Posts tagged with: financial crisis

Pin not actual size.

I commented last week on the “textbook bubble” (here) and have commented in the past on the “higher-ed bubble” and the character of American education more generally (see here, here, and here). To briefly summarize, over the last few decades the quality of higher education has diminished while the cost and the number of people receiving college degrees has increased. The cost is being paid for, in large part, through government subsidized loans. But with the drop in quality and increase in quantity, a college degree is not as impressive as it used to be; in many cases it no longer signals to employers what it used to. When a critical mass of those loans goes into default, we will have another housing-bubble-esque crisis on our hands. At the same time, government loans, which are largely indiscriminate with regard to the risk of the applicant and guaranteed on the backs of taxpayers, have incentivized colleges and universities to raise the costs to students for the sake of increased expenditures, inflating the bubble even more. Now, Alex Williams of The New Times reports last Friday,

The idea that a college diploma is an all-but-mandatory ticket to a successful career is showing fissures. Feeling squeezed by a sagging job market and mounting student debt, a groundswell of university-age heretics are pledging allegiance to new groups like UnCollege, dedicated to “hacking” higher education. Inspired by billionaire role models, and empowered by online college courses, they consider themselves a D.I.Y. vanguard, committed to changing the perception of dropping out from a personal failure to a sensible option, at least for a certain breed of risk-embracing maverick.

An increasing number of students are realizing that they, to quote Good Will Hunting, do not want to be $150,000 in debt for an education that they could have gotten “for a $1.50 in late charges at the public library.” (more…)

At least Obamacare comes at us head on. The greater legislative threat may be the one that most Americans have never heard of. Economist Scott Powell and Acton friend Jay Richards explain in a new piece in Barron’s:

While Obamacare received more attention, the Wall Street Reform and Consumer Protection Act, also known as Dodd-Frank after its Senate and House sponsors, … unleashed a new regulatory body, the Consumer Financial Protection Bureau, to operate with unprecedented power.

Dodd-Frank became law in 2010 and is supposed to avert the next financial crisis. Yet banks are still too big to fail and Fannie Mae and Freddie Mac remain wards of the state, while the CFPB has been given sweeping authority over consumer credit and other financial products and services that played no significant role in the crisis of 2008.

Powell and Richards then offer some specifics:

On National Review Online, Acton Research Director Samuel Gregg reviews a new document from the Vatican’s Pontifical Council for Justice and Peace titled, “The Vocation of the Christian Business Leader.” This follows the PCJP’s controversial “note” on the global financial system issued in October. Gregg says the “Business Leader” document:

Though it doesn’t shy away from making pointed criticisms of much contemporary business activity — and there is much to criticize — the Note articulates, perhaps for the first time in the Catholic Church’s history, a lengthy and thoroughly positive reflection from a body of the Roman Curia about the nature and ends of business.

Unlike the October 2011 Note, this new document avoids grand theorizing about the nature of economic development throughout the 20th century. Nor does the Note lend itself to absurd claims that the Church is to “the left of Nancy Pelosi” on economic issues. Instead, this text’s analysis of life as a business leader is rooted in a sophisticated appreciation and application of the principles of Catholic moral and social teaching. It also reflects a background of solid natural law reasoning about what Benedict XVI has called “integral human development,” and recognizes the sheer diversity of forms assumed by business in the modern economy. To that extent, the Note reflects a very welcome (and much over-due) “bottom-up” rather than “top-down” method of analysis of life in business.

So what are some of the document’s key themes?

Read “In Praise of Business: A New ‘Note’ from Justice and Peace” by Samuel Gregg on National Review Online.

Blog author: flair
Friday, March 23, 2012

Would dissolving the European common currency, as proposed by the French free-market economist and entrepreneur Charles Gave in his book Libéral mais non coupable (“Liberal But Not Guilty”) free the Old Continent to stand upright on its financial feet again? Or would dissolving the currency drastically end the European project altogether, as some pro-Euro technocrats in Brussels fear?

