Category: Vatican

The Center for American Progress (CAP) has boldly rebutted the arguments of our own Kishore Jayabalan, director of Istituto Acton, concerning the Vatican’s note on a “central world bank.” It has done so by showing him to be lacking in “respect for the inherent dignity of human life.” … Yes, we are talking about that Center for American Progress.

In a feature on their website that purports to tie last month’s Vatican note to the Occupy Wall Street movement, CAP offers this smarmy response to the analysis Jayabalan gave.

Some conservative Catholic commentators are not as supportive, however….

Kishore Jayabalan of the conservative Catholic Acton Institute said that the note’s appeal to an international authority contradicts the church’s teaching that problems are best solved starting at local levels of authority, also known as the doctrine of subsidiarity.

What these conservatives are missing is that the note draws heavily from the tradition of Catholic social teachings on justice and respect for the inherent dignity of human life. This is where the Occupy movement finds an ally.

CAP has one-upped us doctrinally: where Jayabalan is concerned with minor theological nuances like the doctrine of subsidiarity, their minds are fixed on higher principles like respect for human dignity, the most immediate threat to which is the great and terrible free market.

“At heart, it is a moral enterprise,” say CAP’s Jake Paysour about Occupy Wall Street. Yes, except at the hearts of its camps, where women dare not go because their human dignity is respected only as much as strong men find it convenient.

CAP’s record on human dignity speaks for itself. Its position on the lives of unborn children, for example, could not be any more out of line with Catholic teaching on “justice and respect for the inherent dignity of human life.” It is shocking that CAP even uses those words: the suggestion that they give one hoot about Church teaching on human dignity is nonsense.

I will resist the temptation of a GetReligion-style dismantling of the feature, since it would sail right over their heads at CAP, but I must point out that the Church’s principles of social justice were not “set forth 80 years ago” in Quadrogesimo Anno, as the author claims, but rather 40 years before in Rerum Novarum (hence the second encyclical’s name — not that we should expect anyone there to have any Latin). I don’t mean to make an ad hominem argument, but if you can’t get that right, what are you doing trying to explain the relative weights of principles first explicated in Rerum Novarum?

In the future: If you’re going to use the words of an Acton Institute expert, it is expected that you will avoid the shameless contortion of facts and logic that CAP indulged in today.

Acton’s prolific director of research Samuel Gregg writes at Crisis Magazine about those who would modernize the Catholic Church (theologically): “Dissenting Catholics’ Modernity Problem.” His reflection centers on the thought of Pope Benedict XVI, whose recent visit toGermany brought the modernizers out of the woodwork, and whose speeches and writings have placed the faithful in their proper context.

Judging from the hundreds of thousands of Germans who attended and watched Pope Benedict XVI’s September trip to his homeland (not to mention the tsunami of commentaries sparked by his Bundestag address), the pope’s visit was — once again — a success. And, once again, it was also an occasion for self-identified dissenting Catholics to inform the rest of us what the Church must do if it wants to remain “relevant.” To no-one’s surprise, their bottom-line remains the same. The Church is “out of touch.” Why? Because it’s insufficiently “modern.”

The “we-must-be-more-modern” argument reflects the workings of a logic that privileges whatever is considered “contemporary” (an ever-moving target) over the knowledge imparted by Christ to His Church from its very beginning.

Such reasoning often runs along the following lines. In modernity, X is considered not good; ergo, the Church must accept X is not good. Or, modern people regard X as good or licit; ergo, the Church should teach X is good or licit.

Hmm…

You don’t need to be a professional philosopher to recognize that these are what logicians call non sequiturs: arguments in which the conclusions don’t follow from the premises. The fact that something is considered modern tells us nothing about its goodness or evil, let alone whether it conforms to the truth found in Divine Revelation. It also produces very strange arguments such as the claim made in 1968 (of course) by the ex-Jesuit theologian John Giles Milhaven, that “modern people” (whoever they are) by virtue of their “modernity of spirit” (whatever that means) enjoyed a type of “standing dispensation” from God to pursue what they “feel” to be good.

