Sometimes you simply must explain things at the most basic level.
The study of economics is all about human exchange of goods and services. There are certain basic principles that work all the time and everywhere regardless of other factors. But we are dealing with humans, so on top of this we must reckon with human cultures. Human assumptions about reality and their expectations for each other (mores) invoke interpretations of how those fundamental principles are applied. In addition, we have the peculiarities of scale. How big is your economy? It changes how things work. Finally, we have the rules and regulations of government policy that tweak how those interpretations turn out in real time.
Under the Covenant, we would have an economic system that has never been seen except in the small scale of the covenant community. While it is possible to extrapolate from Biblical Law principles to a larger sized economy, there’s no need to do so. It’s never going to happen.
In the small scale of the individual covenant community, we find ourselves very close to the fundamental principles. Our economic guidelines have a moral purpose: to promote the Covenant message. The basic Law of Christ is that we love His family (each other) as He does. Everything we do must fit on that foundation. It stands before the economic activity arrives.
I’ve written at length about biblical economics. The people at the bottom of the economy come first. You build a business solely that you may employ the maximum number providing whatever it is you know how to do. You add management only when necessary, and you avoid multiple layers. You reduce profit to a minimal margin, seeking to hold a modicum of cash reserve to handle surprises. Finally, you never, ever allow anyone outside the business to invest. Investors must become part of the hands-on management, bearing the load personally.
In the midst of all of that hides the one fundamental secret of all human economic activity: the people at the bottom are of paramount importance to building and keeping an economy stable. The more the peasants have, the more everyone else will have. It always migrates upward naturally. So-called “trickle down” is a blatant lie. That’s true globally. This principle is missing form virtually every national economy existing today.
This principle is sometimes recognized in American academia, but not often. It’s ignored by every business and every government agency. American culture compels a consumer-based economy. The whole thing works only as long as there are consumers with money to spend. The more of them there are spending, the better it is for everyone else.
But American culture invites greed, and greed means people with leverage looking for every way possible to skim off an unreasonable share of that consumer spending. We end up with greedy people in both business and government, and they collude to tweak the laws to favor themselves. Greed makes them short-sighted. They are pathologically incapable of understanding how this kills the golden goose. They see a strong economy and start slicing away until it dies.
For example, every layer of management adds to the price without any payback into the system. Packing the workforce is good; padding the office is bad. That’s fundamental. Yes, it’s possible to have good management that actually makes things more efficient, but that is so rare as to be insignificant for our discussion. We all know people who do management well on the scale near us as consumers, but not when you get to upper middle class where greed becomes the law. At that level managerial talent fades to insignificance.
The money is not plowed back into operations. Instead, it goes into all sorts of inefficient uses like ill-considered market expansion, or various adjustments to operations that do not increase value to the consumer, but serve only to satisfy various management vanities and greed. The greedy keep looking for ways to scrape off what should go to workers and improved products and services.
Government policy creates extra management entities outside of the business, like various forms of required insurance. I’m not saying insurance is a bad idea, but hasn’t it just about destroyed medical care? The existence of insurance and profit motive means a massive layer of money is scraped off between the patient and caregiver, raising the price beyond anything reasonable.
This is the system that charges $100 for a single aspirin and has doctors charge thousands for “care” that constitutes walking past the door of the room where the patients are. They do that because the system charges them millions just to have the job, then loads them up with bureaucratic requirements that have nothing to do with actually caring for the patient.
And so it goes with everything our government touches. Again, I’m not saying government is inherently evil in itself, but greedy people make government behave very poorly. Good, competent people are not motivated by plunder, only the greedy.
Current US government policy is all about building and protecting monopolies and oligarchies because that’s where the source of bribes campaign funding. Both parties. The only difference between Red versus Blue is a matter of which tribes of greedy thugs get to use government power for their plundering.
The demand for money has outstripped the natural supply. That’s why we have a massive national debt. We have a political demand for expenditures that serve no valid constitutional purpose, never mind a good moral purpose. The level of scraping off the proceeds of economic activity leaves too little to sustain the basic consumption that keeps the US economy alive. Soon enough, all that big junk grinds to a halt. Suddenly, only the very most basic life support spending is about all anyone can do.
Only God knows the schedule. A few sharp minds can see it when it’s right on top of us, but it’s mostly a fog and feeling our way along. It won’t be the end of all economic activity. That’s a basic principle, too. This is not some apocalyptic movie or novel. Things will get tough in certain specific ways; the system has become hollow and fragile. The people at the bottom are ignored, and they will run out of room to maneuver. They can’t afford much more than life-support mode. When they stop buying less essential consumer goods and services, the system flounders.
The first loss comes in infrastructure that governments buy. Maintenance will fade away and transportation gets less efficient. We’ve got that already in a lot of places. Next, energy costs will rise. New capacity will fade, and then shortages will arise, hitting the common consumer hardest. Government and big business are not going to sacrifice, so that leaves only the common folk to bear the loss. It’s another hidden tax.
Inflation will price consumers out of the market for everything. Granted, the greedy have created a whole sector of the economy that grants a very large number of people who serve the upper class more wealth than would normally be the case. This managerial class will tend to hang on for a while simply because what they do is not for the consumer market, but for the upper class. People who can afford to buy $100K vehicles will still drive them for a while as the folks at the bottom start to suffer.
We are there right now.
At some point, the economic activity will recede just enough to shut down some of that upper middle class business activity. Conspicuous consumption will fade as more and more of the available economic cash flow stalls out, trapped in unproductive loans. Commercial real estate (CRE) is a bellwether. The vacancy level tells you a lot. Right now the US economy is starting to shrink at the bottom. It shrivels from the roots up. Certain businesses that have been riding the knife edge of profit are starting to shut down because the knife moved out from under them. It looks like consolidation, but it’s actually shrinkage.
Things will ride along like this, not quite in crisis, for a while yet. Somewhere along this path, you’ll see major shutdowns as the squeeze hits the managerial class. Most of them will be quite surprised by it. Larger businesses that still include the common consumers have started closing branch operations. For example, small rural clinics and grocery stores are shutting down. Only those business that are structured to cater to the bottom alone (like Dollar General) will remain in operation out in the rural areas.
I don’t have room to write a detailed analysis. By the time I did, it would be out of date. This post is too long already. For covenant people, the primary guidance is to stock up on stuff that might be hard to get, not just for yourselves, but for your faith community. Keep a stock and rotate it. Your resources are probably limited, so listen to your convictions about what to prioritize. Pray for guidance and wisdom.
