Thursday, October 27, 2011

Global Public Authority and Central World Bank

An economist for the Vatican calls for a Global Authority and a Central World Bank.
The Vatican called on Monday for the establishment of a "global public authority" and a "central world bank" to rule over financial institutions that have become outdated and often ineffective in dealing fairly with crises.

The 18-page document, "Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority," was at times very specific, calling, for example, for taxation measures on financial transactions.

In a section explaining why the Vatican felt the reform of the global economy was necessary, the document said:

"In economic and financial matters, the most significant difficulties come from the lack of an effective set of structures that can guarantee, in addition to a system of governance, a system of government for the economy and international finance."
You can read the full article here and the full document here.

This isn't the first time the Church has called for a central global public authority, here is what the Popes have said:

From Pacem in Terris:
136. Now, if one considers carefully the inner significance of the common good on the one hand, and the nature and function of public authority on the other, one cannot fail to see that there is an intrinsic connection between them. Public authority, as the means of promoting the common good in civil society, is a postulate of the moral order. But the moral order likewise requires that this authority be effective in attaining its end. Hence the civil institutions in which such authority resides, becomes operative and promotes its ends, are endowed with a certain kind of structure and efficacy: a structure and efficacy which make such institutions capable of realizing the common good by ways and means adequate to the changing historical conditions.

137. Today the universal common good presents us with problems which are world-wide in their dimensions; problems, therefore, which cannot be solved except by a public authority with power, organization and means co-extensive with these problems, and with a world-wide sphere of activity. Consequently the moral order itself demands the establishment of some such general form of public authority.

138. But this general authority equipped with world-wide power and adequate means for achieving the universal common good cannot be imposed by force. It must be set up with the consent of all nations. If its work is to be effective, it must operate with fairness, absolute impartiality, and with dedication to the common good of all peoples. The forcible imposition by the more powerful nations of a universal authority of this kind would inevitably arouse fears of its being used as an instrument to serve the interests of the few or to take the side of a single nation, and thus the influence and effectiveness of its activity would be undermined. For even though nations may differ widely in material progress and military strength, they are very sensitive as regards their juridical equality and the excellence of their own way of life. They are right, therefore, in their reluctance to submit to an authority imposed by force, established without their co-operation, or not accepted of their own accord.

139. The common good of individual States is something that cannot be determined without reference to the human person, and the same is true of the common good of all States taken together. Hence the public authority of the world community must likewise have as its special aim the recognition, respect, safeguarding and promotion of the rights of the human person. This can be done by direct action, if need be, or by the creation throughout the world of the sort of conditions in which rulers of individual States can more easily carry out their specific functions.

140. The same principle of subsidiarity which governs the relations between public authorities and individuals, families and intermediate societies in a single State, must also apply to the relations between the public authority of the world community and the public authorities of each political community. The special function of this universal authority must be to evaluate and find a solution to economic, social, political and cultural problems which affect the universal common good. These are problems which, because of their extreme gravity, vastness and urgency, must be considered too difficult for the rulers of individual States to solve with any degree of success.

141. But it is no part of the duty of universal authority to limit the sphere of action of the public authority of individual States, or to arrogate any of their functions to itself. On the contrary, its essential purpose is to create world conditions in which the public authorities of each nation, its citizens and intermediate groups, can carry out their tasks, fullfill their duties and claim their rights with greater security.

142. The United Nations Organization (U.N.) was established, as is well known, on June 26, 1945. To it were subsequently added lesser organizations consisting of members nominated by the public authority of the various nations and entrusted with highly important international functions in the economics, social, cultural, educational and health fields. The United Nations Organization has the special aim of maintaining and strengthening peace between nations, and of encouraging and assisting friendly relations between them, based on the principles of equality, mutual respect, and extensive cooperation in every field of human endeavor.

143. A clear proof of the farsightedness of this organization is provided by the Universal Declaration of Human Rights passed by the United Nations General Assembly on December 10, 1948. The preamble of this declaration affirms that the genuine recognition and complete observance of all the rights and freedoms outlined in the declaration is a goal to be sought by all peoples and all nations.

