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The Financial Crisis: What We (Still) Haven’t Learned
Thursday, November 19, 2009
It’s over a year now since the 2008 financial crisis spread havoc throughout the global economy. Dozens of books and articles have appeared to explain what went wrong. They identify culprits ranging from Wall Street financiers overleveraging assets, to ACORN lobbying policy-makers to lower mortgage standards, to politicians closely connected to government-sponsored enterprises such as Freddie Mac and Fannie Mae failing to exercise oversight of those agencies.
As time passes, armies of doctoral students will explore every nook and cranny of the 2008 meltdown. But if most governments’ policy responses to the crisis are any guide, it’s apparent that many lessons from the financial crisis are being ignored or escaping most policy-makers’ attention. Here are five of them.
Perhaps the most prominent unlearned lesson is the danger of moral hazard. The message conveyed to business by many governments’ reactions to the financial crisis is this: if you are big enough (or enjoy extensive connections with influential politicians) and behave irresponsibly, you may reasonably expect that governments will shield you from the consequences of your actions. What other message could businesses such as AIG, Citigroup, Royal Bank of Scotland, Lloyds, and Bank of America have possibly received from all the bailouts and virtual nationalizations?
A second unlearned lesson is that once you allow governments to increase their involvement in the economy to address a crisis, it is extremely difficult to wind that involvement back. Indeed, the exact opposite usually occurs.
Who today remembers the stimulus and bailout packages so heatedly debated in late-2008? They pale next to the fiscal excesses of governments in America and Britain throughout 2009. Recessions and subsequent government interventions create an atmosphere in which the hitherto implausible – such as trillion-dollar, 1900 pages-long healthcare legislation in an era of record deficits – becomes thinkable. Likewise the Bush Administration’s bailout of Chrysler and GM morphed into the Obama Administration’s virtual appropriation of the same two companies. (more…)
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Category: Acton Commentary
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bailouts, financial crisis, markets & morality, moral hazard
Economic Liberalism and its Discontents
Monday, November 16, 2009
How do we restore confidence in free markets? Formulate a robust explanation of their moral value. Read Economic Liberalism and its Discontents on Public Discourse.
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Healthcare and Catholics: True and False Arguments
Friday, October 16, 2009
This week’s Acton Commentary:
Healthcare reform – it’s one of those causes almost everyone favors, but which almost automatically produces sharp arguments when we ask what it means and how it might be realized. You would have had to be living in a cave for the past eight months to be unaware that Americans are deeply divided on this matter, and that the division runs clean through the middle of many communities. That includes Catholic America.
Of course, there are a small number of non-negotiables for Catholics, whatever their politics, when it comes to healthcare reform. These principally concern any provisions that facilitate or encourage the intentional termination of innocent human life, or which diminish existing conscience exemptions.
Without question, these are the primary issues for Catholics who take their Church’s teaching seriously when it comes to healthcare legislation. They dwarf everything else.
No matter how good the rest of the legislation might be in, for example, widening access to affordable healthcare, it is a stable principle of Catholic faith - and natural law - that you cannot do evil in order that good may come from it. St Paul insisted upon this almost 2000 years ago (Romans 3:8), and it is constantly affirmed by Scripture, Tradition, and centuries of magisterial teaching. Try as they may, no amount of rationalization by the usual suspects can get around this point.
For this reason, much of the Catholic contribution to the healthcare debate, especially that of Catholic bishops, has focused on these issues. We’ve yet to see what impact this might have on whatever eventually arrives on the floor of Congress.
But let’s hypothesize. Imagine the healthcare legislation submitted to Congress involved a massive expansion of government involvement in healthcare. Let’s also suppose that the same legislation was stripped of any provisions that violated non-negotiables for Catholics. Would Catholics be obliged to support passage of such legislation? (more…)
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The Economics Nobel
Tuesday, October 13, 2009
My response to the awarding of the Nobel Prize in Economics to Elinor Ostrom and Oliver Williamson was published on National Review Online:
Also see David R. Henderson’s fine “A Nobel for Practical Economics” in today’s Wall Street Journal.
