Module/Week 4 Research Paper
Economic Policy
Eze Osuagwu
PLCY 700 – Foundations of Statesmanship and Public Policy
September 15, 2019
2
Introduction
This paper evaluates the monetary and fiscal policy debates that have influenced economic
thoughts in the United States in recent times, and further examines Murray (2015) claims
about the failure of the State in the implementation of the social welfare policy. This
discussion is buttressed with the Biblical model of government and statesmanship to tailor a
moral and idealistic viewpoint towards a better society. There is no doubt that the
management of the economy falls in the hands of government. No matter how much of a free
market system that we seem to operate in the United States, the economy is protected from
the vagaries of fluctuation and macroeconomic distortions by government regulations
(Cochran et. al., 2016; Nakata, 2016). The position of liberal Democrats and conservative
Republicans always differ in every aspect of national discourse. Oftentimes, these differences
reflect in the debates on the direction of policy that best suit the desire of the American
people, especially in the management of the economy (Levy, 2017).
In order to regulate the economy several policies are put in place to control the price
mechanism and influence the behavior of economic agents. Monetary policies are direct and
indirect instruments used by the Federal Reserve (referred to as Fed) to control the supply
and demand for money in the economy. For example, the Fed could buy securities from the
open market to increase the supply of money or sell securities to reduce the quantity of
money in circulation.1 Other measures include controlling the reserve requirements of banks
and financial institutions to increase and decease the quantity of loanable funds through the
discount window. Although, the Fed has a measure of independence in carrying out its
policies, their actions are not bereft of socio-political influence emanating from the desire of
policymakers. Blinder and Goldfeld (1976) declares that the Fed is not absolutely
independent because they respond to the waves of executive and legislative overhang.
1Adam, K., and Billi, R. Discretionary monetary policy and the zero-lower bound on nominal interest rates.
Journal of Monetary Economics 54(3), (2007) 728–752.
3
On the other hand, fiscal policies are a set of instruments or mechanisms used for the
management of government revenue and expenditure; for example, taxes and government
spending. The implementation of fiscal policies is by the Department of the Treasury, and the
formulation of fiscal policies pass through Congressional approval and the Congressional
Budget Office.2 The key difference in the formulation and implementation of monetary and
fiscal policies is that monetary policies are the independent decisions of the Fed, while fiscal
policies are formulated by Congress and implemented by the Treasury Department. There are
situations where both policies are jointly coordinated Bianchi & Ilut (2017) and Bernanke
(2003) find a need for positive alignment of policy mix.
In examining Murray’s claim about the countervailing structure of governments’ fight
against poverty through the implementation of the welfare program, especially with respect to
black poverty, we see the contradictions in the social security administration and
implementation. The contradictions are rooted in the premise of human behavior and the
innocuous intentions of policy makers, which becomes detrimental to social progress and
hinders individual motivation for the good of oneself and the society. Albeit, it becomes a
dilemma of some sort, whether to follow the incentives provided by government social
welfare policy or remain constrained and trapped in a poverty cycle that could not be
remedied either way. This contraption could not be attributed to a policy failure of the State
whose intentions was to minimize the effect of poverty, but on the other hand creates a social
problem that inherently discourages hard work and good moral standing.
This essay is summed up with the evaluation of a Biblical model of government and
statesmanship that draws upon religious principles to analyze how the concept of capitalism
and free market enterprise could be detrimental to human progress if not well managed with
2 Davig, Troy and Eric M. Leeper. “Monetary – fiscal policy interactions and fiscal stimulus.” European
Economic Review, 55 (2011). 211-227. This study also indicates that changes in government expenditure are
most often studied in a regime with active monetary and passive fiscal policy.
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conscience. Suffice to say that early Christian doctrine abhors riches borne out of
exploitation, but Protestantism as observed by Weber (1950)3 has reframed the Biblical
concept of wealth to reflect the hard work and ingenuity of one to make his society a better
place for his benefit and that of others. This essay is therefore couched in the light of the
biblical model that affirms the free market principles and how the State justifies the
punishment of crime in the face of the rising gap between the rich and the poor. This paper is
presented in five sections; the first being the introduction, the second looks at the key debates
in fiscal and monetary policy, the third section examines Murrays’ claims about the key
failings of the State, the fourth evaluates a Biblical model of government and statesmanship
for the issues of discussion and the fifth section concludes.
