Popes Acknowledge Economic Fallibility & Independence of Economics

The Catholic Church has always said that, though politics and economics should have moral goals, prudence is necessary to ensure those goals are actually met. The Church cannot infallibly demand certain economic-political policies be put in place.

The Church has always said there is a lawful diversity of opinion on economic-political matters:

“If I were to pronounce on any single matter of a prevailing economic problem, I should be interfering with the freedom of men to work out their own affairs. Certain cases must be solved in the domain of facts, case by case as they occur…. Men must realize in deeds those things, the principles of which have been placed beyond dispute….These things one must leave to the solution of time and experience.” -Pope Leo XIII

“It goes without saying that part of the responsibility of pastors is to give careful consideration to current events in order to discern the new requirements of evangelization. However, such an analysis is not meant to pass definitive judgments, since this does not fall per se within the Magisterium’s specific domain…. The Church has no models to present; models that are real and truly effective can only arise within the framework of different historical situations, through the efforts of all those who responsibly confront concrete problems in all their social, economic, political and cultural aspects, as these interact with one another. For such a task the Church offers her social teaching as an indispensable and ideal orientation….” -Pope John Paul II, Centesimus Annus

“Indeed ‘the Church holds that it is unlawful for her to mix without cause in these temporal concerns;’ however, she can in no wise renounce the duty God entrusted to her to interpose her authority, not of course in matters of technique for which she is neither suitably equipped nor endowed by office….” -Pius XI, Quadragesimo Anno

“[E]conomics and moral science employs each its own principles in its own sphere….” -Pius XI, Quadragesimo Anno

Stork Economics

Liberals have a childish understanding of economics.

http://www.firstthings.com/onthesquare/?p=1078

By James Kerian

If you ask a child where babies come from, you can get a lot of interesting answers, but traditionally the most common answer is that they come by stork. Children tend to have a similar understanding of economics. If you ask them where their allowance comes from, the two most likely responses are “Daddy’s wallet” and “Mommy’s purse.” In both cases, nothing is created, just transferred. Babies are transferred by storks, and wealth is transferred by parents.

If a child is blessed with good parents, they will soon learn that God makes babies and gives them as gifts to their families. Likewise, “God has given riches and wealth . . . this is the gift of God” (Eccl. 5:19). Most of us grow up to understand that God allows us to participate in the procreation of babies, but unfortunately very few ever realize that God allows us to participate in the procreation of wealth. Rather than procreation, most people assume what is commonly referred to as a zero-sum view of economics. In this view, wealth can neither be created nor destroyed but only transferred from one person to another. This, essentially, is stork economics.

It would be very sad if someone reached adulthood still believing that babies are delivered by stork. (This is the consummate fear of the “comprehensive” sex-ed lobby.) It could make it very difficult to start a family, at least without kidnapping or adoption. In the same manner, those who still believe in stork economics often find it very difficult to acquire wealth, or at least to create it.

While the method for procreating babies is extremely popular, the methods for procreating wealth are, unfortunately, much less attractive. The first method, hard work, is particularly unappealing. The second, ingenuity (both in technological development and efficient procedures), has its appeal but is not something that people like to have expected of them. The third, risk (the investment of time and resources), has glamor but obviously often leads to great disappointment. Nevertheless, these are the three things that have raised the wealth of humanity to the present age from a time when nearly the entire population of the planet was preoccupied with daily sustenance.

Since these methods for procreating wealth are relatively unattractive, there has to be some motivation—an expectation of fair recompense—for wealth to be created. When policymakers subscribe to stork economics, they inevitably deal serious damage to their economy. In their efforts to “fairly” distribute wealth, they remove the incentives for hard work, ingenuity, and risk and thus undermine the creation of the wealth they are attempting to allocate. This has happened repeatedly in varying degrees virtually everywhere—from the Soviet Union to the American welfare state to modern-day North Korea—but it always leaves the advocates of stork economics confused about the sudden absence of wealth. As John Chancellor once said of the Soviet Union on the NBC Nightly News: “The problem isn’t communism . . . the problem is shortages.”

