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Understanding speculation

SAM GREGG writes that the practice of speculation is morally justifiable as long as basic moral principles are followed. In specific conditions, he says, it can certainly have negative effects. Before Catholics condemn (or unreservedly praise) speculation, however, it’s important that we understand this important financial tool in all its complexity . . . 

Sam Gregg

Sam Gregg

Speculation is one of those words that raises many Christians’ hackles. It conjures up visions of people making easy gain for no apparent effort, and some associate it with financial crises.

So what’s a Christian to make of speculation? The Catechism of the Catholic Church identifies “speculation in which one contrives to manipulate the price of goods artificially in order to gain an advantage to the detriment of others” as “morally illicit” (CCC #2409).. This wording indicates that there are legitimate forms of speculation, though these are left unspecified.

The justice of different choices denoted as “speculative” depends upon the specifics of a given choice. Speculation that relies, for instance, upon telling falsehoods is wrong because choosing to lie is, in Christian terms, always wrong. It would be equally unjust for a financial firm to try and manipulate the futures market by expressing to others excessive optimism or negativity about the prospects for a given commodity.

These examples are very different from the type of speculation that involves making prudential judgments about what one buys and sells on the stock market in light of what one judges is likely to happen in the future on the basis of knowledge, experience and evidence. Speculation can be abused or used badly. But just because some banks issue credit to the wrong people doesn’t mean we should eliminate credit altogether, nor does misuse of speculative techniques necessitate a severe curtailing of speculation.

There are also greater and lesser degrees of speculation, depending on the size of the “bet” and how much one can reasonably forecast for the future. When a bank, for instance, grants a two-year small loan to an established business with a track record of on-time loan repayment, it does so with a high degree of certainty that the loan will be repaid.

The scale of the speculation — and the risk — increases in the case of, for instance, a hedge fund that chooses to borrow a large amount of money in order to speculate upon the future worth of a given commodity or currency over varying periods of time. “Forward dealings,” as they are called, seek to capitalize upon expected price movements that enable me to sell high and buy low. This can involve buying products, shares, or commodities in the expectation that, in the meantime, prices will fall (a “bear” transaction) or rise (a “bull” transaction). The degree of uncertainty surrounding all these factors means that the speculative risk is usually higher than a standard small-business loan.

Given the inevitable degree of speculation involved in any economic choice, it’s hard to see how speculation per se could be wrong in the sense that every act of adultery, for instance, is intrinsically evil. We should also recall that speculation involves taking a risk, and risk has always been understood as providing a just title to any ensuing profits.

Speculation, whether on currencies or commodities, is not a work- free exercise. When a hedge fund decides to go “long” or “short” on a commodity’s future price, it rarely does so because of someone’s mere whim. Such firms employ large numbers of forecasters, traders, and even mathematical modelers in an effort to make as accurate a speculative estimate as possible. Though often portrayed as an activity that results in enormous gain on the basis of little labor, speculation often involves quite large amounts of work undertaken by highly knowledgeable groups of people who may lose a great deal (including their jobs) if they make significant errors in judgment.

What’s important to note here is that someone’s ability to make a profit as a speculator does not emanate from cheating anyone — or from any magical ability on his part to make the price of necessities such as food increase and thereby put food outside the poor’s capacity to pay. Instead I derive a profit because I correctly estimate that, for instance, the demand for oil would be greater than the supply of oil over the future. Likewise, my loss would proceed from my failure to ascertain that the oil supply was going to outstrip demand in a year’s time.

We should also be attentive to the ways in which speculation can contribute to the better use of economic resources. Speculation —  be it in currencies, food, commodities — can, for instance, contribute to the relative stability of economic life by helping to calibrate the supply and demand of many goods beyond the short-term.

Much more could be said about speculation. In specific conditions, it can certainly have negative effects. But before Catholics condemn (or unreservedly praise) speculation, it’s important that we understand this financial tool in all its complexity. Only then can we render judgment on an act of speculation in the marketplace.

SAMUEL GREGG is the Acton Institute’s research director. His most recent book is “Tea Party Catholic.”

From the gritty to the pretty

Jason Jones’ pro-life ministry takes him from the homeless to Hollywood’s stars . . .

The pain of abortion catapults many people into the pro-life movement and the Catholic Church. Legate Jason Jones is no exception. But when he entered the pro-life movement back in 1989, he was as far from Catholicism as anyone could be.

40-year plan

cover-oct14It all began when Jones was about to turn 17 and he learned that his high school girlfriend was pregnant. Jones joined the U.S. Army to support his young family, and the couple decided to keep the pregnancy a secret until he finished basic training. One day — right before the seventh month of pregnancy — Jones’ girlfriend called him where he was stationed in Fort Benning, Ga. She was crying hysterically. Then her father came on the line and said, “Jason, I know your secret, and your secret’s gone. She had an abortion.”

The news rocked Jones to the core.

“I didn’t even know abortion was legal until my captain told me that it was,” Jones said. “All I knew was that my girlfriend had been coerced into this by her Catholic father.”