Gregg sets this post-Enlightenment ethic of feelings against the Church’s foundation in reason, which makes it truly catholic. Those who would re-orient the Church,

marginalize the conviction that the fullness of Christian truth is to be found in the reasonable faith entrusted to and proclaimed by the Church. And the faith of that Church goes beyond the particular views held by us today to embrace the right belief (orthos-doxa) of the whole communio of believers, the living and the dead, from the apostles onward — the truth of which is confirmed by the consensus of the Church Fathers, the lives of the saints, the witness of the martyrs, and the teaching authority of the successors of Peter and the other apostles.

Of course, Catholicism doesn’t have an in-principle opposition to the post-Enlightenment world per se, any more than it allegedly locates everything that is good and true in the 13th century. Any effort to associate the fullness of Catholic faith with any one historical period risks relativizing those truths knowable by faith and reason that transcend time and bind Catholics across the ages.

Perhaps such a relativizing is what many dissenting Catholic activists want. If so, they should concede that this would mean making the Church in their own image rather than that of Christ the Logos. And there is no surer way of making the Church truly irrelevant in a modern world that desperately needs more reason and light than emotivism and darkness.

Full text here.

When the Pontifical Council for Justice and Peace needed an expert economist to assist in articulating the “Note” titled Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority to feisty journalists at an Oct. 24 Vatican press conference, it called on the University of Rome “Tor Vergata” economics professor, Leonardo Becchetti.

For an English translation of the professor’s remarks at the Vatican press conference, go to the end of this post.

Prof. Becchetti is a local celebrity of sorts, whose TV time has increased since the outbreak of the global financial crisis and growing cynicism on the future of the European Union. He has provided his expert assessments and criticism to Italian news channels and late night talk show programs, and has become a “go-to guy” when speaking on the relationship of economics to human happiness, central banking and monetary policy. See his interview of the monetary policy and inflation:

[youtube http://www.youtube.com/watch?v=woOyekGo89g]

No doubt, Prof. Becchetti was charged with the very difficult task of articulating and defending some the Note’s bold economic and political prescriptions – usually a “no-fly zone” for Vatican officials. Moreover, in all fairness, Becchetti removed his professor’s hat to his best ability, while speaking in relatively plain language to the journalists, most of whom, like myself, do not hold PhDs in international finance and monetary policy.

What follows is the unofficial English translation (actually my own) of the transcript of Prof. Leonardo Becchetti’s presentation. Becchetti’s technical debriefing on the Note last Monday raised a few eyebrows and provoked some critical thinking on what the Vatican document said (and didn’t say) regarding international financial and monetary reform.

For example the following finer points jumped out when translating Becchetti’s remarks:

1. The logic that a global economy requires global governance seems not quite right. What about the Church’s traditional support of subsidiarity, that is, crises should be resolved at the local level of problem. The financial crisis is a pandemic and will require massive effort to resolve it, but local symptoms and outbreaks of this financial disease are manifest in unique ways from nation to nation. A single global monetary and financial authority might simply enforce a “one-size-fits-all” policy that is not practical in most countries. This logic smacks of the 20th century centralized economic planning that has proven destructive in Eastern Europe.

2. Becchetti’s analogy of the “long spoons” is not sensitive to the fact that, through human innovation, those same klutzy over-sized spoons can be creatively re-invented through human innovation to allow for self-feeding. For me, Becchetti’s long spoon analogy inspires ideas of spoon-feeding each other (i.e. receiving easy hand-outs) and not creative cooperation to resolve our financial crisis. If left to fend for ourselves, it might be a clumsy experience at first, but we will then be forced to find ingenious and independent ways of self-preservation.

3. It is true that our world is increasingly interdependent and this provides great opportunity for international solidarity and cooperation, but why use the term “formidable threat” when addressing the fact that first world job holders are feeling the heat of equally qualified laborers from developing countries? I like the thought that the first world feels the need to compete and intelligently find more efficient ways of production, but Becchetti’s subtle semantics seem to infer that Marxist class struggles are at play in devising a global financial peace plan .

