Image courtesy of nirots at FreeDigitalPhotos.net
Image courtesy of nirots at FreeDigitalPhotos.net

I am delighted to have Kevin Linzey as my first guest blogger. Kevin is husband to Britt, dad to 3 awesome boys, and loves bromance movies. Oh yeah, he is also an Army Finance Officer who did his undergrad studies at West Point (The United States Military Academy) and his graduate work at Syracuse University. Take it away, Kev!

What is the role of government? What SHOULD BE the role of government? These questions are easy enough to ask — difficult to answer. Many people are bothered these days by the government shutdown. Even our national leaders cannot agree on what the role of government should be. Should the government force health insurance on people? Should the government pay for this or subsidize that? What about the debt ceiling?

My education (and personal interest) is in economics. There are many branches of economics from macro-economics (performance, structure, behavior, and decision-making of an economy as a whole) to international economics (market relationships among the nations) to micro economics (the study of individuals’ interactions in markets). The one thing that ties it all together is that economics is the study of choices and incentives. It is the study of behavior and trying to figure out why people, firms, or countries behave the way they do.

The basis for most of economics is that people want stuff. People are creative problem-solvers and generally find a way to provide stuff to each other. Over time people specialize based on skills, talents, and interests. One person might provide labor as a handyman. He sells his skills and time fixing people’s houses. Money is used as a common exchange system so we don’t have to barter and trade. The person needing the washing machine repaired doesn’t give the repairman dinner. The repairman gets money that he can then use to buy whatever he wants. Currency is a great system to enable specialization!

Ok so enough of the basics. Back to the question; What is the role of government?

All types of goods have markets. This is the exchange of goods and services where some people provide the goods and other people consume them. The meeting point between the people selling and the people buying? That is the price. Most people are familiar with the interaction of supply and demand. If something has a lot of supply but low demand, the price will be low. If demand goes up, the price will go up. Since we have currency as a medium of exchange, working in free markets where suppliers and consumers can come to an agreement on price it is a great system. Everyone gets a choice. Some people will line up outside the Apple store 3 days before the new iPhone comes out and pay $400 for a new phone. Others will wait a couple years until the supply has increased and overall demand has gone down and the price has dropped to $100 for the same phone. In cases like this, no government is needed (except maybe police to keep the Apple fanatics from fighting for a place in line!).

However, there are some markets that fail. Some goods or services are not provided in the right quantity for the good of society. These are generally called public goods. Public goods are defined as non-excludable (you can’t stop people from consuming it) and non-rivalrous (my consumption does not stop your consumption). The classic public good is defense/security. An Army provides defense to everyone. Just because I am safe doesn’t mean you are not safe. We all consume security. And if we live in a secure country, there is no way to stop someone from consuming that security.

So the problem with public goods is that there is little incentive for the individual to pay for that good. Everyone else will pay for it, so why should I? That’s how we get the free rider problem. The problem is that if everyone tries to get a free ride, NO ONE will pay and we won’t get the public good! Other examples of public goods are lighthouses, clean streets, flood control, etc.

Another type of market failure is when there are negative externalities. This is just a hoity-toity way to say some choices have bad consequences that affect other people. A company many save money by producing as much as it can and just ignoring pollution. However, the rest of the community has to deal with the pollution whether they want to or not!

A third type of market failure is information asymmetry. This means that not everyone shares information equally. Buyers may not know the bad things about what they are buying because the company doesn’t tell them. Or it could be individuals buying and selling a used car. How does the buyer know whether or not he is buying a lemon? How does he know the guy selling it is being honest? Unless he’s a mechanic and very knowledgeable about cars he may never know! So he offers a lowball price to cover the risk he faces that he might have to spend money to fix up the potential lemon.

Another information related problem is copyright/patent enforcement. In today’s information society, it is pretty easy to find out how something is made. If anyone could reproduce anything, what incentive is there to be creative and come up with new products? If you won’t get to profit off your invention, why bother inventing it?

There are still more market failures but you probably get the point. Individual incentives sometimes don’t lead to the best situations for the whole of society. This is where government comes in.  A legitimate government (i.e. all people recognize its authority) can effectively enforce solutions to the market failures. It will tax everyone to pay for public goods so there are no free riders. It will make sure people don’t make bad choices that affect their neighbors (pollution, etc.). It will protect consumers who might not otherwise have the right information to make good choices. It will enforce patents and copyrights so people can benefit from their ideas.  Addressing market failure is a commonly agreed to role of government among economists.

The Bible talks about the role of government many times. In the time of Samuel, Israel decided they wanted a king. Prior to Saul, the nation had no king. Judges and priests were the social leaders. They helped resolve disputes and enforce justice. They were recognized as legitimate by the people because the people acknowledged the authority God placed on those judges and priests.

But then God set the precedent for peaceful voting when he allowed the people to (in effect) revolt against his social order. The people thought they knew better and demanded a king. God gave them a king but warned them about all the bad that would come of it. When the people again demanded a king God allowed it.

Unfortunately we focus so much on our earthly incentives, the economic gain from exchanging goods and services. We focus on getting more money and getting more stuff. We think and ponder about the forms of government and even God’s people complain just as we have been doing since the Israelites complained to Samuel. We argue and fight but don’t take heed of the warning God gave about earthly governments.

Jesus took a different approach to teaching priorities. He said multiple times that his Kingdom was not of this world. He was not concerned with politics. The fighting among people for power has nothing to do with God’s kingdom. When he was asked about money he said, “Give to the government what belongs to the government. And give to God what belongs to God.”

We need rules. We need enforceable processes to protect people during disputes. While a free market is the most beneficial system for exchanging goods and services, in a fallen world greed, pride, deception, and all the bad things will surely be present. Even when God’s people had no king, God still gave them judges to help resolve problems.

Letting people make their own choices for their own best interests rather than being told what to do by an oppressive government is usually the best way. But markets do fail. Greed and power spur people to take advantage of one another. But in all the wrangling over political power and crashing markets let’s remember some of the benefits of God’s kingdom not being of this world.

God will never fail.

You can’t shut down God.

And he has paid our debts in full.

Related Posts:
– Thus Spake Jesus: It’s the Economy, Stupid!