Finally, here’s a lecture hall video of Ostrom on sustainable development and the tragedy of the commons:
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David R. Henderson, Elinor Ostrom, nobel prize economics, Oliver Williamson, sustainable development, tragedy of the commons
Catholics and Health Care
Tuesday, October 13, 2009
The Detroit News published my commentary on Catholics and health care reform in today’s newspaper. A slightly longer version of the article will appear in tomorrow’s Acton News & Commentary:
Read the entire article here.
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Acton Commentary: Marxism’s Last (and First) Stronghold
Wednesday, September 9, 2009
My commentary on Western Europe’s fascination with Marxist symbolism was published today on the Web site of the Acton Institute. Excerpt:
Read “Marxism’s Last (and First) Stronghold,” on the main Acton Institute Web site.
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Public Discourse: Rethinking Economics in the Post-Crisis World
Wednesday, July 29, 2009
The Public Discourse recently published my article, Rethinking Economics in the Post-Crisis World. Text follows:
In the wake of the financial crisis, we need an economics with greater humility about its predictive power and an increased understanding of the complicated human beings who, when the discipline is rightly understood, lie at its center.
Apart from bankers and politicians, few groups have received as much blame for the 2008 financial crisis as economists. “Economists are the forgotten guilty men” was how Anatole Kaletsky, former economics editor and current editor-at-large for the London Times, put it earlier this year when explaining why “a bank with just $1 billion of capital [would] borrow an extra $99 billion and then buy $100 billion of speculative investments.”
Greed and sheer imprudence played a role, but so too, Kaletsky argued, did those (unnamed) economists who posited that their models proved that events such as the collapse of Lehmann Brothers in 2008 or Long Term Capital Management in 1998 were mathematically likely to happen once every billion years.
Kaletsky’s broader point was that contemporary mainstream economics had been sufficiently discredited by the financial crisis that the entire discipline required what he called an “intellectual revolution,” or it risked being dismissed as a rather suspect sub-branch of statistical analysis and mathematical modeling.
Kaletsky is hardly alone in arguing that economists need to rethink key aspects of their discipline. Though unwilling to call for a total paradigm shift, the Economist recently opined that the financial crisis has raised profound questions of coherence about two areas of economics: macro-economics and financial economics. “Few financial economists,” the Economist observed, “thought much about illiquidity or counterparty risk, for instance, because their standard models ignore it.” Likewise, the Economist commented, “Macroeconomists also had a blindspot: their standard models assumed that capital markets work perfectly.”
All this is certainly true. But the key expression to note here is “their standard models.” (more…)
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crisis, economics, john maynard keynes, political economy, Public Discourse, Wilhelm Röpke
Caritas in Veritate: Spiritual Trumps Secular in Encyclical
Thursday, July 9, 2009
As one would expect with an encyclical from Benedict XVI, its strength lies in its use of theology to re-orientate Catholics and other Christians away from thinking in a merely secular — and sometimes hyper-politicized way — about questions such as economic and political questions.
The Christian understanding of truth and love and Catholicism’s careful integration of these theological and moral realities lifts us up and out of what the Pope calls the false ideologies and utopias that disfigure our minds and actions. Though they are mentioned sparingly, St. Augustine and St. Thomas Aquinas are clearly two of the major influences upon the theology informing this text, alongside sacred Scripture.
In these respects, Benedict XVI is being faithful to his theological method of “ressourcement,” pioneered by figures such as Henri de Lubac, S.J., which involves renewing the Church through returning to the primary sources of Christian inspiration. This helps to explain, for instance, the language of gift that permeates the encyclical and reminds us that the model of Christ the Son as God the Father’s gift to us has implications for economic and political life.
Obviously, there will be intense debate about some of the prudential judgments about questions of economic policy expressed in “Caritas in Veritate.” Here we find an element of “on the one hand this, on the other hand that,” which is not always coherent. I would also suggest that the often-negative relationship between extensive wealth-redistribution and the prior necessity of wealth-creation have not been sufficiently considered.
Concerning the global economy, there is nothing new about the encyclical’s reference to a world political authority from the standpoint of Catholic social teaching. In fact, some argue that it represents a logical extension of natural law reasoning about the political order.
