Posts tagged with: economics

The Public Discourse recently published my article, Rethinking Economics in the Post-Crisis World. Text follows:

In the wake of the financial crisis, we need an economics with greater humility about its predictive power and an increased understanding of the complicated human beings who, when the discipline is rightly understood, lie at its center.

Apart from bankers and politicians, few groups have received as much blame for the 2008 financial crisis as economists. “Economists are the forgotten guilty men” was how Anatole Kaletsky, former economics editor and current editor-at-large for the London Times, put it earlier this year when explaining why “a bank with just $1 billion of capital [would] borrow an extra $99 billion and then buy $100 billion of speculative investments.”

Greed and sheer imprudence played a role, but so too, Kaletsky argued, did those (unnamed) economists who posited that their models proved that events such as the collapse of Lehmann Brothers in 2008 or Long Term Capital Management in 1998 were mathematically likely to happen once every billion years.

Kaletsky’s broader point was that contemporary mainstream economics had been sufficiently discredited by the financial crisis that the entire discipline required what he called an “intellectual revolution,” or it risked being dismissed as a rather suspect sub-branch of statistical analysis and mathematical modeling.

Kaletsky is hardly alone in arguing that economists need to rethink key aspects of their discipline. Though unwilling to call for a total paradigm shift, the Economist recently opined that the financial crisis has raised profound questions of coherence about two areas of economics: macro-economics and financial economics. “Few financial economists,” the Economist observed, “thought much about illiquidity or counterparty risk, for instance, because their standard models ignore it.” Likewise, the Economist commented, “Macroeconomists also had a blindspot: their standard models assumed that capital markets work perfectly.”

All this is certainly true. But the key expression to note here is “their standard models.” (more…)

Blog author: jballor
posted by on Monday, July 27, 2009

Dr. David Murray of Puritan Reformed Theological Seminary investigates the concept of “biblical fundraising,” reasons to continue to give in the midst of difficult economic times, in the latest edition of his vcast, “puritanPod.” Dr. Murray uses 2 Corinthians 9 as the basis for his brief but valuable message.

Check out the video here.

The Rome Reports news service recently interviewed me about the new social encyclical, Caritas in Veritate. Here’s the segment, and a transcript of the interview.

Rome Reports: Benedict XVI’s encyclical, Charity in Truth is already on the list of best selling books this month. In it, the pope proposes the steps to achieve a sound economy and to avoid another economic crisis in the future.

Kishore Jayabalan: I think he is trying to change our orientation from a moral and ethical perspective, and to address economic and social affairs from a more Catholic moral perspective, sometimes we think catholic morality only has to do with marriage and family issues, or only as something that we hear about on Sundays in church.

RR: Kishore Jayabalan is an economist who directs the Acton Institute in Rome for the study of religion and freedom. He says that one of the most important points the pope stresses in building a new economy is respecting peoples rights to initiative and property.

Jayabalan: What the document refers to as breathing space, you have to let people on the grounds of subsidiarity come up with their our solutions to their own problems, they can’t all be dictated from the top down.

RR: Benedict also says the new economy should entail that globalization be a process that pursues the common good.

Jayabalan: The second thing, is that the rest of us needs to realize that globalization is a process for the good that excluding people from globalization is simply a way of spreading poverty more broadly across the world, which goes against catholic social teaching.

RR: According to Jayabalan, to solve economic problems, the theological aspect must also be included. In his encyclical, the pope explains why a relationship between God and man gives people more freedom.

Jayabalan: It allows for more freedom because it tells us that there is a relationship that the state cannot enter into, and I think this is why the encyclical refers to religious freedom for the first time in a social encyclical.

RR: But Jayabalan says that above all else, the pope seeks to unite two concepts that are often separated, respect for life and social justice. He says the popes gift to President Barack Obama the encyclical Dignitas Personae on Bioethics– clearly shows his agenda.

Jayabalan: The pro-life people tend to be on the right politically and the social justice people tend to be on the left politically and pope Benedict is trying to get us to look beyond those old categories.

RR: In short, according to Jayabalan, “Charity in Truth” is a call to work together for social justice, a goal that cannot be realized without a profound respect for human life in all its stages.

Back in 1983, economist Thomas Sowell wrote The Economics and Politics of Race, an in-depth look at how different ethnic and immigrant groups fared in different countries throughout human history. He noted that some groups, like the overseas Chinese, Japanese, and Jews, tended to thrive economically no matter where they went, bringing new skills to the countries that they arrived in and often achieving social acceptance even after facing considerable hatred and violence. Other groups, like the Irish and the Africans, tended to lag economically and found it difficult to become prosperous.

