Category: News and Events

Some members of the Acton team were in Krakow, Poland, last week for the third conference in our series on Poverty, Entrepreneurship and Integral Development. This conference, which took place on May 19th, was on the topic of Building a Commercial Society: Culture & the Transition to Wealth, and was co-sponsored with the John Paul II Catholic University of Lublin, the Civil Development Forum, and the Polish American Foundation for Economic Research and Education.

With a massive debt crisis threatening Greece along with other euro-zone economies if not all of Europe, our conference speakers showed how the growth of the welfare state and the appetite for “free” (i.e. government-provided, taxpayer-funded) programs and entitlements have created all sorts of perverse economic, moral and cultural incentives and resulting maladies.

With a wide and impressive array of data, former Polish minister of finance Leszek Balcerowicz explained how the welfare state/entitlement mentality weakens incentives to work and save, and fundamentally alters relations within institutions such as the family, while also increasing and entrenching inequality and social transfer payments. A less dynamic, more resentful society with a few rich, politically-connected oligarchs and many frustrated entrepreneurs follows in much of the post-communist world.

Former Estonian prime minister Mart Laar related how Pope John Paul II’s moral culture of freedom did not and does not yet exist in post-communist countries, with negative consequences for the environment, the economy and the human soul. Estonia has succeeded in cutting government spending by 20 percent, has ignored the advice of the International Monetary Fund to raise taxes, and did not borrow money to finance the welfare state, which Laar called unsustainable and incapable of providing true welfare.

Dominican priest Fr. Maciej Zięba reminded us that the free economy includes more than private property and trade; it needs certain cultural and moral presuppositions about work, human dignity and equality, and decentralized social structures such as parishes, towns and businesses. Pope John Paul II’s encyclical Centesimus Annus was not “hyper-moralistic” but realistic in its reading of the free economy and urged us to do well and do good together.

In the afternoon session, Prof. Jan Kłos addressed the creative tensions of man’s relationship to nature and how it can be turned to our mutual benefit, while entrepreneur Andrzej Baranski spoke of the history of his family business in Krakow and the myth of the “human face” of socialism. Writer and journalist John O’Sullivan noted that Polish culture saved the nation during many trials and sufferings, and could save Europe again by recalling the modest, realistic yet vigorous Christian virtues Polish culture has long instilled in its people.

The conference concluded with the presentation of the 2010 Novak Award to the Lithuanian priest Fr. Kęstutis Kėvalas followed by his Calihan lecture on “The Market Economy in Benedict XVI’s Caritas in Veritate”. Fr. Kėvalas explained how the logic and spirit of giving need to penetrate the market economy, and indicated that Benedict may be developing a “theology of the market” akin to Pope John Paul II’s famed theology of the body. This theology would help shift the economic debate beyond aid and the culture of dependency on the welfare state towards one based on a fuller understanding of human nature.

Simon Johnson and Peter Boone wrote an interesting article the UK Telegraph Saturday called “The New Feudal Overlords of Europe will be the bankers of the ECB.”
Johnson is also the co-author along with James Kwak of a thoughtful and provocative book 13 Bankers as well as a blog on economics. Also on the ECB see my colleague Sam Gregg’s Piece at Public Discourse

Using Hayek’s famous phrase “The Road to Serfdom” Johnson and Boone argue the demise of Europe will not be the welfare state and the growth of government as Hayek predicted, but rather a “financial elite gone awry” They write:

Hayek had the sign and the destination right, but was wrong about the mechanism. Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests are what ended up undermining democracy both in North America and in Europe. All industrialised countries are at risk, but it’s the eurozone – with its vulnerable structures – that points most clearly to our potentially unpleasant collective futures.

As a result of the continuing euro crisis, the European Central Bank (ECB) now finds itself buying up the debt of all the weaker eurozone governments, making it the – perhaps unwittingly – feudal boss of Europe. In the coming years, the ECB and the European Union will dictate policy. The policy elite who run these structures – along with their allies in the private sector – are your new overlords

It is arguable who exactly are the peasants, the vassals and the lords under this model – and what services will end up being exchanged, but there is no question we are seeing a sea change in the post-war system of property, power and prosperity across Western Europe, just as Hayek feared. An overwhelming debt burden will bring down even the proudest people.