Jones immediately became a rabidly anti-Catholic pro-lifer. Heartbroken, he began going door-to-door to talk to people about abortion. When Jones’ captain found out, he told the young solider that he needed a plan — and to work backwards from there.

“So I made a 40-year plan to end abortion,” he said. “I knew I had to go to college if I was going to get anywhere.”

Jones enrolled in the University of Hawaii after getting out of the army and volunteered for Hawaii Right to Life. There Jones began to learn about the pro-life movement and how legislation worked. Jones was a firm atheist in college, but reading Jean Paul Sartre and Friedrich Nietzsche during his final semester challenged him. Both philosophers argued against the existence of God and a transcendental moral order.

Actor Eduardo Verástegui and Justin Bieber’s mother Pattie Mallette, pose with Jason Jones

Actor Eduardo Verástegui and Justin Bieber’s mother Pattie Mallette, pose with Jason Jones

“I knew that human beings had incomparable worth, but only if referenced to God,” Jones explained. “This forced me to believe in God and accept Christian anthropology.”

By 1999, Jones began attending a pro-life Evangelical Church in Hawaii, but admits that his “behavior was still that of a pagan and I was only praying intermittently.”

After college, Hawaii Right to Life hired Jones, who eventually became chief of staff for Hawaii state representative Mark Moses. He worked on an effort in 1999 to ban third trimester abortions in the state. Despite a massive petition effort, Moses’ pro-life bill died in committee because the committee head was pro-abortion.

In desperation, Jones remembers praying, “God, if you exist, I don’t see you doing anything. I need three things to believe in you. I need rich, famous and powerful people on our side.”

Jones would live to see God answer his prayer in good time.

By 2001, Jones moved to Virginia to work with Human Life International where he met a number of committed Catholics. He was also reading the Church Fathers in earnest, noticing that all of them were Catholic.

“I was struck by their consistency,” he said. “They believed in apostolic succession and in the Eucharist. I realized that there was no escaping becoming Catholic.”

Jones registered for RCIA in 2002 and entered the Church a year later.

Saving our century

Jason Jones and a group of volunteers prepare meals for the homeless at the Movie To Movement headquarters in Hollywood

Jason Jones and a group of volunteers prepare meals for the homeless at the Movie To Movement headquarters in Hollywood

Since becoming Catholic, Jones has been involved in a dizzying array of activities — from producing films to launching numerous efforts to help the poor. His first book, co-authored with Catholic writer John Zmirak, was released last month.

Jones’ first venture into film came in 2006, when he helped produce the award-winning movie Bella , starring Mexican actor and singer Eduardo Verástegui. The pro-life film went on to earn $12 million at the box office and save hundreds of babies from abortion.

Jones was an associate producer for the 2008 film The Stoning of Soraya M , starring Jim Caviezel. His self-produced 2013 pro-life short Crescendo has raised almost $6 million for crisis pregnancy centers. It won 11 international film festival awards, and Justin Bieber’s mother Pattie Mallette was an executive producer.

Now Jones is working on Broken Hearts Sing , a film about the devastation of abortion through the eyes of people working in Hollywood. It’s slated for release in 2016.

“I believe it will be a watershed for the pro-life movement,” Jones said.

Besides making movies and engaging in politics, Jones founded the non-profit group HERO (Human- rights Education and Relief Organization) in 2002 to promote human dignity in all stages of life through international education and relief programs.

Under the HERO umbrella of organizations is Movie to Movement and I Am Whole Life, founded in 2007 to uphold the principles Jones believes are foundational for a just social order: people are made in God’s image, the transcendent moral order, subsidiarity, solidarity, and a humane economy.

Sam Gregg

Sam Gregg

I Am Whole Life ministers to the homeless to build an appreciation of the dignity of local homeless communities. It also raises money to provide clean water to the Nuba people in Sudan.

Jones encapsulates his many humanitarian and pro-life efforts in his new book, The Race to Save Our Century: Five Core Principles to Promote Peace, Freedom, and a Culture of Life.

“It’s the result of 18 years of thinking and writing on this subject,” Jones explained. “Its basic premise is that humanity must commit to fundamental moral truths about the human person. I started to write this book while I was still an atheist.”

Sam Gregg, director of research at the Acton Institute, is one of the book’s biggest fans.

“What’s impressive about the book is that it explains how the failure to understand the truth of the human person produced such devastation in the 20th century,” he said “If we don’t recover the truth of the human person, we’re bound to make similar mistakes in the 21st century.”

The idea of man being made in God’s image — Imago Dei — is a major premise in the book.

“The nature of Imago Dei is that we reflect God’s reason and free will,” Gregg explained. “We are made for communion. If you take this view that human beings are made in the image of God, this radically shifts your view of the unborn and elderly people.”

With Jones now in the 25th year of his 40-year plan to end abortion, his friends and collaborators say we can certainly expect more original projects.