Key debates in fiscal and monetary policy
At the core of the debate is whether government control of the free market system is
beneficial or otherwise, detrimental to the growth of the economy and society at large.
Friedman (1976) suggested that government controls stifle economic activity because they
make business too costly to operate profitably. Simply put, every business is in the business
of making profit, and any restriction to the free operation of the business hampers
profitability.4 However, Keynesian economics teaches us that the free market system has the
capacity to regulate itself through the forces of demand and supply, without any external
interference. The proponents of the free market system from the time of Adam Smith argue
that the best method to achieve economic growth is to allow the market system to operate
with minimum interference (Cochran, 2016). But, Bernanke (1983) describes how the abuse
of lax regulatory regime could result in economic failure and recession.5
3 Weber attempts to answer the question of the psychological conditions, which made possible the development
of capitalist civilization.
4
Kim, S. “Structural shocks and the fiscal theory of the price level in the sticky price model.” Macroeconomic
Dynamics 7(5), (2003). 759-782.
5 Bernanke, Ben S. (June 1983). "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great
Depression". American Economic Review. 73 (3): 257–276.
5
The policy debate at any point in time is amplified by the goals of both fiscal and
monetary authorities. Whether it is an expansionary or a contractionary policy objective takes
precedence. In some cases, policy responses to macroeconomic conditions follow multiple
policy initiatives. For instance, to increase aggregate demand in a likely recession, supply-
side economic policy favors low tax rates in order to stimulate production in the economy
(Bernanke, 1981; Goldfeld and Blinder, 1976). The theory is that as tax rates rise above a
critical level, they so discourage economic activity that total tax revenue falls. Under the
Reagan Administration in the 1980’s supply side economics was the guiding principle of
federal economic policy – tax cuts focus on upper-income levels, especially corporate profits
and capital gains as sources of significant investment on the economy. Hence, this low tax
regime for businesses and individuals with higher income would lead to business investments
which will lead to economic growth and employment in a trickle-down effect of increase in
government revenue through employment wage taxes.6 On the other side of the debate, the
liberals/progressives believe that a tax cut for the low-income wage earner will boost
economic growth through increases in consumption demand. The Tax Relief Act of 2010 was
passed after much debate in Congress in December 2010 during the Obama Administration.
The major thrust of this Act was the payroll tax holiday, in which the social security payroll
tax was reduced from 6.2 percent to 4,2 percent. The Act also retained the tax cut of the Bush
era. Cochran et. al. (2016) further explains that the Act was “temporary” since its provisions
were to expire in 2012 and was replaced by the American Taxpayer Relief Act 2012 signed
into law in January 2013. The new Act calls for tax increases for individuals earning over
$200,000 (couples over $250,000). These tax increases are consistent with the president’s
belief that wealthier individuals should pay more taxes (Levy, 2018). The Act addressed the
6 Friedman, Milton (1982), "Monetary Policy: Theory and Practice," Journal of Money, Credit, and Banking, 14
(February), pp. 98- 1 18.
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issue of the Alternative Minimum Income Tax by permanently linking it to the inflation rate
to protect middle-income taxpayers.
Another major policy debate on fiscal policy arises from spending cuts and managing
rising government debts and budget deficit. The Budget Control Act of 2011 raised the debt
limit, and reintroduced sequestration to the fiscal policy agenda, that is if no meaningful
agreement is reached on government spending between the White house and Congress within
a certain period of time. Issues of spending cuts and debt management remain on the front-
burner of policy agenda and congressional discourse. The debate is further amplified by the
changes in the Fed policy of purchasing government securities and managing interest rates
for inflationary purposes. The issue of governmental involvement in the economy is complex
and reflects basic ideological values. Conservatives generally desire to reduce the role of
government in the economy. Traditionally, conservatives tend to be stronger advocates of
balanced budgets and believe that inflation is more dangerous than rising unemployment
(Cochran et. al, 2016). The progressive wing of the Democratic Party, professes egalitarian
values, argues for more government intervention to stabilize the economy. They propose a
centralization of economic policies and major shifts in the system through industrial policy,
plant closure warnings, and increases in the national minimum wage. In fiscal and monetary
policy, liberals favor attention to mediating unemployment and other symptoms of economic
stagnation (Leith et. al., 2015). They prefer stimulus of the economy even at the cost of some
inflation and support deficit spending. This is indicative in the passage of American Recovery
and Reinvestment Act (ARRA) of 2009, without any Republican vote, intended to stimulate
the American economy by creating jobs to reduce unemployment.
