds, they think of regulations as nice things that protect public interest. But what happens is most regulations, once you have the ability to manipulate and industry and keep some people out, more often than not they’re used to keep competitors out to enrich entrenched businesses.

So how should Christians think about this? What can they do?

AB: Being literate in economics, just understanding the mechanics of how these things work can help. It’s being educated about what all this means and the implications for everyday people. And then it’s asking, “What has God created me to do?” and doing that with integrity and doing it well while being aware that regulations and special interests are going to be a part of your industry, whatever you go into. Try to fight that where you can.

JC: The other aspect, especially for Christians, is that when you use government for more and more in this capacity, you’re essentially taking away the decision and the choices in certain situations, your calling and career and stuff like that. You’re taking those out of the hands out of people and putting them in the hands of bureaucrats. Some of the research we’ve been working on is that markets help keep government power at bay, not just to enrich ourselves, so that we can have civic organizations and volunteers to serve each other in different capacities, and once we hand that off to government we’ve reduced our choices, we’ve reduced our ability to serve God and our fellow human beings in all kinds of unique and creative ways.

AB: We need to get reinvigorated about the power the church has to transform communities and not just default to, “Well, I can’t fix this, so I’ll just hand it off to the government.”

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  • Pete Smith

    Sounds like a return to mercantilism.

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