Posts tagged with: economics

Blog author: eamyx
posted by on Thursday, July 14, 2011

Back in February 2008, then candidate for president Barack Obama addressed a crowd at a General Motors Assembly Plant in Janesville, Wis. He said,

…I am my brother’s keeper; I am my sister’s keeper– that makes this country work. It’s what allows us to pursue out individual dreams, yet still come together as a single American family. E pluribus Unum. Out of many, one.

It is ironic that Obama preached a “we’re-in-this-together” economic philosophy yet three years later, Main Street is carrying Washington’s debt burden.

Debt negotiations are currently at a deadlock in Washington over taxes. President Obama doesn’t want to follow through with $4 trillion in spending cuts without a $1 trillion tax increase, while Senate Democrats are asking for a whopping $2 trillion in new taxes. Democrats also do not want to sacrifice entitlement programs. Top leaders worry they will not be able to reach a deal in time to avoid a government default. With the predicted default deadline of August 2 creeping around the corner and unemployment on the rise at 9.2 percent, citizens feel a sense of urgency about the debt crisis.

When Obama said “I am my brother’s keeper,” what did he really mean? If the government is to act as our brother’s keeper, this means it should be accepting responsibility for the welfare of all citizens. Raising taxes to cover up Washington’s nasty spending habits is certainly not accepting any responsibility.

If the government was really acting in the best interest of its citizens, it would stop raising taxes. According to the Tax Foundation, Americans will need to work from January 1 to April 12 before they have earned enough to pay off their taxes. Tax increases may seem like a quick way to reduce the deficit as opposed to spending cuts alone, but the bottom line is that Washington has a spending problem, not a revenue problem. A Goldman Sachs report found that tax increases usually fail to correct fiscal imbalances and are damaging to economic growth while spending cuts correct fiscal imbalances and boost growth. Milton Friedman explains in his essay titled Fallacy: Government Spending and Deficits Stimulate the Economy why government spending does not mean “stimulus”:

Getting the extra taxes, however, requires raising the rate of taxation. As a result, the taxpayer gets to keep less of each dollar earned or received as a return on investment, which reduces his or her incentive to work and to save. The resulting reduction in effort or in savings is a hidden cost of the extra spending. Far from being a stimulus to the economy, extra spending financed through higher taxes is a drag on the economy.

The $2 trillion tax increase Senate Democrats are pushing has the potential to suffocate economic growth and job creation, which would not be good news for 14 million unemployed Americans. Today, the Great Recession now has more idle workers than the Great Depression. An article in The Fiscal Times claims the employment level is nowhere near where it should be for a typical recovery:

In a typical recovery, we would have had several hundred thousand more hires per month than we are seeing now—this despite unprecedented fiscal and monetary stimulus (including the rescue of the automobile industry, whose collapse would likely have lost a million jobs).

If spending binges don’t work for a family, why would they work for a government? When a family spends more than they are making, the only sensible solution would be to cut spending. Bureaucrats should take House Minority Leader Eric Cantor’s advice and be willing to share the sacrifice:

Everyone understands that Washington has been on a spending binge of late and we’ve got to start spending money the way taxpayers are right now and that’s learning how to do more with less.

The debt crisis is not just an economic hazard but a prodigious moral issue of poor stewardship as explained in an Acton commentary by Jordan Ballor and Ray Nothstine titled The Fiscal Responsibility of Mall Rats and Bureaucrats:

Responsible stewardship of one’s material resources is a consistent and recurring biblical theme. At the conclusion of a parable on stewardship, Jesus said, “Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much” (Luke 16:10 NIV). We shouldn’t be duped into granting the use of greater and greater portions of our paychecks to a federal government that has been unfaithful with what it has already claimed.

Our economy will continue to hobble along until Washington is willing to truly act as a brother’s keeper in showing that it too can share the sacrifices necessary for getting spending under control. Until then, we will pay the price for Washington’s fiscal irresponsibility and millions of Americans will continue to struggle.

Kishore Jayabalan, Director of Istituto Acton in Rome, was interviewed by Vatican Radio to discuss the Italian budget. Italy has a large budget crisis, and if it isn’t resolved, it may face serious financial problems similar to those experienced by Greece.

