Saturday, August 15, 2009

Jubilee - What The Bible Says about Economics Part 1

Great Graph from Paul Krugman

This image is powerful...What does this show? Well the great times of wealth polarization were 1928, directly prior to the great depression, and the first decade of the 21st century. Why does wealth polarization lead to depressions? It is very simple. It is like monopoly, when the common person, the middle class, has very little discretionary funds, then demand falls and depressions/recessions happen.

In the 2008-2009 example, the falling demand was temporarily held at bay by increasing the value of homes and thus giving the false perception of wealth to any people. These people then leveraged their wealth by taking out seconds on their homes. This cycle put cash in people's pockets and a surge of demand. But when the bubble burst, the true lack of wealth amongst most consumers was revealed and consumer confidence, (i.e. demand) fell drastically.

So the real cause of the problem is the polarization of wealth. Thus, the biblical solution - Jubilee. Jubilee is a time of wealth re-distribution and the forgiveness of debts. In our day this is known as, bankruptcies and loan modifications.