Tuesday, June 28, 2011

Will we raise the debt ceiling in time? Do Republicans care?

The latest on the debt ceiling talks from Ezra Klein:
A bit more information has trickled out over the last few days detailing the exact state of the budget negotiations when they collapsed. Both sides, as they often said, were shooting for about $2.4 trillion in deficit reduction over 10 years. They'd already agreed on around $1 trillion in spending cuts and were making good progress on the rest of it. But Democrats insisted that $400 billion -- so, 17 percent -- of the package be tax increases. And that's when Republicans walked.

Specifically, the Obama administration was looking at a rule that lets businesses value their inventory at less than they bought it for in order to lower their tax burden, a loophole that lets hedge-fund managers count their income as capital gains and pay a 15 percent marginal tax rate, the tax treatment of private jets, oil and gas subsidies, and a limit on itemized deductions for the wealthy.

It's almost not worth going into the details on those particular tax changes because the Republican position has held that the details don't matter: well-designed tax increases won't be looked at any more favorably than poorly designed tax increases. The point, Republicans say, is that there can't be any tax increases, full stop.

For now, Democrats are holding their ground. "Do we perpetuate a system that allows for subsidies in revenues for oil and gas, for example, or owners of corporate private jets, and then call for cuts in things like food safety or weather services?" Press Secretary Jay Carney asked. But at some point, this will cease to be a clean choice between two budget plans and begin to be a question over whether we can raise the debt ceiling. And that, Republicans are betting, is when the Democrats will stop holding their ground.


First of all, not raising the debt-ceiling would be economic suicide. Second, reducing the deficit now is not going to reduce it later. It will only cause more economic hardship which will cause revenues to fall. Third, if you are going to reduce the deficit anyway, why on earth would you walk out because of a tax break for those who own private jets?! I understand the Republicans want smaller government, which means no tax increase on anyone, but that means cutting important programs (such as TANF) for the less well off.

Obama is even comprising on the budget talks, something I haven't seen from Republicans who continue to hold their ground and flirt with disaster counting on the Dems to change their stance. From Sam Youngman:
President Obama, seeking a Republican agreement to raise the nation's $14.3 trillion debt ceiling by Aug 2, will not insist that any deal include an end of President Bush's controversial tax rates on the wealthy.

Obama's tactics are coming into clearer focus: they involve seeking higher taxes not on a broad swath of high income earners but on a narrower band of the super rich, such as owners of private jets. This means that those who earn $250,000 have got a reprieve.

Why would a bunch of social conservatives, who I assume care deeply about human life at all stages because they oppose abortion and euthanasia, rather cut assistance to those in need in favor of a tax break for the super rich?

Examining CV, Part 6

In Chapter 3 of CV, Pope Benedict XVI delves into fraternity, economic development, and civil society.

He first affirms that we, as humans, are made for gift and that we are often wrongly convinced that we are the sole authors of ourselves, our lives, and all of society. He reminds us that we have a wounded nature born out of original sin and that the economy has felt the pernicious effects of this sin.

Happiness is not material prosperity and economics is not autonomous from morality:

The conviction that man is self-sufficient and can successfully eliminate the evil present in history by his own action alone has led him to confuse happiness and salvation with immanent forms of material prosperity and social action. Then, the conviction that the economy must be autonomous, that it must be shielded from “influences” of a moral character, has led man to abuse the economic process in a thoroughly destructive way. In the long term, these convictions have led to economic, social and political systems that trample upon personal and social freedom, and are therefore unable to deliver the justice that they promise.

Charity, hope, truth...these things are greater than we are. Charity in truth builds an authentic human community that we alone cannot build by ourselves. Gratuitousness must be evident in society if economic, social and political development is to be authentically human.

The Pope then goes on to make very key statements regarding markets and justice that "free marketers" often ignore or reject:

In a climate of mutual trust, the market is the economic institution that permits encounter between persons, inasmuch as they are economic subjects who make use of contracts to regulate their relations as they exchange goods and services of equivalent value between them, in order to satisfy their needs and desires. The market is subject to the principles of so-called commutative justice, which regulates the relations of giving and receiving between parties to a transaction. But the social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well.

Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function. And today it is this trust which has ceased to exist, and the loss of trust is a grave loss.

According to the Pope, it was not just a matter of correcting dysfunctions through assistance. The poor are not to be considered a “burden”, but a resource, even from the purely economic point of view. It is nevertheless erroneous to hold that the market economy has an inbuilt need for a quota of poverty and underdevelopment in order to function at its best.

It is in the interests of the market to promote emancipation, but in order to do so effectively, it cannot rely only on itself, because it is not able to produce by itself something that lies outside its competence.
It must draw its moral energies from other subjects that are capable of generating them.