Charles Gave, the chairman of the investment firm GaveKal, (and whose lecture I listened to at a 2011 Acton Conference Family Enterprise, Market Economies, and Poverty in Rome), offers an excellent economic policy analysis in answering these urgent questions.  However, as you will read below, the European side of the financial crisis cannot be fixed in purely economic terms.

In his chapter “Europe: A Turtle on its Back”, Gave says that the EU’s already slow-moving economic tortoise is now in a worse position while laying flat on its back – its shell “heavily weighed down by a systemic debt trap” whose origins are found in keeping the common currency afloat at all costs.

Gave believes that the only way to get the turtle walking upright again would be lighten its load by effectively dissolving the heavily debt-tied euro and restoring national currencies to pre-1999 monetary standards. In Gave’s opinion, a restoration of national currencies across the Eurozone would force member states to return to a culture of self-reliance, that is to say, to count more on their own national fiscal and monetary means and standards.

The positive effect would also mean abandoning the quasi-idolatrous ways in which Europeans go to save their common currency while closing a blind eye to less responsible member states’ reckless spending.

Gave’s criticism of local/national responsibilities and the very origins of debt raise deeper questions about the cause of the  European debt and monetary crises, but it is far from offering a  more complete picture of the problem.

Acton’s research director, Dr. Samuel Gregg, helps us fill in the gaps.  As he said in a recent editorial for the American Spectator:

Europe does indeed face huge monetary challenges. Having a common currency while permitting euro-members to violate mutually-agreed debt limits was always a recipe for disaster. Greece could happily splurge on adding tens of thousands of public sector workers to the government’s payroll and financing Chicago-esque patronage politics, while Portugal built dozens of now-idle, often half-finished soccer stadiums.  Why? Because everyone knew if things went bad, then preserving the euro (a ‘sacred cow’ for Europe’s political class) from the impact of nations’ defaulting meant that heavyweights like Germany would go to considerable lengths to try and prevent a currency-meltdown.

Yet this amounts to only a partial — and therefore inadequate — explanation of Europe’s present disarray…[It] can’t disguise the truth that there’s something even more fundamental driving Europe’s economic crisis.

From the beginning, post-war Social Democracy’s goal … was to use the state to realize as much economic security and equality as possible, without resorting to the outright collectivization pursued by the comrades in the East.  In policy-terms, that meant extensive regulation, legal privileges for trade unions, “free” healthcare, subsidies and special breaks for politically-connected businesses, ever-growing social security programs, and legions of national and EU public sector workers to “manage” the regulatory-welfare state…with little-to-no experience of the private sector.

None of this was cost-free. It was financed by punishing taxation and, particularly in recent years, public and private debt. In terms of outcomes, it has produced some of the developed world’s worst long-term unemployment rates, steadily-declining productivity, and risk-averse private sectors.

In sum, the idolatrous preservation of a European common currency and the ensuing “debt trap”  and “domino default” which Gave articulates in his book  is more fully understood when we link the European financial crisis to a crisis of Christianity — a  faith which makes challenging demands on practicing members’  moral interrelationships, levels of risk aversion, and practical ways in which they care for fellow citizens and see their moral duties relation to their neighbor and society.

Christianity, as defined so well by the Catholic Church’s teachings on subsidiarity, demands that social problems must be first solved at the individual, local level. Only if the local and personal proves insufficient should the problem to be taken to higher levels, with the state as the means of last resort.

Subsidiarity – a guiding principle to all responsible Christians – helps limit public debt by relegating moral duties first and foremost to the private sphere.  Subsidiarity is a check against  forms of collectivization and the expensive public costs involved. When too much of the moral duty is placed on the state, public costs grow and debt is possible.  When it is not, the state’s welfare machine is tends to shut down.

In conclusion, if it is true that the vast majority of Europeans no longer practice their Christian faith or take their charitable duties very seriously, one can rightly doubt how easily it will be them to free themselves from the weight of unsustainable debt  (see also Sam Gregg’s ALS lecture below on this topic). If non-practicing Europeans tend to pass on more of their individual moral responsibilities to the state  for the welfare of the elderly, sick and need people of society, it ends up being a costly delegation of Christian freedom and responsibility.  In economic consequences, this makes the EU a fertile ground for a systemic debt traps and precarious monetary crises.