“Jason Jones has what I believe is an essential ingredient — a total, passionate dedication to ending abortion. It is not just one of many passions,” said Fr. Frank Pavone, national director of Priests for Life.

“In terms of the movies he has produced, this has made a major contribution to the pro-life movement. We used to talk about this in the past: ‘What if we made a pro-life movie?’ Now we have a whole catalog of them.”

One of the best things about Jones, Fr. Pavone said, is his perseverance — a marvelous quality that anti-slavery movement leaders had.

“Jason Jones is one of those people who has a vision for a project, and he does not let the vision drop until the project is completed — no matter how long it takes.”

SABRINA ARENA FERRISI is Legatus magazine’s senior staff writer.

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Catholic Founder, Catholic businessman

SAM GREGG writes that Charles Carroll of Carrollton was the only Catholic to sign the Declaration of Independence. Like many other Signers, he was a true Renaissance man, but he also believed that  the accumulation of wealth cannot be justified as the chief end of existence. Gregg explains how Carroll’s life and writings have much to teach us today. . . .

Sam Gregg

Sam Gregg

Charles Carroll of Carrollton is known to most Americans as the only Catholic to sign the Declaration of Independence. In doing so, Carroll arguably put far more at risk than any other Signer.

In 1776, Carroll was most likely the wealthiest man in Britain’s American colonies. Indeed, after Carroll appended his signature to the Declaration, one bystander reportedly quipped, “There go a few millions.”

Both Carroll’s father and grandfather were successful merchants despite the anti-Catholic laws that prevailed in the Maryland colony throughout most of the 18th century. But Carroll turned out to be a successful entrepreneur in his own right. In fact, Carroll was so good at creating wealth that when George Washington thought of making Carroll ambassador to France in 1796, he eventually opted not to.

Carroll’s commercial interests extended far beyond those of the typical Marylander of his time. They ranged from grain products to livestock, small cloth factories, building crafts, cattle, mills, orchards, land speculation, and iron production. As well as investing in domestic and European markets, Carroll was in the business of making loans, charging market interest rates. He even authored a document defending the legality and morality of compound interest. And, it should be said, a portion of Carroll’s assets consisted of slaves.

Carroll’s commercial success did not mean, however, that what he often called the “habit of business” became suffocating for him. He would have thoroughly agreed with Calvin Coolidge that “the accumulation of wealth cannot be justified as the chief end of existence.”

Like many other Signers, Carroll was a true Renaissance man.Though he worked incredibly hard at expanding his business ventures, he was heavily involved in revolutionary-era politics. And in the midst of all this, Carroll somehow found time before, during, and after the Revolution to read the works of prominent philosophers such as Voltaire and Rousseau — and to find their critiques of Christianity thoroughly unconvincing.

But Carroll also had a very strong sense that the life of business was itself one full of potential nobility and purpose that went beyond utility. For one thing, Carroll never ceased to emphasize to his own family and friends the order and discipline which business and trade can introduce into people’s lives.

Though he never used the word, Carroll understood the folly of consumerism. His father had never ceased to remind him that conspicuous consumption was the road to moral (and sometimes economic) ruin. Much of the Maryland high society in which he lived was marred by what Carroll sharply criticized as the vices that flowed from mindless spending and taking on debt for purposes of consumption. Carroll specified, however, that one check on such habits was a conscientious attention to business itself. By this, Carroll meant allocating specific amounts of time to organizing commercial affairs and developing work habits which themselves relied upon cultivating virtues such as prudence, fortitude, and temperance.

Carroll’s underlying attitude toward such matters was not driven by something akin to a Protestant work ethic. His approach flowed from his sense of responsibility to fulfill the expectations of those who had gone before him, to provide for one’s family, and to pass on something to forthcoming generations.

In these matters, Carroll may have been influenced by a book of Catholic spirituality that is a must-read for us: St. Francis de Sales’ Introduction to the Devout Life (1609).

This 17th-century classic was in vogue among Maryland Catholics during Carroll’s lifetime and occupied a prominent place in his father’s library. Among other things, the book provides counsel on cultivating a prayer life and the necessary degree of detachment in the midst of material comfort so that people’s identity is not consumed by their wealth. In short, it seeks to teach Catholics living “in the world,” how to do so while remaining “not of the world.”

Charles Carroll’s life and writings have much to teach us today — as Catholics and Americans — especially regarding religious liberty and the other freedoms secured by the American Revolution. But for Catholics in business, there’s also much to learn from Carroll’s life about how to integrate the high moral calling that’s inseparable from Catholic faith into the world of commerce. To forget this is not only to overlook one Catholic’s peerless contribution to the American founding, it’s also to neglect a potential source of timeless wisdom for Catholics in business.

DR. SAMUEL GREGG is the Acton Institute’s research director. He has authored several books including “Becoming Europe: Economic Decline, Culture and How American Can Avoid A European Future” and his forthcoming “Tea Party Catholic.”

Is Benedict the ‘Green Pope’?

The strange relationship between Pope Benedict XVI and the world’s Green movement . . .

