Tuesday, May 17, 2011

Debt, Finance and Catholics

Crisis Magazine
By Sam Gregg

Debt and deficits seem to be on everyone’s minds these days. Whether it be worries about the American government’s fiscal woes, Europe’s fragile banking system, or the debt-as-a-way-of-life culture that disfigures so many lives, many people are seeking guidance about how to extradite ourselves from this mess with our souls intact.

In this regard, Catholics instinctively turn to Catholic social teaching for direction. Unfortunately, modern Catholic social encyclicals have relatively little to say about financial questions. Even the 2004 Compendium of Catholic Social Doctrine confines itself to very broad statements about finance and foreign debt, and it never really addresses the moral dimension of private and public debt.

This absence of sustained contemporary Catholic reflection on financial questions is puzzling. Because once we get past the Dark Ages propaganda and Black Legend mythology that distorts so many people’s vision of the Middle Ages and Catholicism more generally, we discover most of the practices of finance and banking took form in a medieval Christian world — one shaped and nourished by the Catholic Church.

Indeed, for many centuries, Catholic bishops and theologians invested considerable energy in understanding the world of money because of the usury question. Catholic thinkers were consequently among the first to identify money’s primary functions, illustrate how money in the conditions of economic freedom could assume the form of capital, demonstrate the moral legitimacy of charging interest on money-as-capital, and assess the moral status of different debts in different contexts.

Here it’s worth noting that early-modern Catholic theologians assailed governments who tried to escape their debts by measures such as inflating the currency or borrowing more money to pay for interest payments on existing public debt, or who spent large portions of the taxes they raised on servicing debt or on activities that were either morally evil or simply did not fall within the core functions of constitutionally limited governments.

Sound familiar?

Today one looks in vain for Catholic thinkers studying our debt and deficit problems from standpoints equally well-informed by economics and sound Catholic moral reflection. We don’t, for instance, hear many Catholic voices speaking publically about the moral virtues essential for the management of finances such as prudent risk-taking, thrift, promise-keeping, and assuming responsibility for our debts — private or public.

Instead, one finds broad admonitions such as “put the interests of the poor first” in an age of budget-cutting. The desire to watch out for the poor’s well being in an environment of fiscal restraint is laudable. But that’s not a reason to remain silent about the often morally-questionable choices and policies that helped create our personal and public debt dilemmas in the first place.

One Catholic who has proved willing to engage these issues is none other than Pope Benedict XVI. In his 2010 interview book Light of the World, Benedict pointed to a deeper moral disorder associated with the running-up of high levels of private and public debt. The willingness on the part of many people and governments to do so means, Benedict wrote, “we are living at the expense of future generations.”

In other words, someone has to pay for all this debt. And clearly many Western Europeans and Americans seem quite happy for their children to pick up the bill. That’s a rather flagrant violation of intergenerational solidarity.

But Benedict then sharpened the argument. This willingness on the part of governments, communities, and individuals to live off debt means that people are “living in untruth.” “We live,” Benedict stated, “on the basis of appearances, and the huge debts are meanwhile treated as something that we are simply entitled to.”

In fact, it’s possible to go further and argue such attitudes reflect a mindset of practical atheism: living and acting as if God does not exist, as if the only life is this life, as if the future does not matter. Only people who have no hope — no hope in God, no hope in redemption, no hope for the future — will think and act this way.

The economist John Maynard Keynes once famously wrote, “In the long run, we are all dead.” To be fair to Keynes, he was making a specific point about monetary theory. But his words are evocative of a mindset that should trouble Catholics and other Christians.

For if we choose to live our lives according to a perspective dominated by immediate gratification or pursue economic policies forever focused on the short term (which is, more or less, Keynesianism’s Achilles’ heel), then living off debt is entirely rational. But what does that say about our priorities and conception of human flourishing?

Taking on debt is not in itself intrinsically evil. In many circumstances, it’s an entirely reasonable decision. Nevertheless, a situation of inexorably increasing debt and a failure to confront its moral and economic causes can slowly corrode our personal sense of responsibility for our freely undertaken obligations and severely tempt us to live in a fantasy world of moral and fiscal unreality.

Such attitudes don’t just weaken economies. The damage to our personal moral well being, not to mention entire societies’ moral ecology, is immeasurable.

1 comment:

  1. Mr. Gregg,

    Almost all of our federal debt can be attributed to two presidents -- Ronald Reagan and George W. Bush. I wouldn't accuse either of them of having a mindset of practical atheism, but maybe you know something I don't know.

    Reagan took office in January 1981. The first budget for which he was fully responsible was Fiscal Year 1982, which started on October 1, 1981.

    Let's look at the total federal debt and on-budget deficits for each president since Jimmy Carter:

    Jimmy Carter's last fiscal year (1981):
    Federal debt = $1.0 trillion
    Federal deficit = $73.1 billion

    Ronald Reagan's last fiscal year (1989):
    Federal debt = $2.9 trillion
    Federal deficit = $205.4 billion

    George H.W. Bush's last fiscal year (1993):
    Federal debt = $4.4 trillion
    Federal deficit = $300.4 billion

    Bill Clinton's last fiscal year (2001):
    Federal debt = $5.8 trillion
    Federal deficit = $32.4 billion

    George W. Bush's last fiscal year (2009):
    Federal debt = $11.9 trillion
    Federal deficit = $1.5 trillion

    Federal debt = $14.3 trillion
    Estimated FY2011 federal deficit = $1.7 trillion

    In 1981 the total federal debt was $1 trillion. The debt nearly tripled under Ronald Reagan to $2.9 trillion in 1989, and increased under George H. W. Bush to $4.4 trillion by 1993.

    The Bush and Clinton tax increases of the early 1990s caused the deficits to gradually disappear, with small surpluses in 1999 and 2000. Even so, the debt grew under Clinton to $5.8 trillion by 2001. Clinton left office in 2001 with a small deficit of $32.4 billion. He would have left office with a small surplus if George W. Bush had not sent taxpayers that advanced refund check of $300 in 2001 for their 2001 taxes. Sending us those refund checks lowered FY2001 revenue by $35 billion according to the CBO.

    The debt more than doubled under George W. Bush to $11.9 trillion in 2009. Bush left office with the first ever trillion dollar deficit because of the bailouts and the bad economy. Obama made the FY2009 deficit a little bigger because he spent a portion of his stimulus package that year -- $108 billion according to the CBO.

    Obama will be stuck with trillion dollar deficits until the economy improves.

    The debt numbers can be found here and here.

    The on-budget deficit numbers are in the U.S. Budget Historical Tables, Table 1.1. Scroll down till you see Historical Tables. I use the PDF file.

    The CBO numbers I mentioned are in the CBO's Monthly Budget Reviews for September 26, 2001 and November 6, 2009. You have to scroll down to get to the reviews.