Economics 101

The Sales of Popcorn & Lemonade Point Detroit to Fiscal Health

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I have had the privilege of being born, raised, and shaped by Detroit. Seeing the world through the lens of this beautiful but broken city has framed my view of human flourishing in ways that are truly amazing and counterintuitive.

For example, I am convinced that some of the best economists are urban youth.

That may seem like a ridiculous statement to some, but for those of us who have experienced the hood first-hand, we know that it is true. Inner-city youth may not be Ivy-league trained, but they have several strategic advantages over the rest of us. They are economic innovators who are blessed with an inexhaustible creativity, boundless faith in spite of their difficult circumstances, and an unmatched  intuitive adaptability to the market environment and cities they occupy.

Take, for example, Josh Smith, who was a bright and budding nine-year-old growing up in the heart of Detroit in 2012, when the city first publicly announced that it was on the brink of insolvency. Detroit had run out of money, and the mayor had no more political options in front of him.

Although Josh had not pored over the city’s financial statements and did not possess the vantage point Detroit’s highly paid accountants, he did see the condition of the neighborhood park directly across the street from his home. Josh knew that the once-picturesque park, which was now rendered dysfunctional due to blight, was not going to be fixed by a government that had no money.

So this young urbanite did something that was innate and economically savvy: Josh started a business.

Driven by a love for his neighborhood and financial common sense, he divined that the best thing he could do as a citizen of Detroit was earn a profit by selling a product that met the needs of his neighbors.

He launched an enterprise that sold popcorn and lemonade that summer, and it was massively successful. Folks from around the metro Detroit region heard about this nine-year-old businessman and his entrepreneurial endeavor and came to buy his product. His business was thriving, and his Christian upbringing motivated him to donate the profits he produced to the redevelopment of the neighborhood park where he and his friends wanted to play.

Josh Smith’s story gained national attention. It attracted and inspired people from around the world to invest, launch businesses, and use entrepreneurial thinking to help solve the stagnant problems of Detroit.

Detroit stood on the brink of bankruptcy as a result of government mismanagement, but Josh knew intuitively that business could fix what government had broken.

Without realizing it, Josh was employing the central principle of what many refer to as Austrian Economics.

Austrian Economics

This school of economic thinking was championed by the famed economist F.A. Hayek, who believed that economies are far too complex to be engineered by a small group of government planners, not matter how well trained they may be. This is because the knowledge needed to make smart and efficient financial decisions is too vast and multifaceted for a handful of political leaders to amass.

Hayek was convinced the best thing that could happen for communities to flourish was for individuals to engage in unencumbered  markets of exchange, where they could buy and sell products, services, and productivity at price levels set by their own economic assessments of the value of these goods. It was the unleashing of entrepreneurial enterprises that brought real and sustainable profit, as business leaders intuitively made adjustments to meet the needs of their neighbors.

It is worth noting that Hayek sought to mainstream Austrian economic ideas during a time when it was unpopular to do so.

The mid-twentieth century was marked by two other competing schools of economic thought that were far more widely accepted than free market economics. Eastern Europe saw the rise of Marxist Communism, which brought with it heavy-handed socialism that initially seemed altruistic. The West had fallen in love with the economic imagination of John Maynard Keynes, who promoted an interventionist approach to producing prosperity that featured an economy that was stimulated by a hyperactive government.

Hayek’s Legacy

Hayek was a prophet of sorts. He announced to a world gripped by socialism on one side and enticed by interventionism on the other that neither could produce a strong and sustainable economy. He prophesied that socialism was untenable and doomed to fail nearly six decades before the fall of the Berlin Wall and the ultimate demise of communism around the world. He predicted that the inevitable outcome of interventionism would be a boom-and-bust cycle that would leave high unemployment and even higher interest rates in its wake.

Hayek knew that flourishing depended on the acceptance of the idea that economic knowledge was disbursed among the many and not held by the few, contextualized to local communities, and mostly intuitive to the individual.

The duty of any prophet, which is so often undesirable but undeniably necessary for social transformation, is to go against the mainstream.

This is the legacy and brilliance of Hayek. He believed that enterprising individuals, who were free to unleash their entrepreneurial spirit on a community, could fix what the government had broken.

Hayek didn’t have the privilege of being born, raised, and shaped by my Detroit, and he never had the blessing of meeting Josh Smith. But I am convinced that if he had heard of what this young urban business leader did in the face of his city’s bankruptcy, Hayek would be pleased.

Detroit is now on the rise and experiencing a renaissance driven by an explosion of small businesses and a cutting back of government. This is proof that Austrian Economics is not simply beneficial for solving large-scale geopolitical problems, but also good for the hood!

This article originally appeared in “Faith at Work: Economic Flourishing, Freedom to Create and Innovate,” a special report released by IFWE and the Washington Times. You can download a pdf copy of the full report, or visit the Washington Times’ website, where you can share individual articles to social media or via email.

Editor’s Note: On “Flashback Friday,” we take a look at some of IFWE’s former posts that are worth revisiting. This post was previously published on Oct. 25, 2016.

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