Lawmakers in Italy have begun working on austerity measures, which was the topic of Jayabalan’s interview:

“Austerity is fairly important for the Italian economy,” says Kishore Jayabalan, the director of the Rome office of the Acton Institute. But he says even with austerity, Italy will need economic growth to pay its debts.

[…]

“They are creating all kinds of impediments for economic growth. If you want to get the Italian economy reformed, the political class not only is going to have to do things like get rid of regulations, but really cut down the bureaucracy, because that is what is really bringing down the Italian economy,” Jayabalan said.

Click here to read the full article and listen to the interview.

Last week, Pope Benedict XVI addressed the annual conference of the UN Food and Agriculture Organization, and expressed particular concern over rising food prices and the instability of the global food market. In his 2009 encyclical Caritas in Veritate, the pope issued this challenge: “The problem of food insecurity needs to be addressed within a long-term perspective, eliminating the structural causes that give rise to it and promoting the agricultural development of poorer countries.”

Acton’s Director of Research Samuel Gregg has done much to illuminate those structural causes and their effects on the agricultural capacity of developing countries. In an interview with EWTN two months ago, he talked about two of the most important drivers of high food prices: farm subsidies and energy costs.

“All the subsidies that go into agriculture—through things like import taxes and tariffs, as well as direct subsidies—have the paradoxical effect of reducing the incentive for investment in agriculture in developing countries,” said Dr. Gregg. African farmers cannot compete with their counterparts in the first world who are able to sell their produce at artificially low prices, and so developing countries end up turning away from food production. In the long run, this decrease in supply causes prices to rise.

Energy prices also affect the cost of food: the more a farmer pays for gasoline, the more he has to recoup from the sale of his crops. Again, market imbalances are causing prices to rise—OPEC, the cartel that controls a substantial amount of the world’s crude oil, determines its supply, and so “there’s a disparity between supply and demand,” Dr. Gregg explained. “OPEC and other oil-producing countries introduce a whole range of price distortions into the energy sector, resulting in higher prices”

U.S. energy policy is also to blame: from drilling moratoriums to ethanol subsidies, the federal government has effectively introduced inefficiency to energy markets.

Developing countries must be allowed to produce food without being undercut by Western protectionism and too-costly energy. When free markets are hindered, the poor suffer most.

This year’s Acton University was very successful, and we are still seeing its effects through blog posts, tweets, and Facebook messages. Some of our PowerBlog readers may be wondering what they missed out on, or would also like to think back a few weeks to their favorite Acton University moments.

To listen to a favorite lecture, or to find out what was missed, remember that Acton University 2011 lectures can be purchased and downloaded for $1.99.

Joe Gorra of the Evangelical Philosophical Society compiled nine interviews with different Acton University faculty who lectured on countless invigorating topics including, sustainability and the environment, ethics, Nietzche’s critique of Christianity and Caitalism, and free markets. Gorra’s post helps of relive some of the memories he had at Acton University, along with give those who weren’t able to attend the conference a taste of what was missed.

Gorra interviews James Otteson, a professor of philosophy and economics at Yeshiva University. Otteson’s course at Acton University was titled, “Adam Smith: Philosopher and Political Economist.” In the interview Ottenson explains some of the misconceptions associated with Adam Smith:

As you know, some hold various misconceptions about Adam Smith and his work. As someone who has spent a considerable amount of time studying Smith and his objectors, what would you say are the top misconceptions that scholars or non-scholars often assert about him and his work and how would you respond?

Misconceptions of Smith come from both political directions, as it were. Some have portrayed Smith as a doctrinaire laissez-faire libertarian, while others, more recently, have portrayed him as something like a contemporary progressive liberal. Neither is accurate. His review of the available historical and economic evidence led him to conclude that, after providing protection for people’s lives, liberty, and property, minimal government interference in people’s lives led to prosperity for all—including especially the poor. So he was genuinely concerned about the least among us, and his policy recommendations were based primarily on concerns about their welfare. Yet his recommendation of limited government was presumptive, not absolute: It served as a default to which exceptions could be made if the evidence for the particular case warranted it. I call his position “pragmatic classical liberalism.”