These statements are very strong because they rightly point out that markets alone do NOT bring about a just distribution of goods as many economists would have you believe. The solution lies not just in redistribution, but far more importantly in moral actors within markets. We must all act together toward the common good and not rely on selfish actions within a market to produce the result for us. Pope Benedict XVI continues:

In and of itself, the market is not, and must not become, the place where the strong subdue the weak. Society does not have to protect itself from the market, as if the development of the latter were ipso facto to entail the death of authentically human relations. Admittedly, the market can be a negative force, not because it is so by nature, but because a certain ideology can make it so. It must be remembered that the market does not exist in the pure state. It is shaped by the cultural configurations which define it and give it direction. Economy and finance, as instruments, can be used badly when those at the helm are motivated by purely selfish ends. Instruments that are good in themselves can thereby be transformed into harmful ones. But it is man's darkened reason that produces these consequences, not the instrument per se. Therefore it is not the instrument that must be called to account, but individuals, their moral conscience and their personal and social responsibility.

WE, as economic actors, make up markets and it is WE who are responsible for their goodness or their badness. In other words, Pope Benedict is criticizing the market harshly, not because it isn't efficient or that it is evil, but because our actions within the market aren't directed toward the common good. Those who hold that selfish actions within a market bring about the common good as is often claimed (starting with Adam Smith's "invisible hand") by economists and politicians are wrong! It is clear that this does not bring about the common good, instead we must act always for each other, within and outside the market, so as to bring about a community of charity and fraternity that provides for the welfare of all.
The economic sphere is neither ethically neutral, nor inherently inhuman and opposed to society. It is part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner.

What is needed?:
The great challenge before us, accentuated by the problems of development in this global era and made even more urgent by the economic and financial crisis, is to demonstrate, in thinking and behaviour, not only that traditional principles of social ethics like transparency, honesty and responsibility cannot be ignored or attenuated, but also that in commercial relationships the principle of gratuitousness and the logic of gift as an expression of fraternity can and must find their place within normal economic activity.

Because: "every economic decision has a moral consequence. Justice must be applied to every phase of economic activity, because this is always concerned with man and his needs."

Pope Benedict XVI writes that economic life needs contracts to regulate exchange, just laws and redistribution governed by poltiics, and most importantly works redolent of the spirit of gift. He calls especially for today's market economies to make room for institutions with motives other than profit-oriented enterprises, for civil society to push for greater solidarity and not simply rely on the State to do so, and for the State to redistribute when necessary to take care of the peoples who are not included within the benefits of the market economy.

Wednesday, June 22, 2011

When will Congress get it?

This investment banker did...I came across this great article via Krugman on Bill Gross's recent comments. He is the founder of Pimco, an investment firm.


In a prospectus for clients, Bill Gross, a co-founder of investment management giant PIMCO, says members' of Congress incessant focus on deficit -- and in particular, the manner in which they obsess about deficits -- is foolhardy, and a recipe for disaster. What the country needs, Gross said, is real stimulus now...

"While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama's long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans' extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years."

...fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.

and in case you wondered like I did:

stul·ti·fy   /ˈstʌltəˌfaɪ/ [stuhl-tuh-fahy]
–verb (used with object), -fied, -fy·ing.
1. to make, or cause to appear, foolish or ridiculous.
2. to render absurdly or wholly futile or ineffectual, especially by degrading or frustrating means: Menial work can stultify the mind.
3. to allege or prove (oneself or another) to be of unsound mind.

UPDATE: I was able to find the full article written by Gross over the weekend and he even advocates an Employer of Last Resort program (ELR), something that I believe meets the demand made by Catholic Social Teaching that the State work to provide access to steady employment for everyone.

From Gross:
In the end, I hearken back to revered economist Hyman Minsky – a modern-day economic godfather who predicted the subprime crisis. “Big Government,” he wrote, should become the “employer of last resort” in a crisis, offering a job to anyone who wants one – for health care, street cleaning, or slum renovation. FDR had a program for it – the CCC, Civilian Conservation Corps, and Barack Obama can do the same. Economist David Rosenberg of Gluskin Sheff sums up my feelings rather well. “I’d have a shovel in the hands of the long-term unemployed from 8am to noon, and from 1pm to 5pm I’d have them studying algebra, physics, and geometry.” Deficits are important, but their immediate reduction can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem.

To be clear, I don't necessarily agree with everything he says, but I do think he brings up good points to consider and I am in favor of an ELR program.