The ECB-EU approach will not return countries to reasonable levels of growth – the debt overhang is simply too large. The southern and western periphery of the eurozone cannot grow out of their debts under these arrangements and so will stumble from stabilisation programme to stabilisation programme – as did Latin America in the 1980s. This is bound to lead to hostile politics, social unrest and more economic crises.

The debt crisis must be addressed and I don’t disagree with their assertion that corporate-government collusion is a serious problem (See my article on Davos Capitalism) though I am unclear on how “Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests” exactly go together, or what they mean by “unfettered free markets.” Since Johnson and Kwak argue in 13 Bankers that we’ve had a type of oligarchic capitalism and Johnson and Boone matter of factly talk about “welfare socialism” I assume they aren’t arguing that the Europe or the US have had laissez faire free markets over the last decades, so I am not exactly sure what they mean. But on to their main points.

Johnson and Boone argue that current debt levels and the lack of political will to do anything about it will end up wreaking havoc on EU countries and ultimately on the US and the world.

The UK and US need to prepare themselves for more storms. The United States will be in the pleasant position as the world’s safe haven, but this will only encourage America’s profligate politicians to spend more and build more debt.

The UK will bear much more pain from euro devaluation and financial dislocation, all exacerbated by its own large deficit and debts. We might well see one more invasion across the channel, this time by bond vigilantes who question Britain’s ability to rein in inflation as it builds too large debts.

At the end of this great tumult, Europe and the UK will have sound fiscal regimes. Debt will be defaulted on or inflated away, and nations will have dramatically cut spending.

Hayek’s predicted demise of western society as he knew it will prove correct, but welfare socialism will prove the victim, erased by a political and financial elite gone awry.

Interesting and worrying stuff and the article is well worth reading as is 13 Bankers. But one thing the authors seem to ignore in this piece is that while welfare socialism may be the victim of the collapse (not a bad thing in my estimation), it is fully a culprit as well.

It is precisely a massive welfare state that is a part of the problem. It not only requires outlandish and unsustainable spending on the parts of governments who are afraid to address the challenge lest they lose popular support. But it also encourages a culture of irresponsibility, and inculcates a sentiment in the population that you can maintain an pleasant middle class life indefinitely without actually having to produce goods and services that people want and need. They suggest several austere measures as a solution but doubt the political will to achieve it. What may be really needed is a complete rethinking of the role of government and the whole idea of the current welfare state. That would not only require political courage, but cultural rejuvenation and this is something neither politicians nor bankers can provide.

Blog author: jcouretas
Tuesday, May 25, 2010
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Over at Public Discourse, a new article by Acton’s research director Samuel Gregg examines the deeper reasons behind the problems of the euro. In “Europe’s Monetary Sins,” Gregg points out that many of the euro’s present difficulties reflect a basic refusal of Europe’s political class to acknowledge some of the unpleasant economic realities associated with the EU’s social model, as well as a tendency to say one thing while really doing another. In short, Gregg argues that many of Europe’s economic predicaments flow from a crisis of truth, an unwillingness to recognize it, and the subsequent formulation of policy on the basis of untruths and half-truths. The most recent result of this process, Gregg says, is that the independence of the European Central Bank has been severely compromised:

Ever since its foundation in 1998, the ECB has been a whipping boy for European politicians from the left and right who argue that the ECB’s legally mandated priority of maintaining price stability has kept productivity and economic growth rates in the EU far below those of America. In reality, these problems have little to do with monetary policy and everything to do with low rates of entrepreneurship, unsustainable levels of welfare expenditure, an aversion to competition, high rates of public sector employment, and structural rigidities associated with some of the world’s most inflexible labor markets. Indeed, it is probable that the ECB’s avoidance of the low interest-rate policies adopted by the Federal Reserve in the 2000s may have made the 2008 recession in Europe more bearable than it might otherwise have been.

Against considerable political pressures, the ECB has hitherto doggedly defended its independence. All that, however, changed when the European Union decided to set up its 750-billion-euro bailout fund in early May 2010 to stabilize financial markets and rescue the holders of not only Greek government debt, but also, implicitly, the holders of any EU government debts that seemed shaky.