144. We are, of course, aware that some of the points in the declaration did not meet with unqualified approval in some quarters; and there was justification for this. Nevertheless, We think the document should be considered a step in the right direction, an approach toward the establishment of a juridical and political ordering of the world community. It is a solemn recognition of the personal dignity of every human being; an assertion of everyone's right to be free to seek out the truth, to follow moral principles, discharge the duties imposed by justice, and lead a fully human life. It also recognized other rights connected with these.

Creation of a world fund from Populorum Progressio:
51. A further step must be taken. When We were at Bombay for the Eucharistic Congress, We asked world leaders to set aside part of their military expenditures for a world fund to relieve the needs of impoverished peoples. (55) What is true for the immediate war against poverty is also true for the work of national development. Only a concerted effort on the part of all nations, embodied in and carried out by this world fund, will stop these senseless rivalries and promote fruitful, friendly dialogue between nations.

52. It is certainly all right to maintain bilateral and multilateral agreements. Through such agreements, ties of dependence and feelings of jealousy—holdovers from the era of colonialism —give way to friendly relationships of true solidarity that are based on juridical and political equality. But such agreements would be free of all suspicion if they were integrated into an overall policy of worldwide collaboration. The member nations, who benefit from these agreements, would have less reason for fear or mistrust. They would not have to worry that financial or technical assistance was being used as a cover for some new form of colonialism that would threaten their civil liberty, exert economic pressure on them, or create a new power group with controlling influence.

53. Is it not plain to everyone that such a fund would reduce the need for those other expenditures that are motivated by fear and stubborn pride? Countless millions are starving, countless families are destitute, countless men are steeped in ignorance; countless people need schools, hospitals, and homes worthy of the name. In such circumstances, we cannot tolerate public and private expenditures of a wasteful nature; we cannot but condemn lavish displays of wealth by nations or individuals; we cannot approve a debilitating arms race. It is Our solemn duty to speak out against them. If only world leaders would listen to Us, before it is too late!

A little more indirectly from Caritas in Veritate:
41.Political authority also involves a wide range of values, which must not be overlooked in the process of constructing a new order of economic productivity, socially responsible and human in scale. As well as cultivating differentiated forms of business activity on the global plane, we must also promote a dispersed political authority, effective on different levels. The integrated economy of the present day does not make the role of States redundant, but rather it commits governments to greater collaboration with one another. Both wisdom and prudence suggest not being too precipitous in declaring the demise of the State. In terms of the resolution of the current crisis, the State's role seems destined to grow, as it regains many of its competences. In some nations, moreover, the construction or reconstruction of the State remains a key factor in their development. The focus of international aid, within a solidarity-based plan to resolve today's economic problems, should rather be on consolidating constitutional, juridical and administrative systems in countries that do not yet fully enjoy these goods. Alongside economic aid, there needs to be aid directed towards reinforcing the guarantees proper to the State of law: a system of public order and effective imprisonment that respects human rights, truly democratic institutions. The State does not need to have identical characteristics everywhere: the support aimed at strengthening weak constitutional systems can easily be accompanied by the development of other political players, of a cultural, social, territorial or religious nature, alongside the State. The articulation of political authority at the local, national and international levels is one of the best ways of giving direction to the process of economic globalization. It is also the way to ensure that it does not actually undermine the foundations of democracy.

Wednesday, October 26, 2011

Chris Hedges on Occupy Wall Street

Below is an excellent video from CBC via Youtube. I think Mr. Hedges understands the situation very well in terms of what the Occupy movement wants and in terms of the workings of our current politico-economic system. I agree with Mr. Hedges and the Occupy movement that our current government is being run largely by corporate america, particularly the financial sector, and that those responsible for our financial crisis and the fraudulent loans that helped cause it should be prosecuted.

I also think that he is right that true conservatives want the restoration of law and the end of corrupt government.

Wednesday, October 19, 2011

Debt Forgiveness

The reason debt forgiveness or write-downs is a big deal right now is because consumers can't pick up spending if they are buried under a mountain of debt.

The Occupy movement has not called, to my knowledge, specifically for debt forgiveness, but has loosely referred to it in their declaration and elsewhere.