4. Lastly, what evidence is there that a financial transaction tax on stock exchange activity will ease the pain and suffering of today’s struggling businesses and unemployed? How many ways have we tried to tax and redistribute our way to human fulfillment? Is this the missing link in international economic planning? Cannot someone speaking on behalf of the Church and who is an expert in economics and happiness, at least make some sort of plea for greater spiritual wealth and its redistribution (i.e. by becoming fulfilled in Christ evangelizing His Word)?

I am sure you will have more questions yourself. Please feel free to share your own opinions.

Translation of Prof. Leonardo Becchetti’s remarks (original Italian version)

The bright side of the [financial] crisis is that it represents a time of great opportunity.

The global financial crisis is an opportunity to reform the very architecture of the global financial system, strengthen the European Union in terms of harmonizing its fiscal policies, while progressing more swiftly toward a goal of political unity and increasing discipline over national fiscal policies.

The Vatican document focuses on two key issues:

i) Building a set of rules for global governance which, if possible, will be used as a framework [to guide] the actions of global institutions;

ii) Reforming the international financial system with a series of specific proposals.

Concerning point i), global governance is urgently needed to overcome the asymmetry caused by the globalization of markets, institutions and rules that remain predominantly national.

Globalization makes us increasingly interdependent and makes it practically impossible to ignore other countries whose problems once seemed so distant: Simul stabunt simul cadent [Latin for similar things fall together].

To give you a few examples, there are at least six fundamental elements of interdependence between economic and financial systems:

i) the American debt crisis is a problem that concerns not only [the U.S.] itself but savers around the world who have invested in it and in the largest economies, like China, that [in turn] have invested a substantial portion of their own reserves in [U.S.] treasury bonds;

ii) the Greek debt crisis and the likely reduction in the facevalue of this country’s bonds (between 20% and 60%) will result in serious losses on the balance sheets of the French and German banks that had invested in them;

iii) the presence of a huge mass of poor and underprivileged in the world, willing to work at wages much lower than those of our own employees (bearing equal credentials and who are also protected and unionized) is a formidable threat to the maintaining levels of wealth of high-income countries;

iv) exiting from the euro would have damaging effects not only on developing countries but also on Germany itself, which for years has enjoyed the advantage of exporting its goods to markets within the Eurozone without additional costs linked to exchange rates;

v) the coordination of central banks is now increasingly important in a globally integrated world; recently, developing countries have often complained that the expansionary monetary policies of American and European central banks (quantitative easing) have exported inflation into their countries;

vi) for some time now G-20 meetings have tried coordinate the policies of countries with deficits with those with surpluses to encourage the latter to adopt more expansionary policies to boost demand throughout the world.

The [current situation is like] a large table full of guests, each of which is given a very long spoon to eat with. The difference between hell and heaven in this familiar story is that in some guests use their spoons to clumsily and unsuccessfully feed themselves while others use their long spoons to feed each other. It is in the former situation which nation states find themselves in globally integrated markets as they try to pursue their own short-sighted and short-term interests. This becomes counterproductive, because it is only by cooperating with each other that we will be able to put an end to this financial crisis.

On the second point (the rules of financial markets), the document adopts some proposals already launched by the Dodd-Frank legislation in the United States and by the Vickers Commission in the United Kingdom, but which have not yet been implemented and are not in force due to a number of obstacles.

It is fundamental that the world of finance returns to its role of serving the real economy. To do so it is necessary to:

i) reduce the leverage of banks that are “too big to fail” (the disproportionate 30:1 leverageratio between short-term liabilities and long-term assets is among the main causes spreading the subprime crisis throughout the world).

ii) adopt the so-called Volcker Rule which prevents banks from doing proprietary trading with customer deposits.

iii) more severely regulate the trading of derivatives born from insurance instruments. In the real economy insurance policies are purchased when someone owns an actual asset to be insured, while in financial markets this occurs in no more than 5 percent of cases. For this purpose, there is an EU proposal to achieve this objective regarding the credit default swaps of government bonds.