When the Vatican announced in 2007 that the Paul VI audience hall was to be covered in solar panels, environmentalists around the world took notice. Eighteen months later, the building was topped with 2,400 photovoltaic panels, generating sufficient electricity to supply the building’s heating, cooling and lighting needs year-round.

Throughout his seven-year pontificate, Pope Benedict XVI has promoted the idea of sustainability and resource conservation. In addition to the solar panels, Vatican City has planted a 37-acre forest in Hungary and installed a solar cooling system in one of its cafeterias, making it the worlds’ first carbon-neutral state.

But the man in charge of the world’s 1.2 billion Catholics certainly doesn’t fit the profile of a radical environmentalist. You won’t find the Holy Father chaining himself to a California redwood or boarding a seal-hunting ship in the Arctic.

However, the Pope does find some common ground with environmentalists on stewardship of the earth. While most liberals label him “ultra-conservative,” Benedict’s teaching on the environment has many on both ends of the political spectrum nodding in agreement.

Ecology and the person

No other pope in history has written or spoken as much about the earth as Benedict XVI, which has led some in the media to dub him “The Green Pope.” He has spoken about the environment at World Youth Day and with dignitaries at the Food and Agricultural Organization in Rome. The Holy Father speaks often and forcefully about the need to protect God’s creation. Yet there is still a great divide between the Pope’s brand of environmentalism and that of secular environmentalists.

“The most obvious difference between Pope Benedict and the Green movement is that for the Pope, the human person is at the center of his worldview,” said Sam Gregg, director of research at the Acton Institute for the Study of Religion and Liberty, a Michigan-based think tank. “Human beings have dominion and stewardship over the natural world. We are intrinsically superior, but we don’t have the right to do whatever we want with nature.”

The Holy Father also speaks of “human ecology” with regard to the environment. He draws a parallel between the harm of polluting the natural world and the harm of engaging in immoral behavior, which causes real suffering to human beings.

“Ecology has a system of laws which enables nature to thrive,” said Bill Patenaude, a Rhode Island-based environmental regulator and Catholic columnist. “It’s the same with human ecology. We have natural law, reflected in the Ten Commandments, which enables humans to thrive. We cannot violate them without causing harm.”

For Pope Benedict, ecology takes in everything — nature and the human family. He articulated this notion in his 2009 encyclical Caritas in Veritate: “The book of nature is one and indivisible: It takes in not only the environment but also life, sexuality, marriage, the family, social relations: in a word, integral human development” (#51).

Divinizing the natural world

Bill Patenaude

The Holy Father and Catholic teaching also part ways with the Green movement when it comes to the role of religion and the inherent dignity of the human person.

“The Greens’ view of humanity is that we are just another aspect of the natural environment,” said Gregg. “Most are grounded in pantheistic ideology. Within the Greens’ ideology, human beings are bad and it’s better if there are fewer of us. This is why they are so adamant about mandatory contraception for developing countries and why they are so pro-abortion.”

The Catholic Church teaches that human beings are made in the image and likeness of God — and that they are intrinsically good and capable of innovation.

“What’s distinctive about Pope Benedict is that he asks the Greens why there is this degree of disrespect for the human person, which comes out in Green policies,” Gregg said. “They have a false conception on anthropology. Within deep Green writings on the environment, you see a certain ‘humanophobia’ at work, which is materialistic and paganistic.”

Gregg also notes that when Christianity appeared on the scene 2,000 years ago, it actually “un-divinized” the natural world.

“It introduced the idea that the natural world is not divine,” he explained. “This was a fundamental shift, and it was an enormous challenge to the prevailing notion. What we are seeing today is the re-divinization of the natural world. Some environmentalists see the natural world as more important than human beings. In the Greens’ view there is no such thing as sin, except to destroy nature.”

The Pope’s teaching on the environment is part of a larger objective to engage in dialogue about the reality of God and the human person, Patenaude said.

“Ecology is a tool for the new evangelization,” he explained. “It’s a way to talk about faith and reason. Global ecological issues are really symptoms of human sin. Our technology has grown, but it magnifies human sin. We see this in the rainforest, the ocean. Pope Benedict’s response is a pastoral one.”

In fact, whenever he has the opportunity, the Holy Father addresses the Green movement directly through speeches to government bodies. He often starts with areas of agreement and then invites dialogue to speak about God.

Last September, Pope Benedict addressed the German parliament and complimented that country’s Green Party on areas of agreement. Ironically, most of the Party’s members boycotted the speech.

Responsible stewardship

“Radical environmentalism is anti-humanism,” said Wesley Smith, senior fellow at the Discovery Institute. “We are the enemy species called the ‘cancer of the planet.’ There is a growing movement now to grant ‘rights’ to nature equal to human rights.”

What has many people concerned is how radical environmentalism has made its way from the edge towards the center. Few disagree with the end-goal of a cleaner planet, but the means to that goal are worrisome, Smith said.

