Economics: A Primer How Economics Can Be Used in Ministry

What Is Economics? The “Physics” of business, organizations and societies. The study of how and why people make decisions and behave the way they do. “ The study of the behavior of human beings producing, distributing and consuming material goods and services in a world of scarce resources.” – MccConnell and Brue “ Economics is the study of the use of scarce resources which have alternative uses.” – Lionel Robbins The study of unintended consequences

The “Physics” of business, organizations and societies.

The study of how and why people make decisions and behave the way they do.

“ The study of the behavior of human beings producing, distributing and consuming material goods and services in a world of scarce resources.” – MccConnell and Brue

“ Economics is the study of the use of scarce resources which have alternative uses.” – Lionel Robbins

The study of unintended consequences

Why Study Economics? Better understanding of world events Better understanding of people Broad Application Business Politics Ministry Avoid unintended consequences of goals and methods used to reach them Improve the accuracy and truth of our thinking and the effectiveness of our actions.

Better understanding of world events

Better understanding of people

Broad Application

Business

Politics

Ministry

Avoid unintended consequences of goals and methods used to reach them

Improve the accuracy and truth of our thinking and the effectiveness of our actions.

Applications of Economics in Ministry Resource Allocation Evaluating the effectiveness to see if practical methods are accomplishing the intended results Avoiding unintentional harm when trying to help people Example: “Tough Love” What happens if a child is never disciplined when they misbehave? (Proverbs 3:11-12, 13:24, 22:15, 29:17) What happens if a person is never held accountable for the harmfulness of their actions? Example: Crime (stealing, murder, etc.)

Resource Allocation

Evaluating the effectiveness to see if practical methods are accomplishing the intended results

Avoiding unintentional harm when trying to help people

Example: “Tough Love”

What happens if a child is never disciplined when they misbehave? (Proverbs 3:11-12, 13:24, 22:15, 29:17)

What happens if a person is never held accountable for the harmfulness of their actions?

Example: Crime (stealing, murder, etc.)

Basics Everything has a cost. Somebody has to pay. There is no such thing as a free lunch. Do you agree or disagree? Why? People Respond to Incentives What are some other things that motivate people? What effect does each have on their behavior? Do you agree that people respond to incentives? Why?

Everything has a cost. Somebody has to pay.

There is no such thing as a free lunch.

Do you agree or disagree? Why?

People Respond to Incentives

What are some other things that motivate people?

What effect does each have on their behavior?

Do you agree that people respond to incentives? Why?

The Ten Pillars of Economic Wisdom (from p. 26 of “The Joy of Freedom: An Economists Odyssey” by David. R. Henderson) TANSTAAFL: There ain’t no such thing as a free lunch. Incentives matter. Economic thinking is thinking on the margin. The only way to create wealth is to move it from a lower valued to a higher valued use. Corollary: Both sides gain from exchange. Information is valuable and costly. Every action has unintended consequences. The value of a good or service is subjective. Costs are a bad, not a good. The only way to increase a nation’s real income is to increase its real output. Competition is a hardy weed, not a delicate flower.

TANSTAAFL: There ain’t no such thing as a free lunch.

Incentives matter.

Economic thinking is thinking on the margin.

The only way to create wealth is to move it from a lower valued to a higher valued use. Corollary: Both sides gain from exchange.

Information is valuable and costly.

Every action has unintended consequences.

The value of a good or service is subjective.

Costs are a bad, not a good.

The only way to increase a nation’s real income is to increase its real output.

Competition is a hardy weed, not a delicate flower.

1) TANSTAAFL: There ain’t no such thing as a free lunch. Everything has a cost. Somebody has to pay that cost. The user or beneficiary of a good or service does not always pay the cost, but somebody must. Do you agree or disagree? What are some examples?

Everything has a cost.

Somebody has to pay that cost.

The user or beneficiary of a good or service does not always pay the cost, but somebody must.

Do you agree or disagree?

What are some examples?

2) Incentives matter. What are other some other things that motivate people? What effect does each have on their behavior? Do you agree that people respond to incentives? Why or why not? Can you give any examples?

What are other some other things that motivate people?

What effect does each have on their behavior?

Do you agree that people respond to incentives?