From CST:
Among the several purposes of a society, one should be to try to arrange for a continuous supply of work at all times and seasons; as well as to create a fund out of which the members may be effectually helped in their needs, not only in the cases of accident, but also in sickness, old age, and distress. -- Rerum Novarum, pp.58
(Note: This was written before most western societies adopted any kind of welfare program)

But another point, scarcely less important, and especially vital in our times, must not be overlooked: namely, that the opportunity to work be provided to those who are able and willing to work...and this same social justice demands that wages and salaries be so managed, through agreement of plans and wills, in so far as can be done, as to offer to the greatest possible number the opportunity of getting work and obtaining suitable means of livelihood. -- Quadragesimo Anno, pp.74

Examining CV, part 5

As a segway into the next segment of CV, Pope Benedict ties his discussion on food shortages and our basic natural right to food and water to the fundamental right to life:
The right to food, like the right to water, has an important place within the pursuit of other rights, beginning with the fundamental right to life. It is therefore necessary to cultivate a public conscience that considers food and access to water as universal rights of all human beings, without distinction or discrimination.

He then very importantly draws our attention to the center of true development (which is the focus of this encyclical) and the grave evils that are preventing it:
Not only does the situation of poverty still provoke high rates of infant mortality in many regions, but some parts of the world still experience practices of demographic control, on the part of governments that often promote contraception and even go so far as to impose abortion. In economically developed countries, legislation contrary to life is very widespread, and it has already shaped moral attitudes and praxis, contributing to the spread of an anti-birth mentality; frequent attempts are made to export this mentality to other States as if it were a form of cultural progress.

Some non-governmental Organizations work actively to spread abortion, at times promoting the practice of sterilization in poor countries, in some cases not even informing the women concerned. Moreover, there is reason to suspect that development aid is sometimes linked to specific health-care policies which de facto involve the imposition of strong birth control measures. Further grounds for concern are laws permitting euthanasia as well as pressure from lobby groups, nationally and internationally, in favour of its juridical recognition.

Openness to life is at the centre of true development. When a society moves towards the denial or suppression of life, it ends up no longer finding the necessary motivation and energy to strive for man's true good.

By cultivating openness to life, wealthy peoples can better understand the needs of poor ones, they can avoid employing huge economic and intellectual resources to satisfy the selfish desires of their own citizens, and instead, they can promote virtuous action within the perspective of production that is morally sound and marked by solidarity, respecting the fundamental right to life of every people and every individual.

Similarly, another aspect tied closely to development is being denied in our time: the right to religious freedom. Both religious fanaticism that takes the form of violence in the name of God and "the deliberate promotion of religious indifference (or practical atheism) obstructs the requirements for the development of peoples, depriving them of spiritual and human resources."

The Pope writes:
Man is not a lost atom in a random universe: he is God's creature, whom God chose to endow with an immortal soul and whom he has always loved. If man were merely the fruit of either chance or necessity, or if he had to lower his aspirations to the limited horizon of the world in which he lives, if all reality were merely history and culture, and man did not possess a nature destined to transcend itself in a supernatural life, then one could speak of growth, or evolution, but not development.

We are also reminded that truth and charity are not to be separated. We cannot develop without charity and faith, as the scientific, human-knowledge-is-sufficient community would have us believe, yet charity and faith are also not without knowledge and human reason:
Charity does not exclude knowledge, but rather requires, promotes, and animates it from within. Knowledge is never purely the work of the intellect. It can certainly be reduced to calculation and experiment, but if it aspires to be wisdom capable of directing man in the light of his first beginnings and his final ends, it must be “seasoned” with the “salt” of charity. Deeds without knowledge are blind, and knowledge without love is sterile.

Charity is not an added extra, like an appendix to work already concluded in each of the various disciplines: it engages them in dialogue from the very beginning. The demands of love do not contradict those of reason. Human knowledge is insufficient and the conclusions of science cannot indicate by themselves the path towards integral human development. There is always a need to push further ahead: this is what is required by charity in truth. Going beyond, however, never means prescinding from the conclusions of reason, nor contradicting its results. Intelligence and love are not in separate compartments: love is rich in intelligence and intelligence is full of love.

An implication of this truth is that "moral evaluation and scientific research must go hand in hand, and that charity must animate them in a harmonious interdisciplinary whole, marked by unity and distinction."

The tendency to prefer short run (sometimes immediate) gains over a longer run view has had drastic consequences, especially for the poor and unemployed.
The Pope specifically draws our attention to the evils of inequality and unemployment:
The dignity of the individual and the demands of justice require, particularly today, that economic choices do not cause disparities in wealth to increase in an excessive and morally unacceptable manner, and that we continue to prioritize the goal of access to steady employment for everyone. All things considered, this is also required by “economic logic”. Through the systemic increase of social inequality, both within a single country and between the populations of different countries (i.e. the massive increase in relative poverty), not only does social cohesion suffer, thereby placing democracy at risk, but so too does the economy, through the progressive erosion of “social capital”: the network of relationships of trust, dependability, and respect for rules, all of which are indispensable for any form of civil coexistence.

