Catholic social teaching against neoliberalism

So, a reader here pointed me to this pamphlet. And I was going to read it all and comment in detail upon it. And then I got to this:

Modern economics is a complicated package, and there are numerous differing schools of
thought. One school maintains that nothing much went amiss at the level of mainstream
economic theory: it just needed to be better applied. Other voices claim that economics
as a science is broken and discredited, and that it needs fundamental reform. One such
voice is that of Will Hutton, economic and political commentator, who has declared that

the dominant intellectual ideology of the last 20 years, free market
fundamentalism, and the way it was applied in the financial markets, the efficient
market hypothesis, was the biggest intellectual mistake this generation has ever
witnessed, arguably the world has ever witnessed.2

Anyone who is going to quote Will Hutton, other than in derision, isn’t likely to have the right end of the stick. So I’m afraid that I only got half way down page one.

Lehman’s downfall was also part of a previous chain reaction, a key element of which
was the issuing of property mortgages on a massive scale to people who could ill afford
them – so-called “sub-prime” mortgages. They were more risky, but financiers attempted
to reduce the risk by spreading it more widely. Ultimately, however, that merely increased
the pool of people who would lose money when the mortgages proved unsustainable.

Err, no. The problem was that the banks themselves were holding portions of those CDOs, and the banks were holding them on leverage, as is always going to be true in a system of fractional reserve banking. So the problem wasn’t with sub-prime, nor mortgages, nor syndication, but with who was actually holding those notes. If it had been insurance and pension funds holding them there would have been no crash at all.

Sorry, this paper isn’t diagnosing the problem correctly therefore it’s obviously not going to get to the right conclusions.

37 thoughts on “Catholic social teaching against neoliberalism”

  1. One of the problems is that the people claiming

    that economics as a science is broken and discredited, and that it needs fundamental reform.

    aren’t economists. Even well-read amateurs. They are vaguely-retired accountants, social historians, geographers, lefty journalists, well-meaning religious types and various other sorts of utopian and the usual scumbag “politician looking for a sound bite”.

    They, en masse, have as much knowledge and less credibility than my cats would have commenting on, say, the state of the Bundesliga.

  2. Well, yes. But it does bring us back to this awkward problem that the system as it stands is intrinsically unstable and thus the question about the next crash isn’t, “if”, but “when”, and thus ask us what we might want to do about that, and whether it is wise to allow the system to carry on as if there is going to be no “when”, until it happens, and then expect the taxpayers to fix it.

  3. Yes, FRB is intrinsically unstable. But the benefits of having it are such that we just put up with that inherent instability.

  4. Why don’t “we” require that the banking system have some form of buffer against it then? A really big slush fund? If “we” are required to underwrite it, shouldn’t “we” own it i.e. nationalise it?

    I’m not a socialist. I don’t like public ownership. But it is hard to think of a justification for allowing the current private profits, public liability situation. It isn’t much of an advert for free markets, when even supporters are saying that the supposed engine room of the free market can’t, er, exist in a free market.

  5. It’s worth remembering as well discussions here with Frances Coppola, about the fact that it isn’t really fractional reserve banking anyway; it’s just an agreement that banks can create lending up to a multiple of their capitalisation. Which really is a literal license to print money.

  6. Actually I’m not sure it’s right to say the problem wasn’t subprime. That was definitely a problem and in some sense is the more fundamental problem then eg badly modelled correlations or just who held the instruments. I appreciate your argument that the are ways in which we could have had subprime the crash, but it might simply have been easier to be without the worst excesses of subprime in the first place. Did NINJA loans really serve a useful purpose?

  7. What burning ears said + let’s remember why there was subprime lending, sure wasn’t because of free marketeering and neoliberalism…

  8. Ian B,

    If we had a banking system where no-one’s savings were protected, what would be the result? The public would be more careful about where they put their money, as they wouldn’t want to lose it, so sticking it with a bunch of cowboys like Crock is something they wouldn’t do. The bankers would have to consider their health, that losing people’s savings might result in a mob coming after them to punish them.

    You’d see more responsible banking if you took the state out of the equation.