John Bolt, Professor of Systematic Theology at Calvin Theological Seminary, was also interviewed by Gorra. Bolt’s course, which delved into the works of Alexis de Tocqueville, was called “Centralization and Civil Society.” In the interview, Bolt discusses what the concept of “intermediary institutions” means:

Tocqueville’s concept of “intermediary institutions” is central to his vision of civic life and human flourishing. Can you explain the meaning and significance of that in Tocqueville and how it is indispensable to the maintenance of liberty and social cohesion in a civil society?

Tocqueville realized that the great danger in modern, egalitarian democracy lay in our tendency toward what he called “individualism.” In the U.S., at least, we don’t normally consider this a dangerous notion. But for him, individualism implied not heroism, but a kind of retreat into isolated nothingness and an evasion of responsibility for one’s fellow man. This kind of isolation poses dangers to liberty because as lone, equal individuals, we come face to face with our tremendous weakness. We need someone or something to save us, and having denied God (isn’t God the ultimate affront to a deep belief in equality?), we turn to the state.

Intermediary institutions (clubs, local political organizations, community activities, churches, etc.) tie us – really oblige us – to our neighbors. They train us to recognize the ways we can satisfy our various needs without turning to political power to provide the goods we require. He says these associations teach the art of being free and living responsibly. Without them, we will fall out of practice at self-government.

And in a testament to the success of Acton University, Gorra explains in his blog post, “Why the Acton Institute? Philosophy’s Good Beyond Philosophy,” his reasoning to attending the conference:

The work of the Acton Institute (www.acton.org), and especially their annual Acton University conference, is highly hospitable to this sort endeavor. Over the last several years, I have attended Acton University (second time this year, and happening now!), their Toward a Free and Virtuous Society events, and also co-sponsored Liberty Fund and Acton Institute events.

Honestly, I don’t know of any other conference or organization that intentionally affords the Christian philosopher the unique opportunity to engage in such interdisciplinary work at the intersection of theology, economics, and social policy. As a matter of enrichment (personally and professionally), I “come alive” at their gathering, my imagination is cultivated by the possibilities of how the theoretical and practical  goods of philosophy can converge and collaborate with other bodies of knowledge.

Acton’s intellectual architecture is intelligently designed to permit – no, encourage! – the good of philosophy to be utilized in this way.

Click here to read Gorra’s nine interviews with Acton University faculty.

 

Anarchist punks are out and the socially-aware hipsters are in (even though they don’t want to say they’re “in”). A little over a decade ago, the hipster scene made its biggest comeback since the 1940s. Though they come in all shapes and sizes, many contemporary hipsters can be found riding their fixed-gear bikes to the farmers’ market or at a bar in skinny jeans drinking Pabst Blue Ribbon.

The Moneyed Yuppies. Source: Hipster Christianity


 
An interesting sub-category has emerged: Christian hipsters. According to Brett McCracken in an article titled Hipster Faith in Christianity Today, Christian hipsters are rebelling against the over-spiritualized Christian culture they were raised in. Some of them say they have been scarred by contemporary Christian music, door-to-door evangelism and the non-denominational megachurches of their childhood. McCracken, also the author of Hipster Christianity: When Church and Cool Collide, says Christian hipsters are rebelling against

…the stereotypical evangelical church of the 80s – 90s: The Republican, middle class, abortion-clinic-picketing, anti-gay, anti-welfare, legalistic, not-so-interested-in-art-or-books WASP evangelical.

McCracken says the Christian hipster culture is small, but influential. Christian hipsters are returning to a more intellectual, traditional and back-to-basics Christianity. They are Protestants who may secretly wish they were Orthodox or Catholic in some respects. Chances are they read books by C.S. Lewis and Dietrich Bonhoeffer, and probably prefer traditional hymns and Sufjan Stevens to Hillsong. Christian hipsters might like shopping at thrift stores, studying abroad, reading philosophy, drinking organic coffee, smoking cigars and serving beer or scotch at bible study.

Christian hipsters also express themselves theologically:

…through preaching that often emphasizes covenantal and ‘new creation’ ideas and attempts to construct a more ecclesiological or community-centric view of salvation. Things like soul-winning and going to heaven are downplayed in favor of the notion that heaven will come down to earth and renew the broken creation. Thus, the world matters. It’s not a piece of rotting kindling that we will abandon for heaven one day. It’s the site of a renewed kingdom. All of this informs hipster Christianity’s attention to things like social justice, environmentalism, and the arts, because if God is building his kingdom on earth, then it all matters.