The underlying philosophy of the debates in monetary and fiscal policy reflect the
depth of ideological differences between the Democratic and the Republican party in
economic policy management. Liberals/progressives tend to favor the Keynesian approach of
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significant deficit spending to stimulate economic growth. Conservatives tend to reject this
philosophy and rely on market forces to provide economic growth. ARRA is another
indication of policy conflict over the role of government in the economy. The Obama
administration tends to favor an expanded federal role and the Republican Party continues to
oppose federal spending as a fiscal policy of increased spending to stimulate the nation’s
economy.
The only econometric evidence that supports a coordination of monetary and fiscal
policy in the United States was by Goldfeld and Blinder (1976:792), where it was concluded
that “the abstraction of a single authority conducting stabilization policy in the United States
is just that – an abstraction with little or no empirical validity.” The study found a slight
positive correlation between the effects of fiscal and monetary policy over the period 1958-
1972. But this was the net result of a substantial positive correlation while Republican
presidents were responsible for fiscal policy and negative correlation during the Kennedy-
Johnson era (Blinder, 1981). It is instructive to note that a single unified policymaker with an
entire portfolio of fiscal and monetary instruments to manage may find it optimal to couple
expansionary monetary policy with contractionary fiscal policy, or vice versa (Bernanke,
1981). Sometimes fiscal and monetary policy tugging aggregate demand in opposite
directions is not enough evidence to say that the two policies are uncoordinated. Blinder
(1981) paints a scenario of two incoordinate policymakers faced with alternative decisions of
a fiscal or monetary policy; at the opposite end of the coordination spectrum comes the case
of two independent authorities, one in charge of fiscal policy and the other in charge of
monetary policy, with neither one dominating the other. When the two policymakers disagree,
a policy mix of tight money and loose fiscal policy frequently results, with harmful effects on
interest rates and investment. The outcome of such a scenario Blinder (1981) concludes is a
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Nash Equilibrium, because both policymakers understand that they do not operate in a
vacuum and has to tolerate the strategy of his opponent.7
In another scenario, Blinder (1981) assumes a leader-follower arrangement, the
follower’s attitudes clearly influence the leader’s decision because when the leader makes his
decision he takes into consideration the anticipated response of the follower. For example,
fear of the high interest rates that the Fed might cause probably led Congress to adopt a less
expansive budget this year than it otherwise would have chosen.8
In spite of the desire of policy makers to coordinate these policies, the reality
according to Levy (2018) is that monetary policy cannot create permanent jobs, improve
educational attainment or skills, permanently reduce unemployment of the semi-skilled, or
raise productivity and real wages. Rather, monetary policy is an aggregate demand tool. The
major sources of underperformance involve structural challenges that are beyond the scope of
monetary policy to address. Yet in recent years, there has been excessive reliance on the Fed.
All too frequently, analysts and observers opine “fiscal policy is dysfunctional, so the Fed has
to ease policy.” This assumes that monetary policy and fiscal policy are two interchangeable
levers. They are not. Monetary policy is not a substitute for fiscal policy. Monetary policy
involves the Fed’s control of interest rates and the amount of money in the economy, which
influences aggregate demand and longer-run inflation.
Fiscal policy operates differently. Government spending programs and tax structures
allocate national resources—for income support, national defense, health care, public goods
like infrastructure, and an array of other activities—and create incentives favoring certain
7 The Nash equilibrium concept is defined as follows. Each player does what he would if he knew what the
other player was going to do. It is an equilibrium in the sense that the two resulting strategies are consistent with
one another; once the game is played, neither player has any desire to change his decision. Not all games have a
unique Nash equilibrium. The fiscal-monetary game to be considered here does.
8
Fragetta, Matteo and Tatiana Kirsanova. “Strategic monetary and fiscal policy interactions: An empirical
investigation.” European Economic Review. 54 (2010) 855-879.