  9. the banking system does have a buffer, it’s called equity and the problem was that there wasn’t nearly enough of it, and bankers are resisting calls for more it would reduce their reported return on equity (even though it wouldn’t reduce real returns over the long run because it would stop equity getting wiped out so often) see: http://bankersnewclothes.com/

    Tim I agree we got the crisis we did because the banks owned this stuff, but that doesn’t tell us there were no problems with the stuff. There were lots of problems with the subprime industry, numerous examples of fraud by loan originators, mis-selling by those who bundled them up into MBS etc. all manner of things went wrong. I really think it is a mistake to try to identify a single cause of the crisis. There are lots of separate points in the chain where one may say, if not this, then no crisis.

  10. I’m not especially religious. But I do wince when I read stuff about Catholic social teaching when it pertains to economics, because it’s usually well meaning Third Way nonsense.

    Their aims are good – dignity, charity, justice – who could be against those? Well, maybe Ayn Rand was anti-charity – though I wonder if even she fully believed all the things she said – but probably 97% of humans of all religions and none are in favour of helping those who can’t help themselves. The other 3% being sociopaths.

    It’s when they come to policy recommendations that the Catholics and other Christian groups come a cropper. Distributism is such patent bullshit that I struggle to understand how men much more intellectually impressive than I am – philosophers, popes, and the great G.K. Chesterton – could talk themselves into believing it.

    Maybe in G.K. Chesterton’s day – when England was still largely a nation of smallhold farmers and independent shopkeepers, blacksmiths and the like – it seemed more feasible.

    But what excuse does Pope Francis have? Or his more obviously cerebral predecessor, Benedict XVI? We’ve seen the fruits of neoliberalism, and it works. Billions lifted out of absolute poverty across the world. Malthusian horror staved off. Even people in Africa enjoying longer, healthier lives.

    It’s obvious what would happen if we changed our economic system to favour locally-owned factories and artisan production, with global trade being discouraged. We’d be a lot poorer. People in Africa and other poor parts of the world would suffer the most.

    Not to mention the restraints on human liberty that would be required to sustain a distributist system. Why shouldn’t the small local business, if it finds a way to serve its customers better than the competition does, eventually grow into a big national or multinational concern? Why shouldn’t we want to buy cheap clothes made by poor people in Bangladesh? Why should we favour our electronic gadgets to be made locally at far greater expense, as opposed to paying people in China to do it?

    Anyone who is going to quote Will Hutton, other than in derision, isn’t likely to have the right end of the stick.

    Yes. But what kind of person quotes Willy in earnest? This kind:

    Clifford Longley is an author, broadcaster and journalist who has specialised since 1972 in the coverage and analysis of British and international religious affairs. For 20 years he wrote a weekly column in religion, morality and culture in The Times and from 1992 to September 2000 in The Daily Telegraph. He currently has a fortnightly column in The Tablet, of which he is also Editorial Consultant. He is a regular panelist on Radio 4’s The Moral Maze and a regular contributor to Thought for the Day.

    Being a regular on Moral Maze is strike one against his credibility. Writing for The Tablet is the second. Being called “Clifford” is the third strike and he’s out.

    A final thought on Willy’s wonky words:

    the biggest intellectual mistake this generation has ever witnessed, arguably the world has ever witnessed

    100 million people were starved to death, beaten to death, worked to death, shot, hanged, gassed, burned, crushed under tanks, eviscerated with barbed wire, their remains tossed into mass graves or collected into pyramids of skulls. All in the name of socialism.

    But Willy thinks neoliberalism is “arguably” the “biggest intellectual mistake” “the world has ever witnessed”.

    What a cunt.

  11. Stig,

    Yes, that was kind of what I was implying 🙂

    I think Tim does need to address the issue of why, if we can’t trust a free market in finance- among the whizzkids of capitalism- how can we trust it in anything else of importance? Doesn’t it imply that as Ritchie and friends say, free markets are only fit for fripperies and trivial baubles?

  12. I agree, absolutely, that the free market ain’t always appropriate. I just tend to think that it’s appropriate for rather more things than most other people do.