Sowell explained many of these differences by looking at the cultures both of the immigrant groups and of the dominant powers in the countries that they moved to. The Chinese, Japanese, and Jews, for example, valued work. They often arrived in countries with little more than the clothes on their backs, but they worked long and hard hours in menial labor and saved money scrupulously to make life better for their children. Even if they lacked social acceptance, they were allowed the freedom to develop their talents and contribute to the economic life of their new homes.

Irish and African cultures were never offered these opportunities. Ireland’s feuding lords had prevented hard work from being rewarded in Ireland, a situation that only got worse with British occupation. Sowell shows how Africans were similarly discouraged from working hard because slavery and the Jim Crow Era made it impossible for skills and effort to pay off in better standards of living. So long as hard work never paid off, there was no incentive for Irish or African cultures to emphasize entrepreneurship, and the members of these ethnic groups suffered from poverty rates much higher than those of other populations in the places they lived.

Fast forward to 2009. With many of the institutional barriers to the advancement of ethnic minorities gone from most countries, historically disadvantaged groups are catching up with the general population in economic terms. Pope Benedict revisited the theme of economics and culture in his encyclical Caritas in Veritate, coming to similar conclusions as Sowell does about the role that culture plays in the development of the human person. (more…)

Rev. Robert A. Sirico had two recent appearances on Relevant Radio’s Drew Mariani Show to discuss the new social encyclical from Pope Benedict XVI.  His first appearance was prior to the release of the encyclical and he explained how Christians who support the free economy believe that it should not be based on greed.  To have a just society, we must have just people.  When money becomes the end of a person, and a person’s whole life is directed to that end, Rev. Sirico points out that then a person is destroyed.  Finally, he closes with an important message: If we do no understand love then we do not understand ourselves because we are the result of God’s love.

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In his second appearance, Rev. Sirico explains why Pope Benedict XVI does not have any intention to declare himself in the middle of a political debate with the release of Caritas in Veritate.  The pope does not recommend a political model.  Instead, Caritas in Veritate is meant to lay down the principles on how to govern a society.  The encyclical accepts the reality and benefits of a market economy but states a market economy does not contain the moral guide that a society needs.  Rev. Sirico also asserts that the ambiguities that are in Caritas in Veritate are intentional.  Certain principles need an application which requires the virtue of prudence.  The pope allows ambiguity because this will foster a debate and from the debate the Church can gain a greater insight from what it is trying to get to and then re-articulate its message.  Rev. Sirico reminds us that it is important to understand that the Church’s social teaching is not a dogmatic pronouncement that is not debatable.  Instead, it is a dynamic process.

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Zenit published my article on the pope’s new social encyclical:

Encyclical Offers Opportunity to “Think With the Church”

By Jennifer Roback Morse

SAN MARCOS, California, JULY 17, 2009 (Zenit.org).- Benedict XVI’s “Caritas in Veritate” is his contribution to the course of Catholic social teaching.

Many commentators seem to read this document as if it were a think-tank white paper, and ask whether the Pope endorses their particular policy preferences. I must say that I surprised myself by not reflexively reading it in this way. After all, I spent many years teaching free-market economics.

I distinctly remember reading “Centesimus Annus” for the first time, and mentally checking to see if I agreed with it.

But this is not the correct way to read papal documents. The papacy’s prophetic role is to interpret the past, and provide guidance for the future, while avoiding the excesses of its own time.

In “Caritas in Veritate,” Benedict XVI argues for the centrality of moral considerations in both economics and politics. Without charity and truth, we cannot create a truly decent society, no matter how sophisticated our technology or how thorough-going our democracy.

Benedict XVI stresses the centrality of the social, cultural sphere for several reasons.

First, neither the economic nor the political spheres can function entirely on their own. Both the economic and the political sectors need to be peopled with individuals who have well-formed consciences. Therefore, economics and politics rely upon the Church, the family, and other social structures that shape the conscience.

Second, the cultural sphere needs its own defense. Both the economic and the political sectors have plenty of ideological defenders. The libertarian right seems to believe that the market can manage all of society. The socialist left seems to think that the government can solve every problem and wipe away every tear.

Extremists on both sides fail to respect culture’s distinctive role. (more…)

Kishore Jayabalan, director of Istituto Acton (the Acton Institute’s Rome office), was interviewed by Vatican Radio concerning the authentic human development concerns of the whole person, which is a topic discussed in Caritas in Veritate. Jayabalan discussed how development schemes throughout the world should look at the aspirations of each individual person.  Furthermore, in Caritas in Veritate there is a mention of a “breathing space” used a few times in the encyclical.  This breathing space aspect means developing a vibrant and diverse society and not allowing central planning to decide every aspect of a person’s life; it is also important to place the individual at the center of the development.