I am in favor of debt forgiveness because of the fraudulent way in which the loans were originally made. Much of the debt for housing taken on by home-buyers and offered by banks was simply fraudulent. The loans were predicated on house prices that were way above trend because of the speculative housing bubble and banks made them despite being well aware they likely wouldn't be paid back. To be fair, it takes two to make a loan, and consumers probably shouldn't have taken on the enormous amount of debt that they did, but when it comes to culpability, I put more of the blame on the bankers because they knew the risks and told people they could make it work anyway.

They told people that they could afford the loans they were handing out and then repackaging and selling to other banks all to make a buck. The bubble finally burst, banks were bailed out, debtors were not. The ones committing fraud were bailed out and not tried for their criminal actions and the ones who fell subject to that fraud are still being held subject to that fraud. They are still required to pay back that debt.

Bankruptcy is an option, and I don't understand bankruptcy laws all that well, but I do know that if you declare bankruptcy your credit score tanks and you've likely sealed your financial fate. Why should people who took on debt because banks gave it to them fraudulently be forced to declare bankruptcy when the banks would have gone bankrupt if not for a federal bailout?

When the government bailed out the banks, they should have also bailed out the debtors by writing down their debt or forgiving it all together. This whole fiasco is a major Moral Hazard problem on both sides and is inherent in unstable Capitalist economies.

The major point is that that debt need not exist. It was created fraudulently and should just go away. Banks will be fine without it and people will be much better off without it. It really might be the only way forward. Debt really is our problem in the U.S., but it's not the government's debt, it's private households' debt.

Consumers can then start spending again, which will increase sales, and increase employment, which will start the cycle back upward. Banks will then be willing to lend to businesses and households again.

It appears conservatives are also considering this option.

In my opinion this shouldn't be a cyclical thing (that would only increase the moral hazard). It should be a one-time write down on housing debt. The bankers responsible should be tried criminally for fraud. No one should be evicted if the bank doesn't have the mortgage and no one should be evicted if the loan was made fraudulently.

From a CST perspective, I think a write-down is necessary out of justice and for the common good. Going forward, banks and households in general need more temperance and a feeling of responsibility both toward debt. That is, a debtor should take on debt responsibly and creditors should only give to debtors responsibly. In our Capitalist economy, that is far from the case. Households often want more than they can afford and banks aren't shy giving it to them if they know they can make a buck and get bailed out if they fail. There is little to no view toward the common good in all of this and is, I think, the major underlying cause of the financial crisis.

UPDATE: I should have said that CST doesn't say anything specific about debt forgiveness. What I'm saying is 'I believe that, given the fraudulent nature of the loans, justice demands some forgiveness and that CST would agree', but it is up to you to apply CST to this situation, or to the Church to teach us how to apply her teaching to this situation. I haven't seen anything from the Church on this particular topic; if you do, please send it to me!

UPDATE UPDATE: This is my reponse to comments because the computer that I am on won't let me comment.

Darwin--I am no expert on these matters, I take my info from my professors. One is a former regulator and expert in financial law and another is a monetary system expert who has studied the workings of the Fed and the Treasury extensively. You can consult the video here and the blog posts of Bill Black at

Fr. Damien--I agree with you. I don't know that many student loans are/were fraudulent, but I do think a write down on student loans would be beneficial to the economy. The government is already actively involved in education 'investment' and investing in education is one of the best things you can do for the long run health of the economy. A big write down could be seen as an investment in our future, while at the same time improving things now by clearing consumer debt. I don't know what to do about students earning 'useless' (in terms of finding a job) degrees. That, to me, is unrelated to the fraud I am talking about.

Saturday, October 15, 2011

The Family

A common unit of analysis in economics is the household. The household is a buyer of goods and services from firms and a supplier of labor to firms. Yet analysis of the household often doesn't take into consideration the composition or relationships of the household.

In Catholic Social Teaching, the family is the most fundamental institution in society where man first realizes and fulfills his social nature. In this way, the family is more than a unit that provides and buys goods and services, it is the sanctuary of life, the reflection of our Trinitarian God, and very important for our development as persons.