As mentioned in McCracken’s book, the theological beliefs of the typical Christian hipster can be linked with the Emerging Church, which is associated with authors and pastors like Donald Miller, Brian McLaren, and Rob Bell. According to an article in Christianity Today titled Five Streams of the Emerging Church by Scot McKnight, the doctrine of the Emerging Church is hard to define because systematic theology is viewed suspiciously. Since living out the Gospel is more emphasized than doctrinal beliefs, Christian hipsters who associate themselves with the Emerging Church are generally more focused on helping the poor rather than evangelism.

So what are the economic implications of the Emerging Church? They have been criticized for placing a heavier focus on the material world rather than the spiritual world, which is somewhat reminiscent of the Social Gospel movement in America led by Walter Rauschenbusch in the late 19th and early 20th century, according to McKnight:

Sometimes, however, when I look at emerging politics, I see Walter Rauschenbusch, the architect of the Social Gospel. Without trying to deny the spiritual Gospel, he led his followers into the Social Gospel. The results were devastating for mainline Christianity’s ability to summon sinners to personal conversion. The results were also devastating for evangelical Christianity, which has itself struggled to maintain a proper balance.

The Social Gospel promotes the postmillennial view that Christ will not return until social evils are rid by human effort. Rauschenbusch was very critical towards capitalism and viewed socialism as the means to achieve justice on earth. It is too soon to tell if Christian hipsters and the Emerging Church will reflect the Social Gospel movement as strong as the past, but certain figures in the movement certainly echo a similar economic theme.

In his controversial book, Everything Must Change: Jesus, Global Crises, and a Revolution of Hope, McLaren’s theological views have been criticized for twisting the Gospel and suggesting social and economic issues are more important than spiritual issues. On page 210 of his book, McLaren says,

Genesis provides a genealogy for all the pain and evil in the whole social structure of humans on planet Earth: it can be traced back to a problem of consumption beyond limits.

Some claim McLaren has replaced biblical themes with political and economic themes of consumption and class warfare (reminds me of someone named Karl Marx).

I do not fault McLaren’s desire to live in a better world. We all desire a better world because we were made for something far greater. Nevertheless, if McLaren believes human efforts can bring The Kingdom of God to earth, his beliefs are not biblical. In the words of Christ,

My Kingdom is not of this world. If it were, My servants would fight for Me. But now My Kingdom is from elsewhere. (John 18:36)

Though the Christian hipster culture might not have a definitive doctrinal theology or a sound economic philosophy, they do have a deep passion for the poor and the desire to live out the Gospel. As Christians, the question is not if we should care for the poor, but how to care for the poor. We cannot properly care for the needy if we over-spiritualize or over-materialize the world because the church is called to address both spiritual and physical needs. Effectively caring for the physical needs of the poor requires a solid economic philosophy that fosters competition, innovation and wealth creation.

Earlier this week on the Acton Institute Facebook page, Rev. Sirico’s archived article “What is Capitalism?” was posted and sparked a lively discussion between two people (click here to see our Facebook page and the discussion). This blog post is to serve as my response.

Your idea of communionism, at least from what I understand from your comments, bears some resemblances to communism which has the end goal of society or the community possessing property in common. This, however, doesn’t preserve human dignity properly; nor does not foster interdependence among people. Instead it creates a society dependent on a centralized government.

In his Summa Theologica, Thomas Aquinas explains some of the core the problems with common property. Like Aristotle, he notes, that individuals are better managers of property because it allows for a more orderly fashion of management, and as he states “human beings content with their own property live in a condition of peace. And so we observe that quarrels arise rather frequently among those who possess goods in common not individually.” The quarrels can arise because no individual is specifically responsible for the care of the common property. There is no person who feels like he or she has stake in the property. A direct result, and historical example, of common property is the tragedy of the commons.