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Samuel Gregg, Director of Research at the Acton Institute, was interviewed on Ave Maria Radio.  Gregg discusses Caritas in Veritate while addressing many issues that have risen from the encyclical.  Gregg explains that the encyclical is not a conservative or liberal document, but rather it is simply Catholic.  People should not read it through the eyes of secular political categories; importantly, when reading Caritas in Veritate, we must not think in secular terms on issues such as the free market and redistribution of wealth.  Gregg also makes a point to mention Caritas in Veritate does not say markets are evil.  Markets are good, but we must make sure they are grounded in morals — this is what makes a market good and successful.

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Commenting on how Pope Benedict XVI addressed the economic crisis and development challenges in “Caritas in Veritate” is Lord Brian Griffiths of Fforestfach, a member of the British House of Lords and Vice-Chairman of Goldman Sachs International. He has served in an advisory capacity to the Acton Institute and delivered published papers on globalization and Third World development at the Institute’s international conferences.

Click here for the original article appearing in The Times.

July 13, 2009
The Times

Pope Benedict is the man on the money

The best analysis yet of the global economic crisis tells how people, not just rules, must change.

By Brian Griffiths

When Cardinal Ratzinger was elected Pope, his strengths and weaknesses seemed clear. Here was an eminent theologian, philosopher and guardian of Christian truth, but a man unlikely to make the Church’s message relevant to the world today. How simplistic this now looks in the light of his third encyclical, in which Pope Benedict XVI confronts head-on the financial crisis that has rocked the world.

The language may be dense, but the message is sufficiently rewarding. The encyclical analyses modern capitalism from an ethical and spiritual perspective as well as a technical one. As a result it makes the Government’s White Paper on financial reforms published two days later look embarrassingly one-dimensional and colourless.

It is highly critical of today’s global economy but always positive. Its major concern is how to promote human development in the context of justice and the common good. Despite heavy competition from some of the world’s finest minds, it is without doubt the most articulate, comprehensive and thoughtful response to the financial crisis that has yet appeared. It should strike a chord with all who wish to see modern capitalism serving broader human ends.

The Pope makes it clear that the encyclical takes its inspiration from Populorum Progressio, the encyclical published by Paul VI in 1967, at the height of anti-capitalism in Europe. It attacked liberal capitalism, was ambivalent about economic growth, recommended expropriation of landed estates if poorly used and enthused about economic planning. (more…)

In his commentary, “The Pope, the Rabbi, and the Moral Economy,” Samuel Gregg compares recent statements by Britain’s Chief Rabbi, Lord Jonathan Sacks, and Pope Benedict XVI, on the market economy and other social questions. “Benedict and Sacks rigorously deny that markets are intrinsically flawed,” Gregg writes. “Each also maintains that there are fundamental limits to state power. They do, however, insist that morality’s ultimate sources come from neither state nor market.”

Gregg demonstrates the parallels between Pope Benedict XVI’s Caritas in Veritate and an op-ed printed in the London Times by Rabbi Sacks:

The pope and the rabbi had a similar message, which amounts to the following. Some of our contemporary economic problems reflect a deeper moral crisis within Western civilization. Until we acknowledge this, shifts in economic policy and business practice will only provide limited solutions.

Drawing upon the parallels between Pope Benedict the XVI and Rabbi Sachs, Gregg concludes that both question “those who limit morality to politically-causes and the associated refusal of many working economies…”

I recently spoke with journalist Antonio Gaspari of the the Zenit news agency about Caritas in Veritate. Here’s the interview that Zenit published:

Kishore Jayabalan: Development Involves “Breathing Space”

ROME, JULY 10, 2009 (Zenit.org).- An Acton Institute director is explaining the importance of “Caritas in Veritate” for India and China, and is pointing out the innovative ideas of Benedict XVI’s latest encyclical.

Kishore Jayabalan is the director of the Acton Institute’s Rome office. He is a former analyst for the Pontifical Council for Justice and Peace, where he dealt with environmental and disarmament issues and served as a desk officer for English-speaking countries.

In this interview with ZENIT, he spoke about Benedict XVI’s latest encyclical, which was released to the public Tuesday.

ZENIT: What is your overall opinion of the encyclical “Caritas in Veritate?”

Jayabalan: My very first reaction was that it is long and not an easy document to read quickly and summarize. But as I have been reading and re-reading it, I am starting to appreciate its vast scope and significance.

The moral and ethical basis for the market economy is very often neglected.

Even its supporters tend to make utilitarian arguments in favor of the market, while opponents tend to blame the free exchange of goods and services for all kinds of cultural phenomena which have little to do with economics itself.

When things are going well and everyone is making money, no one wants to hear about greed and materialism. But once the bubble bursts, everyone seems to become a moralist and a prophet with amazing hindsight.

This is what Benedict has referred to in other places as “cheap moralism,” one which takes no account of the technical workings of the economy but reminds us of the need to make ethics more integral to our everyday lives. So in this encyclical, the pope realizes it makes no sense to issue condemnations that a child can make. (more…)