MAKING ends meet is not as easy as it once was. A housewife spends more money at the market for fewer groceries. Her husband makes higher wages than ever but has less to show for it. Will things get better? 'Business Week' magazine, in a largely gloomy special issue about the U.S. “Debt Economy,” says that "the nation’s burden of debt is like a string drawn very taut . . . The string has not broken, and it may not. . . . Yet no one knows the precise breaking point and, while there are schemes and theories galore, no one really knows how to ease the tension, either."
Why is it that you cannot be sure how much your money will buy tomorrow - if anything? Some background in elementary economics is of assistance.
Elementary Economics
In virtually every society people need things that other people have. One man, A, has sheep, which produce wool; another man, B, possesses dyes. If each is willing, they simply swap or barter goods. A gets dyes and B gets wool. Economics is essentially a system of cooperative swapping.
But suppose that A wants dyes from B and yet B already has an ample supply of A’s wool. Then what does A do? Or, what if both need the weaving service offered by a third, C? How should C be compensated? An economic system has to be big enough to handle these slightly more complex arrangements. How?
Money is used. Money - that is, currency - stands for or represents something of value; it is an instrument that allows great flexibility in a system of exchanges. Money, of course, should not be confused with true wealth. What A has of real value is his sheep. Meanwhile, B and C have dyes and a skill, respectively, as things of genuine worth. The money stands for what each has of true value.
But what is it that makes each one’s product or service of value? The demand for it. If no one ever needed wool, the value would remain low. On the other hand, if everyone depended on wool for clothing, that product would be in great demand and so of high value.
The so-called “classical economists,” such as the Scotsman Adam Smith who lived in the eighteenth century, advised that an economic system should be allowed to float freely and, like water, seek its own level. Supply and demand would determine the “level” of each product or service. If one man or company produces a product or service more cheaply than another, his competitor will eventually be driven from business by the public demand.
Prices, too, would be set by demand. When demand is high and supply limited, prices are high. But when little demand exists for an item available in great abundance, prices are low. This constitutes the rudiments of a “free” economic system. Unobstructed, many have reasoned, this system would continue indefinitely.
How “Good” Is this Economic System?
Measured by certain standards, the Western world’s economic system may appear to be very effective. If the economic system really works with supply and demand setting prices, why try to manipulate it? Many reasons are offered, but there are essentially two factors.
For one thing, there is fear - a desire to “protect” one segment of an economy. A man, a company, a class of workers or a whole nation all know that if they lose out to their competition they have no work.
They may know economic “theory” very well. They know that public demand has made their service or product unnecessary and that they should merely be shifted to another part of the economy where they can play a productive role, supplying what the public demands.
But they also know that this means radical changes for them personally. Suppose a man is older and has spent his entire lifetime learning a trade that is no longer in demand; should he suddenly be expected to learn something entirely different? And what about salary? Obviously a man shifted from a skilled position in a now-defunct business will not make as much money when put on a job at which he is untrained. This means, in turn, that his family will have less money to live on, and his standard of living must drop. And who wants that?
Yes, the theory of supply and demand, a free uncontrolled market, and so forth, may look good on charts when extended over generations or centuries of time. But it cannot help the man who loses his job today.
For this reason, most modern Western economists lean to the other extreme, and the “long run” effect of policies is forgotten as they call for jobs to be preserved at all costs.
So a tariff is imposed on suits imported to the U.S., heavily taxing them. This greatly raises the cost of the foreign-made suits, and U.S. jobs are rescued. Superficially, that looks fine; but let us look below the surface.
What about the buyer? He is paying an additional $40 for a suit. That money could be spent in other sectors of the economy, on, say, television sets and refrigerators. Theoretically, the American garment employee could shift over to work in one of these other industries. But the tariff prevents his being confronted with this uncomfortable shift. Yet what about the Chinese garment workers? They could lose jobs because their suits have been taxed out of the market, are no longer in demand. They are forced to do something else for a living. The problem is not really solved, merely pushed outside the U.S. The same process goes on inside each country.