In order to improve the conditions we face in our time, new solutions are needed that take into account this broader concept of reason and that above all respect the dignity of the human person.

Monday, June 20, 2011

Lost Decade, here we come

From Paul Krugman:

"What you see isn’t a recovering economy that may be stumbling; you see an economy that has stopped its free fall, but hasn’t really been recovering at all.

I’d say that the burden of proof right now is on those who claim that we aren’t on track for a lost decade."

I don't really have any thoughts to add, just a question...why are we making the same mistakes that Japan made in the '90s and we made in the '30s?

The answer surely lies in our HORRIBLE misunderstanding of economics. Yet there doesn't seem to be much of a movement to change that understanding. If you do want to understand what's going on, I suggest following the "Modern Money Primer".

Examining Caritas in Veritate, part 4

Part 4 will focus on CV's re-examination of the role of the State, because of the changes that have occured since the time of Populorum Progressio. Beginning in pp.24, Pope Benedict XVI notes that PP assigned a central role to public authorities because the scope of societal issues was at that time still limited to within national borders. In other words, there wasn't widespread globalization or international integration. The past 5 decades have seen considerable integration of nations which the Pope expresses in this quote:
In our own day, the State finds itself having to address the limitations to its sovereignty imposed by the new context of international trade and finance, which is characterized by increasing mobility both of financial capital and means of production, material and immaterial. This new context has altered the political power of States.

In other words, the State is limited in its ability to legislate because of increasingly integrated international relations. The Pope then calls for a re-evaluation of the State's role and believes that once it is more clearly defined, political participation by the public will increase.

The first effect of globlaization Pope Benedict XVI addresses is the downsizing of social security systems worldwide in order to attract businesses to the country:
Consequently, the market has prompted new forms of competition between States as they seek to attract foreign businesses to set up production centres, by means of a variety of instruments, including favourable fiscal regimes and deregulation of the labour market. These processes have led to a downsizing of social security systems as the price to be paid for seeking greater competitive advantage in the global market, with consequent grave danger for the rights of workers, for fundamental human rights and for the solidarity associated with the traditional forms of the social State. Systems of social security can lose the capacity to carry out their task, both in emerging countries and in those that were among the earliest to develop, as well as in poor countries. Here budgetary policies, with cuts in social spending often made under pressure from international financial institutions, can leave citizens powerless in the face of old and new risks; such powerlessness is increased by the lack of effective protection on the part of workers' associations.

He believes the situation to be so grave that the rights "of associations that can defend workers' rights must therefore be honoured today even more than in the past, as a prompt and far-sighted response to the urgent need for new forms of cooperation at the international level, as well as the local level."

He then notes that mobility of labor in the context of unemployment can be good, it can stimulate wealth production and cultural exchange; but it can also have negative effects, such as uncertainty over working conditions, psychological instability, situations of human decline, and waste of social resources.

He then reminds us of the evils of unemployment, a point I try to stress often because our nation has given up trying to decrease unemployment because of what have now been long-running fears of inflation and bankruptcy that simply haven't happened:
Being out of work or dependent on public or private assistance for a prolonged period undermines the freedom and creativity of the person and his family and social relationships, causing great psychological and spiritual suffering. I would like to remind everyone, especially governments engaged in boosting the world's economic and social assets, that the primary capital to be safeguarded and valued is man, the human person in his or her integrity: "Man is the source, the focus and the aim of all economic and social life."

He also notes that many poor countries are still suffering from food shortages and thus hunger despite the abundance of material resources we have to feed them:
Life in many poor countries is still extremely insecure as a consequence of food shortages, and the situation could become worse: hunger still reaps enormous numbers of victims among those who, like Lazarus, are not permitted to take their place at the rich man's table, contrary to the hopes expressed by Paul VI.

Hunger is not so much dependent on lack of material things as on shortage of social resources, the most important of which are institutional.

Moreover, the elimination of world hunger has also, in the global era, become a requirement for safeguarding the peace and stability of the planet.

He then proposes a proper solution:
What is missing, in other words, is a network of economic institutions capable of guaranteeing regular access to sufficient food and water for nutritional needs, and also capable of addressing the primary needs and necessities ensuing from genuine food crises, whether due to natural causes or political irresponsibility, nationally and internationally.

