November 6, 2013

The Poverty of Nations

by Jesse Johnson

Grudem Asmus book titleGlobal poverty is simple in its explanation but complicated in its solution. People are poor because they lack the ability to produce their own wealth. Solving that requires a complex solution consisting of at least 78 different factors that can only really be implemented on a national level.

At least that is the view put forward in The Poverty of Nations by Wayne Grudem and Barry Asmus. This book is a clear explanation of what governing principles lead to the production of wealth, and it also serves as a refutation of immoral practices that lead to poverty.  Grudem (a theologian) and Asmus (an economist) make a formidable combination, and the case they lay out for how countries should run their governments is convincing.

Grudem and Asmus take complex economic theory and explain it in an accessible way. Wealth is measured by a country’s GDP (gross domestic product) and per capita income (which is arrived at by taking the GDP and dividing it by the total population). Simply put, countries are poor if their GDP is low, and countries are wealthy because their GDP is high. The solution to poverty then is to find ways to raise a country’s GDP (pp. 45, 51), which can only happen through making products of value.

The authors use an intentionally simple illustration to explain how this works. If a woman has a piece of cloth (worth, say…$3), and she makes it into a shirt (worth, say…$13) then she has added $10 to her country’s GDP (p. 53). That sounds simple enough, but consider the implications of this:  

  • It is likely harmful to try and help those in impoverished nations by distributing used clothes, because the incentive to turn the cloth into a shirt is lost (as well as the market for that shirt).
  • It is likewise harmful to combat poverty by simply giving money to the poor, unless that money is used to finance a business that produces something (because poverty is not caused by lack of money, but by lack of production of something valuable).
  • It is likely harmful for the government to overly regulate how the cloth is turned into a shirt, because that would also stifle her incentive to make it.
  • A country that has no means by which to make and sell shirts, or a country where currency is not stable, taxes fluctuate (or are too high), roads are not maintained, laws are not enforced, or bribery is rampant also hinders her ability to make and sell shirts, thus keeping her from adding to the GDP (and by extension from helping her country out of poverty).

On the other hand, foreign investments that help start-up businesses, reforming tax codes, infrastructure, easing tariffs, clarifying bureaucratic laws, and ensuring low taxes all help encourage her to take the cloth and make it into a shirt, and thus help bring her out of poverty.

If this sounds like an appeal for a capitalistic economy, well, that’s exactly what it is (the authors prefer the term “free market”). But don’t let the simplicity of the argument mislead you. Paucity is a complex problem, and Grudem and Asmus give 79 specific ways governments can structure their laws and economy to stimulate monetary growth and bring their citizens out of poverty (the ways are listed on pp. 379-383, but described throughout the last third of the book).

They explain why profit is moral (p. 53), the free market is biblical (p. 62, 139), freedom is necessary (ch. 8), and low taxes are essential (p. 159, 161). They make the case that the stability of marriage and family are actually economic issues (pp. 254-56), and demonstrate that it is both good and possible for every country to pursue specialization in their economies (think Japan/cars, Thailand/clothes, US/Apple, p. 172).

Wayne GrudemAlong the way the authors give us the stunning success story of Botswana (pp 313-315), as well as an explanation of how to exploit national resources while protecting the environment—in fact, this was the first time I have read a balanced presentation of this issue. They even include a brief section on the importance of patriotism (pp. 360-362, which as a side note, serves as a practical rebuttal to J. K.  Smith’s section on patriotism in Desiring the Kingdom).  There is also a fascinating explanation, borrowed from Leonard Read, of how the yellow pencil in your desk is made, and how it serves as a ubiquitous illustration of the unique effectiveness of the free market system (pp. 140-141, 163-165).

The Poverty of Nations reads like a book that is making an argument, and I mean that as a compliment. The authors recognize that there are some economists that disagree with the solutions presented here (they call those economists “professional philanthropists” who are experts in giving away other people’s money). Grudem and Asmus defend their argument from likely objections, and their responses are resolute and persuasive (for example, to those who criticize capitalism, the authors note that they don’t present solutions, but simply complain that capitalism is not as good as perfection; p. 207). They cite countless historical examples to validate their argument, and in the end their conclusion is straightforward:

The only permanent solution to poverty in any poor nation is for that nation to increase its GDP by producing more goods and services of value. And the only economic system in history that has successfully brought about such increased prosperity is the free-market system (184-185)

Not only is this book well written, but it is very well edited. Except in a few places where a personal experience is related, you can’t tell which of the two authors wrote which section. Their styles mesh together, and the book is tightly assembled. Despite the complexity of the topic, the book is well written and moves quickly along.

