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

Chapter One: Introduction to Economics 26 world? Maybe it has to be a voluntary choice to shape our hard hearts into the people He has called us to be? Maybe He wants to cultivate true mercy and compassion in our hearts (Hosea 6:6) ? This discussion suggests that the process of how we help the poor is equally as important as the outcome we are trying to achieve. The ends cannot justify any means. Once we consider that an all- powerful, sovereign God controls the ends, then the means chosen become crucially important. An economic system that allows people to exercise biblical stewardship and grow into the people He has called us to be (as we aid the poor) is to be preferred over a system that uses coercive collective choice to solve social problems. The latter system provides material support, but where is the spiritual growth that would occur as we develop compassionate hearts by the power of the Holy Spirit in the free exercise of our stewardship? Free market capitalism most closely aligns with the biblical perspective of stewardship, so it is the system we will examine in this text. And while not one of our arguments, it is comforting to know that free markets have led to far more people escaping grinding poverty than any other system known to man. UNCERTAINTY VS. RISK As discussed above, life is uncertain; therefore we will assume that not all events that may happen can be predicted, even in a probabilistic sense. Many of our plans may fail, due to circumstances that cannot be fully bounded. Many economists believe that all economic outcomes can be predicted, in the sense that the entire range of possible outcomes can be assessed and a probability distribution assigned such that we can “know” the outcome. A short example may help. Suppose you work for an employer and there is a 75% chance she’ll pay you $10/hr., and a 25% chance that she’ll pay you $20/ hr. Multiplying each probability by the outcome and adding together gives the expected outcome: 75% × $10 + 25% × $20 = $12.50 $12.50 is the expected outcome (while economists recognize that only one or the other will take place). Here’s another example. When you take your first test in economics, you may get an A, B, C, D, or F. One of these outcomes will happen in almost all school systems. If you assign a probability to each outcome (say, equally probable at 20%) and assign a point scale to each grade, you’ll find the most likely outcome to be a C. But this same logic does not translate necessarily into economic actions. This economic thinking is wrong, as has been illustrated in numerous cases such as the collapse of the hedge fund Long Once we consider that an all- powerful, sovereign God controls the ends, then the means chosen become crucially important.