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. This can be done by investing in rural infrastructures, irrigation systems, transport, organization of markets, and in the development and dissemination of agricultural technology that can make the best use of the human, natural and socio-economic resources that are more readily available at the local level, while guaranteeing their sustainability over the long term as well. All this needs to be accomplished with the involvement of local communities in choices and decisions that affect the use of agricultural land.

Pope Benedict XVI will go on to address other international issues that are of great concern in our time and continue to re-evaluate the role of the State in providing solutions for these problems which I will examine in part 5 of this series.

Friday, June 17, 2011

Examining Caritas in Veritate, Part 3

Parts 1 and 2 focused on the Introduction and Chapter 1 of CV, which were concerned with the purpose and scope of the encyclical. Chapter 2 dives into applying this broader picture to specific situations or principles.

Pope Benedict XVI first reviews the situation today in light of Pope Paul VI's vision of development:
Paul VI had an articulated vision of development. He understood the term to indicate the goal of rescuing peoples, first and foremost, from hunger, deprivation, endemic diseases and illiteracy. From the economic point of view, this meant their active participation, on equal terms, in the international economic process; from the social point of view, it meant their evolution into educated societies marked by solidarity; from the political point of view, it meant the consolidation of democratic regimes capable of ensuring freedom and peace.

The proper role of profit and economic growth within human development:
Profit is useful if it serves as a means towards an end that provides a sense both of how to produce it and how to make good use of it. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty. The economic development that Paul VI hoped to see was meant to produce real growth, of benefit to everyone and genuinely sustainable. It is true that growth has taken place, and it continues to be a positive factor that has lifted billions of people out of misery — recently it has given many countries the possibility of becoming effective players in international politics. Yet it must be acknowledged that this same economic growth has been and continues to be weighed down by malfunctions and dramatic problems, highlighted even further by the current crisis.

Current socioeconomic problems plauging the world:
1) "The technical forces in play,
2) the global interrelations,
3) the damaging effects on the real economy of badly managed and largely speculative financial dealing,
4) large-scale migration of peoples, often provoked by some particular circumstance and then given insufficient attention,
5) the unregulated exploitation of the earth's resources...

...all this leads us today to reflect on the measures that would be necessary to provide a solution to problems that are not only new in comparison to those addressed by Pope Paul VI, but also, and above all, of decisive impact upon the present and future good of humanity."

More problems to address:
6) Increases in overall wealth, but also increasing poverty and growing inequalities:
The world's wealth is growing in absolute terms, but inequalities are on the increase. In rich countries, new sectors of society are succumbing to poverty and new forms of poverty are emerging. In poorer areas some groups enjoy a sort of “superdevelopment” of a wasteful and consumerist kind which forms an unacceptable contrast with the ongoing situations of dehumanizing deprivation. “The scandal of glaring inequalities” continues.

7) Corruption and exploitation are still rampant:
Corruption and illegality are unfortunately evident in the conduct of the economic and political class in rich countries, both old and new, as well as in poor ones. Among those who sometimes fail to respect the human rights of workers are large multinational companies as well as local producers.

8) Int'l aid is often loaded with alterior motives:
International aid has often been diverted from its proper ends, through irresponsible actions both within the chain of donors and within that of the beneficiaries.

9 & 10) Rich countries are overly protective of their wealth and intellectual property and social norms in poorer countries are preventing authentic development:
On the part of rich countries there is excessive zeal for protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care. At the same time, in some poor countries, cultural models and social norms of behaviour persist which hinder the process of development.

Despite all these, Pope Benedict XVI reminds us that the current economic crisis offers us "an opportunity for discernment, in which to shape a new vision for the future."

More importantly, he reminds us that "progress of a merely economic and technological kind is insufficient. Development needs above all to be true and integral."

Part 4 will take a closer look at some of these problems and other problems occuring in our time.

Wednesday, June 15, 2011

Ryan's "Path to Prosperity" and Catholic Social Teaching

A much better economist and expert on Catholic Social Teaching than myself applies his understanding of both to Ryan's budget plan.

"Prudential Judgment and the Path to Prosperity"
Professor Charles Clark, St. John's University
In the recent exchange of letters between Archbishop Dolan and Rep. Ryan, the Archbishop writes that the truths of Catholic Social Teaching (CST) must be applied to the budget using "prudential judgment" but that this application of the principles of CST can never abide "contradicting the values they represent." The requirements of prudential judgment demand a full understanding of the issue one is addressing as well as having valid goals that promote the common good. The Ryan "Path to Prosperity" fails on both criteria: it is not based on a valid understanding of the economy (and its current problems) and its underlying goal seems to be minimizing the size of government and the taxes paid by the rich (neither of which is designed to promote the common good).