“What concerns me is that there will be a declining standard of life if you cannot mine, extract oil or develop the earth in a responsible way,” he said. “You cause misery and stop the alleviation of poverty by halting development. Before many of the technologies we have today, people lived terribly. People longed for the kind of life-span and comfort we have today.”

For his part, Pope Benedict has never called for a radical halt to development. He instead teaches that we use our God-given intelligence to develop the earth without destroying it. His position doesn’t square comfortably with the extremes on either end of the political spectrum, but is always rooted in responsible stewardship.

“The Earth is indeed a precious gift of the Creator who, in designing its intrinsic order, has given us bearings that guide us as stewards of his creation,” the Holy Father said during his Aug. 26, 2009, general audience. “Precisely from within this framework, the Church considers matters concerning the environment and its protection intimately linked to the theme of integral human development.”

Sabrina Arena Ferrisi is Legatus magazine’s senior staff writer.


Pope Benedict XVI and the environment

“The Church has a responsibility towards creation and she must assert this responsibility in the public sphere. In doing so, she must defend not only the earth, water and air as gifts of creation that belong to everyone. She must above all defend mankind from self-destruction. There is a need for what might be called a human ecology, correctly understood. The deterioration of nature is in fact closely connected to the culture that shapes human coexistence: when ‘human ecology’ is respected within society, environmental ecology also benefi ts” (#51).

Caritas in Veritate, 2009

“Experience shows that the disregard for the environment always harms human coexistence and vice versa. It becomes more and more evident that there is an inseparable link between peace with creation and peace among men.”

Message for the World Day of Peace, 2007

“The relationship between individuals or communities and the environment ultimately stems from their relationship with God. When ‘man turns his back on the Creator’s plan, he provokes a disorder which has inevitable repercussions on the rest of the created order.”

Letter to the Ecumenical Patriarch of Constantinople, 2007

The moral good of business

Sam Gregg writes that when the Pontifical Council for Justice and Peace issued a “note” last October on the global financial system, it would be an understatement to say that it generated a stormy debate. In March, however, the same Council released a new — and very different — document entitled The Vocation of the Christian Business Leader. Every businessman should read it.

Sam Gregg

When the Pontifical Council for Justice and Peace issued a “note” last October on the global financial system, it would be an understatement to say that it generated a stormy debate. In March, however, the same Council released a new — and very different — document entitled The Vocation of the Christian Business Leader (VCBL).

Although this new document doesn’t shy away from making pointed criticisms of contemporary business activity — and there is much to criticize — it articulates, perhaps for the first time in the Catholic Church’s history, a thoroughly positive reflection from a body of the Roman Curia about the nature of business.

This new analysis of business life is rooted in a sophisticated appreciation of Catholic moral and social principles — as well as a background of solid natural-law reasoning about what Pope Benedict XVI has called “integral human development.” VCBL also engages in a very welcome (and much overdue) “bottom-up” rather than “top-down” method of analyzing life in business.

The document has several key themes. The first is that business is not a necessary evil or a mere means to an end. Business, it states, is a vocation. It is “a genuine human and Christian calling” from God and therefore an opportunity to engage in human flourishing. Several popes have made this point in a roundabout way. Never, however, has a Curial text spelled out in so much detail the potential nobility of life as a business leader. Business, VCBL states, makes “an irreplaceable contribution to the material and even the spiritual well-being of humankind.” That’s powerful language. Not only is business the normative means by which many of our material needs are satisfied, it’s also a sphere in which people can acquire virtues.

Another theme is that we need to embrace a sophisticated appreciation of the challenges facing modern business leaders. VCBL recognizes, for example, that there are negative and positive dimensions to the financialization of much of the economy. This means that business leaders confront, often on a daily basis, enormous ethical and economic difficulties. The subsequent choices they need to make are not simple. While VCBL suggests that the state has a role in addressing many of these issues, it wisely refrains from entering into detailed policy recommendations about how governments should act in these areas. Instead, it indicates that in many instances the primary responsibility for addressing many such challenges lies with business leaders themselves.

The text also recognizes that most business activity occurs at the micro-economic level. The document subsequently focuses on helping business leaders to discern, accept and faithfully carry out their vocation by using their unique set of gifts to meet others’ concrete needs in ways that are just.

VCBL contains a powerful appeal to business leaders to live integrated lives. All of us — but perhaps especially businesspeople — are tempted to live fragmented existences, whereby we cordon off our work from our essential beliefs and moral principles. To that end, the document illustrates in a compelling way how business leaders can freely integrate the principles of solidarity and subsidiarity into the daily life of their companies, however big or small.

A further theme is that the relativism that disfigures many contemporary cultures represents a clear and present danger to a sound understanding of the vocation of business. For confirmation of this, one need only consider the consequentalist nonsense that characterizes most contemporary “business ethics” programs.

VCBL uses the words “creativity” and “initiative” over and over again. In one sense, this reflects the classic Christian position that the one thing which distinguishes humans from other species is our creativity. It also derives from the document’s recognition of a truth that becomes evident once you start talking to actual business entrepreneurs: that they “are motivated by much more than financial success, enlightened self-interest, or an abstract social contract as often prescribed by economic literature and management textbooks.”