The problem is how a world authority could possibly manage the global economy — i.e., billions of economic choices by billions of people and institutions on a daily basis. The principle of subsidiarity provides us with some guidance, but the encyclical may underestimate the tendency of state and international bureaucracies to pursue agendas that have everything to do with their own interests and nothing to do with the poor.
Of course, there are many economic and cultural observations in the encyclical that bear repeating. Benedict XVI’s dismissal of dependency theory as ” erroneous,” his warning against protectionism, and his affirmation that it is people rather than the market economy per se that creates economic evils should be welcomed as helpful correctives to particular ideas that often prevail among social justice activists.
Above all, the insistence upon permeating commercial and economic life with Christian truth — especially moral truth — and Christian love represents a bold challenge for us to apply the Catholic faith to every aspect of our economic lives.
In this regard, Benedict XVI is neither an anarcho-capitalist from the pages of “Atlas Shrugged,” nor a socialist straight out of “Das Kapital.” He is nothing more and nothing less than a disciple of Jesus Christ.
Published July 9 on Zenit, the Catholic news agency.
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Category: Bible and Theology, News and Events, Vatican
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Caritas in Veritate: Doing Justice – Benedict’s Way
Thursday, July 9, 2009
As the squabbling continues over the at-times contradictory policy-suggestions contained in Benedict XVI’s social encyclical, there’s a risk that the deeper – and more important – theological themes of the text will be overlooked. It’s also possible some of the wider implications for the Catholic Church’s own self-understanding and the way it consequently approaches questions of justice will be neglected.
For historical perspective, we should recall that before, during, and after the Second Vatican Council there was – and remains - an intense theological debate within the Catholic Church about, firstly, how it renews itself in order to spread the Good News contained in the life, death, and resurrection of Jesus Christ more efficaciously; and secondly, what this means for the Church’s engagement with modernity.
Putting the matter somewhat simplistically, one group of twentieth-century Catholic theologians – including Henri de Lubac, S.J., Hans Urs von Balthasar, Jean Danielou, S.J., and Jorge Medina Estévez – maintained that the Church could only authentically renew itself by going back to the basic sources of Christian inspiration: most notably the Sacred Scriptures, Tradition, and the Church Fathers. It was on this basis that they thought the Church should speak to the modern world about, for example, justice issues. They were certainly not disinterested in the insights offered, for example, by modern sciences such as physics or economics. They were, however, convinced that unless the Catholic Church spoke in distinctly Christian terms, the uniqueness of Christ’s message was bound to be lost.
Another cluster of theologians, however, had a different starting-point. They argued that Church renewal meant looking to the modern world for guidance. It included figures such as Edward Schillebeeckx, O.P., and Hans Küng. On one level, they were concerned with making the Christian message comprehensible to self-consciously “modern” people. But most eventually went further and argued that the modern world itself contained the hermeneutic for how Christians should engage the earthly city, and even defined what it meant to be Christian.
The problem with the second approach is that it quickly degenerates into a set of circular propositions such as the following: the modern world (as defined by, for example, Hans Küng) says that equality à la John Rawls or Karl Marx is the content of justice; the modern world defines Christian self-understanding; therefore the Christian concern for justice should be Rawlsian or Marxist in nature.
In this schema of reasoning, there’s no obvious way of testing whether a particular modern proposition accords with Divine Revelation because the modern world itself is regarded as somehow summarizing the content of Revelation. In effect, whatever is considered to be modern – and whoever sets himself up as defining the content of modernity – becomes the arbiter of what is and is not Christian. (more…)
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Caritas in Veritate: Not the Left’s Encyclical
Wednesday, July 8, 2009
It was, I suppose, inevitable. The moment Benedict XVI’s social encyclical appeared, the Washington Post, the Los Angeles Times, USA Today, and the usual suspects predictably portrayed Caritas in Veritate as a “left-wing” text. It reflects their habit of presenting the Catholic Church as “conservative” on moral questions and “liberal” on economics. That’s their script, and until the day that the Internet juggernaut deals its final death-blow to the mainstream media, they will stick to it.
Unfortunately, there has also been much misleading commentary on Caritas in Veritate from many Catholic commentators anxious to portray the encyclical in secular political terms.