In Capital Marx argues that there is no value in human labor per se. He states “human labour, creates value, but is not itself value. It becomes value only in its congealed state, when embodied in the form of some object.” This is contrary to Christian beliefs. There is intrinsic value in human labor itself. To work is a calling and a form of stewardship. In the encyclical Laborem Exercens, (“On Human Work”), Pope John Paul II explains how working is a direct expression of our human dignity. Such preservation of human dignity cannot be found in a system that devalues work.

The idea of property that you advocate is also found in Marx’s Capital and the Manifesto of the Communist Party. This idea is flawed on many levels. It doesn’t take into account that the entrepreneur purchases the raw goods that the workers use to make the end product. As a result, based on any definition of property, the entrepreneur is the sole owner of the raw goods and it is his or her private property, not the worker. The worker engages in a contract with the entrepreneur in an exchange of services. Just because the worker uses his or her services, which he or she is paid for by the entrepreneur, does not translate into the worker becoming the owner of the raw good which becomes the final product.

The idea of private property that you advocate, rescinding property rights for all corporations, is dangerous on many levels. It puts political rights, religious rights, and all private property rights in danger. Marx notes that the abolition of private property for the bourgeois leads to the abolition of family because, according to his argument, the family is rooted in property and private gain. Furthermore, Marx articulates that his beliefs, which bring forth a communist centralized system, also abolish religion.

In Federalist Paper No. 10 James Madison argues how the first object of any government is the protection of property. Furthermore, in Democracy in America Alexis de Tocqueville explains that what makes America successful is its protection of private property for all. No landed property class exists. He articulates how the protection of private property translates into the protection of political rights even to the least of all citizens. Furthermore the right to property fosters “…obedience to established law, of the influence of good mores in republics, and of the assistance that religious ideas lend to order and freedom…” What makes America special and successful, according to Tocqueville, is the protection of rights for all people. As Tocqueville demonstrates, the right of property needs to be protected because other rights stem from it. This right extends to even corporations. Rights should be guaranteed for all, not winners and losers picked by the government.

Again, private property should be protected at all levels, for both individuals and corporations. Hernando de Soto explains this in his book and in an essay both titled, The Mystery of Capital. Through examples found in his essay, book, and case studies (which can be found by clicking here), de Soto effectively argues using proven facts, statistics, and real world examples that the protection of capital and private property rights has led to economic prosperity in the west, whereas the lack of protection is a leading reason to the economic disparity in poor countries. If we fail to protect private property rights on all levels, then we begin down a path of economic decline. Without the protection of private property rights, and an effective legal structure to guarantee such protection, the wrong message is being sent to businesses. No business will want to invest in an economic climate that is hostile towards them.

A market system, which is what Rev. Sirico argues for in his article “What is Capitalism?” actually fosters virtues that all Christians value. This is articulated by Stephen Grabil in his essay “The Market, School of Virtue.” Here Grabil shows that greed is not what makes a free market churning, but instead it is virtue. Some of the virtues fostered in a free market are trustworthiness, self-control, sympathy, and fairness. Jay Richards, author of Money, Greed, and God: Why Capitalism Is the Solution and Not the Problem, demonstrates that greed is a vice which even Adam Smith condemned. Richards also shows why greed does not lead to a successful market economy, but actually destroys it.

In regards to the referenced Fulton Sheen article titled “New Slavery” it is important to note that the article was written in 1943 when many monopolies were present in the market. Acton has never believed in or supported crony capitalism. Monopolies do not allow competition which is bad for the consumer and the worker. Also, Sheen does not advocate for the end of private property in his article. Instead he says we have a right to private property and our use of it should be righteous “Possession [of property] has two faces, two aspects: we all have a right to private property, but this is accompanied by our responsibility for its righteous use.” As Sirico articulates in the posted article, when the market is structured successfully it is the consumer who has primary control and then next is the worker. This is because of competition. Monopoly capitalism comes when the government gets into bed with businesses, and essentially block new entrepreneurs and potential new competitors from entering into the market.

Free markets are not just about an economic system. It is something greater than economics, it is about freedom. The freedom to choose what to purchase, the freedom for the worker to find an employer and not be forced into employment with the state or a monopoly, and the freedom to hold property and have it protected, this freedom is what capitalism is about. Tocqueville saw this in his visit to America and correctly articulated how the protection of private property, in all levels, has led to the great freedom Americans enjoy. However, Tocqueville also recognized the need for virtuous men and women because he knew America cannot succeed, nor its structure of government without them. As he states, “There are no great men without virtue; without respect for rights, there is no great people: one can almost say that there is no society; for what is a union of rational and intelligent being among whom force is the sole bond?”