This clearly points up a major inability on the part of the present economic system. How can it preserve an overall system of supply and demand indefinitely, if, at the same time, it must set up measures that restrict that very system? Yet that is necessary if people now are to have jobs. It does not take an economic genius to see that such a cumbersome, self-contradictory system must at some time sag from its own weight.
Compounding the System’s Problems is a hard-to-control element, GREED. Regardless of actual need, people want more and more material things and a "better way of life," even at the expense of others. Workers want higher wages, manufacturers want increased prices for their products.
Even more devastating is the role that governments themselves have had in stirring up inflation. A nation’s currency, in simple theory, should not exceed what it is actually worth, that is, what it can produce. But modern nations, violating this elementary principle, have printed money far in excess of their true worth. Usually this has been done for a reason; for instance, to pay war contractors in time of national crisis. But the excess money introduced into circulation eventually makes it worth less; everything costs more in terms of “dollars and cents.”
Currency loses its value, and in relation to the currencies of other countries it is worth less than it was before the inflationary period began and must be officially devalued on the world market. Foreigners are then able to buy more easily the now-cheaper products of the affected nation, creating even more havoc. Results? More inflation! “Runaway inflation” now plagues the economy of most Western nations.
Of course, too, when money is devalued, it loses something other than just face value. It loses the trust of many persons. They stop investing and try to hold onto what they have. So, business loses the further capital that it needs to expand in order to meet the demand for products. Rather than stepping up production, they must cut it back, but prices remain high. People are laid off from their jobs and a “recession” could set in. The current situation in the U.S. and elsewhere is described by some as a form of recession.
Inflation, recession, unemployment - all at one time - are staggering enough to consider. But the current plethora of problems has grown to nightmarish proportions by the introduction of new, unexpected elements. Oil prices have quadrupled and other natural resources are becoming harder to obtain and subsequently more expensive. These radical adjustments - unheard of only a few years ago - have affected virtually every industry in the Western world with staggering and sometimes devastating results.
People’s desire for more of everything has affected the system in yet another way and that is through credit buying. While the economy was expanding and seemingly virile, credit was popular. Currently, there seems to be some tapering off of credit use as people realize that they cannot pay off their debts with inflated money. The high interest rates on cheap money further frighten away borrowers. Less credit used means fewer products and services sold, further depressing production. But up until recently everyone blindly expected economic growth to go on and on. The U.S. nation, like others, is hopelessly in debt (a total debt of $14 trillion has accumulated.)
Predictions
Is it any wonder that with all these factors, and hundreds of others not here mentioned, twisting at the Western world’s economy, no one can accurately predict where it is heading? The problems are no longer limited to a few nations, but are all over and interlocked. The slightest adjustment in the political or economic situation of one country can jar the whole complex web.
Economists are thus adrift in the current economic ocean, dog-paddling to stay afloat like everyone else. They are baffled by the vast array of interacting factors."Man’s knowledge of his own economic institutions is limited,” confesses R. W. Everett of New York’s Chase Manhattan Bank, Economic Research Division, adding: “Good analysis is made more difficult by the fact that these institutions are constantly changing.”
The impossible task before the economic forecasters is colorfully described by syndicated columnist Max Lerner:
“This is the season in the sun for economists. They don’t seem to know much, and what they do know they know to little avail. But they are beautiful to behold as they squirm and flounder, wriggle and leap about like fish in the encircling net of economic circumstance.”
Most of them hope for the best but can bring forth no sound reason for believing that things will get better. Even if the system were to pull out of the current crisis temporarily, how can anyone believe that it can maintain its balance in the future? As we have seen, its end seems obvious. The only question is, When will it end?
Persons with faith in the Bible know that world change - not just a major adjustment in the economic system - is coming. They know that the Bible says that the worldwide system cannot work and will soon pass away, to be replaced by one of God’s making. Right now, while obviously affected by the system in which they live, they do not rest their confidence in it. (Matt. 6:9, 10, 19-34) They look elsewhere for an accurate understanding of the future, and that is to God.
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Contributor's Note
All photos are from Wikipedia Free Encyclopedia
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appreciated
