“What Went Wrong” With Jerry Bowyer  (Economic Worldview Pt. 2)

Proverbs 19:21 tell us, “Many are the plans in the mind of a man, but it is the purpose of the Lord that will stand.” That verse reminds us that we should always seek God’s counsel in our affairs. On this Faith & Finance, we’ll talk with economist Jerry Bowyer about what happens when a nation ignores God’s plan. 

Jerry Bowyer is a WORLD Opinions contributor and FaithFi’s resident economist.

• A BIBLICAL ECONOMY
• The most important idea in this worldview of economics is that God creates the earth and man and woman in his image and that they work together in productive activity in order to create wealth, and that expanding wealth is reinvested in that productive activity which leads to even greater expansions in wealth. That’s the thumbnail sketch. That’s how things are supposed to work.
• But an alienation in the relationship between God and man creates an alienation in the relationship between people, between generations, and between man and the Earth. Cursed is the Earth with reference to you or with regards to you. For your sake, it will not yield its fruit to you. A cursed Earth. Alienated from God. 
• And when that happens, when the ground is cursed, when people are alienated from one another, male and female, old and young productive activity shrinks. The Earth brings forth thorns and thistles rather than fruit. And work is toilsome. And people live by the sweat of their brow. Work has a toilsomeness to it. And when production decreases the range of possibilities for the use of wealth shrinks. It contracts. There's just less wealth. 
• And when there's less wealth. There's less money available for investment and so as the Possibility Production frontier closes and there's contraction in the economy you find an interruption between investment and capital markets between wealth and investment and therefore less wealth goes into the productive activity, which causes a further shrinking. 
• MAKING MATTERS WORSE
• All of this causes a lot of stress that makes things even worse.  In an environment of anxiety and alienation, of living by the sweat of your brow, people have a desire for something to replace that relationship. And so not only is there less investment because there's just less wealth there's also less investment because people move from the point on the investment curve where there's a high level of investment and a low level of consumption. They gravitate towards a situation where there's a low proportion of investment and a high proportion of consumption. You feed your anxieties. People live for the moment when they don't have relationships that anchor them with eternity, and that causes an even greater shrinking in the amount of investment. 
• SHRINKING INVESTMENT
• So investment shrinks because there's less wealth and then investment shrinks again because people spend more on themselves, a higher proportion of what they create through the fruit of their hands, and therefore invest less of it. 
• WHAT DOES THAT DO IN CAPITAL MARKETS? 
• Remember, this is a trade-off between yield and risk and in this situation, risk is rising. This is riskier to invest in for a stock investor or for a bond investor. A piece of paper that says I'm going to give you a share of my future profits is worth less if I'm less confident of your future profits. A piece of paper that says, I'm going to give you a fixed amount every year, an interest payment, I'm going to pay back what you lend to me is worth less because the productive activity, the shrinkage of it, makes it less likely that that money will be repaid. And so what you have are higher interest rates, higher yields. 
• People need to be compensated for that. And in addition, with less money going in, less available capital, that makes capital scarcer, which makes interest rates even higher. So what do we get? We get a situation where the riskiness of investing shows in this curve, pointing more upwards. That's the risk of being a partner with somebody, and the risk of the entire thing goes up, the risk of all investment goes up. The yields go up even more because of the scarcity of capital. 
• Unlike the virtuous cycle we saw how the economy works, when it works the way it's supposed to, this is what they call a vicious cycle. It feeds on itself. Higher interest rates, more scarce capital creates even lower levels of production, even more shrinkage in economics, even lower levels of investment. 
• HOW DO PEOPLE TYPICALLY TRY TO SOLVE THIS PROBLEM? 
• They could go back and restore this original relationship or accept the restoration of it. But they tend to create a new entity, the state or an entity that already existed and now is expanded, and there is a new god in town. And what they try to do is deny this God. They try to erase him from the picture. 
• They can't because he’s “unerasable.” But they can fog the view to him. And the new god says, I will do what the old God did. But even better, I'll give you prosperity, I'll give you abundance. I'll solve this problem. 
• If there's a scarcity of capital, I'll create new dollars, new drachma, new yen, new dinars, whatever the currency is throughout the history of the world, I'll create new ones and I'll put money in. See, when this yield curve goes up, showing higher levels of risk and lower levels of investment, it tells the truth. 
• It tells us the truth about ourselves. If we're not savers, then that shows up. If we're promise breakers, then that shows up. If we don't work hard, then that shows up in a scarcity of capital. High levels of risk, exorbitantly high yields. 
• NOT HEARING THE TRUTH
• Well, one of the things we can do is clap our hands over our ears. And the state helps us do that by printing enormous amounts of new money. 
• And that pushes interest rates down. It looks like a risk-free environment. It looks like an environment with lots of capital. But it's not capital, it's not wealth, it's just money, which is not the same thing. 
• You can print money infinitely. You can't print wealth infinitely. And so what happens is these yields start to tell a lie. They say there's no risk and capital is abundant and risky startups can get funded — or we can build far more houses than there are actually people to live in them. 
• It’s telling us a lie. 
• So the state grows, gets bigger and money that used to go into production now goes there in the form of higher taxes. Money that used to even go into consumption now goes there in the form of higher taxes. 
• REALITY ALWAYS SETS IN
• Eventually, reality will not be denied. As much as we try to fog the name of God, that name comes back with a vengeance. 
• The bubble bursts and the lie is exposed. And now interest rates begin to rise again because people understand that it wasn't a low-risk environment, it was a high-risk environment pretending to be a low-risk environment. 
• And then they figure out that this happened because money was printed with no regard to the amount of wealth. Money was printed to create a false boom, to create a sense of well-being and abundance where there wasn't one. 
• It was created to tell a lie. Coinage was debased to manipulate us into doing something that we would not otherwise have done. And when that happens, interest rates get extremely high because now we have to be compensated for the inflation, the risk of inflation for our investments. 
• Not only will they maybe not have the growth to pay us dividends, not only may they default on the interest that they owe us when we invest in businesses. But even if they pay us the money back, the money won't be worth nearly as much as when we lent it to them. 
• Eventually, we get sky-high interest rates. Remember the early 1980s? The false boom of inflation in the 70s led to the sky-high interest rates of the 80s, where people couldn't afford to own a home or couldn't afford to buy a car because capital was so scarce. And if you could get some, it was incredibly expensive.
• WHAT’S THE ANSWER? 
• (JB) We could go back, re-acknowledge that relationship, be less alienated from one another, go back to productive activity and grow the pie again. 
• That's what we could do. But instead, we almost always repeat the process. The government tries to solve problems by printing money, taxing, spending, and expanding. The end. 
• The whole cycle starts over and over again.
• You can read Jerry Bowyer’s insightful columns for World News Group at WNG.org.

On this program, Rob also answers listener questions: 

• Is it ever wise to take out a line of credit to help expand a business? 
• When does it make sense to sell an investment property? 

Remember, you can call in to ask your questions most days at (800) 525-7000. Also, visit our website at FaithFi.com where you can join the FaithFi Community, and give as we expand our outreach. 

Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.