A fourth proposal concerns the instituting of a tax on financial transactions for reasons explained in the following paragraph.

It is important to ask why the position on taxing financial transactions of economists and civil society (a majority EU citizens in fact are in favor) has changed radically in recent years.

Last year, 130 Italian economists signed an appeal in support [of the proposition], which garnered further support with a similar appeal put forth by 1000 economists from 53 countries and delivered to the Finance Ministers of G20 countries attending the 2011 Summit held in Washington, D.C. last April 14-15 (among the prominent signees were highly respected leaders such as Dani Rodrik, Tony Atkinson, Joseph Stiglitz and Jeffrey Sachs) See: http://www.guardian.co.uk/business/2011/apr/13/robin-hood-tax-economists-letter
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There are two reasons for this change of opinion: the events of the global financial crisis and further evidence that has helped to alter some [former] prejudices.

Upon the advent of the global financial crisis, the public finances of some major Western countries have been severely weakened while bailing out banks and, consequently becoming new targets themselves of speculative attacks.

A part of the financial world has thus privatized profits, socialized losses, and then utilized public funds used to bailout those who had come to the rescue in the first place.

It is, therefore, understandable why the majority of public opinion believes that those working in the financial markets should, therefore, help pay for the costs of this crisis, the burden of which has been currently shared by the most vulnerable [taxpayers in society].

From this point of view the FTT responds to the simple demands of justice, which seems urgent, given the most recent current events, in order to maintain social cohesion within the Community.

The second reason for increased favor for such a tax stems from the shedding of prejudice.

Until recently the tax was considered inappropriate and not globally applicable should it involve capital from the country in which it was enforced.

This bias is unfounded, as documented in research conducted by the International Monetary Fund, because there are at least 23 countries today that unilaterally apply a transaction tax (which is none other than a stamp tax) without there ever having been any [from their respective countries]. (See. T. Matheson , Taxing Financial Transactions. Issues and Evidence, IMF WorkingPaper No 11/54, March 2011, 8).

The United Kingdom is the country with the highest tax transaction with the application of its Duty Stamp Tax on one single type of financial asset (0.005% duty on the value of shares owned and listed on the London Stock Exchange).

This tax raises about 5 billion pounds in revenues each year.

By way of this evidence [EU Commission President] Barroso’s proposal to establish such a tax in the EU correctly addresses a “harmonization” of taxes throughout Europe on financial transactions –and not of their first introduction.

The London [Stock Exchange] tax has provided an interesting example of tax avoidance, as some operators have exited the stock market to invest in new OTC derivatives (contracts for differences) which essentially consist of bets on variations in share prices.

It is interesting to note, therefore, that the transaction tax has now split the market into two: those really interested in investing in company shares and those who bet on short-term variations in prices.

Such [tax] avoidance is already implicitly considered in the Barroso proposal, which would extend taxation to derivatives (and thus also to contracts for differences). Such problems can also be countered by banning contracts for differences as is already the case in a major financial market, like the United States.

From a scientific perspective, there are numerous ways to measure the elasticity of volumes of transactions upon introducing such transaction taxes, demonstrating a conservative coefficient rather than supporting the capital hypothesis.

Another reason for why the cannot occur is that a very high frequency of financial operations benefit from being in close proximity to the Stock Exchange’s physical location, where the information is released firsthand electronically. (See: New York Times (2009): Stock Traders Find Speed Pays, in Milliseconds). Moving away from the live center of market operations would mean losing such a [critical time] advantage.

One seemingly unfounded objection is the impact the tax will have is on the overall cost of capital.

To set the rate proposed by the Barroso tax proposal, calculations based on the capitalization models of expected future asset values show that this cost is basically null (See again: Matheson 2011).

The other objection is based on reduced liquidity caused by the tax within markets. This is a matter of opinion. How much cash do we really need? Dean Baker, in his commentary on this issue, says that the tax would spell a return to transaction costs and to the state of liquidity of some ten years ago – that is to say, returning to a period that was far more flourishing than the times we are currently experiencing.