Blog author: rnothstine
Monday, May 24, 2010
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At the start of Washington’s unprecedented federal interventionism into the private sector and on the heels of a Newsweek cover heralding that “We Are All Socialists Now,” there was considerable angst that free market defenders had forever lost the public. Not so, says American Enterprise Institute President and author Arthur Brooks. Brooks says “America is a 70 – 30 percent nation in favor of free enterprise,” but the forces of statism have capitalized on the financial crisis and have an entire arsenal of federal power at their disposal to advance their agenda. This is one of the overarching themes in The Battle: How the Fight Between Free Enterprise and Big Government will Shape America’s Future.

What Brooks has crafted is a spirited defense of the free market economy and a challenge to its defenders to think more holistically, to be aware of spiritual value in a free economy. To fail to do so, would only sustain the well worn narrative of defenders of markets as greedy misers and swindlers.

One of the strengths of Brooks’s new book is the ability to not only explain the financial crisis, but to offer a superb description of the government’s role in the crisis. The problems in the mortgage industry are clearly linked to the federal pressure exerted on Fannie Mae and Freddie Mac to issue high risk loans. And if the financial crisis and mortgage industry are explained well by Brooks, so too is his analysis of the new health care law. Brooks explains that the bill is about government control and redistribution saying, “Obama and many in Congress even oppose the small degree of control that would come from letting Americans shop for health care plans from out-of-state insurance companies.”

The 30 percent agenda is what Brooks is most adept at exposing. “What do they believe to be the greatest problem of poor people in America? Insufficient income. What would be evidence of a fairer society? Greater income equality,” says Brooks. He understands that money is not always the root problem but there are many deeper life issues when it comes to poverty. Brooks’s account is the kind of book that draws a line in the sand, explaining why the stakes for the future of this country are so great. He, like many Americans, laments the slide of the country towards a European style of democratic socialism.

Another strength Brooks offers is the ability to connect free market principles with the founding of this nation and our deeper culture. “Free enterprise is not simply an economic alternative. Free enterprise is about who we are as a people and who we want to be. It embodies our power as individuals and our independence from the government,” says Brooks.

Perhaps Brooks’s greatest skill is articulating the moral case for the free market. He doesn’t just offer generic platitudes but understands deeper principles of human flourishing. Brooks talks about the value of “earned success.” Earned success is the ability to create value honestly and it taps into the entrepreneurial spirit. He also defends the dignity of the human person when he talks about fairness, especially the importance of fairness of opportunity over fairness of income, which is preferred by the 30 percent coalition. The human person rather should have an inalienable right to the pursuit of happiness, and creative space protected from the whims of the state.

At the closing of the book Brooks offers an inspirational defense of the greatness of this country. He contrasts the importance of principle over political parties, bailouts, and political power. Since this book is so aggressive in its denunciations of the agenda of the 30 percent coalition, it may not change many minds, but if 70 percent already side with Brooks, we should look forward to the mobilization of their voices.

[Here is a piece by Arthur Brooks in The Washington Post related to his book titled "America's new culture war: Free enterprise vs. government control."]

HT: InChainsForChrist.org

From OBL News (5/19/10):

Abba Seraphim will join a protest vigil to “Stand in Solidarity with Eritrean Christians” outside the Eritrean Embassy between 3-4 pm on Thursday, 3 June. The vigil has been organised by a number of Christian Human Rights’ organisations: Christian Solidarity Worldwide, Release Eritrea, Church in Chains, Release International and Open Doors. At a similar gathering in May 2008 Abba Seraphim handed in a petition at the Embassy calling for the resoration of His Holiness Abune Antonios, the canonical Patriarch of the Eritrean Orthodox Church and in June 2007 organised an Ecumenical Prayer Service in London for Abune Antonios. The British Orthodox Church also sponsors a website calling for the Patriarch’s restoration: Restore Patriarch Antonios to his throne. The Eritrean Embassy is at 96 White Lion Street, London, N1 9PF (near the Angel tube).