Prudential judgment is based on practical reasoning, which Aristotle tells us is based on particulars that can be otherwise, in contrast to theoretical reasoning, which is based on invariants that do not change (like gravity). The Ryan/Republican economic agenda of small government, low tax rates and privatization is all grounded in an 18th Century view of the economy, assuming that our economy is essentially the same (the laws of economics are invariant), with the hope that if we just removed state interference we would return to Adam Smith's "society of perfect liberty" (minimal government, laissez-faire capitalism). But, in fact, a 21st Century economy is fundamentally different from its 18th Century ancestor. The same rules do not apply.

The Ryan/Republican view of the economy assumes that the economy naturally tends towards full employment and sees government spending as a barrier to job creation (ignoring the fact that government spending necessarily creates jobs). If 200 years of experience hasn't shown this to be the case, why would anyone think now it will happen. It is a case of ideology over evidence. Ryan's budget asserts that reducing social protection will encourage independence and reduce poverty, yet this too is contrary to all experience in capitalist economies over the past 200 years. Countries with lower social spending have higher poverty rates, and, incidentally, have had bigger increases in unemployment during the current economic crisis. More ideology over evidence. Furthermore, Ryan states that the Federal Government is running out of money and will follow Greece in going bankrupt, yet the US, unlike Greece, has a sovereign currency, that is, the government pays its bills in money it creates. It cannot run out of money and can never fail to be able to pay its bills. (Although the US government might politically decide to not pay its bills, that would be a bad idea, since the strength of the dollar and US Bonds is based on the fact that the US has a sovereign currency and can always pay its bills). Again, ideology over evidence.

The Ryan budget's over-riding value is limiting the size of government and keeping taxes low. There is no economic evidence that growing the size of the government hurts the economy, at least not in the range of what other rich countries already have (40-60% of GDP, US is under 40%). Following prudential judgment, Ryan should engage in a comparative analysis of US spending with other rich capitalist countries. A good example of this is Sabina Dewan and Michael Ettlinger's study "Comparing Public Spending and Priorities Across OECD Countries" (Center for American Progress, October 2009), which provides a realistic look at the role of government in a 21st Century, advanced capitalist economy. Such an analysis (which is a business-like approach) would show that Americans pay twice what other rich countries pay for health care, and yet we consistently fall at the bottom in health outcomes rankings. The US provides the lowest level of social protection and has the highest poverty rates. There is no evidence that the Federal Government is too big or that its spending is a barrier to job creation. Ryan and House Speaker John Boehner can repeat this falsehood all they like, but they won't find any evidence of it.

Yet, the biggest break with reality is Ryan's placing the deficit and debt as the central concern for the common good. We are in a jobs crisis. Our financial system is at greater risk then it was in 2007. Rising income inequality is shrinking the middle class and threatening to destabilize our democracy. Ryan's budget will make all of these problems much worse rather than address them in a realistic fashion. Ryan is providing a path to plutocracy.

As an historian of economic ideas who specialized in 18th Century theories, it looks to me that Ryan and company are applying the constitutional philosophy of "original intent" to economic policy. The responsibilities of the government have grown since the 18th Century because the need for collective action on the national level has grown. In the 18th Century you didn't need a health care policy because there wasn't much that could be done; you didn't need social security because most people didn't live that long; you didn't need much economic policy because most people lived on farms and were mostly self-sufficient.

Subsidiarity calls for larger entities to step in when smaller entities cannot achieve a necessary function, first to help the smaller entity and if that will not work, to take responsibility for the function. Experience clearly shows that adequate and affordable healthcare can only be provided for all if it is funded nationally, that financial markets need to be regulated tightly and that the state has to promote greater economic equality and work to maintain sufficient aggregate demand so that unemployment may remain low. History shows that poverty rates only go down when economic growth is matched with social protection for workers and the poor (or else all the economic growth will go to the top, as in the past decade). These social goals require an active and effective federal government, one that by necessity has to be larger than 19.9% of GDP.

Enacting the cuts proposed in the Ryan/Republican budget will certainly invite a double-dip recession, which is what the Republicans need to defeat Obama in 2012. Keynes once argued that it is ideas and not self-interest that drives economic policy. In this case 18th Century ideology, defunct economics and political self-interest seem to coincide. And that coincidence has nothing to do with the moral goals outlined by Archbishop Dolan in his letter to Cong. Ryan.

