I am not questioning the good intentions of the Pope, but I’d like to offer a very brief criticism of his recent encyclical.
From section 65: “Both the regulation of the financial sector, so as to safeguard weaker parties and discourage scandalous speculation, and experimentation with new forms of finance, designed to support development projects, are positive experiences that should be further explored and encouraged, highlighting the responsibility of the investor.”
The end of this statement is rock solid – “highlighting the responsibility of the investor” – but is it government regulation which did away with this responsibility. It is more liberty, not more government which would “highlight the responsibility of the investor.”
Missing from most narratives of our financial crisis is the fact that our government subsidized irresponsible behavior and allowed our financial kings to invest without responsibility. It allowed the reckless experimentation which the Pope criticizes and, like many others, seems to blame on the free market.
Example 1: The 1998 bailout of the Long Term Capital Management. Had the Federal Reserve not supervised a bailout of this irresponsible hedge fund in 1998, we would not have begun as severe a financial crisis in 2008. Instead, the message from our government was clear: Gamble away. We have your back.
Example 2: Freddie Mac. Fannie Mae. These were government sponsored enterprises. Government created a demand for loans, even bad ones. Had the government not subsidized the purchase of bad loans, many fewer would have been made.
Example 3: Community Reinvest Act. This politically expedient legislation required banks to hold a certain portion of bad loans, or else they couldn’t expand. Once again, government subsidized irresponsibility. Do you remember how both Presidents W. Bush and Clinton bragged about how more Americans than ever before owned homes?
From section 67: “In the face of the unrelenting growth of global interdependence, there is a strongly felt need, even in the midst of a global recession, for a reform of the United Nations Organization, and likewise of economic institutions and international finance, so that the concept of the family of nations can acquire real teeth. . . . To manage the global economy; to revive economies hit by the crisis; to avoid any deterioration of the present crisis and the greater imbalances that would result; to bring about integral and timely disarmament, food security and peace; to guarantee the protection of the environment and to regulate migration: for all this, there is urgent need of a true world political authority. . . . such an authority would need to be universally recognized and to be vested with the effective power to ensure security for all, regard for justice, and respect for rights. Obviously it would have to have the authority to ensure compliance with its decisions from all parties. . .”
Though I believe his intentions are good, this section is very troubling. It is a call for the creation of an unelected institution subject to no nation’s constitution with massive control and massive authority. The Road to Serfdom is paved with good intention (and a mistrust of freedom).
Though I would choose liberty over prosperity, the best economies happen to also be the freest. This is true almost without exception. Look at West Germany vs East Germany, South Korea vs North Korea, Botswana vs the rest of Africa, Chile vs the rest of S. America, Estonia vs Latvia or Lithuania, Hong Kong in the 80s vs China in the 80s, Cuba before communism vs after. The call for a global authority is an invitation for further economic fascism, and there are many arguments against it. I’ll make two:
1: The IMF and World Bank are completely corrupt and ineffective. Here I posted a Jim Rogers interview in which he says “abolish the World Bank and the IMF. . . they do little more than take care of themselves, their own pensions, their own perks, their own salaries, if you work for the World Bank or the IMF you have a great life, but they’ve not done much for the rest of the world.”
2: As Ron Paul said (here): “We do not abdicate American sovereignty to global institutions. The purpose of the United States is to protect the liberty of the American people. We should never allow the WTO, NAFTA, the U.N. or the Law of the Sea Treaty to transfer power from America to an international body.”