9
activities while discouraging others.9 In a critical sense, the magnitude and mix of spending
programs and the structure and details of tax policies—along with the magnitudes of deficit
spending—reveal the nation’s priorities set by past and current fiscal policymakers.10 These
allocations of national resources and how specific spending and tax provisions influence
households and businesses are key inputs to economic performance, productivity, and
potential growth.
In recent decades, the most pronounced change in the federal government’s budget is
the rapid expansions of Social Security, Medicare, and Medicaid. According to the CBO
(2017), outlays for Social Security, Medicare and Medicaid, and health-care related
entitlements have risen from 47 percent of total federal outlays (10.1 percent of GDP) in 1992
to 62.9 percent of federal outlays (13.2 percent of GDP) in 2017. These programs are
projected to rise dramatically further to 65.3 percent of federal outlays (15.4 percent of GDP)
by 2027.
The objectives of these entitlements are laudable, and they are critical for government and
society. However, the growth in these programs has been the primary source of the rising
government debt (and projections of further increases) and has significantly increased the
share of government spending allocated to income support and health. Consequently,
spending on other programs has been squeezed, including those that would enhance longer-
run productive capacity. For virtually every state, Medicaid spending is one of the largest and
fastest growing spending programs. Faced with rigid balanced-budget constraints on their
operating budgets, states have cut back on the provision of some basic government goods and
services.11
9 Levy, Mickey D. “Sorting out Monetary and Fiscal Policies.” Cato Journal, 38(1) 2018 – this paper assumes
that monetary policy and fiscal policy are two interchangeable levers. However, monetary policy is not a
substitute for fiscal policy.
10 Friedman, Milton (1948), "A Monetary and Fiscal Framework for Economic Stability," American Economic
Review, 38 (June), pp. 245-264.
11Leith, Campbell, Ioana Moldovan and Raffaelle Rossi. “Monetary and Fiscal Policy under deep habits.”
Journal of Economic Dynamics & Control, 52 (2015) 55 – 74.
10
Can these government programs be improved, made more efficient, or modified in
ways that maintain their objectives? Yes. This question is what Murray (2015) attempts to
provide a convincing analogy based on the predicaments of the beneficiaries in the next
section. Congress must cut through budget categorizations like “mandatory spending” and
“discretionary spending programs” and identify ways to improve the efficiency of these
programs while maintaining their intent.
Murray’s claims about the key failings of the State
Murray (2015) was emphatic in his claims about the failure of the state to provide the much-
needed security that the social welfare program was aimed at. In this section we find a
protracted contradiction of the objective of the welfare program and the results. Whether it
was aimed to promote morality, family values or encourage adolescent malfeasance and
social ineptitude is now a subject for discussion. In the first instance, Murray stated that in the
1970’s mainstream politicians were out to fight poverty, the war on poverty became a
national concern for academics, lawmakers and journalists alike. There was an elite wisdom
that sought to repudiate the welfare program as making people lazy or provides opportunity
for indolence.12 The popular wisdom was that the welfare program provides an avenue for
minorities to remain perpetually at the bottom of the social pyramid. An experiment
conducted on the Negative Income Tax (NIT) indicate that the operators where worried about
the negative effect of a guaranteed annual income on “work ethic” and how they could justify
their support of such a program to working class constituencies who would see it as a welfare
giveaway.
12 Born, C. E., Ovwigho, P.C.& Cordero, M. L. “Returns to welfare under welfare reform: Early patterns and
their implications.” Administration in Social Work, 26(3), (2002). 53-69.