This is hardly a new problem. In his diary of the Second Vatican Council, the great French Catholic theologian Henry de Lubac S.J., repeatedly expressed his frustration with the apparent inability of Catholic writers covering the Council to speak about any of Vatican II’s workings in anything but secular political language.
That said, it is difficult to describe comments about Caritas in Vertitate as revealing Benedict as being “to the left of the Democrat Party on economic issues” or “sounding like a union organizer” as anything but unsophisticated, and, frankly, rather provincial. Contrary to the expectations of many living in America’s Boston-Washington-New York self-referential hothouse, popes don’t compose encyclicals with an eye to the particulars of American domestic politics or the next election cycle.
Anyone who has actually read Joseph Ratzinger’s many works would understand the pope has never thought that the Catholic faith neatly translates into left or right politics. To be sure, plenty of Catholics (particularly American Catholics) wish that it did. But it doesn’t and it never will, because the Catholic faith purports to contain the entire Truth about God and man. Hence it can never be compressed into earthly political categories.
This basic truth, however, has never weighed heavily with the post-Vatican II Catholic left (most of which is hovering on or over the edge of 60). For them, like the secular Left, everything is political. Hence we can expect plenty of “proof-texting” of Caritas in Veritate. Proof-texting is the art of taking statements from a text to establish the validity of particular claims, even though the text itself, when read as a whole, does not support such contentions.
Catholic leftists have, for example, emphasized the pope’s references to what he considers to be the need to bolster social security systems in the wake of globalization (CV 25). They neglect to mention, however, that Benedict has a somewhat different vision of social welfare - one that is more decentralized, less bureaucratic, and more civil society-orientated (CV 60) than the creaking state incubators of soft despotism slowly turning Western Europe into a global economic irrelevancy.
Sometimes, however, proof-texting is not enough. Hence we find Catholic leftists more-or-less ignoring Benedict’s insistence (echoing John Paul II) that life issues – specifically abortion, euthanasia, and the eugenic planning of births - are at the core of justice questions and that to ignore these specific issues is to acquiesce in enormous damage to human culture.
They are also deeply unhappy with Caritas et Veritate’s repeated referencing of Paul VI’s 1968 encyclical Humane Vitae, which reaffirmed orthodox Christianity’s vision of sexual morality, because many of them have invested enormous energy over the past 41 years trying to nuance away or outright deny Catholicism’s defined teachings in these areas.
Of course Caritas in Veritate expresses plenty of prudential judgments with which Catholics on the right and left may legitimately take issue. It cannot be said enough: Catholics are free to disagree among themselves and even with the pope about those matters the Church considers prudential - which includes the overwhelming majority of economic policy-issues, but not subjects such as abortion and euthanasia — as Benedict himself affirmed in a 2004 letter to the then-archbishop of Washington D.C.
The question we should ask, however, is what the Catholic left thinks it is trying to achieve by attempting to shove a theologically-dense text into a politicized left-wing straight jacket.
It would be easy to dismiss them as the secular left’s “useful idiots”, but the root of the problem is theological. Since the 1960s, much of the Catholic left has bought into the centuries-old heresy that perfect justice can and must be realized in this world. They have also largely reduced Christianity’s content to the politically-correct justice-questions. One need only glance at many Catholic religious orders’ mission statements to gauge the accuracy of this claim.
Justice is a perennial Christian concern. But Caritas in Veritate’s very title reminds us that love and truth are even more central to the Catholic faith. “[T]he God of the Bible”, Benedict writes, “is both Agápe and Lógos: Charity and Truth, Love and Word” (CV 3). Without love and truth, the pursuit of justice degenerates into dangerous utopian agendas that trample love and truth. Ultimate justice, Benedict states elsewhere, only comes when we meet our Maker - hence, Caritas et Veritate’s repeated condemnation of utopian schemes (CV 14, 53).
Utopia, as St Thomas More knew when he gave his book this famous title, mean “no-place.” And that is where justice disassociated from truth and charity leads us: the no-place of relativism, despair, and tyranny.
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Caritas in Veritate, catholic social teaching, pope benedict xvi, religious left
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