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Vatican Economic Analysis Incomplete, Says Gregg

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Acton’s director of research Samuel Gregg has provided his reasoned take on the new document from the Pontifical Council for Justice and Peace — it’s up at The Corner. While its diagnosis of the world economy is fairly accurate, the council’s treatment plan is lacking in prudential analysis. Gregg’s disappointment is expressed at the end: “For a church with a long tradition of thinking seriously about finance centuries before anyone had ever heard of John Maynard Keynes or Friedrich Hayek, we can surely do better.”

He’s got four main points (full text below): (1) the fiat money system that accelerated financial decline wouldn’t be reformed by a world bank; (2) neither would the proliferation of moral hazards, which might in fact be increased; (3) there is no mention in the document of public debt and deficits, which problems face most developed countries and can’t be ignored; (4) there is little reason to believe that a newly created world bank could avoid the mistakes made by the Federal Reserve and other sovereign banks in the lead-up to the 2008 crash.

Despite the Catholic Left’s excited hyperventilating that the document released today by the Pontifical Council for Justice and Peace (PCJP) would put the Church “to the left of Nancy Pelosi” on economic issues, more careful reading of “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority” soon indicates that it reflects rather conventional contemporary economic thinking. Unfortunately, given the uselessness of much present-day economics, that’s not likely to make it especially helpful in thinking through some of our present financial challenges.

Doctrinally speaking, there’s nothing new to be found in this text. As PCJP officials will themselves tell you, it’s not within this curial body’s competence to make doctrinal statements that bind Catholic consciences. Moreover, the notion that an increasingly integrated world economy requires some type of authority able to make decisions about what the Church calls “the universal common good” has long been a staple of Catholic social teaching. Such references to a global world authority have always been accompanied by an emphasis on the idea of subsidiarity, and the present document is no exception to that rule. This principle maintains that any higher level of government should assist lower forms of political authority and civil-society associations “only when” (as this PCJP text states) “individual, social or financial actors are intrinsically deficient in capacity, or cannot manage by themselves to do what is required of them.”

But putting aside doctrinal questions, this text also makes claims of a more strictly economic nature. Given that these generally fall squarely into the area of prudential judgment for Catholics, it’s quite legitimate for Catholics to discuss and debate some of this document’s claims. So here are just a few questions worth asking.

First, the text makes a legitimate point about the effects of a disjunction between the financial sector and the rest of the economy. It fails, however, to note that one major reason for this disjunction has been the dissolution of any tie between money and an external object of value that regulates the quantity of money and credit in circulation in the “real” economy.

Between the late 1870s and 1914, such a linkage existed in the form of the classic gold standard. This gave the world remarkable monetary stability and low inflation without any centralized authority. You needn’t be a Ron Paul disciple to recognize that fiat money’s rise is at least partly responsible for the monetary crises this document correctly laments.

Second, this document displays no recognition of the role played by moral hazard in generating the 2008 crisis or the need to prevent similar situations from arising in the future. Moral hazard describes those situations when people are effectively insulated from the possible negative consequences of their choices. This makes them more likely to take risks they wouldn’t otherwise take — especially with other people’s money. The higher the extent of the guarantee, the greater is the risk of moral hazard. It creates, as the financial journalist Martin Wolf writes, “an overwhelming incentive to privatize gains and socialize losses.”

If PCJP were cognizant of this fact, it might have hesitated before recommending we consider “forms of recapitalization of banks with public funds, making the support conditional on ‘virtuous’ behaviours aimed at developing the ‘real economy.’” Such a recapitalization would simply reinforce the message that Wall Street can always turn to taxpayers to bail them out when their latest impossible-to-understand financial scheme goes south. In terms of orthodox Catholic theology, it’s worth reminding ourselves that the one who creates an occasion of sin bears some indirect responsibility for the choices of the person tempted by this situation to do something very imprudent or simply wrong.