Elise Amyx recently published an interesting post about the Dodd-Frank Wall Street Reform and Consumer Protection Act, focusing on financial regulation.  Another interesting look at regulation concerns the “Ponzi scheme” that Bernard Madoff was apprehended for three years ago.

The tale begins in 2000 when Harry Markopolos, a chartered financial analyst and certified fraud examiner, submitted information to the Security and Exchange Commission’s Director of Enforcement, Grant Ward, that there were signs that Madoff was operating a fraudulent fund.  However, no action was taken by the SEC until 2008, when the damage from Madoff’s fraud was already done.

For eight years, the SEC, among other government financial regulators and private news sources, refused to audit Madoff’s fund for fraud, even though, to many financial experts, it appeared obvious something illicit was occurring.

Markopolos stated, “The biggest, most glaring tip-off that this had to a fraud was that Madoff only reported 3 down months out of 87 months, whereas the S&P 500 was down 28 months during that time period. No money manager is only down 3.4% of the time. That would be equivalent to a Major League Baseball player batting .966 and no one suspecting this player was cheating” (page 9).

In addition to the SEC, Markopolos tried to alert the Wall Street Journal to Madoff’s scheme: “ … there were several points in time when he [Wall Street Journal senior investigative reporter John Wilke] was getting ready to book air travel to start the story and then would get called off at the last minute. I never determined if the senior editors at the WSJ failed to authorize this investigation” (16).

The Wall Street Journal recently published a piece considering Markopolos and had this to say about his character: “Critics say he’s self-righteous and a little bit crazy. In his book, No One Would Listen, Mr. Markopolos describes how he armed himself should he ever meet Mr. Madoff face-to-face. He fortified his home for what he thought was the very real possibility the SEC would send a team to suppress evidence that it knew about Mr. Madoff through Mr. Markopolos’ efforts to expose him.”  So, perhaps the WSJ simply thought Markopolos was exaggerating and creating a scandal where there wasn’t one.

However, Markopolos stated in his testimony that he was disgusted that “neither the WSJ nor the SEC were inclined to even pick up a phone and dial any of the leads I had provided to them” (17).

Markopolos rightly stated, in his testimony, that this “was an abject failure by the regulatory agencies we entrust as our watchdog” to take action and investigate Madoff (1).

Even more disturbing to Markopolos was that “dozens of highly knowledgeable men and women also knew that Madoff was a fraud and walked away silently, saying and doing nothing,” (24) demonstrating that, like Amyx stated, a government cannot legislate into existence morality or values (like honesty!) for citizens.

In his testimony, Markopolos added, “We can ask ourselves would the result have been different if those others had raised their voices, and what does that say about self-regulated markets?” (25)

If personal morality and self-regulation fail, which underpin the free market, and government regulation fails, what can be done?

One obvious flaw is the United States has too many regulators and too many laws, yet not much effective regulation.  It seems a strange statement, but Markopolos said as much in his testimony to Congress: “Our nation has too many financial regulators. The separation and lack of connection and communication between them leaves too many gaping holes for financial predators to engage in ‘regulator arbitrage’ and exploit these regulatory gaps where no one regulator is the monitor” (29).

Criminals, like Madoff, can easily shift between regulators and regulatory jurisdictions, and avoid punishment for years, eroding faith that markets are self-correcting and self-regulatory and that individuals or the government are capable of, if called upon, preventing financial crime.

As much as over-regulation seems to be the problem, Markopolos never made the case that all regulation or oversight was unnecessary.  Indeed, he recognizes that a clear, but limited amount is beneficial to keep white-collar criminals, like Madoff, at bay.

In Markopolos’ opinion, “The goal needs to be to combine regulatory functions into as few a number as possible to prevent regulatory arbitrage, centralize command and control, ensure unity of effort, eliminate expensive duplication of effort, and minimize the number of regulators to which American businesses have to answer” (30).

