The standard explanation is that Jesus is essentially saying to the ruler, "Do you know what you are implying? You say I am good; but only God is good; therefore, you realize that you are identifying me with God?" In Jewish thought, God was pre-eminently good, so that the ruler was indeed offering Jesus a compliment usually reserved for God. Since it is quite unlikely that the ruler truly believed that Jesus was identifiable as God the Son, this looks more like an effort by Jesus to make the man think about what he is saying before he blurts it out or engages in indiscriminate flattery.

Confirmation and elucidation of this explanation is found in Malina and Rohrbaugh's Social-Science Commentary on the Synoptic Gospels. They explain that in an agonistic (honor-shame) culture, a "compliment" like the rich young man's is actually a challenge and an attempt to put Jesus "on the spot," for they are an implicit accusation that one has been trying to rise above others. Jesus' only alternative was indeed to parry the compliment and redirect it to its appropriate subject (unless he wanted to reveal himself directly and fully, in which case, his claim would have been another challenge of honor to others), thus showing himself honorable by diffusing any accusation that would arouse the envy of an opponent.

Thus it is appropriate that Jesus parry the compliment in a way that does not specifically deny His divine nature. In short, there isn't anything here that has Jesus denying goodness, or His divinity—just teaching an overenthusiastic challenger a lesson.

Problem: The rich young ruler called Jesus “Good Teacher,” and Jesus rebuked him, saying, “Why do you call Me good? No one is good but One, that is, God.” Yet on other occasions Jesus not only claimed to be God (Mark 2:8–10; John 8:58; 10:30), but He accepted the claim of others that He was God (John 20:28–29). Why did Jesus appear to deny that He was God to the young ruler?

Solution: Jesus did not deny He was God to the young ruler. He simply asked him to examine the implications of what he was saying. In effect, Jesus was saying to him, “Do you realize what you are saying when you call Me Good? Are you saying I am God?”

The young man did not realize the implications of what he was saying. Thus Jesus was forcing him to a very uncomfortable dilemma. Either Jesus was good and God, or else He was bad and man. A good God or a bad man, but not merely a good man. Those are the real alternatives with regard to Christ. For no good man would claim to be God when he was not. The liberal Christ, who was only a good moral teacher but not God, is a figment of human imagination.