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

Chapter Seventeen: A Short History of Macroeconomics 435 in markets, but to understand the whole economy—especially deviations from a full- employment equilibrium—Keynesian macroeconomics was needed. MACROECONOMICS TODAY DEMAND VS. SUPPLY SIDE Thanks to Mr. Keynes, earlier economic battles over general gluts vs. disproportionately still live with us. Most economists use a Keynesian framework to understand how the overall economy works, and the primary tool of public policy is to manage aggregate demand (AD, what Keynes had called effective demand ). If the economy is not operating as robustly as policymakers assume it should, the demand side of the economy should be managed by either fiscal or monetary policy. As a review from previous chapters, fiscal policy is the taxing and spending policies of the government, whereas monetary policy is the creation of new money and credit by the Federal Reserve. The key point is that these policies are intended to either stimulate or depress the demand side of the economy, or the spending decisions in the private sector. This is primarily spending by consumers, but in the next chapter we’ll review the composition of AD more fully. Demand management was considered highly effective after WWII, with the heyday of Keynesian economics occurring in the 1960s. Some economists thought that the business cycle had been tamed completely. With competent technocrats running the economy and pulling the right levers, we would grow moderately without the economic pain of business cycles. This was not meant to be an ideological perspective, but purely A BIBLICAL VIEW OF PRODUCTION While economists debate the importance of demand (consumption) or supply (production), the Bible seems clear: consumption is the easy part, and what needs to be encouraged is production. If anything, the Bible warns against a focus on consumption—preoccupation with our own consumption rather than a focus on God makes you a fool. On the other hand, production is encouraged. Why? First is because of our very nature of being created Imago Dei , we are created to work and be productive. Recall that work was assigned to Adam before the fall; it is not an effect of the curse. We produce because that is what we are created to do. Second, the output of our productive efforts can bring glory to God. Every wonderful work of man, especially those of unbelievers, are examples of God’s common grace. When unbelieving doctors use their skills to heal, they are acting as image bearers whether they recognize it or not. And when Christians turn from their sin, they can abandon their former self-focus and see production as a way to allow them to serve others: Ephesians 4:28 – He who steals must steal no longer; but rather he must labor, performing with his own hands what is good, so that he will have something to share with one who has need. When we produce, we have something to give. When we give to those in need, in ways that meet their real need, we are becoming increasingly like Christ. Demand side: the spending decisions in the private sector