This reduction in size and condensing of regulation would not only eliminate wasteful, duplicative government spending, it would make current financial law easier to understand and enforce.  Hopefully, this streamlining would also reduce egregious legislative overreach, like the 2,253 page Dodd-Frank bill Amyx detailed.

In the case of Bernard Madoff, self-regulation in the financial industry did not work, but neither did centralized, federal regulation.  What is needed is a responsible synthesis of personal morality and government oversight.

Christians should remember, in the words of Paul in 2 Corinthians 5:10, that, “We must all appear before the judgment seat of Christ; that every one may receive the things done in his body, according to that he has done, whether it be good or bad.”

Those who ignored/aided Madoff should remember this and be reminded that, in order for society and markets to function, individuals are responsible to a higher power for protecting one another and the helpless, such as all those who lost their life savings due to Madoff’s crime, from harm.

On the regulatory side, instead of an “alphabet soup” of regulators and excessive, market-infringing regulation, a single (or perhaps a few) regulators(s) could enforce a limited amount of financial regulation to prevent fraud.

Hopefully, this would satisfy the market as there would be less regulators and regulation involved, allowing for maximum creativity and innovation in the market, while, at the same time, satisfying the socially concerned that enough is being done to prevent large-scale exploiters like Madoff from harming millions of people. Personal morality and responsibility, coupled with consistent, limited, fair oversight, would, as Proverbs 2:9 states, allow markets and businesspeople to “… understand what is right, just, and fair, and…find the right way to go.”

Blog author: ehilton
posted by on Wednesday, June 29, 2011

Imagine this:  a teacher tells her high school students that they are going to enjoy a chocolate cake, while learning about food distribution and economics.  (As a former high school teacher, I assure you, most of the students heard nothing past the word, “cake”.)

The teacher then divides the students into three groups.  In her class of 30 students, one group is made up of 4 students, a second group is 10 students and the third group is 16.  The teacher then sets the cake before them, and announces that she will divide the cake according to food distribution norms among “first, second and third world countries”.

The group of four students will then enjoy half the cake.  The second group of students will get about three-quarters of the remaining cake, and the smallest piece will go to the group of 16 students.  Of course, protests will follow, along with a discussion of how unfair it all is.

The goal of the teacher will be, of course, to see if the students with the most cake will share their cake with the other two groups.  If they don’t, that choice will be discussed as well.  The students will come away with the idea that everyone will have an equal piece of cake if only those with more share what they have.

This is a noble lesson, and we should of course share what we have, regardless of how much that is.  (After all, Scripture doesn’t encourage only the rich to tithe.)  Unfortunately, the lesson is wrong:  it’s based on the idea that there is only one cake, and we can’t possibly get any more.

I have to admit, that as a teacher, I used lessons similar to this one.  And never once, did I or any of my students suggest a most obvious answer:  bake another cake.

We have the same problem, writ large, in today’s economic outlook:  poor nations are poor because rich nations are hoarding what they have and not sharing.  If only the rich nations would “share the cake”, everyone would have enough.  It also reinforces the notion that poor countries have to sit around and wait for some noble rich nation to divvy up cake for them; they couldn’t possibly create one on their own.  That type of paternalistic attitude is both dangerous and wrong.  The “cake game” also supports the erroneous notion that large groups of poor people are going to take stuff from richer folks; therefore, we need to reduce the numbers of poor people in order to keep our “cake”.

This “zero-sum game” fallacy is only one problem with today’s economic policies, but it is a deeply-entrenched one.  We all need to know that there isn’t just one “cake”, and that by enabling people to create their own food sources, create their own wealth and create their own stable economies, it won’t cost us our “cake”.  We will, in fact, all have more cake – and what better reason to celebrate?

There’s a saying that when goods cross borders, armies don’t (it’s the correlative to the observation attributed to Bastiat: “If goods cannot cross borders, armies will.”). The point is that trade tends to bring people together who might otherwise have cause to be hostile. One of the themes at Acton University, which begins in just a few hours, is globalization and various Christian responses. That’s sure to be the case again this year, as we have just about 70 countries represented among the various participants.

It’s within this context that I want to pass along a noteworthy story I heard yesterday on our statewide public radio station, Michigan Radio. It focuses on what automaker General Motors did when faced with parts shortages following the Fukushima earthquake.