Why or why not? Can you give any examples?

3) Economic thinking is thinking on the margin. What is “Margin”? Margin is the value of cost /revenue /input /output /loss /profit /satisfaction /thinking that will be gained or lost by adding or subtracting one unit of whatever it is we are talking about. – Fike & Stebben What does this mean?

What is “Margin”?

Margin is the value of cost /revenue /input /output /loss /profit /satisfaction /thinking that will be gained or lost by adding or subtracting one unit of whatever it is we are talking about. – Fike & Stebben

What does this mean?

Combining the Concepts of Incentives and Margin Supply and demand When the price of something goes up, supply will go up When price of something goes up, demand will go down Proof : Will you buy more or less of something if it is more expensive?

Supply and demand

When the price of something goes up, supply will go up

When price of something goes up, demand will go down

Proof : Will you buy more or less of something if it is more expensive?

4) The only way to create wealth is to move it from a lower valued to a higher valued use. . Corollary: Both sides gain from exchange When you buy something, it means you value what you purchase more than the money you give up to acquire it. Is this true? If not, why buy something? Thought : What about the Gospel? What is the cost of accepting the Gospel? Do we convince others it is worth the cost? If both sides gain from an exchange, what are the moral and theological implications of trade? Is trade a loving act? How does this foster relationship?

Corollary: Both sides gain from exchange

When you buy something, it means you value what you purchase more than the money you give up to acquire it.

Is this true? If not, why buy something?

Thought : What about the Gospel? What is the cost of accepting the Gospel? Do we convince others it is worth the cost? If both sides gain from an exchange, what are the moral and theological implications of trade? Is trade a loving act? How does this foster relationship?

5) Information is valuable and costly. As with everything else, information has a cost and a value. Basic example: NEWS In order to get information about the news, one has to receive it from a source (newspaper, television, etc.). Someone has paid for this information resource and paid to generate the information. The value was considered more important than the price of the information or else it would not have been purchased.

As with everything else, information has a cost and a value.

Basic example: NEWS

In order to get information about the news, one has to receive it from a source (newspaper, television, etc.).

Someone has paid for this information resource and paid to generate the information.

The value was considered more important than the price of the information or else it would not have been purchased.

5) Information is valuable and costly. (Continued.) Knowledge is distributed throughout society and no one human being or organization has all information about everything. Information can be exchanged in the same way as material goods. Both parties benefit. Benefit can be a tangible (money) or an intangible (satisfaction). What is the value of information? What are some examples? (News? Market Information? Education? Family information? The Gospel?) Who pays?

Knowledge is distributed throughout society and no one human being or organization has all information about everything.

Information can be exchanged in the same way as material goods.

Both parties benefit.

Benefit can be a tangible (money) or an intangible (satisfaction).

What is the value of information? What are some examples? (News? Market Information? Education? Family information? The Gospel?) Who pays?

5) Information is valuable and costly. THE GOSPEL What about the Gospel? How valuable is it? How costly is it? What keeps non-Christians from obtaining it at any price? What keeps Christians from giving their all for it? Matthew 13:44-46

What about the Gospel?

How valuable is it?

How costly is it?

What keeps non-Christians from obtaining it at any price?

What keeps Christians from giving their all for it?

Matthew 13:44-46

6) Every action has unintended consequences. Consider the incentives created by the action. Do these motivate people towards the desired result or goal? Examples Price Controls Minimum Wage Giving money to a beggar Ministry applications?

Consider the incentives created by the action.

Do these motivate people towards the desired result or goal?

Examples

Price Controls

Minimum Wage

Giving money to a beggar

Ministry applications?

7) The value of a good or service is subjective. Everyone values everything differently. Time, money, etc., Influenced by Culture, Religion, Income, Worldview, Education, etc. How much we are willing to pay (with our money, time, life, etc.) indicates how much we value it. Our actions and behavior show how much we truly value something.

Everyone values everything differently.

Time, money, etc.,

Influenced by Culture, Religion, Income, Worldview, Education, etc.

How much we are willing to pay (with our money, time, life, etc.) indicates how much we value it.

Our actions and behavior show how much we truly value something.

8) Costs are a bad, not a good. Costs indicate we have to give up one resource to obtain another. No one likes to have to give up their resources. Loss of resources limits our future options.

