No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter One: Introduction to Economics 24 You can probably stretch this line of thinking much, much further. The point is that even the simplest of choices usually depends on the actions of many others. How our plans fit in with their plans is crucial to a successful outcome. If the bus driver decides to go on strike just as the band gets on the bus, it may not be possible to get another in time to make your concert date. So how do markets solve these kinds of coordination problems between individuals? Understanding the plans of others is difficult, and the gathering of information is costly. In our study, we will find that markets help with plan coordination because they are especially effective at transmitting essential information about others’ plans in a very efficient manner. Prices, as well as profits and losses, communicate enough information on the social value of scarce resources to give our plans a chance to succeed. If you want to become a computer programmer, you can see from job listings how much computer programmers are paid today. This will be one input to confirm you are on the right track (or not). If salaries are high and in a rising trend, that may indicate employers are demanding more computer programmers. If you ignore this critical piece of information, or it is not available for some reason, you might not know if your plans to become a computer programmer are compatible with a firm’s need for programmers. If you decide to go ahead and become a computer science major in college, and there is a glut of computer programmers when you graduate, you will have to some degree wasted resources, and your human capital (your talents and abilities) will not be effectively employed. As you develop your understanding of economics, you will learn about those institutions and rules that guide us to more effectively coordinate our plans with those of others. When we do have effective plan coordination, we will use capital and resources wisely. Conversely, when we find institutions and rules that inhibit plan coordination, we will find capital and resources squandered. PROCESS VS. OUTCOME Many critics of free markets note the inequality of results of the market process. Social gospel advocates support an economic system that leads to a more equitable distribution of wealth. One of the primary arguments of these advocates is that human dignity requires it. How can we endorse an economic system that results in vast wealth inequalities and leaves some extremely destitute? These advocates further note the scriptural admonitions to take care of the poor. A system that produces gross wealth inequalities seems condemned on its face. Nevertheless, a review of the whole counsel of Scripture can lead us to the opposite conclusion. First, we should not expect equal results when God has endowed people differently. It should not be too surprising that LeBron James commands a higher salary from playing basketball than you or I could. Likewise, Joseph, who was effectively CEO of Egypt, Inc., had more wealth under his control than his brothers or any of the Egyptians (except Pharaoh). His managerial skills were worthy of a premium.