GM added a local Japan-based “War Room” to its response, focusing on solving problems on the ground to get the supply-chain back up and running. As Tracy Samilton reports, “Once the suppliers became convinced GM wasn’t there to dump them, they were awfully happy for their customer’s help. Whatever GM could do, it did. One supplier ran out of a special form of hydrogen peroxide. GM found another source for it and shipped it in from Korea. The company hired trucks.”

So when you have companies with global reach across borders and global supply chains to match, you get a different kind of “War Room,” those focused on putting “the links of the Japanese supply chain back together, often just in time to keep an assembly line from shutting down.”

As Samilton summarizes the lessons of the parts crisis, “People involved in the effort say they grew as human beings, grew closer to each other, met people in the company they might never have known. It was tough. But War Room veterans are keen to point out that they’re not the heroes of this story.”

Ron Mills, head of engineering at GM’s Tech Center, puts it this way,

“We all worked really hard here, but at the end of the day, I did go home, right? And I ate well, and people in Japan could not do that. They had to work hard and also go back and try to find food and clothing and shelter for them and their families and which – I was just in awe of how hard and how they were able to endure.”

The GM workers were driven both by a sense of self-preservation and need as well as genuine concern for their Japanese partners, a concern that became more concrete and palpable as the invisible hands up the supply chain became increasingly visible.

It is very easy to forget what is happening in other parts of the world especially when we are in the midst of our own financial crisis in the United States. Considering the economic challenges we are faced with, this may be a mistake as we can learn from other’s problems. Europe is experiencing economic woes that continue to worsen. In the American Spectator, Samuel Gregg explains:

As Europe’s financial crisis worsens, it’s increasingly apparent that the economic woes of countries like Portugal, Spain, and Greece have resulted from more than just bad policy. With each passing day, evidence mounts that one dynamic driving the crisis is that of untruth: a disturbing European pattern of fabrication about levels of public spending and debt.

The latest proof for this thesis is the discovery by newly-elected Spanish regional and local governments of concealed debts run up by their predecessors. This contradicts claims by Spain’s Socialist Finance Minister, Elena Salgado, that Spain’s regions had no “hidden deficits” on their accounts. Spain’s business community, however, has long complained about local governments pressuring private companies to do business with them “off the books.”

One reason for such behavior is that Spain’s government knows that the greater Spain’s real overall-public debt, the higher will be the interest-rates demanded by financial markets and the more stringent will be the conditions attached to any “financial assistance package” (i.e., bailout) that Spain might, like Portugal and Greece, eventually need.

As Gregg says, the financial problems in Europe are not just current but have been festering since the beginning of the Eurozone when strict standards were to be implemented:

In the 1990s, European governments agreed the single currency’s success would depend upon countries entering the eurozone on a solid financial basis and then remaining on a firm footing. To that end, both the 1992 Maastricht Treaty and the 1997 Stability and Growth Pact (SGP) established strict criteria concerning public spending for countries admitted to the single currency.

One such standard concerned the ratio of an applicant country’ gross government debt to GDP. It was not to exceed 60 percent at the end of the preceding fiscal year. Maastricht’s convergence criteria also specified that the ratio of the annual government deficit to GDP should not exceed 3 percent of the same fiscal period.

Such standards were supposed to prevent a “free rider” program from occurring so countries with an irresponsible fiscal reputation, such as Greece, didn’t use their membership to over-indulge and rely on the rest of the members to bail them out. However, this policy wasn’t strictly adhered too. Gregg states that “…many euro applicants were allowed to get away with ‘creative accounting’ to meet the conditions of Maastricht.”

Europe continued to financially falter and wasn’t showing signs of recovery. This could be seen from many actions such as the encouragement of “fudging” numbers through new rules that “added many exceptions for types of spending that would not be included when determining debt and deficit figures.”

Is there a solution to Europe’s financial crisis? Gregg responds with a resounding yes:

Few “core values” would have a more bracing effect upon Europe’s current economic problems than their governments embracing honesty, transparency, and accountability. No doubt many a European political-career would be terminated as a result. The alternative, however, is for Europe’s governments to continue the charade about the real state of their finances.

Morally and financially, that’s not an option at all.

Click here to read the full article in the American Spectator.