A week ago, Dr. Samuel Gregg addressed an audience here at Acton’s Grand Rapids, Michigan office on the topic of “Europe: A Continent in Economic and Cultural Crisis.” If you weren’t able to attend, we’re pleased to present the video of Dr. Gregg’s presentation below.

[Thanks to RealClearWorld,, NewsBusters and for linking to this commentary.] Over at the American Spectator, Acton Research Director Samuel Gregg points to Europe’s “perceptible inability” to acknowledge some of the deeper dynamics driving its financial crisis. And these are primarily a “slow-motion population implosion” complicated by the exodus of young European Union citizens and the return of hundreds of thousands of immigrants to their homes in developing nations. That is an ominous development for a region where the dependency rate — the ratio of retirees per member of the labor force — has ratcheted up as the welfare state has ballooned over several decades.


These facts have made some Europeans willing to ponder the necessity of labor-market and welfare reform, not least because those countries that have weathered the crisis better than others (e.g., Germany and Sweden) actually implemented such changes in the 2000s. Getting Europeans to talk publicly about the continent’s population-trends and their economic consequences, however, is a different matter.

Why? One reason is that many Europeans have long been in thrall to the over-population gospel. Long before Paul Erhlich’s The Population Bomb (1968) — whose doomsday future-scenarios of a world devastated by famines, mass disease, and social unrest unleashed by overpopulation never materialized — numerous European economists had bought into this thesis.

In 1798, the Anglican vicar and one of the first modern economists, Thomas Malthus, published his Essay on the Principle of Population. This argued that growing populations would produce an increasing labor-supply. The result, Malthus insisted, would be lower wages and therefore mass poverty. “The power of population,” he claimed, “is so superior to the power of the Earth to produce subsistence for man, that premature death must in some shape or other visit the human race.” Another English philosopher-economist, John Stuart Mill, was so convinced by Malthusian arguments that he actually spent time in London parks distributing birth-control pamphlets to bemused onlookers.

Read Samuel Gregg’s “Europe in Demographic Denial” on the American Spectator.

A practical man?

On the American Spectator, Acton Research Director Samuel Gregg examines the baleful influence exerted on economic thought and public policy for decades by John Maynard Keynes. Gregg observes that “despite his iconoclastic reputation, Keynes was a quintessentially establishment man.” This was in contrast to free-market critics of Keynes such as Friedrich Hayek and Wilhelm Röpke who generally speaking “exerted influence primarily from the ‘outside’: not least through their writings capturing the imagination of decidedly non-establishment politicians such as Britain’s Margaret Thatcher and West Germany’s Ludwig Erhard.” Perhaps not so surprisingly, many of Keynes’ most prominent devotees are also “insider” types:

The story of Keynes’s rise as the scholar shaping economic policy from “within” is more, however, than just the tale of one man’s meteoric career. It also heralded the surge of an army of activist-intellectuals into the ranks of governments before, during, and after World War II. The revolution in economics pioneered by Keynes effectively accompanied and rationalized an upheaval in the composition and activities of governments.

From this standpoint, it’s not hard to understand why New Dealers such as John Kenneth Galbraith were so giddy when they first read Keynes’s General Theory. Confident that Keynes and his followers had given them the conceptual tools to “run” the economy, scholars like Galbraith increasingly spent their careers shifting between tenured university posts, government advisory boards, international financial institutions, and political appointments — without, of course, spending any time whatsoever in the private sector.

In short, Keynes helped make possible the Jeffrey Sachs, Robert Reichs, Joseph Stiglitz’s, and Timothy Geithners of this world. Moreover, features of post-Keynesian economics — especially a penchant for econometrics and building abstract models that borders on physics-envy — fueled hopes that an expert-guided state could direct economic life without necessarily embracing socialism. A type of nexus consequently developed between postwar economists seeking influence (and jobs), and governments wanting studies that conferred scientific authority upon interventionist policies.

Read Samuel Gregg’s “The Madness of Lord Keynes” on the American Spectator.