Perhaps VCBL’s broadest message is indirect: Recognition that many Catholic leaders have not always taken the world of business seriously — and have tended to see it as a source of funds for various Church projects rather than a sphere for human flourishing. Indeed, VCBL even acknowledges that business leaders have sometimes been confronted by “a civil or ecclesiastical culture hostile to entrepreneurship in one or more of its forms.” To the credit of the Pontifical Council for Justice and Peace, this document represents a clear repudiation of such mindsets — something that will not only benefit business leaders but the Catholic Church as whole.

Dr. Samuel Gregg is research director at the Acton Institute. He has authored several books including his prize-winning “The Commercial Society” and the forthcoming “Becoming Europe: Economic Decline, Culture, and America’s Future.”

Deficit denial, American style

The Acton Institute’s Sam Gregg writes that despite the United States’ massive and unsustainable deficits, recent polls show that most Americans are seemingly unwilling to support cuts to the federal governments extensive entitlement programs. Gregg argues that entitlement cuts are absolutely necessary if America ever hopes to stay solvent . . .

Dr. Sam Gregg

Until recently most people thought the primary message of the 2010 Congressional election was that Americans were fed up with successive governments’ willingness to run up deficit after deficit — and their associated refusal to seriously restrain public spending.

If, however, the results of a much-discussed Wall Street Journal-NBC News poll released on March 2 indicate what Americans really think about fiscal issues, then much of the country is clearly in denial, refusing to acknowledge the truth about what America must do if it is to avoid the fate of many Western European nations.

While the poll reveals considerable concern about government debt, it also underscores how unwilling many Americans are to reduce welfare programs that, in the long term, are central to the deficit problem.

Here are the raw facts: America’s federal Social Security program has become the largest government pension scheme in the world in terms of sheer dollars. It is also by far the federal budget’s single greatest expenditure item.

According to the Office of Management and Budget, “human services” — Social Security; Medicare; Health expenditures; Education, Training, Employment, and Social Services; Veterans benefits; and the euphemistically named “Income Security” (i.e., unemployment benefits) — were consuming 4% of America’s GDP in 1949. By 1976, the figure had increased to 11.7%. In 2009, it was consuming 15.3% of GDP.

During the same period, human services began consuming a steadily increasing size of federal government expenditures. In 1967, human services spending was 32.6% of the federal budget. By 2009, this figure had increased to 61.3%. It’s predicted to rise to 67% by 2016. In 2010, 75% of human services spending was on Social Security, Medicare, and Income Security — in short, the core welfare state.

These disturbing numbers make it clear that any serious federal deficit reduction must involve spending cuts to federal welfare programs. That doesn’t mean other areas of government spending should be immune from cuts. But the deficit simply can’t be properly addressed without a serious willingness to reduce welfare expenditures.

And yet, despite all the passionate rhetoric from Americans about the need to diminish government spending, the WSJ-NBC News poll suggests that fewer than 25% of Americans favor cutbacks to Social Security or Medicare as deficit-reduction measures. As the WSJ’s commentators noted: “Even Tea Party supporters, by a nearly two-toone margin, declared significant cuts to Social Security ‘unacceptable.’”

Unacceptable? Think about that word. Do large numbers of Americans really believe there is something morally evil about significant reductions to welfare spending under any circumstances? Since when — apart from Greece and other models of fiscal rectitude — have welfare payments assumed the status of an absolute right subject to no qualification? Have we really gone so far down the path of economic Europeanization?

Granted, the same poll suggests much larger numbers of Americans are willing to raise the retirement age to 69 and to means-test social security. But is that the best Americans are willing to do?

Spain’s unreconstructed-1960s-lefty-Socialist government has just raised that country’s retirement age to 67. Not surprisingly, the measure won’t fully kick in until 2027, long after Spain’s political class and their tame voting constituencies have met their Maker and no longer need to live off their children’s futures. But can Americans who proclaim their attachment to free enterprise and personal responsibility really do no better than left-wing Western Europeans?

Back in 2007, journalist Robert Samuelson summarized the situation perfectly. “Most Americans,” he wrote, “don’t want to admit that they are current or prospective welfare recipients. They prefer to think that they automatically deserve whatever they’ve been promised simply because the promises were made. Americans do not want to pose the basic questions, and their political leaders mirror that reluctance. This makes the welfare state immovable and the budget situation intractable.”

Presidential campaigns are invariably accompanied by a great deal of posturing. It would be helpful, however, if some serious candidates for the nation’s highest office in 2012 — Republican or Democrat — would use their moment in the spotlight to educate Americans about what’s at stake.

One former American vice-president once reportedly insisted, “Deficits don’t matter.” Unfortunately, there is mounting proof that he was wrong. After examining data on 44 countries over approximately 200 years, two economists recently found evidence suggesting that developed nations with gross public debt levels exceeding 90% of GDP (i.e., the USA) find that their medium-growth rates fall by 1%, while average growth declines by an even greater proportion.

