"The Christian must discover in contemplation, and in the giving of his life, those symbolic actions which will ignite the people's faith to resist injustice with their whole lives, lives coming together as a united force of truth and thus releasing the liberating power of the God within them." - James Douglass, Contemplation and Resistance.
Sunday, September 28, 2008
Understanding the Current Economic Crisis with the Eyes of the Catechism
At last – a truly Catholic response to the current economic meltdown. An article, "A costly illusion," written by Ettore Gotti Tedeschi, an Italian economist and professor of financial ethics at the Catholic University of the Sacred Heart in Milan, Italy was recently published in L’Osservatore Romano. The root issue, which has been so deeply obscured by the corporate media, is "lack of any real economic development with a booming Wall Street." In other words, as our manufacturing base was rapidly removed from our shores, our productive capacity was gutted while Wall Street profits boomed. Our financial wizards found that by "securitizing" mortgage loans through a new financial instrument known as the collateralized debt obligation (CDO), they could multiply profits many times beyond the actual value of the property in question. Fabulous profits were created which had no solid economic foundation whatsoever.
Many commentators have castigated the monstrous bubble of cheap credit which these financial buccaneers created, but few have probed into the underlying economic rot where such crimes breed and flourish. Many Christian commentators point to U.S. addiction to unsustainable levels of consumption fueled by borrowing, leading to vanishing personal savings. But though we believe that greed is the ultimate culprit, we have to ask ourselves, "Why have we created an economic system that promotes greed and punishes self-control?"
The promises of neoliberal economists have all proven false. Every project that has been undertaken with their advice has resulted in increased poverty for the vast majority invariably accompanied by fabulous profits for the few. The West has "not succeeded with its new economy project, it did not succeed with accelerating growth in Asia by transferring low-cost production (there), and it did not succeed after inventing a boom in the GNP through risky financial models that were poorly conceived and badly regulated." - Ettore Gotti Tedeschi
The Christian position is stated forcefully in the Catholic Catechism, "The development of economic activity and growth in production are meant to provide for the needs of human beings. Economic life is not meant solely to multiply goods produced and increase profit or power; it is ordered first of all to the service of persons, of the whole man, and of the entire human community. Economic activity, conducted according to its own proper methods, is to be exercised within the limits of the moral order, in keeping with social justice so as to correspond to God's plan for man." – Catechism 2426.
First I would like to examine the fundamental economic causes behind the current breakdown, then turn to that light radiating from traditional Catholic teachings. In the years immediately after WWII, finance played the role of a helpful servant to production. After the 70s, the growing dominance of the financial sector has stood the earlier productive relationship on its head. Finance now dominates over production. The evolution of this tendency has many causes, but we will here focus on the primary factors. In order for our economy to grow, new sources of demand must be found for the growing surplus created by increasing productivity. This demand is normally met through creating new "needs" in consumers through advertising and other marketing techniques. These "needs" are completely artificial in that they are deliberately induced in order to create a market for products, though they do not correspond to any real requirement for a satisfying human life.
The Catechism clearly demonstrates that the creation of artificial needs is contrary to the seventh commandment. "In economic matters, respect for human dignity requires the practice of the virtue of temperance, so as to moderate attachment to this world's goods." – Catechism 2407. Even the natural needs of human beings should be kept under control, which makes the deliberate induction of unnatural "needs" a serious violation of the virtue of temperance. Note that this only applies to material goods. Spiritual needs can grow without limit, especially when they are not burdened by the task of fulfilling artificially induced material desires.
But to return to economic trends, a maturing economy slows down and the system becomes unable to find new and sufficiently lucrative investment outlets. Slowing growth is caused by many factors, but one that is particularly relevant to Catholic social teaching is the growing inequality of income and wealth. Spreading poverty limits consumption demand at the bottom of the economy leading to a build up of unused productive capacity. This in turn drives investment opportunities away from increasing capacity and pushes the wealthy toward using their funds for speculation of the type that has proliferated recently. These types of speculation consist primarily in gambling on the rise or fall of markets. The process is well described in an article by Michael Hudson, "A hedge fund does not make money by producing goods and services. It does not advance funds to buy real assets or even lend money. It borrows huge sums to leverage its bet with nearly free credit. Its managers are not industrial engineers but mathematicians who program computers to make cross-bets or ‘straddles’ on which way interest rates, currency exchange rates, stock or bond prices may move – or the prices for packaged bank mortgages. The packaged loans may be sound or they may be junk. It doesn’t matter. All that matters is making money in a marketplace where most trades last only a few seconds. What creates the gains is the price fibrillation – volatility." – Michael Hudson, “America’s Own Kleptocracy”, Sept. 20, 2008.
In other words, since real investment opportunities are increasingly rare, the wealthy can only gain high returns through speculative bets that contribute nothing real to human needs. These are sins the Church has yet to define, yet the Catechism does include this condemnation: "The following are also morally illicit: speculation in which one contrives to manipulate the price of goods artificially in order to gain an advantage to the detriment of others" – Catechism 2409 This is an effective definition of much of what currently passes for "wealth building."
Another factor is the process of monopolization through mergers and acquisitions which leads to a lessening of competition, thus diminishing the dynamism and creativity of the system. An illustrative example is found in the media monopolies. Whereas thirty years ago there was a proliferation of media outlets, today virtually all media is owned by five major corporations. The consequent diminution of truly diverse viewpoints and intelligent dialogue goes without saying.
The resulting deep stagnation of the economy has also been offset by military spending, which is described by Chalmers Johnson as follows, "The Department of Defense’s planned expenditures for the fiscal year 2008 are larger than all other nations’ military budgets combined. The supplementary budget to pay for the current wars in Iraq and Afghanistan, not part of the official defense budget, is itself larger than the combined military budgets of Russia and China. Defense-related spending for fiscal 2008 will exceed $1 trillion for the first time in history." – Chalmers Johnson, "Why the US has Really Gone Broke," Le Monde Diplomatique (English edition), February 2008. A less humanly productive way of spending billions could scarcely be imagined.
The Church fathers at Vatican II spoke out forcefully on this issue of military spending, "While extravagant sums are being spent for the furnishing of ever new weapons, an adequate remedy cannot be provided for the multiple miseries afflicting the whole modern world. Disagreements between nations are not really and radically healed; on the contrary, they spread the infection to other parts of the earth. New approaches based on reformed attitudes must be taken to remove this trap and to emancipate the world from its crushing anxiety through the restoration of genuine peace." – GS, 81.
Confronted by the current economic stagnation, we must conclude that "financialization" is a compensation for a basic misapprehension of the real needs of human beings. "The needs of the poor take priority over the desires of the rich; the rights of workers over the maximization of profits; the preservation of the environment over uncontrolled industrial expansion; production to meet social needs over production for military purposes." – John Paul II.
The hard truth is that a relatively small number of individuals and corporations control huge pools of capital and can find no other way to continue to expand capital at the necessary growth rate except through heavy reliance on finance and speculation. The Catechism demonstrates clearly that the right to private property is a relative value that must yield to more basic moral considerations, "A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable. The disordered desire for money cannot but produce perverse effects. It is one of the causes of the many conflicts which disturb the social order … Every practice that reduces persons to nothing more than a means of profit enslaves man, leads to idolizing money, and contributes to the spread of atheism. ‘You cannot serve God and mammon.’" – Catechism 2424.