Wealth, like life, can also be destroyed. If hard work, ingenuity, and risk are capable of carrying mankind away from sustenance living, then sloth, ignorance, and recklessness are just as capable of taking him back to it. Wealth should not be the preeminent concern of the Christian, and it is certainly of less importance than the immortal souls of our children. But if you should chance upon someone preaching that the gospel of “social justice” demands “wealth equity,” please take him aside and gently explain. I assure you, he’s old enough.

James Kerian is a mechanical engineer and small-business owner in Grafton, North Dakota.

Democratic Party=Communist Party

Sometimes Democrats actually say what they really would like to do in plain English:

Hmmm, socializing? Government taking over? Government running all our oil companies?

Yeah, we’ve seen this before: besides Chavez, it’s called Vladimir Putin! It’s called the Soviet Union! It’s called communism (and fascism for that matter)!

The Democrats restrict supply by preventing our oil companies from drilling. Economics 101: restricting supply has the effect of increasing prices (assuming demand stays the same or grows). And then the Democrats blame the oil companies for high gas prices which they themselves created! The nerve! They want to use the high gas prices that they caused as a justification for a government take over?! The government interferes with the market, causes a rise in prices, and then claims to be helping out the common man by taking over the industry. Then the industry falls apart, fosters corruption, requires higher taxes, and/or bankrupts the government. Don’t fall for the ruse.

The Government-Created Subprime Mortgage Meltdown

Just like the government caused the Great Depression. When will people learn that government interference causes the greatest economic instability and dislocations??

http://www.lewrockwell.com/dilorenzo/dilorenzo125.html

By Thomas J. DiLorenzo

September 6, 2007

The thousands of mortgage defaults and foreclosures in the “subprime” housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call “communities of color” that they might not otherwise make based on purely economic criteria.

The original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various “neighborhood organizations,” as they like to call themselves, such as “ACORN” (Association of Community Organizations for Reform Now). These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act.

So-called “community groups” like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA “protest” is issued by a “community group.” This can cost banks great sums of money, and the “community groups” understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.

A man named Bruce Marks became quite notorious during the last decade for pressuring banks to earmark literally billions of dollars to his organization, the “Neighborhood Assistance Corporation of America.” He once boasted to the New York Times that he had “won” loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group. And that is just one “community group” operating in one city – Boston.

Banks have been placed in a Catch 22 situation by the CRA: If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters.

Consequently, banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as “subprime” loans. In order to compensate themselves for the added risk of extending these loans, many lenders have increased the lending fees associated with mortgage loans. This is simply an indirect way of doing what banks always do – and what they must do to remain solvent: charging effectively higher rates of interest on riskier loans.

But this is discriminatory!, complained the “community organizations.” Thus, if one browses the ACORN web site, one can read of their boasts of having “predatory lending laws” passed in numerous states which outlaw such fees, prohibiting banks from protecting themselves from the added risk involved in making forced loans to “subprime” borrowers.

These are price control laws, and price controls always cause shortages. Normally, banks would respond to such laws by extending fewer riskier loans. But in this case the banks are forced to continue making the marginal loans by their bureaucratic masters at the Fed and the other three federal bureaucracies mentioned above. So-called predatory lending laws therefore force the banks to “eat” the losses. This is undoubtedly a contributing factor to the bankruptcy of dozens of mortgage lenders over the past year.

Then of course there is the issue of the Fed’s monetary policy having created the housing bubble, characterized by a spectacular escalation of real estate values in every American city over the past decade or so. This created a further problem for the financial institutions that are victimized by the CRA. They are forced to make a certain amount of bad loans, but because of the Fed-created explosion in housing prices, many thousands of subprime borrowers no longer qualified, by a long stretch, for conventional mortgages based on their incomes.

