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.

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