Rick Warren is correct when he says, in the forward, that this book is unique in its approach. I did my Th. M. thesis in understanding a biblical approach to poverty, and I don’t know of a similar book. The one difficulty of a work like this is the application; what can I possibly do with this truth? I’m not governing a third-world country, nor are any of my friends. Grudem and Asmus are undeterred though. They tell me (on page 305) that I can preach against ill-gotten wealth, bribes, immoral taxes and the like. I can ensure that my church’s STM trips don’t exasperate poverty, and I can do what I can to get the truths of this book into the hands of those who lead aid organizations.

If you care about governing, then this book is for you. If you care about how to change the social structures that lead to poverty, then this book is for you. And if you think buying free-trade coffee is an effective way to eradicate poverty…well, this book is also for you.

In fact, I strongly recommend this book to anyone who thinks deeply about social issues on a global scale. It will have a profound affect on your world-view.

–A review copy of this book was provided by the authors–

Jesse Johnson

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Jesse is the Teaching Pastor at Immanuel Bible Church in Springfield, VA. He also leads The Master's Seminary Washington DC location.
  • Truth Unites… and Divides

    This work by Grudem is because of his commitment to Continuationism, not in spite of it.

    Just kidding.

  • JH

    In my profession economics are front and center of what I do. free markets are biblical and having read the classics of Friedman, Sowell, Hayek, Gilder, etc. I have hoped for somone with sound economics and theology to write making this case. In the U.S. where we as christians are surrending ground in so many ways this is a book pastor’s should read and get to their congregants. While in no way does economics compare with the gospel mesaage you will find this book to help one understand poverty stricken country’s from a missional standpoint and confirm why our country is such a mission field for a biblical worldview as well. Thank you for highlighting this book and getting the word out about a much needed topic. Socialism, liberalism of all shade and colors is anti-christ and it’s core!

  • Don Quixote

    Do the authors deal with the theological question of whether God intends to solve poverty in a global scale? Does the book deal with issues raised with Jesus’ statement that the poor will always be with us (Mark 14:7). While this statement could arguably be orbiter dictum, Jesus may also be assuming that that the problem of global poverty will not be solved in the present age. I am not saying we ought not help the poor whenever we can, I am just saying that trying to solve poverty in a global scale may be “tilting at windmills”. As in the Book of Job, God may be allowing global poverty to exist without being solved as a tool to draw the hearts of those who suffer (and those with means to help) to the suffering and compassion of Christ.

    • 3rdLaw

      That may be true, but all we can do is obey God’s commands to seek justice (economic freedom from opression) and to preach the gospel.

    • Good question. THey do point out that income inequality will always exist, and that is probably closer to what Jesus had in mind with “the poor will be with you always.” This book’s main focus is on nations though, as opposed to individuals. There will always be the poor in Malawi, and in the US. But why are the poor in Malawi so much worse off than the poor in the US. That is what this book is after.

  • Wow… thanks Jesse! I’ve been hearing a lot about getting this book and was thinking of getting it. Hugh Hewitt has interviewed Grudem a number of times on AM 870 The Answer about this and it sounds intriguing, so thanks for a trustworthy review! MOST importantly though, I appreciated your application.

  • Johnny

    Just hearing about this now and sound interesting. Grudem is a favorite theologian of mine, so I’d be curious to check this out. Also long as there isn’t a chapter about “How to reach Steven Furtick mansion status”…. 😉

  • Jeff Degner

    For JH: I’m currently in pursuit of my M.A. in Economics and am genuinely frustrated by the approaches proffered by the Keynsian School when it comes to alleviating poverty. It is good to hear the the book uses the term ‘free markets’ rather than Capitalism (a term that Karl Marx first used) in order to communicate the need for truly voluntary trade. Obviously, there are many other conditions that need to be applied to the poor nations of the earth to improve their material well being, but truly voluntary markets are a great start!

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