Tag: Pope

Before getting to the meat of this article, a thought about Nelson Mandela is due. It would smack of ingratitude to see a bright sun in the night sky yet not comment on its rarity. That star has been extinguished but we shall all remember witnessing it. Before he became myth and legend, Mandela was a man. That is how I will remember him. As a man, he is more valuable a lesson to us. A legend must do great things; its intrinsic nature compels this. A man must choose, from among all things possible, the path that he takes. Madiba could have selected a different life. History trebles at the notion of him selecting one of quiet and comfort. Instead, he chose to be great, to endure the sacrifices greatness would place on him. He did not have to be heroic but he decided to be so. This makes the man better than the myth. This also means we have no excuse; he was of the same clay that made us. We are all Mandela but only if we choose to be.

As a man, he could not do it all but he did all he could. There is nothing more to expect of any person. He was the last of the great 20th century leaders, helping to dismantle, a great racial evil of that period; he harvested new hope to replace old hatreds. As such, no one could reasonably be expected to fill his shoes; but, at least, other leaders should strive to follow his direction. To humanity’s chagrin, they have not.

Madiba was a moral force, a noble beam of dignity, justice and compassion. He has exited the stage. Now, we will realize the profound being he was. Not only is he gone, the stage itself will no longer be the same. It has become a darker, lesser one.

World leaders will eulogize him. Their praise will be fulsome yet feigned. The tears will be those of the guilty and meretricious. They acknowledge his example but shy from following its tough but right course. Instead, they chose the easy way for themselves which is the harder way for the people they lead. His departure signals the absence of transcendent leadership from this planet at a time when such leadership is most needed.

In that they failed to follow his example when alive, what power will so compel them now that his light has been extinguished? A vacuum has been formed. The clouds coalesce to form the approaching storm that shall fill the void. Because the current ensemble of world leaders is collectively of a lower quality than their high office, they shall not shield us as Mandela did. In fact, their alloyed traits invite the rain. We can only hope that the gaining storm washes clean more than it destroys that which lies in its wake.

Because our leaders choose not to follow his example, we shall miss him the more. He gave of himself by contributing more to mankind than his fair share. He has not failed us in death for all men must pass. By the way we now govern ourselves, the greater fear is that we may fail him by how we live. Thank you, Madiba. Thank you.

Last month, two men gave widely divergent perspectives of the global economy. One, the Pope, did so in the spirit of Mandela, the other, former US Treasury Secretary Larry Summers, did so in a manner akin to a master vulture instructing others of his species how to descend on a plumb carcass.

In his first papal exhortation, the Evangelii Gaudium – The Joy of the Gospel – Pope Francis described the current global economy as one of exclusion. He said “such an economy kills.” As many know, there exists a fairly unambiguous divine commandment against homicide. For the Pope to draw this connection is a jarring indictment of our economic processes. To ensure that no one would think he inadvertently misspoke, Pope Francis criticized the economy for being under the aegis of the “laws of competition and the survival of the fittest, where the powerful feed upon the powerless.” He said the economy has gone beyond where the poor are exploited and oppressed. Now, they are excluded. They are castaways left to drift into nothingness

He lamented that the ‘trickle down’ economic theories that rule most economic thinking and policies have proven to be disastrous yet the leadership elite continues in this direction because it profits them.

The harsh truth is that we have allowed money to take dominion over us, the Pontiff cautioned. He described a condition where the income of a small group multiplies exponentially as does the gap between this minority and the rest of society. Having their fun and fill of things, the rich and powerful reject government’s moral duty to redistribute economic benefits to care for the unfortunate and poor. He advocated major financial reform that encompasses the more than naked profit but gives account to morality and the poor. He declared that “money must serve man and not man serve money.”

The Pope’s critique was not the pastoral words and phrases commonly used by the religious establishment which tends to walk cheek to jowl with the moneyed elite. If he used language any more robust, he would have been accused of trying to exorcise the financial class. The reforms he seeks track those raised in previous columns. He is to be saluted for his evident courage and humanitarian concern. Something new might just come out of that old church after all. In fact, it will not be new. It will just be a return to that which the hand of Providence showed mankind from the beginning. Thus, to the Pope, all we should say is “Amen.”

To Professor Summers, decency restrains us to a loud, “Ahem.” Yet, the heart so wants to bellow a stream of expletives. President Emeritus of Harvard University, Mr. Summers rendered his view of the global economy at the IMF Annual Research Conference held in the city and by the international financial institution most responsible for hoisting on the world the “Washington Consensus,” that awful menu of supply-side, trickle-down economics which have strangulated the economies of numerous developing nations and the hopes of hundreds of millions of the world’s powerless and poor. The Pope lamented that the current global economy kills. From the IMF and in Washington is where the assassin procured its lethal ideological weapons.