The only way these borrowers could qualify for their mortgage loans (even ignoring their bad credit ratings) was to take out adjustable rate mortgages, some of which had astonishingly low first-year rates in the 3 percent range, and sometimes lower. This is what has largely fueled the subprime mortgage meltdown – the inability of thousands of subprime borrowers to afford their mortgages now that their rates have adjusted upward. Thus, the combination of the Fed’s enforcement of the CRA (with the help of political pressure groups like ACORN) and its post 9/11 monetary policy in general are the reasons for the bursting real estate bubble and the “subprime” mortgage meltdown.

Don’t expect to read about this in the “mainstream media,” however, which generally views groups like ACORN as heroic champions of the poor, laws like the CRA as anti-discrimination laws, and places all of the blame for the subprime mortgage meltdown on greedy capitalists, especially mortgage brokers. Encouraged by such reporting, the odious Senator Charles Schumer of New York has promised federal legislation that will reign in these miscreants, while the Bush administration is proposing an indirect bank bailout by having the Federal Housing Administration cover many of the bad “subprime” loans. This will create what economists call a “moral hazard” by encouraging even more bad loans to be extended in the future. Every banker in America will be glad to extend loans (at high rates of interest) to the most uncreditworthy borrowers if he thinks there is no possibility of default with the FHA effectively guaranteeing the loan.

Thomas J. DiLorenzo [send him mail] professor of economics at Loyola College in Maryland and the author of The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War, (Three Rivers Press/Random House). His latest book is Lincoln Unmasked: What You’re Not Supposed To Know about Dishonest Abe (Crown Forum/Random House).

Copyright © 2007 LewRockwell.com

A Beer Story: Tax Cuts for the Wealthy

The wealthy pay most of the taxes, so it should be no surprised that they get a larger percentage of the tax cut total back!  It is only fair. 

——

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’declared the sixth man. He pointed to the tenth man,’ but he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia

Myths Christians Believe About Wealth and Poverty

Please listen to http://www.acton.org/daily/nowatacton_200709051337.php

1. The Piety Fallacy: Good intentions are all that matter. Piety is no substitute for technique. Good intentions are no substitute for good consequences. God holds us accountable for our intentions, but public policy should help people regardless of the nature of intentions. God asks us to love him with all our mind too, so he holds us responsible for the manifest consequences of our actions (something apprehended by the mind). (e.g. rent control, child labor)

2. The Freeze Frame Fallacy: Assuming certain trends or demographics will always stay the same. A single point in time and place is not representative of all reality. Things change. Life is not static. (e.g. population growth)

3. The Artsy Myth: Confusing aesthetics and economics; attributing ugliness or harshness to the free market. Such aesthetic judgments may be true, but such judgments should not be made in isolation, cut-off from economic realities. But poverty is not pretty either. Beauty is expensive; don’t punish the poor just so you have something nice to look at or feel good about something. Heed Maslow’s hierarchy of needs: physical needs come before aesthetics. (e.g. corporations like Wal-Mart)

4. Zero-Sum Game Myth: If I become rich, doesn’t that make someone else poor? The wealth of the First World causes the poverty of the Third World. Economics is not like chess, checkers, sports, or war. The free market (and free trade) is a win-win game overall, not a win-lose game, though not everyone ends up on top. Our GDP goes up over time and correlates to free trade. The pie is not static; it grows.

We are created in the image and likeness of God. God is a creator and so are we! We are his co-creators, and so there is nothing evil about business or production. Rather business people imitate the creative nature of God in providing goods and services.

Q&A: 
Bill Gates of all people should know how wealth is created and yet even he doesn’t get it. Rather than making the Third World productive, he would prefer to make the Third World dependent and thus permanently vulnerable to poverty.

Is all this talk about income inequality merely a reflection of the entrenched  materialism in our culture that in turn fosters envy and jealousy of others success and wealth? Most likely. One can reduce envy by making everyone poor (a possibility) but not by making everyone rich (impossible).