11
The society needs to be convinced that a guaranteed income for all would not cause
people to reduce their work effort, discourage marital bliss and family hood, encourage
divorce more quickly or do such other things that are detrimental to social and economic
progress. The NIT experiment, which began in 1968 used 8700 people as subjects, and lasted
for ten years. Robin (1985) further described the experiment that took place between 1968
and 1982; the United States federal government sponsored four negative income tax (NIT)
experiments. Expenditures on these experiments totaled $225 million (in 1984 dollars), of
which $63 million (or 28 percent) represented direct payments to families. The main purpose
of these experiments was to determine how families would adjust their labor supply in
response to an NIT. The NIT is viewed by many as a desired replacement for the existing
welfare system, which is a complex web of interrelated programs.13 The study resulted in a
body of literature that includes Robins (1985), which observed that despite the wide range of
treatments and evaluation methodologies, the results are remarkably consistent. On average,
husbands reduced labor supply by about the equivalent of two weeks of full-time
employment. Wives and single female heads reduced labor supply by about the equivalent of
three weeks of full-time employment. Youth reduced labor supply by about the equivalent of
four weeks of full-time employment. Results for estimated income and substitution effects
are quite similar to those obtained from nonexperimental studies. The four NIT experiments
comprise what is perhaps the most ambitious social policy research undertaking ever
attempted.
Murray (2015) claim that the negative income tax provides payments to persons
whose income falls below a certain floor. As implemented in the NIT experiment, it deviated
from its intellectual origin; George Stigler and Milton Friedman in 1946. Conservative
Economists had earlier advocated a negative income tax as an earlier alternative to the social
13 Robins, Philip K. “A comparison of labor supply findings from the four Negative Income Tax Experiments.”
The Journal of Human Resources 20(4) (Autumn 1985) 567-582
12
welfare program. Murray also found that the negative income tax experiment also reduced
work. In the Seattle Income Maintenance Experiment (SIME) and The Denver Income
Maintenance Experiment (DIME), Murray stated that the NIT was found to reduce the
“desired hours of work” by 9 percent for husbands and by 20percent for wives (Robins and
West, 1980). Desired work hours were measured by actual employment with consideration
for involuntary work reductions. In the NIT experiment the second group of interest was
young males who were not yet heads of families (“non-heads”). This group were at a critical
age in their lives about to enter into the responsibilities of marriage and just establishing
themselves in the labor force.14 The NIT experiment had a disastrous impact on their hours of
work per week; the reduction in work effort by male non-heads who become husbands is also
very important.
Another claim by Murray was that welfare undermine family. The SIME/DIME
experiment show the dissolution of marriages was 36 percent higher for whites receiving the
NIT payments than for those who did not, for blacks the figures was 42 percent. In a different
scenario, Murray finds that there were four major changes in the administration of the Aid for
Families with Dependent Children (AFDC) program in the 1960’s. In 1961, federal law was
changed to permit AFDC payments to families with an unemployed father. Eventually,
twenty-five states adopted this option. In 1966, the Department of Health, Education and
Welfare issued guidelines forbidding unannounced visits to the home to check eligibility. In
1968 the Supreme Court over turned the man-in-the-house eligibility restriction in King v.
Smith.15 In the other scenario money incentives changed in tandem with the regulatory
incentives: the real dollar value of AFDC benefits increased slowly from 1950 to 1960 (up 11
14 Robins, Philip K. and Richard W. West. “Labor supply response over time,” Journal of Human Resources 15.
(Fall 1980).
15 King v. Smith, 392 U.S. 309, was a decision in which the Supreme Court of the United States held that Aid to
Families with Dependent Children could not be withheld because of the presence of a "substitute father" who
visited a family on weekends
13
percent for the decade), then more rapidly during the early 1960’s (up 9 percent from 1960 to
1965). From 1965 to 1970 the real value of benefits rose very rapidly – 24 percent in the
average AFDC payment, plus new accessibility to Food Stamps, Medicaid, and public
housing or rent subsidies. In all real benefits during 1965-70 rose on the order of 50 percent –
more in some states, less in others. After 1970, Murray claims, the increase slowed again.
After the mid – 1970s, the net value of payments after inflation is considered increased little
if at all in most states.
Alma Carten (2018) examined social welfare policy developments in the U.S. over a 50-year
period from the New Deal to the 1996 reforms. His Findings reveal that U.S. welfare policies
have, from their very inception, been discriminatory. It was the 1935 Social Security Act
(SSA), introduced by the Franklin Roosevelt administration, that first committed the U.S. to
the safety net philosophy. From the beginning, the policy had two tiers that intended to
protect families from loss of income. On one level were the contributory social insurance
programs that provided income support to the surviving dependents of workers in the event of
their death or incapacitation and Social Security for retired older Americans. The second tier
was made up of means-tested public assistance programs that included what was originally
called the “Aid to Dependent Children” (ADC) program and was subsequently renamed the
Aid to Families with Dependent Children in the 1962 Public Welfare Amendments to the SSA
under the Kennedy administration.