Third, given this text’s subject matter, it reflects one very strange omission. Nowhere does it contain a detailed discussion of the high levels of public debt and deficits in many developed economies, the clear-and-present danger they represent to the global financial system, and their negative impact upon the prospects for economic growth (i.e., what gets people out of poverty).

Given these facts, how could governments provide the aforementioned public funds when they are already so heavily in debt and already tottering under the weight of existing fiscal obligations? By raising taxes? Even Bill Clinton thinks that’s not a great idea in an economic slowdown. Indeed, the basic demands of commutative justice indicate that governments need to meet their current obligations to existing creditors before they can even consider contributing to further bailouts.

Fourth, the document calls for the creation of some type of world central bank. Yet its authors seem unaware that much of the blame for our present economic mess is squarely attributable to central banks. Here one need only note that the Federal Reserve’s easy-money policies from 2000 onwards played an indispensible role in creating America’s housing-market bubble, the development of questionable securities products, and the subsequent 2008 meltdown.

Calls for a global central bank aren’t new. Keynes argued for such an organization 75 years ago. But why, given national central banks’ evident failures, should anyone suppose that a global central bank wouldn’t fall prey to the same errors? The folly of a centralized supranational body like the European Central Bank setting a one-size-fits-all interest-rate for economies as different as Greece and Germany should now be evident to everyone who doesn’t live in the fantasy world inhabited by EU bureaucrats. Indeed, it is simply impossible for any one individual or organization to know what is the optimal interest-rate for every country in the EU, let alone the world.

Plenty of other critiques could — and no doubt will — be made of some of the economic claims advanced in this PCJP document. As if in anticipation of this criticism, the document states, “We should not be afraid to propose new ideas.” That is most certainly true. Unfortunately, many of its authors’ ideas reflect an uncritical assimilation of the views of many of the very same individuals and institutions that helped generate the world’s most serious economic crisis since the Great Depression. For a church with a long tradition of thinking seriously about finance centuries before anyone had ever heard of John Maynard Keynes or Friedrich Hayek, we can surely do better.

Kenneth Spence


  • Anonymous

    Audit the fed, support HR 459 Paul.

  • Very well said.  Although I am entirely disappointed how the timing of this release is not being discussed.  Specifically we see manipulation of the news to prop up the OWS protests, and I find this no different.  The mainstream media is also painting this statement as coming directly from the Pope when in fact it was written TO the Pope.  The Catholic church is being politicized by progressive Catholics and I think we need to stand against it.  I have heard Pope Benedict speak out against the misrepresentations of this document and it bewilders me that he would accept this report as something fit to come out of the Vatican.  Regardless, the damage has been done.  People will again bash the Catholic church, the Pope, and G-d in general.  There will be another mass exodus of Americans away from Catholic churches and our decline will continue faster than before.  Now the Catholic church is no better than the Neomarxist hippies protesting on wall street, and no one will stand up to say that is not right. 

    • Well this is interesting. Mario Toso who helped write this proposal
      to the Pope apparently supports our Marxist president and uses a paper
      he runs to paint obama in the most gentle hues possible. The agenda is
      becoming clear. I just hope our Pope sees it before it is too late.
      “Father Mario Toso, S.D.B., a professor of Social Philosophy, who served
      as Rector Magnificus from 2003 to 2007 at the Pontifical Salesian
      University, and as consultor for the Pontifical Council for Justice and
      Peace, is a well-known social philosopher in Italy. Father Toso was
      born in Mogliano Veneto, Italy, in 1950 and was ordained a priest in