That’s troubling because while deficit cutting matters, wealth creation matters even more if we are to dig ourselves out of our fiscal hole. America now seriously risks seeing its burgeoning welfare costs suffocating the productive sector of the economy that makes social welfare possible in the first place.

Incidentally, it won’t be the rich who suffer. It will be the poor. In their laudable concern for the weakest among us, Americans ought to remember that and start matching political rhetoric with consistent fiscal action.

Dr. Samuel Gregg is the Acton Institute’s research director. He has authored several books including “On Ordered Liberty,” his prize-winning “The Commercial Society,” and “Wilhelm Röpke’s Political Economy.”

What we still haven’t learned from the financial crisis

Dr. Sam Gregg argues that as time passes, armies of doctoral students will explore every nook and cranny of the ’08 meltdown. But if most governments’ policy responses are any guide, it’s apparent that many lessons from the financial crisis are escaping policymakers’ attention. He gives five important lessons policymakers should take note of . . .

Dr. Sam Gregg

Dr. Sam Gregg

It’s been more than a year now since the 2008 financial crisis spread havoc throughout the global economy. Dozens of books have attempted to explain what went wrong. They identify culprits ranging from Wall Street financiers to ACORN and politicians.

As time passes, armies of doctoral students will explore every nook and cranny of the ’08 meltdown. But if most governments’ policy responses to the crisis are any guide, it’s apparent that many lessons from the financial crisis are escaping policymakers’ attention. Here are just five of them:

The moral hazard issue. The message conveyed to business by many governments’ reactions to the financial crisis is this: If you are big enough (or enjoy extensive connections with influential politicians) and behave irresponsibly, you have a reasonable expectation that governments will shield you from the consequences of your actions. What other message could businesses such as AIG, Citigroup and Bank of America have possibly received from all the bailouts and virtual nationalizations?

Big government. Once you allow governments to increase their involvement in the economy to address a crisis, it is extremely difficult to wind back that involvement. Indeed, the exact opposite usually occurs.

Who today remembers the stimulus and bailout packages so heatedly debated in late 2008? They pale next to the fiscal excesses of American governments throughout 2009. Recessions and subsequent government interventions create an atmosphere in which the hitherto implausible — such as trillion-dollar 1,900-pages-long health care legislation in an era of record deficits — becomes thinkable. Likewise, the Bush administration’s Chrysler and GM bailout morphed into the Obama administration’s virtual appropriation of the same two companies.

Negative complications. We seem unwilling to accept that government policies initially presented to us as the only thing standing between stability and economic Armageddon invariably have unforeseen negative consequences that are not easily resolved.

FDIC chairman Sheila Bair recently claimed, for example, that the American government’s decision to purchase capital in failing banks was, in retrospect, a mistake. Not only has government semiownership further complicated the moral hazard problem, but it has created dilemmas that flow directly from the fact of government intervention. “Do we contain the bonuses and the compensation,” Bair asked, “because they are partially taxpayer owned, which might make things worse because they can’t bring in new and better management, which in some cases might be necessary?”

The knowledge predicament. Today there is widespread acknowledgement that the 2008 financial crisis owed much to the Federal Reserve keeping interest rates too low for too long. Yet we persist in imagining that a group of people — the Fed’s seven governors — can somehow manage the credit and monetary environment of what was a $14.4 trillion economy in 2008 in pursuit of often mutually-exclusive goals: stable prices, optimal employment and moderate long-term interest rates.

Fiduciary responsibility. We’re reluctant to acknowledge how much the financial crisis reflects the breakdown of concepts of fiduciary responsibility — the moral and legal obligations that someone acquires when entrusted with another person’s resources. Many CEOs have been rightly pilloried for their failures. But what, for example, of those boards of directors who presided over fiascos such as Lehman Brothers and the 147 American banks that failed between January 2008 and November 2009?

Why were board directors not asking questions about a bank’s heavy reliance for its profits upon the alchemy of mortgage-based securities and other financial products that no one apparently could understand? Why did they not query reports advising that particular investment models could mathematically fail only once in a million years? Why did boards only take action to replace fund managers when companies were teetering on bankruptcy? Why did some directors imagine that a firm’s generation of quarterly profits was sufficient indication that they were fulfilling their fiduciary responsibilities?

Of course, it’s usually counterproductive for directors to immerse themselves in the micro-details of a firm’s operations. But it is part of their fiduciary obligation to investors to question company employees and take action when the answers are not forthcoming or unsatisfactory. Indeed it’s more than a fiduciary responsibility: It’s the moral duty of anyone placed in a position of stewardship of others’ resources.

But perhaps my bigger fear is that these developments suggest that America is slowly but surely moving towards what the great French philosopher Alexis de Tocqueville called “soft despotism” — a Faustian bargain between the political class and the citizens. Tocqueville predicted that “an immense protective power” might assume all responsibility for everyone’s happiness — provided this power remained “sole agent and judge of it.” This power would “resemble parental authority” and attempt to keep people “in perpetual childhood” by relieving them “from all the trouble of thinking and all the cares of living.”