The optimistic vision of the architects of the ADC program was that it would die “a natural
death” with the rising quality of life in the country as a whole, resulting in more families
becoming eligible for the work-related social insurance programs. But this scenario was
problematic for black Americans because of pervasive racial discrimination in employment in
the decades of the 1930s and 1940s. During these decades, blacks typically worked in menial
jobs. Not tied to the formal workforce, they were paid in cash and “off the books,” making
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them ineligible for social insurance programs that called for contributions through payroll
taxes from both employers and employees. Nor did blacks fare much better under ADC
during these years. The ADC was an extension of the state-operated mothers’ pension
programs, where white widows were the primary beneficiaries. The criteria for eligibility and
need were state-determined, so blacks continued to be barred from full participation because
the country operated under the “separate but equal” doctrine adopted by the Supreme Court in
1896.16
Jim Crow Laws and the separate but equal doctrine resulted in the creation of a two-track
service delivery system in both law and custom, one for whites and one for blacks that were
anything but equal. Developments in the 1950s and ’60’s further disadvantaged black
families.
This happened when states stepped up efforts to reduce ADC enrollment and costs. Residency
requirements were proposed so as to bar blacks migrating from the South to qualify for the
program. New York City’s “man in the house rule” required welfare workers to make
unannounced visits to determine if fathers were living in the home – if evidence of a male
presence was found, cases were closed and welfare checks discontinued.17
Because of the strong American work ethic, and preference for a “hand up” versus a
“hand-out,” the means-tested, cash assistance programs for poor families – and especially
ADC renamed AFDC – have never been popular among Americans. As the quality of life did
indeed improve for whites, the number of white widows and children on the AFDC rolls
declined. At the same time, the easing of racial discrimination widened eligibility to more
blacks, increasing the number of never-married women of color and their children who were
16 Plessy v. Ferguson 163 U.S. 537 (1896), was a landmark decision of the U.S. Supreme Court, which upheld
the constitutionality of racial segregation laws for public facilities as long as the segregated facilities were equal
in quality - a doctrine that came to be known as “separate but equal”.
17
Segal, E. A, & Kilty, K. M. “Political promises for welfare reform.” Journal of Poverty, 7(1/2), (2003)51-67.
15
born out of wedlock. One point, however, to note here is that there has always been a public
misconception about race and welfare. It is true that over the years blacks became
disproportionately represented. But given that whites constitute a majority of the population,
numerically they have always been the largest users of the AFDC program.18
The retreat from the safety net philosophy can be dated to the presidencies of Richard
Nixon and Ronald Reagan. On the one hand, politicians wanted to reduce the cost of welfare.
Under Reagan policies social welfare expenditures were capped and responsibility for
programs for poor families given back to states. On the other hand, the demographic shift in
the welfare rolls exacerbated the politics around welfare and racialized the debate.19
By the late 1990s efforts of reforms targeting the AFDC program shifted to more
nuanced forms of racism with claims that the program encouraged out-of-wedlock births,
irresponsible fatherhood and intergenerational dependency. The political context for the 1996
reforms, then, was fueled by racist undertones that played into public angst about rising taxes
and the national debt that were attributed to the high payout of welfare checks to people who
were not carrying their own weight. This emotionally charged environment distorted the
poverty debate and paved the way for a reform bill that many saw as excessively punitive in
its harsh treatment of poor families. Although credited to the Clinton administration, the
blueprint for the 1996 welfare reform bill was crafted by a caucus of conservative
Republicans led by Newt Gingrich as part of the Contract with America during the 1994
congressional election campaign. On this note, it is clearly evident that Murray’s claims about
the vagaries of government expenditure on social welfare policy is highly influenced by the
context of sociopolitical developments.
18
Strother, P.A. (2003). “Exit from poverty: How “welfare mothers” achieve economic viability.” Journal of
Human Behavior in the Social Environment, 7(3/4), (2003). 97-119.
19 Taylor, John B. "Establishing Credibility: A Rational Expectations View- point,'' American Economic Review,
72 (May 1982), pp. 8 1-85.