The truth is that there is no solid evidence on the effects of this tax on [total] liquidity, but only a series of different models with opposing results depending on the particular type of microstructure of financial markets and competition models hypothesized by intermediaries.

Summing up the four main objections to the institution of such a tax ([1] the tax cannot be imposed except on a global level, [2] there would be no control over the , [3] the tax significantly increases the overall costs of capital, and [4] the tax reduces market liquidity, they are either are false or unsubstantiated based on factual evidence (the first two) or lack of proof (the latter two).

Regarding the above arguments, the transaction tax (certainly not a panacea for all evil) may just represent an important step in recalibrating the relationship between financial institutions and other reforms that can help to prevent a new financial crises, as advocated by the Dodd Frank legislation [in the U.S.] and the Vickers Commission in the United Kingdom (cf. the Volcker Rule, the deleveraging of “too big to fail” intermediaries, and penalizing capital requirements for riskier investments as opposed to ordinary credit) and the restoration of civil society’s confidence in the financial institutions we so urgently now depend on.

In the Wall Street Journal, Acton Institute President and Co-Founder Rev. Robert A. Sirico looks at the recent “note” on economics released this week by the Vatican. The document, titled “Toward Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority,” was published with an eye toward the upcoming G-20 meeting in Cannes, France, on Nov. 3-4. This 18-page document has, Rev. Sirico observes, “been celebrated by advocates of bigger government the world over.”

But what’s missing from the popular analysis is that the Vatican document “embraces a sound economic theory concerning the cause of the world financial crisis: the breakdown of the postwar Bretton Woods monetary system and the unleashing of fiat currencies and central-bank printing presses.”

Rev. Sirico:

We went from a hard-money regime, in which there were restrictions on the power of central banks and financial institutions to create money and credit, to one where money became purely paper. There were no restrictions remaining on the power of governments to finance unlimited debt. Banks could create credit seemingly without limit. Central banks became the real power in the world economy.

None of this was true under a gold standard. That system limits the expansion of credit by an indelible physical fact. There was a limit, a check, a rule that went beyond the whim of financial masters and politicians. The Vatican seems to understand this.

But discerning the disease and finding the cure are very different undertakings, and here the document falls short. It imagines a new world central bank and political authority that will rule without “any partial vision or particular good” but rather seek “the common good.” Its decisions should “be made in the interest of all, not only to the advantage of some groups, whether they are formed by private lobbies or national governments.”

Somehow, with an intelligence never before discovered in government bureaucracies, these proposed global authorities would create “socio-economic, political and legal conditions essential for the existence of markets that are efficient and efficacious.”

Read “The Vatican’s Monetary Wisdom” on the website of the Wall Street Journal (may require registration).

Kishore Jayabalan, director of Istituto Acton in Rome, is quoted extensively in a story about the Vatican’s note on economic centralization written by Edward Pentin, a reporter for the National Catholic Register. If you wonder why the Acton Institute is around — why we feel the need to connect your good intentions with sound economics — well, Kishore explains:

Kishore Jayabalan… welcomed the Vatican’s attempt to deal with the economic crisis, but he said their conclusions were based on “political and economic ignorance rather than experience.”

But the note, written by the Pontifical Council for Peace and Justice, lacks more than sound economics; it lacks theological depth. It speaks throughout of the common good, but without a moral framework, that common good can have little ethical consequence. The kind of economic reform the note calls for could only be motivated by a conception of the common good rooted in a full, Christian understanding of human nature. Jayabalan again: “[the note] doesn’t speak of God or the natural law and so neglects this substantial notion of the common good,”

There is comparatively little talk even of greed and idolatry in the note — those vices seem get more attention at Occupy Wall Street drum circles than at the PCPJ. We’ll talk about them though:

Jayabalan, a former official at the Pontifical Council, said greed and idolatry are permanently recurring temptations that require “constructive ways” to combat them. And yet “quite surprisingly for an office of the Roman Curia and from a Catholic perspective, the note does not tell us much about the spiritual battle that must take place.”