Is America on the road to comfortable servility? “The American Republic,” Tocqueville wrote, “will endure until the day Congress discovers that it can bribe the public with the public’s money.”

One measure of a society’s inner strength is its willingness to learn from mistakes and alter behavior appropriately. Sadly, in America’s case, the 2008 financial crisis’ long-term significance may be its illustration of how unwilling to learn we seem to be.

Dr. Samuel Gregg is research director at the Acton Institute. He has authored several books including “On Ordered Liberty” and his prizewinning “The Commercial Society.” His latest book, “Wilhelm Röpke’s Political Economy,” has just been published.

The market needs objective morality

Sam Gregg writes that Pope Benedict’s new encyclical, Caritas in Veritate, reminds us that we cannot make economic choices or act economically as if the demands of Christian love and truth have nothing to do with such choices and acts. The Pope reminds us that “it is good for people to realize that purchasing is always a moral — and not simply an economic — act” . . .

Dr. Sam Gregg

Dr. Sam Gregg

Amidst the fanfare surrounding the promulgation of Benedict XVI’s third encyclical Caritas in Veritate (Love in Truth) and what can only be described as the simplistic analysis offered by the mainstream media, a number of important insights have been lost — including those especially relevant for people engaged in the daily toil of creating wealth in the worlds of private enterprise, business and commerce.

The first is that this is a profoundly theological text. As with his previous encyclicals, Benedict reminds us that realities such as love, truth and hope are theological realities. The fact that they are theological realities — that is, ultimately known through our knowledge (lógos) of God (theos) — does not make them any less real than the economic world we engage every day of our lives.

All of us are tempted to regard theological imperatives as abstract concepts that have no relevance or place in the “real world.” If, however, we truly believe that the life, death and resurrection of the Person of Jesus Christ is real, then we should have no difficulty in integrating these theological truths into our daily lives.

This in turn means that we cannot make economic choices or act economically as if the demands of Christian love and truth have nothing to do with such choices and acts. The Pope observes, for example, that “it is good for people to realize that purchasing is always a moral — and not simply economic — act” (#66). That does not mean that business leaders, CEOs and entrepreneurs should act less competitively or creatively. As Caritas in Veritate affirms, there is a place for commercial logic and thinking economically. It simply means that Christians should assimilate the commandment of love of neighbor and our responsibility to live in truth into our economic lives.

How does this play out in practical terms? This means that, no matter how intense and stressful the competition, we should never, for example, treat our customers, competitors and employees as mere objects. This is a requirement of justice, but it also reflects the Christian’s recognition that these people are persons made in God’s image.

On a second level, Caritas in Veritate’s attention to love and truth has profound implications for the functioning of the market economy. Significantly Benedict does not call for a “third way” between the market economy and socialism. Nor does he present an alternative economic system to the market. Instead the market economy is more or less assumed to be the only alternative available. What matters is the degree to which the market economy is grounded in the truth — especially the moral truth — revealed to us through faith and reason.

Without internal forms of solidarity and mutual trust,” the Pope writes, “the market cannot completely fulfill its proper economic function” (#35). This surely has been amply confirmed by the recent financial crisis. America’s subprime mortgage collapse was partly attributable to the fact that thousands of people lied on their mortgage application forms. It is not surprising that mass violation of the moral prohibition against lying has devastating economic consequences. “The economic sphere,” the Pope reminds us, “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” (#36). Against all relativists, Benedict maintains that market economies must be underpinned by commitments to particular basic moral goods and a certain vision of the human person if it is to serve rather than undermine humanity’s common good: “The economy needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centered” (#45).

At the heart of the economy are human persons. People whose minds are dominated by hedonistic cultures will make hedonistic economic choices. “Therefore,” Benedict writes, “it is not the instrument that must be called to account, but individuals” (#36). Nor does he regard the market as morally problematic in itself.

“The market is not … 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” (#36). What matters, Benedict says, is the moral culture in which market economies function.

In addition to these insights, Caritas in Veritate expresses plenty of prudential judgments with which faithful Catholics may legitimately take issue. I myself wonder if the encyclical fully appreciates the potentially tremendous negative impact of massive state-based redistribution of wealth. Of course Catholics may disagree among themselves (and even with the Pope) about those matters that the Church considers prudential. This includes the overwhelming majority of economic policy issues — though not on the subjects such as abortion and euthanasia as Pope Benedict affirmed in a 2004 letter to the then-archbishop of Washington, D.C.

Lastly, I would suggest one thing: Read the encyclical for yourself. It is dense and at times complex, but it also contains beautiful words of wisdom relevant to us all. We have a great Pope. Deo Gratis.

Dr. Samuel Gregg is research director at the Acton Institute. He is the author of many books, including “On Ordered Liberty” (2003) and his prize-winning “The Commercial Society” (2007).