I had been scheduled to appear opposite Ray Nothstine at the most recent Acton on Tap last month to discuss the question: Are Tea Parties good for America? I had to miss that event, unfortunately, but this week’s Acton Commentary represents my belated engagement on these matters. Check out, “Missing the Boat on the Tea Parties,” and leave your comments here.

While you’re over there, be sure to read Ray’s commentary, “Will Tea Parties Awaken America’s Moral Culture?”

And speaking of Acton on Tap, if you are in the area be sure to join us tonight for David Michael Phelps, “Story & Syllogism: Why do artists tend not to be conservative? How can the works of conservative artists have a greater impact?” Be sure to check out Phelps’ site, The Artistic Vocation.

If you read this post about Claire Berlinski’s recent article in City Journal, and the follow-up post calling attention to Ron Radosh’s critique of the article, then you may be interested in Berlinski’s return volley here.

I recommended a Claire Berlinski article last Thursday. Ron Radosh forcefully calls into question several elements of the Berlinski piece, though her central claim seems to me to remain intact: While the Nazis are widely and duly vilified, far too many in the West continue to excuse, minimize or ignore the activities of the Soviet communists. At any rate, Radosh’s commentary has sparked a lively discussion in the comments section under his post.

On the Economix blog at the New York Times, Uwe E. Reinhardt wrote a post titled “How Businesses Create Wealth.” That elicited attention from a commenter who wondered where he was “trying to go with this essay.” Reinhardt, an economics professor at Princeton, answers with “Companies: What Are They Good For?” He also cites an article from Acton’s Journal of Markets & Morality: “A Communitarian Model of Business: A Natural-Law Perspective.” Reinhardt:

Actually, I was not trying to go anywhere with my analysis, other than to point out that businesses create value and wealth beyond the usually narrow slice that accrues strictly to the owners.

In most firms, the largest fraction of the gross value that businesses create with the goods and services they produce is channeled to employees. That allocation helps create household wealth, which may be held in the form of a home or other real estate, pensions or investments in mutual funds, or highly productive human capital — that is, highly educated offspring.

With their chronic suspicion of for-profit business, commentators on the left of the ideological spectrum insufficiently acknowledge that major contribution that business makes to social welfare.

Though the Greek Debt crisis may seem far away, here is a sobering article by Kevin Hassett at Bloomberg. Greece’s Bailout Heroes arrive in Leaking Boats

Those countries coordinating the $1Trillion bailout of Greece find themselves in similar trouble. Hassett writes:

The fatal flaw in the plan is that the European nations bailing out Greece — even Germany, where government debt has risen to about 80 percent of gross domestic product — have similar budget problems and even less political will to take similar medicine.
Their plan appears to rest on the hope that lenders won’t notice. Eventually they will, and when that happens, a worldwide loss of faith in government debt markets is a virtual certainty.
In other words, it is hardly good news for a creditor if a hopelessly bankrupt borrower offers to take on the debts of a hopelessly bankrupt borrower.
During the financial crisis, faith was restored in large financial institutions because toxic assets were essentially exchanged for government bonds. If government bonds become toxic, there will be no effective treatment options remaining. The collapse will have no bottom.

He also notes that the US is not immune to the problems that plague Greece. According to a study done by the IMF in 2003, the US finds itself an unsustainable debt situation that if not resolved could lead to even the possibility of default.

The paper, written by economists Paolo Manasse of the University of Bologna along with Nouriel Roubini of New York University and the IMF’s Axel Schimmelpfennig, studied historical sovereign-debt crises, exactly the situations that Western nations are hoping to avoid. They found that external debt levels — money owed to foreigners — exceeding 50 percent was a key indicator that debt default may occur.

Here is the chilling fact: the average external debt as a percent of GDP among countries in their sample the year before a sovereign debt crisis was 54.7 percent, and 71.4 percent in the crisis year. The U.S. external debt on Dec. 31, 2009, was $13.77 trillion, or almost 100 percent of GDP. For much of Europe, the story is worse.

It seems that the only way to solve these impending crises is to rethink the entire way we look at the roles and responsibilities of government in democratic societies, but that may take the political will that no one has.