Rather than draft this note, Jayabalan said the Vatican should have drawn on the “economic wisdom of the division of labor” which would have told them “to stick to what it knows and does best.”

Last summer, Acton’s PovertyCure team traveled to Ghana to meet with its economists and entrepreneurs — the men and women who are helping the country develop. It just so happens that they also met briefly with Peter Cardinal Turkson, president of the Vatican’s Pontifical Council for Peace and Justice and co-author of the note released yesterday that has stirred up a global controversy.

Cardinal Turkson, a native of Ghana, calls for the establishment of a central world bank in his note to the G-20, published in anticipation of next month’s summit in Cannes. Drawing from the first world’s obligation in solidarity to the developing world, he says:

Specific attention should be paid to the reform of the international monetary system and, in particular, the commitment to create some form of global monetary management, something that is already implicit in the Statues of the International Monetary Fund. It is obvious that to some extent this is equivalent to putting the existing exchange systems up for discussion in order to find effective means of coordination and supervision. This process must also involve the emerging and developing countries in defining the stages of a gradual adaptation of the existing instruments.

On that trip to Ghana, PovertyCure sat down for an interview with entrepreneur Herman Chinery-Hesse, a Ghanaian software developer who writes programs that can handle frequent power outages and primitive technology. (“Everybody builds Rolls Royces, but we’re in Africa; we build Land Rovers,” he explains.) His experience with a heavily nationalized economy that is dependent on foreign aid has taught him much:

I have never heard of a country that developed on aid. If you have heard of one, let me know! I know about countries that developed on trade, and innovation, and business. I don’t know of any country that got so much aid that it suddenly became a first world country. I have never heard of such a country.

Chinery-Hesse has plenty of experience with engines of economic progress created by well-meaning Western nations:

You cannot imagine how petty the political parties could get [in Ghana]… and they can do this because they are not depending on tax revenue. They are more interested in a smile on the World Bank country director’s face than the success of my business.

A truly human program of development must take into account the fallen nature of developing countries’ rulers — they’re human too, after all. The World Bank is disruptive enough as it is: ask Herman Chinery-Hesse whether Ghana would improve if we merged it into a behemoth financial overlord.

Samuel Gregg is quoted in today’s New York Times story about the Vatican note calling for a central world bank — he gives the final word on the document. The “politically liberal Catholics” quoted before him reveal that they have missed a crucial distinction in the document produced by the Pontifical Council for Peace and Justice. Gregg, of course has picked up on that distinction; he wrote yesterday:

Putting aside doctrinal questions, this text also makes claims of a more strictly economic nature…. The text makes a legitimate point about the effects of a disjunction between the financial sector and the rest of the economy.

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.

The academics and activists who see in the document a way forward to socialism have missed the split between the note’s diagnosis of the world economy, and its proposed economic reforms. I cannot resist quoting G.K. Chesterton: “The reformer is always right about what is wrong. He is generally wrong about what is right.”

To say that “the time has come to conceive of institutions with universal competence,” as PCPJ President Cardinal Turkson did yesterday, is all well and good, but the possibility of such institutions running effectively is another matter.

Indeed, Kishore Jayabalan, the director of Istituto Acton and a former staffer at the Council, asked the National Catholic Reporter, “What makes the [Council] think that ‘global’ leaders will succeed where so many national ones have failed? It is a shame this document is based more on sentimental political hopes for world government than on actual experience and expertise of financial markets.”

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.

Director of Research Samuel Gregg has written a special report for the American Spectator about Benedict XVI’s upcoming trip to Germany. The recent World Youth Day in Spain may have looked like a bigger challenge for Benedict, but Gregg says that Germany, while its economy looks good, is facing rough seas ahead.

Germany finds itself propping up a political experiment (otherwise known as the euro) that’s tottering under the weight of its internal contradictions. As the German tabloid Bild put it: “Will we finally have to pay for all of Europe?”

Looking beyond the present, however, grave challenges lie ahead for Germany—not all of which are economic.