      Father Toso’s appointment today as Secretary of the Pontifical
      Council for Justice and Peace, elevates him to Bishop. His appointment
      adds to the growing influence of Salesians in the Holy See – like his
      close friend, Secretary of State, Tarcisio Cardinal Bertone. Cardinal
      Bertone also oversees the operations of L’Osservatore Romano– a
      newspaper that has stirred much controversy, because of its approval of
      President Obama’s performance– and for such unpapal-like incursions into
      the world of Harry Potter and pop singer, Michael Jackson. Today, as
      if we had not seen it all, L’Osservatore Romano published an article
      by German-born contemporary philosopher, George Sans, who prompts us to
      take a second look at Karl Marx’s theories. Remember, Marx… the one
      that called religion “the opium of the masses.” The article written
      by Sans was originally published in La Civiltà Cattolica, a Jesuit
      publication. What is even more disconcerting is that this would lead
      one to conclude that Cardinal Bertone clearly approved this article for
      publication in L’Osservatore Romano– a newspaper that, again, operates
      under his watch. “

  • Such a world authority is competent only to return us to the God standard.

  • I will pray harder about this.  Admittedly this frustrates me thinking there is nothing we can do to combat evil.

    Further research on the actual authors of the report indicates that Father Toso is quite fond of George
    Soros.  “A book
    written by Father Mario Toso, titled Toward What Kind of Society (Verso
    Quale Societa?) was published in 2000. In his book, Father Toso
    presents challenging questions about the Church’s role in a capitalist
    society, and discusses capitalism from the perspective of Paul VI, John
    Paul II, Friedrich von Hayek, and others. Surprisingly, he also quotes
    George Soros’ admonitions to the world, regarding impending economic
    abuses. Robert Moynihan, from Inside the Vatican, reported the
    following on June 19, 2009:
    Toso writes that Soros, despite being a leading practitioner and
    supporter of capitalism, has warned against dangerous excesses.
    “Capitalism needs democracy as a counter-weight,” Soros writes, in the
    passage cited by Toso. “Because in and of itself, the capitalist system
    has no tendency toward equilibrium. The owners of capital, left to
    themselves, seek to increase their profits to the maximum: left to
    themselves, they would continue to accumulate capital, and the situation
    would become unbalanced.”

    Father Toso’s decision to quote George Soros is worthy of note, to say the least” External Link

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  • Skylark Lujack

    The plan was predicted in the Bible. Its called the future 666.

  • Last I looked the Pope isn’t running for President of the USA or any other worldly institution, so why is the proposal expected to be in line with the left of any political figure or any other failed global system of economic ideals?  The Vatican Economic proposal is very fundamentally Religious and Theological which is to the left of anyone in public office.  This is what Christianity is intended to instill in mankind anyway.  Its Ideal is Christ.  The Vatican purpose is being lived out contrary to evil and worldly ideological influences void of the NECESSARY moral FOUNDATIONS.  It is simply trying to “supply and demand Christ” into a morally lacking ECONOMIC IDEOLOGY. 

    Why would the Pope, a Noble representative of Christ, be expected to comment in direct agreement with a materially based world of politics and economics?  Application and Practicing the Vatican proposal is a huge challenge to mankind that stems right down to the very beginnings of Christianity.  It is a timeless noble proposal meant on a collective scale for all mankind to practice their faith in public office, business transactions, family and personal and peer relationships. 

    Hopefully the latter angle will shed some light on the following comment: 
    “The conviction that the economy must be autonomous, that it must be shielded from ‘influences’ of a moral character, has led man to abuse the economic process in a thoroughly destructive way,” he writes.

  • Netexasdude

    Being a youth leader in our small Parish in North West LA, I am very let down over this last lefty agenda. I try to keep personal politics out of my teaching with the kids but I do bring up abortion, war, finances, self independence and personal responsibility. We have a leaning left Priest and this has really taken a toll on my Faith and faith in the Church. I pray about it and I am not sure if I am actually listing to the Real answer God has for me. This may be the answer I have been looking for. I think the Church has been infiltrated with hard left agenda and the fact THIS pope was chosen says allot. I will continue to pray on it but if the Church stays this direction and does not repent and turn away from this I will have to turn away and follow Christ without the Catholic Church.   

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