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Biblical model of government and statesmanship on economic policy
Economic theory remained fairly static from the Middle ages until the 18th century when
Adam Smith (1723 – 1790) published his book, The Wealth of Nations. In this work, Smith
developed a concept called the “The Invisible Hand,” a concept where he stated that the
marketplace was self-regulating. The marketplace consisted of privately-owned capital and
the economy operated on a combination of self-interest, competition, and supply and demand.
The Wealth of Nations is widely acclaimed as summarizing the modern free market system
and considered the beginning of modern economic thought. On the other hand, Karl Marx
(1818 – 1883) and Vladimir Lenin (1870-1924) were political and economic philosophers
who advanced the theory that all of society’s ills were the result of “imperfect means of
production.” Marx argued that capitalism creates different economic classes in a society.
These classes are at odds with each other with the “bourgeoisie” owning the factories, farms,
and other means of production and the “proletariat” working for them.20
A Biblical worldview seem to be at odds with the Socialist and Marxist principles. In 1
Corinthians 12 we find that each of us has different giftings and callings unique to each of us
and that all gifts contribute to the glory of God. in order to be consistent with Scripture it is
impossible for Christians and Statesmen to hold a classless view of life. However,
Christianity condones Stewardship as what God has called us to do. In Colossians 3:23-24 –
the scripture says “Whatever you do, work at it with all your heart, as working for the Lord,
not for human masters, sine you know that you will receive an inheritance form the Lord as a
reward. It is the Lord Christ you are serving.” According to Fischer (1998), the biblical model
of government and statesmanship affirms free enterprise and limited government. But, man
must be guided by the virtues of true faith and humility, not to abuse the opportunity of free
20 Marx and Lenin believed these two classes would always be at odds with each other, causing a perpetual
“class struggle.” Marxist believe that bourgeoisie must be eliminated and the proletariat, the working class, must
be the only class in the society with everyone sharing equally in all the benefits of society.
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enterprise; for example, what gave rise to the economic recession of 2007 – 2009, considered
to be a travesty by corporate executives in their pursuit of self-interest.
According to the scriptures, the goods and property you own cannot be taken from you by
another person, state, or government bureaucracy. There is ample Biblical support for free
market economics: the free will exchange of goods and services between consenting
individuals. Jeremiah 32:24 says “Men shall buy fields for money, and subscribe evidences,
and seal them, and take witnesses in the land of Benjamin, and in the places about Jerusalem,
and in the cities of Judah, and in the cities of the mountains, and in the cities of the valley,
and in the cities of the south: for I will cause their captivity to return, saith the LORD.”
Above all, a true statesman should realize that God owns everything, and that man is just a
custodian of wealth. We are all workers in the Lord’s vineyard. A wise person works not just
for money but also to glorify God by exercising dominion in His image. We find fulfillment
in pursuing our vocations with wisdom and excellence.
Conclusion
In this paper, we have followed the debates of monetary and fiscal policy from different
political viewpoints. We have seen that the Liberal democrats are more inclined to a large
government through regulations. And at the same time, they believe that government should
act directly to increase the amount of money in the hands of consumers, hoping that they will
spend it and thus stimulate the economy. On the other hand, the Republicans profess a
government that should make more money available to businesses in the hope that it will
expand economic activities, increasing employment by putting more money in the hands of
employees and consumers. The Conservative Republicans favor less government
participation. To this end, liberals favor a bottom-up theory, while the Conservatives favor a
trickle-down theory. In any case it is obvious there are situations where monetary and fiscal
policies are used interchangeably for better results. Against all odds, members of the different
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political aisle should endeavor to sheath their political swords and work towards building a
better society in the interest of all and sundry.
The paper also discussed the shortcomings of the social security system with respect
to the outcome of the negative Income Tax experiment. The popular
conception/misconception is that the welfare system is a burden on government expenditure,
but on the other hand, reveals a social service system constructed to create an economic
balance.
The Biblical viewpoint of economic policy shows that God affirms free enterprise and
property rights but not to the detriment of society. Capitalism must be pursued with human
considerations to cushion the effect on the poor. The owner of capital should not be allowed
to exploit the poor, without consideration to the welfare and prosperity of the worker.
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