People who are taxed the highest give the least to charity. Conservatives give more to charity too (http://www.arthurbrooks.net/index.html). Compassion literally means “to suffer together.” It is hard to suffer with the poor using someone else’s money.

What is the moral relevancy of a person who becomes wealthy through free exchange? None.

Wealth, Work, and the Church

WATCH THIS VIDEO: http://www.acton.org/media/20080214_wealth_work_church.php

The Christian tradition has always held an ambivalent position toward wealth. The Bible itself seems to condemn the rich and extol the poor, though Abraham, David, and Solomon were obviously very wealthy yet godly men. Recently, the “Prosperity Gospel” promoted in some Pentecostal Churches has argued that it is God’s will that all true believers should receive material blessings and that poverty is a curse. This lecture will explore the biblical foundations of work and wealth creation in light of the history of the Church to find the proper balance between these competing ideas of the place of earthly riches in Christianity.

This is just the best presentation I’ve ever seen of what the Bible really says about wealth, the rich, and economics in general! It cites Scripture and interprets them with clarity and authority.

Pope Dissects and Denounces Socialism

http://detnews.com/apps/pbcs.dll/article?AID=/20080115/OPINION01/801150306/1007/OPINION 

Tuesday, January 15, 2008

Faith and policy

Benedict dissects problem with socialism

Fr. Robert Sirico

Pope Benedict XVI has delivered a wonderful — and oh-so-needed — reminder of what socialism was (and is), and why it went wrong.

Large swaths of American academia are in denial. So too are major parts of the American and European clerical class, which is still under the impression that socialism represents a gospel ideal that has yet to be tried.

Benedict explains this in his encyclical Spe Salvi(“in hope we are saved”).

The pope concentrates on Karl Marx in particular. Here was an intellectual who imagined that salvation could occur without God, and that something approximating the Kingdom of God on earth could be created by adjusting the material conditions of man.

History, in Marx’s view, was nothing but the crashes and grinding of these material forces. There was no such thing as a fixed human nature.

Marx said the expropriated working classes must take back what is rightfully theirs from the exploiting capitalist classes.

Benedict sums the fundamental error with Marx neatly:

“He showed precisely how to overthrow the existing order, but he did not say how matters should proceed thereafter. He simply presumed that with the expropriation of the ruling class, with the fall of political power and the socialization of means of production, the new Jerusalem would be realized. Then, indeed, all contradictions would be resolved, man and the world would finally sort themselves out.”

Having accomplished the revolution in Russia, Vladimir Lenin must have realized that the writings of the master gave no indication as to how to proceed. Marx had only spoken of the interim phase of the dictatorship of the proletariat as a necessity which in time would automatically become redundant.

What resulted is that millions of Russians died in famine and wholesale slaughter. It became clear to Lenin that he had to back away, lest there be no one left to rule. But the dictatorship continued. So too did the poverty relative to capitalist nations.

So the pope has put the problems of economics exactly in the right light: The practical issue needs to be settled within a sound morality and understanding of human nature. Socialism fails because it has no system for pricing factors of production to make economic calculation possible. Prices come from the exchange of the very private property with which socialism dispenses.

And yet the moral problem with socialism is more profound: It exalts theft as an ethic and overlooks the human right of freedom.

Would that every Catholic interested in economics would read this encyclical. Some are getting the message already: The Catholic Church in Venezuela worked against Hugo Chavez’s dangerous plan for nationalization and regimentation of economic life. Someday, the world will come to learn the lessons that the history of socialism has taught.

Father Robert Sirico is president of the Acton Institute for the Study of Religion and Liberty in Grand Rapids. Fax letters to (313) 222-6417 or e-mail them to letters@detnews.com.

Watch Milton Friedman Explain the Free Market and How Government Is Not the Solution

http://www.ideachannel.tv/