Germanyhas, for instance, one of Western Europe’s worst birthrates. That spells trouble for Germany’s future productivity and its welfare state. A second issue is Germany’s struggle with the questions of immigration and non-assimilated Muslim minorities and the subsequently-inevitable always-awkward debates about what it means to be German in modern Europe.

And the institution whose clarity of thought and moral influence should be guiding the country as it faces those issues—the German Church—is weakened.

On the surface, the German Church’s problems are manifested in the large numbers of German Catholics who say they’ve left the church in recent years (the very liberal Protestant German churches are shedding members even faster). Then there are the sex abuse scandals which emerged when ugly stories began circulating about what had really gone on in a now not-so-prestigious Berlin-based Jesuit school in the 1970s and ’80s.

There is, however, another dimension to German Catholicism’s present problems: a story of the follies of accommodation to whatever counts as “modern” or “contemporary” at any given moment.

The German Church has become heavily bureaucratized (and staffed by many unbelievers), and its response to Vatican II has been less to engage with modernity and more to accommodate it. The Church has lowered its focus, Gregg says, to two worldly concerns:

The first is power within the structures of German Catholicism because (sotto voce) “we all know” life is really about acquiring power rather than knowing truth. The second is upon changing Catholicism to make the Church look much more like “the world” because (sotto voce) “we all know” the fullness of divine truth is “out there” rather than in the Revelation of Jesus Christ.

Gregg does not despair, however, for

Younger bishops, priests and laity are far less worried about upsetting those tenured theologians who aren’t sure if Christ is God but who are absolutely convinced no sin could possibly be mortal. The epicenter of German Catholic life is shifting away from what Benedict once called “the spent and tired” bureaucracy and is increasingly with what he describes as initiatives that “come from within, from the joy of young people.”

And that, perhaps, is what Benedict will bring to the German Church: a sense of the joy of living a full Christian life, a message that contrasts sharply with the Götterdämmerung of a fading generation of Catholics in perpetual rebellion against anything which suggests modernity doesn’t have all the answers. And in the contest of hope versus despair, we all know who ultimately wins.

Noted NYU law professor and free-market advocate Richard Epstein has written a provocative piece titled “How is Warren Buffett like the Pope? They are both dead wrong on economics.” Here’s the money quote:

The great advantage of competition in markets is that it exhausts all gains from trade, which thus allows individuals to attain higher levels of welfare. These win/win propositions may not reach the perfect endpoint, but they will avoid the woes that are now consuming once prosperous economies. Understanding the win/win concept would have taken the Pope away from his false condemnation of markets. It might have led him to examine more closely Spain’s profligate policies, where high guaranteed public benefits and extensive workplace regulation have led to an unholy mix of soaring public debt and an unemployment rate of 20 percent. It is a tragic irony that papal economics mimic those of the Church’s socialist opponents. The Pope’s powerful but misdirected words will only complicate the task of meaningful fiscal and regulatory reform in Spain and the rest of Europe. False claims for social justice come at a very high price.

I blogged about Pope Benedict’s comments last week, and while I don’t disagree with Epstein’s main point, I wonder if he actually means to deny the importance of ethics in economics. The Pope wasn’t saying that there should be no fiscal or regulatory reform, but that such reform must consider future, and not merely present, well-being, which is actually the impetus for policies such as liberalizing labor markets. And unlike Warren Buffett, the Pope wasn’t calling for higher taxes on the rich.

In short, the Pope was making a larger ethical argument that can certainly include the much-needed reforms Epstein cites. Since the Pope isn’t an economist and doesn’t pretend to be one, we should listen to his moral teachings and try to incorporate them with sound economics, rather than disparage them as economically damaging. It is true that while Catholic social teaching stresses the importance and necessity of profits, far too many Catholic and other religious leaders neglect how profits are actually made and distributed – which Epstein briefly and usefully describes – and in this sense, it is far too easy for moralists to pit profits versus people. It would make more sense to try to relate how profit maximization can and often does contribute to the common good, but it can’t do so without ethical men and women who won’t lie, cheat and steal.

I’d like to think that both the Pope and Richard Epstein are right.