  13. Tim, I don’t see how, if the free market can’t do finance, it can be trusted to anything. For instance, you may remember when we let all those coal mines close down because the free market said “no”. How do we trust that decision, if an industry full of free market enthusiasts and economists that only handles one fungible commodity (money) can’t run on its own?

    Am I a crazy person for thinking that it both can, and should?

  14. So Much For Subtlety

    Steve – “But I do wince when I read stuff about Catholic social teaching when it pertains to economics, because it’s usually well meaning Third Way nonsense.”

    I think we all feel for you.

    “It’s when they come to policy recommendations that the Catholics and other Christian groups come a cropper.”

    That is true. But it pains me to admit it – because modern Catholic economic doctrine is so bad – it is probably not wise to bet on them being wrong. The Catholic Church has been on the right side of pretty much every issue in the 20th century. They resisted the Nazis, the Communists and even Apartheid. When no one else did or at least did not do so consistently. I wouldn’t be sure they are wrong this time.

    “Distributism is such patent bullshit that I struggle to understand how men much more intellectually impressive than I am – philosophers, popes, and the great G.K. Chesterton – could talk themselves into believing it.”

    I don’t see the problem. We have a problem with big government and big businesses. We ought to have more on a local level. The idea of skewing the table towards the smaller end of the business spectrum doesn’t strike me as unusual or stupid.

    “But what excuse does Pope Francis have?”

    His Italian origin? There most businesses are small. It seems to work for them. He is clearly a moron though, I agree.

    “It’s obvious what would happen if we changed our economic system to favour locally-owned factories and artisan production, with global trade being discouraged.”

    Distributism doesn’t require global trade to be discouraged. Artisan production? We are getting there anyway. It is natural result of Unions killing heavy industry. What has happened to the British steel industry? We have lost the big producers and we have kept the small, specialised, high quality producers. The Artisan producers in effect. How is that a bad thing?

    “Not to mention the restraints on human liberty that would be required to sustain a distributist system. Why shouldn’t the small local business, if it finds a way to serve its customers better than the competition does, eventually grow into a big national or multinational concern?”

    Depends how they implement it. Suppose they simply give tax breaks to the small scale? Small businesses can grow to be big businesses, but it would be harder.

    “Being a regular on Moral Maze is strike one against his credibility. Writing for The Tablet is the second. Being called “Clifford” is the third strike and he’s out.”

    I blame TW. He is an economist. He once used to be a Catholic and may still be. But he is letting the Church of his Fathers fall back on the fringe nutters. He ought to step forward and offer them his expertise!

    “100 million people were starved to death, beaten to death, worked to death, shot, hanged, gassed, burned, crushed under tanks, eviscerated with barbed wire, their remains tossed into mass graves or collected into pyramids of skulls. All in the name of socialism.”

    That Will Hutton is entering Ritchie territory as a world class cock end is undeniable.

  15. Ed Miliband is a good clever man he should be PM./

    Up with Glasgow Celtic the club for all catholics to support.

  16. SMFS – They resisted the Nazis, the Communists and even Apartheid. When no one else did or at least did not do so consistently. I wouldn’t be sure they are wrong this time.

    Yes, it’s an impressive record.

    I don’t see the problem. We have a problem with big government and big businesses. We ought to have more on a local level. The idea of skewing the table towards the smaller end of the business spectrum doesn’t strike me as unusual or stupid.

    I’ve got nothing against small businesses. In fact, I agree we should make it easier for people to start and run them. As a consumer though, I don’t care whether my groceries come from a big supermarket chain or a local shop.

    What I do care about is price, convenience, and choice. We moved away from the old model of people having to seperately frequent the butcher, baker, greengrocer, pharmacist, newsagent, tobacconist, off licence, etc. etc. for good reasons.

    The Distribs seem to want to bring that back.

    Distributism doesn’t require global trade to be discouraged.

    Perhaps I’ve gotten the wrong end of the stick, but I can’t see how distributism would achieve the goal – stated by the distributists I’ve come across – of economic activity being primarily local, without somehow discouraging global free trade.

    Otherwise, who is going to buy the locally produced clothes or electronics when there are cheaper imports from Bangladesh or China?