Can be found here: http://www.catholicsinalliance.org/thecommongoodforum.php

Examining Caritas in Veritate, Part 2

In Chapter 1 of Caritas in Veritate, Pope Benedict XVI recalls the main points of Populorum Progressio and their significance. He points out that PP was written immediately after Vatican II and set out to convey two important truths: The Church is engaged in promoting integral human development through all of her proclamation, celebration, works of charity, and educational activities which includes a public role as long as she is able to operate in a climate of freedom. The second truth is that "authentic human development concerns the whole of the person in every single dimension." Pope Benedict goes on to make what I think is an extremely important point regarding this development:
Without the perspective of eternal life, human progress in this world is denied breathing-space. Enclosed within history, it runs the risk of being reduced to the mere accumulation of wealth; humanity thus loses the courage to be at the service of higher goods, at the service of the great and disinterested initiatives called forth by universal charity. Man does not develop through his own powers, nor can development simply be handed to him.

In reality, institutions by themselves are not enough, because integral human development is primarily a vocation, and therefore it involves a free assumption of responsibility in solidarity on the part of everyone. Moreover, such development requires a transcendent vision of the person, it needs God: without him, development is either denied, or entrusted exclusively to man, who falls into the trap of thinking he can bring about his own salvation, and ends up promoting a dehumanized form of development. Only through an encounter with God are we able to see in the other something more than just another creature, to recognize the divine image in the other, thus truly coming to discover him or her and to mature in a love that “becomes concern and care for the other.”

Despite PP's connection with Vatican II, it did not constitute a break from the teachings that came before PP. The Pope reminds us that the Church's magisterium is "a single teaching, consistent and at the same time ever new."

PP also warned of two opposing utopian ideologies: too much reliance on technology for development, and a complete denial of technology for development:
Idealizing technical progress, or contemplating the utopia of a return to humanity's original natural state, are two contrasting ways of detaching progress from its moral evaluation and hence from our responsibility.

Pope Benedict XVI also noted the strong link between PP and Humanae Vitae, another of Pope Paul VI's encyclicals:
Humanae Vitae indicates the strong links between life ethics and social ethics...The Church forcefully maintains this link between life ethics and social ethics, fully aware that “a society lacks solid foundations when, on the one hand, it asserts values such as the dignity of the person, justice and peace, but then, on the other hand, radically acts to the contrary by allowing or tolerating a variety of ways in which human life is devalued and violated, especially where it is weak or marginalized.”

Later, Pope Bendict XVI teaches us that progess, is first a foremost a vocation:
To regard development as a vocation is to recognize, on the one hand, that it derives from a transcendent call, and on the other hand that it is incapable, on its own, of supplying its ultimate meaning.

Because it is a vocation it requires "a free and responsible answer. Integral human development presupposes the responsible freedom of the individual and of peoples: no structure can guarantee this development over and above human responsibility."

This responsiblity over our own development reminds us that we are "the principal agents of [our] own success or failure."

As development is a vocation, or a responsibility on our part, it requires not only freedom, but truth:
Only when it is free can development be integrally human; only in a climate of responsible freedom can it grow in a satisfactory manner. Besides requiring freedom, integral human development as a vocation also demands respect for its truth. The vocation to progress drives us to “do more, know more and have more in order to be more."

True development also involves every man and the whole man, both natural and supernatural, with the Gospel as fundamental to that development.

And lastly, Pope Benedict XVI recalled the central place of charity within development, especially in aiding the areas of underdevelopment:
Finally, the vision of development as a vocation brings with it the central place of charity within that development. Paul VI, in his Encyclical Letter Populorum Progressio, pointed out that the causes of underdevelopment are not primarily of the material order. He invited us to search for them in other dimensions of the human person: first of all, in the will, which often neglects the duties of solidarity; secondly in thinking, which does not always give proper direction to the will.

Underdevelopment has an even more important cause than lack of deep thought: it is “the lack of brotherhood among individuals and peoples.”

Chapter one thus ends with a reminder of the urgent need for reform "and in the face of great problems of injustice in the development of peoples, it calls for courageous action to be taken without delay."

Tuesday, June 14, 2011

Teeter-Totter Economics

Though the title is silly, the topic is not. Here is a nice, straightforward, and simple post from my professor on the basics of how the government deficit works. The government sector is not the same as the private sector and is not subject to the same constraints. The government's deficit is our surplus.

Note: this argument does not support either political party. It is merely a description of how the process works.

What Happens When the Government Tightens its Belt?

What Happens When the Government Tightens its Belt? (Part II)

And to continue on with the MMT primer:
The Basics of Macro Accounting

Friday, June 10, 2011

Examining Caritas in Veritate, Part 1

The most recent Social Paply Encyclical written by Pope Benedict XVI almost 2 years ago, entitled Caritas in Veritate or Charity in Truth, was written to address the current social problems and issues of our time and to call to mind the principles of authentic development laid forth in Populorum Progressio written over 40 years ago.