Costs indicate we have to give up one resource to obtain another.

No one likes to have to give up their resources.

Loss of resources limits our future options.

9) The only way to increase a nation’s real income is to increase its real output. Productivity gains are needed to increase real income. Innovation spurs gains in productivity. As output goes up, the ability to exchange also increases, thereby increasing real income.

Productivity gains are needed to increase real income.

Innovation spurs gains in productivity.

As output goes up, the ability to exchange also increases, thereby increasing real income.

10) Competition is a hardy weed, not a delicate flower. Competition will automatically “spring-up” on its’ own. Competition does not need encouragement or support from institutions to exist and function. It is natural for man to compete for limited resources. Competition is a “good”. It forces organizations and goods to improve. It causes goods to decrease in cost.

Competition will automatically “spring-up” on its’ own.

Competition does not need encouragement or support from institutions to exist and function.

It is natural for man to compete for limited resources.

Competition is a “good”.

It forces organizations and goods to improve.

It causes goods to decrease in cost.

10) Competition is a hardy weed, not a delicate flower. (Continued) Promotes more energy from individuals and organizations to attract resources. Money, People, Time Result : Competition ultimately causes organizations that are meeting socially useful functions to thrive and those who are not or which are doing so inefficiently to either change or fade away. Increases productivity and effectiveness, while lowering costs.

Promotes more energy from individuals and organizations to attract resources.

Money, People, Time

Result : Competition ultimately causes organizations that are meeting socially useful functions to thrive and those who are not or which are doing so inefficiently to either change or fade away.

Increases productivity and effectiveness, while lowering costs.

DISCUSSION: Applications of Economics in Ministry Accountability Ministry effectiveness Resource allocation Effectively helping the poor Accuracy in thinking Reinforces understanding of man’s limitations Enhances understanding of the world Understanding how to identify what people value Teaching Christians how to value the Gospel and how this should be reflected in decisions we make

Accountability

Ministry effectiveness

Resource allocation

Effectively helping the poor

Accuracy in thinking

Reinforces understanding of man’s limitations

Enhances understanding of the world

Understanding how to identify what people value

Teaching Christians how to value the Gospel and how this should be reflected in decisions we make

What Did Jesus Say About Value and Incentives? Count the cost and follow Him (Luke 14:25-34) Understand there is a cost for following Christ and value Him enough to follow Him Lay up treasures in heaven (Matthew 6:19-24) You cannot serve two masters One incentive will always be stronger than another Decide which one you will value most Determines which incentive you will follow Jesus appealed to economic decision making How can we follow His example?

Count the cost and follow Him (Luke 14:25-34)

Understand there is a cost for following Christ and value Him enough to follow Him

Lay up treasures in heaven (Matthew 6:19-24)

You cannot serve two masters

One incentive will always be stronger than another

Decide which one you will value most

Determines which incentive you will follow

Jesus appealed to economic decision making

How can we follow His example?

How do Incentives Affect the Christian? The way we live our lives indicates what we truly value. Christians should always follow Christ, regardless of the cost How do we teach others to place this kind of value on Christ? Sin constantly pulls at us, enticing us with an incentive to disobey God (Romans 7:15, 21-25)

The way we live our lives indicates what we truly value.

Christians should always follow Christ, regardless of the cost

How do we teach others to place this kind of value on Christ?

Sin constantly pulls at us, enticing us with an incentive to disobey God (Romans 7:15, 21-25)

Conclusion: Christian Response Christian Response: Economics should be used as a tool to determine what methods in ministry are effective, not what goals should be worked for in a world of limited resources. Economics is a powerful tool to investigate the possibility and effectiveness of plans, but should not be an end in and of itself. Christ alone should be the ultimate objective of the Church. His Word and Spirit should guide us in the direction of where we should go and what goals to strive towards.

Christian Response: Economics should be used as a tool to determine what methods in ministry are effective, not what goals should be worked for in a world of limited resources. Economics is a powerful tool to investigate the possibility and effectiveness of plans, but should not be an end in and of itself. Christ alone should be the ultimate objective of the Church. His Word and Spirit should guide us in the direction of where we should go and what goals to strive towards.