    What has happened to the British steel industry? We have lost the big producers and we have kept the small, specialised, high quality producers. The Artisan producers in effect. How is that a bad thing?

    I agree it isn’t a bad thing. I’m agnostic as to whether the place I buy my goods from is a small or a big business – I only care about the results. I don’t see why big businesses are, in themselves, a bad thing. But the Distribs do.

    I blame TW. He is an economist. He once used to be a Catholic and may still be. But he is letting the Church of his Fathers fall back on the fringe nutters. He ought to step forward and offer them his expertise!

    I’m not sure they’d let him through the door. Seems you have to be some sort of a mushy left of centre type to get the ear of the Church these days.

  17. If anyone thinks the Catholics have it bad, I feel sorry for right-of-centre Quakers (if such rare creatures there be). Or even the centrist Quakers. Or centre-left ones, come to that.

    As for distributism or cooperatism, I think you can make decent cases that in terms of ownership structures, they would be compatible with largely free markets (which are the things that Tim is more interested) to a greater extent than socialism. Seemingly inevitable problems with state ownership of means of production or distribution or exchange or pretty much anything else, include reduction in competition and price information.

    I’m not even convinced that distributism is substantially worse than capitalism in free market terms, at least in theory. Possibly better in fact than more “corporatist” models of capitalism; we certainly do suffer from regulatory capture and big/influential businesses do indeed push legislators into establishing systems that make market entry harder. A rational individual may be agnostic about the size of a company for individual transactions he wishes to make, but skeptical to negative about the concentrated power (both market power and political influence) of larger companies in the business ecosystem. As such he may treat big and small companies equally when it comes to getting the wallet out, but prepared to vote against candidates he sees as too “pro big business”.

  18. bloke (not) in spain

    On FRB & mortgages:
    Lending money, where the collateral for the loan is the item being purchased with the loan & the collateral for all loans are of the same nature is….barking.

  19. Which “economic crisis” of modern times has been caused only by the free market?. Which of them does not have the dirty fingers of the state –and friends of the state all over it?. The free market can’t be trusted to run finance?. So we trust the state?–that has murdered 200 million in the last 100 years (mostly socialism) and got another 80 million plus killed in wars and blighted with misery the lives of millions more. Not to mention colossal thieving, lying, imprisionment, torture, abuse, general cruelty to man and beast,, destruction of property and whole ways of life, corruption–you fucking name it–the scum of the state have had a hand in it up to the armpit. And these cunts are trustworthy?.

    *And leave aside all of recorded history which shows that the 20th and 21st centurys are just continuing a grand old tradition.

  20. Steve

    To be fair he did say “this generation”. The lunacy and terror of Communism and it’s variants was nearly all the product of previous ones.

    I still disagree with him though.

  21. By the way Lehman was not a deposit taking bank. It was a merchant bank so had no deposits and so was not a part of the FRB system.

  22. Steve:

    “SMFS – They resisted the Nazis, the Communists and even Apartheid. When no one else did or at least did not do so consistently. I wouldn’t be sure they are wrong this time.

    Yes, it’s an impressive record.”

    Don’t you mean it would be an impressive record, if it were true?

  23. So Much For Subtlety

    Steve – “I’ve got nothing against small businesses. In fact, I agree we should make it easier for people to start and run them. As a consumer though, I don’t care whether my groceries come from a big supermarket chain or a local shop.”

    Why should you care? But why would the distributionists stop you buying from a big supermarket chain? They would prefer smaller businesses and think that government policy ought to be about creating more of them and fewer big ones. That is all. I don’t see anything that says you can’t have a supermarket.

    “The Distribs seem to want to bring that back.”

    They do. The real problem is that rapidly they would get captured by the small business lobby and they would use the power of the state corruptly. But that is not inherent in their policies.

    “Perhaps I’ve gotten the wrong end of the stick, but I can’t see how distributism would achieve the goal – stated by the distributists I’ve come across – of economic activity being primarily local, without somehow discouraging global free trade.”

    Most economic activity is primarily local. I don’t see much wrong with that as a goal. Not that I care much either way. But it would not take much to help local businesses. We need more small businessmen.