This post begins a series examining the teachings of Caritas in Veritate so that we can better practice and apply Catholic Social Teaching in our daily lives.

Pope Benedict begins by explaining how charity in truth is at the center of authentic development and of the Church's social doctrine:
Charity in truth, is the principal driving force behind the authentic development of every person and of all humanity.

Each person finds his good by adherence to God's plan for him, in order to realize it fully: in this plan, he finds his truth, and through adherence to this truth he becomes free.

Charity, in fact, “rejoices in the truth.”

“God is love” (Deus Caritas Est): everything has its origin in God's love, everything is shaped by it, everything is directed towards it. Love is God's greatest gift to humanity, it is his promise and our hope.

Only in truth does charity shine forth, only in truth can charity be authentically lived.

In the present social and cultural context, where there is a widespread tendency to relativize truth, practising charity in truth helps people to understand that adhering to the values of Christianity is not merely useful but essential for building a good society and for true integral human development.

Charity is love received and given. This dynamic of charity received and given is what gives rise to the Church's social teaching, which is caritas in veritate in re sociali: the proclamation of the truth of Christ's love in society.

Without truth, without trust and love for what is true, there is no social conscience and responsibility, and social action ends up serving private interests and the logic of power, resulting in social fragmentation, especially in a globalized society at difficult times like the present.

After having shown the importance of charity in truth, Pope Benedict goes on to apply the principle to the practical moral goals of justice and the common good:
Charity goes beyond justice, because to love is to give, to offer what is “mine” to the other; but it never lacks justice, which prompts us to give the other what is “his”, what is due to him by reason of his being or his acting.

I cannot “give” what is mine to the other, without first giving him what pertains to him in justice.

On the one hand, charity demands justice. On the other hand, charity transcends justice and completes it in the logic of giving and forgiving.

The common good is the good of “all of us”, made up of individuals, families and intermediate groups who together constitute society. It is a good that is sought not for its own sake, but for the people who belong to the social community and who can only really and effectively pursue their good within it.

To desire the common good and strive towards it is a requirement of justice and charity.

Every Christian is called to practise this charity, in a manner corresponding to his vocation and according to the degree of influence he wields in the pólis (community).

Closing the introduction to Caritas in Veritate, Pope Benedict explains that he is continuing the message of Populorum Progressio, which he proclaims as the Rerum Novarum of the present age, by applying the principle of charity in truth to the authentic development of the human family and by explaining the Church's role in this mission:
Love in truth — caritas in veritate — is a great challenge for the Church in a world that is becoming progressively and pervasively globalized.

Only in charity, illumined by the light of reason and faith, is it possible to pursue development goals that possess a more humane and humanizing value.

The sharing of goods and resources, from which authentic development proceeds, is not guaranteed by merely technical progress and relationships of utility, but by the potential of love that overcomes evil with good (cf. Rom 12:21), opening up the path towards reciprocity of consciences and liberties.

The Church does not have technical solutions to offer and does not claim “to interfere in any way in the politics of States.”

She does, however, have a mission of truth to accomplish, in every time and circumstance, for a society that is attuned to man, to his dignity, to his vocation.

Without truth, it is easy to fall into an empiricist and sceptical view of life, incapable of rising to the level of praxis because of a lack of interest in grasping the values — sometimes even the meanings — with which to judge and direct it.

Fidelity to man requires fidelity to the truth, which alone is the guarantee of freedom (cf. Jn 8:32) and of the possibility of integral human development. For this reason the Church searches for truth, proclaims it tirelessly and recognizes it wherever it is manifested.

Caritas in Veritate

Populorum Progressio

Double Dip?

Certainly seems like we're headed that direction given the latest economic data releases. I don't see much help coming from our government (that includes both parties), despite their ability to further stimulate a recovery.

Time to panic? You Betcha.

It really can't be said too many times, there is NO debt crisis and austerity WILL make things worse. That is my official position. I really hope our nation figures it out before we repeat the mistakes of the Great Depression and the Lost Decade of Japan.

Top Ten Reasons to Remain Catholic

From America Magazine. Number 2 is all about Catholic Social Teaching!

Top Ten Reasons to Stay Catholic

Monday, June 6, 2011

Understanding Modern Money Theory

Modern Money Theory (MMT) is the basis for my understanding of macroeconomics and is one of the reasons why I advocate certain policies over others and why I say seemingly crazy things like "we are not facing a debt crisis."

Randall Wray has just begun a weekly primer on MMT for newcomers to both MMT and economics. I highly recommend following this series to better understand our current economic situation and to understand where many of my posts are coming from.

Modern Money Theory Primer

Randall Wray on the Crisis and Looking Ahead

Randall Wray Interviewed on The Real News