It is no wonder that those who are without a loving family often deal with immense struggles in life. That is not to say that those with a loving family don't have struggles or that those without it can't live life well, but the love and support of a family can go a long way toward helping us live well, whether they be our natural family or our human family.

The Pope recently addressed the “Centesimus Annus Pro Pontifice” foundation about Catholic Social Teaching and the importance of the family.

Pope John Paul II also took up this issue in his encyclical Centesimus Annus:

The first and fundamental structure for "human ecology" is the family, in which man receives his first formative ideas about truth and goodness, and learns what it means to love and to be loved, and thus what it actually means to be a person. Here we mean the family founded on marriage, in which the mutual gift of self by husband and wife creates an environment in which children can be born and develop their potentialities, become aware of their dignity and prepare to face their unique and individual destiny. But it often happens that people are discouraged from creating the proper conditions for human reproduction and are led to consider themselves and their lives as a series of sensations to be experienced rather than as a work to be accomplished. The result is a lack of freedom, which causes a person to reject a commitment to enter into a stable relationship with another person and to bring children into the world, or which leads people to consider children as one of the many "things" which an individual can have or not have, according to taste, and which compete with other possibilities.

It is necessary to go back to seeing the family as the sanctuary of life. The family is indeed sacred: it is the place in which life — the gift of God — can be properly welcomed and protected against the many attacks to which it is exposed, and can develop in accordance with what constitutes authentic human growth. In the face of the so-called culture of death, the family is the heart of the culture of life.

Human ingenuity seems to be directed more towards limiting, suppressing or destroying the sources of life — including recourse to abortion, which unfortunately is so widespread in the world — than towards defending and opening up the possibilities of life. The Encyclical Sollicitudo rei socialis denounced systematic anti-childbearing campaigns which, on the basis of a distorted view of the demographic problem and in a climate of "absolute lack of respect for the freedom of choice of the parties involved", often subject them "to intolerable pressures ... in order to force them to submit to this new form of oppression".78 These policies are extending their field of action by the use of new techniques, to the point of poisoning the lives of millions of defenceless human beings, as if in a form of "chemical warfare".

These criticisms are directed not so much against an economic system as against an ethical and cultural system. The economy in fact is only one aspect and one dimension of the whole of human activity. If economic life is absolutized, if the production and consumption of goods become the centre of social life and society's only value, not subject to any other value, the reason is to be found not so much in the economic system itself as in the fact that the entire socio-cultural system, by ignoring the ethical and religious dimension, has been weakened, and ends by limiting itself to the production of goods and services alone.79

All of this can be summed up by repeating once more that economic freedom is only one element of human freedom. When it becomes autonomous, when man is seen more as a producer or consumer of goods than as a subject who produces and consumes in order to live, then economic freedom loses its necessary relationship to the human person and ends up by alienating and oppressing him.

Tuesday, October 11, 2011

Recovery largely rests on Debt Relief

No, not government debt, but private household debt. The enormous run-up in private debt that both contributed to the housing bubble and was an effect of the housing bubble is now holding us back from recovery. Households are trying to pay down debt through 'saving' more of their income, but in the aggregate are unable to because of unemployment and the 'paradox of thrift'.

In order for consumers to pick up spending again, they first need an income, and they second need reduced debts. Since the debt run-up was largely fraudulent (on both sides but I hold the creditors more culpable because of their understanding that the loans wouldn't be paid back and that the gov't would subsequently bail them out) I am in favor of some form of debt-forgiveness.

If we do not forgive large amounts of household debt, our recovery may never come. Job creation relies on sales which rely on consumer spending which relies on lower household debt which relies on income which relies on jobs. How can you enter the circle? The gov't can write down large amounts of debt and guarantee a job to all willing and able to work. These policies would, I think, ensure a swift recovery.

Read here for more on debt forgiveness.

The problem with 'economics'

Okay, so I can't claim it is the only problem, but this article written by John Kay of the Financial Times sums up nicely why my discipline has failed to describe the real world and to provide adequate prescriptions for fixing the economy.

You can read the article here.