    “Otherwise, who is going to buy the locally produced clothes or electronics when there are cheaper imports from Bangladesh or China?”

    And yet Savile Row manages to struggle to get by. People might buy cheap stuff from overseas. But they might also buy more quality stuff from home. What is wrong with saying that where clothes are concerned we should be more like the Italians and buy something more expensive and locally made? Rather than looking like a yoga class that was hit by a typhoon. As long as they don’t insist you have to buy local, I don’t see the problem.

    “I agree it isn’t a bad thing. I’m agnostic as to whether the place I buy my goods from is a small or a big business – I only care about the results. I don’t see why big businesses are, in themselves, a bad thing. But the Distribs do.”

    I am agnostic too. Although I used to have a preference for the Co-op because their milk was better – before they went off the deep end. Big business does bring bad things with it for society as a whole. It means the hollowing out of towns and the middle class. It means powerful lobbies in Washington or London. It means yet another form of dependency. In my ideal society, every man would sit under the shade of his own vines and no one would make him afraid. No bend and scrape to the HR Department in some vast corporation.

    “I’m not sure they’d let him through the door. Seems you have to be some sort of a mushy left of centre type to get the ear of the Church these days.”

    I guess so. But it doesn’t help if Catholics abandon the Church to the activists and weirdos.

  24. So Much For Subtlety

    Jack C – “Don’t you mean it would be an impressive record, if it were true?”

    In what sense do you think it is not true? Every Church kowtowed to the Nazis except the Catholics.

    Tomsmith – “Was Apartheid worse than the current political situation in South Africa?”

    Preaching to the choir mate. Apartheid was still preferable to the Communists. And the Church did reject the Marxists too. They also rejected state funding under Apartheid because they refused to segregate their schools. Every other religious group took the money – including Jewish schools. Although it probably wasn’t a big issue for them.

  25. It was strange what the west did in terms of the southern African white colonized countries considering strategic interests at the time, and even now. I don’t see what our political leaders gained from helping (or at least not helping to prevent) their collapse. Wouldn’t Africa be a better place for everyone with a Rhodesia and an old South Africa? I don’t see how the basic idea of these places was any different to that of say Australia, or even Israel for that matter.

  26. Bloke in Costa Rica

    Wonder what odds a bookie would give on the proposition that Hutton knows what the Efficient Market Hypothesis actually is, and isn’t simply using it as a boo-word, like Murphy and ‘neoliberal’.

  27. SMFS: Every Church kowtowed to the Nazis except the Catholics.

    Don’t be rediculous. Who are you including here? The Church of Scotland? The Mormons?

    You may wish to look up the RCC’s actual record over the period.

  28. So Much for Subtlety

    Jack C – “Don’t be rediculous. Who are you including here? The Church of Scotland? The Mormons?”

    Every Church in Germany.

    “You may wish to look up the RCC’s actual record over the period.”

    I have. They filled Dachau. The provided the first, the longest and the strongest resistance to the Nazis. Their record is simply impeccable. I don’t think they can run a half decent economy worth a damn, but on the big issues, they were right. And no one else was.

  29. SMFS,
    You’ve lost me.

    Running a successful economy is the one thing the RCC can take pride in, even if their methods have been a little on the dodgy side.

    The Vatican was certainly well-disposed towards Hitler, and has been apologizing ever since.

    Stop making stuff up you old fraud.

  30. So Much For Subtlety

    Jack C – “You’ve lost me.”

    I suspect I never had you.

    “Running a successful economy is the one thing the RCC can take pride in, even if their methods have been a little on the dodgy side.”

    Can it? Where in the world is a successful Catholic majority economy?

    “The Vatican was certainly well-disposed towards Hitler, and has been apologizing ever since.”

    No it wasn’t and no it shouldn’t. This is simply a matter of historical record. The Church came out, very early, with very clear and specific denunciations of the Nazis and their doctrine. They ex-communicated Catholics who joined the party. Read Mit brennender Sorge. This is not a question that is open to debate. At least not much. It is not a question that has room for debate. The record is clear and undeniable.

    “Stop making stuff up you old fraud.”

    Like what?

Leave a Reply

Your email address will not be published. Required fields are marked *