In his address, Mr. Summers cried the global economy appeared in “secular stagnation,” meaning low growth, a flaccid real sector and concomitant unemployment are now built into the system. They seem to be inherent outcomes of the economy we now occupy or, more accurately, of the economy that now occupies us.

Contrary to popular belief, he remarked the global economy was not characterized by easy money. If a period of cheap money, inflation would soar but it is stable or declining. He commented central banks in developed nations had done all they could to stimulate the economy through manipulation of interest rates. In these economies, rates now approach zero. Thus, they can descend no lower; negative rates would create the nonsensical condition of lenders paying interest to borrowers. Even with interests near zero, which means borrowers now pay scant interest, banks are not lending enough to stimulate growth and activity in the real sector (industry, agriculture, etc.) where most people and jobs reside.

Since central banks no longer have room to fiddle with interest rates, Summers concluded we were resigned to central banks continue to engaging in extraordinary policies like Quantitative Easing (QE). Pursuant to this policy, central banks inject massive sums of cash into the financial sector by purchasing bonds and other securities from private investors. Summers acknowledged this will create potentially dangerous asset bubbles. Still, he saw this as the only sliver of hope in an otherwise dismal setting.

Mainstream media and economists automatically shot praise high into the air as if Summers had revealed the Holy Grail or the Philosopher’s Stone. His address was labeled a thing of brilliance and foresight. In fact, it was a treatise in sophistry, more a stumbling block than a gateway to genuine economic progress. That the establishment lauded his verbal prestidigitation is unsurprising. He is a member of that country club and will say nothing to harm his membership or standing therein.

Although feigning concern for the general populace, the remedy he resigns us to is decidedly pro- financial sector elite. If government’s sole policy is reduced to QE-style monetary interventions, the investor/speculator class will benefit richly indeed. This policy gives money only to this class, allowing them to purchase more financial paper. The increased demand drives up the price of financial paper. Thus, more financial paper will be produced. Then, the more they shall buy. This cycle increases the nominal wealth of the actors in the financial sector. However, little of the funds trickle into investment in industry or jobs for regular people. The rentier class will smell greater nominal wealth while the rest of the economy will smell the brackish scent of protracted stagnation. This is why the bulk of the small growth that has occurred in mature economies after the 2009 recession has been in the financial sector. Banks and big corporations are as profitable as ever. The common person wades in low wages or is awash in high debt.

What Summers vaticinated was more of the same. To him, there is no other choice. In other words, the rich are destined to become more of the same and the poor are fated to a purer poverty. While faking concern, his speech was intended to cast a sentence of penury over the bulk of humanity. He stood as the cruel prophet for a global economy that kills. Sadly, the media and other economists applauded him for outfitting such a cruel and fierce outcome in the garb of intellectual finery.

Even purportedly liberal economists joined the choir. Nobel Laureate Paul Krugman claimed his only grouse was that Summers’ analysis was more concise than his. For that statement alone, Krugman should return his Nobel Prize from whence it came. Krugman knows full well that monetary policy is effete in current economic conditions. Economist like John Maynard Keynes revealed this empirical fact eighty years ago. When the 2009 recession fell on us, Krugman rightly advocated fiscal stimulus. For him to abandon this charge because it is politically sensitive is the wrong thing at the wrongest of times. His thinking is redolent of a man exposed to the sun too long. Having desperately searched for water (fiscal stimulus as the only effective approach) and finding none, he now sees water everywhere and in everything. He has been taken by mirages.

Curiously, Summers mentioned fiscal policy but once in his address, then only dismissively. However that which he ignored — active fiscal policy where government runs a prudent deficit — is the lone effective tool. It can increase aggregate demand that fillips productive industry leading to growth in jobs and wages which, in turn, brings healthy, sustainable consumption spurring further activity and job growth.

In comparing the two men and their addresses, the Pope would always best the flint-hearted Summers in the moral sphere. I chuckle that the Pope has proven also to be a better economist when that is Summers’ forte and entry into greatness.

Summers’ rational collapses like a castle in the clouds. More accurately, he reveals himself to be a poor physician because he confuses the symptom of the economic malaise with its cause. For Summers, the problem is low interest rates have not produced the level of aggregate borrowing he expected. Without sufficient borrowing, economic activity is dormant and the real economy slumbers. For him, the crux of the problem is that interest rate policy is not as effective in inducing borrowing as he wants it to be.

Here, he is misguided on two accounts. Although claiming to be a master economist, a fundamental truth seems to have evaded him all these years. Interest rates are never the prime determinant in a decision to borrow. Businesses do not borrow chiefly because of the available interest rate. They borrow based on their subjective expectation of the rate of return that can be had from the money lent. For example, the interest rate may be 100 percent, which seems high. However, if a firm calculates it can make a 200 percent return, it will eagerly take the loan. Conversely, the interest rate may be only three percent. However, if the firm thinks it will only make a one percent return, it will forego the loan, even at the modest rate. All things being equal, of course the lower rate would lead to expectations of higher profits; however, rarely in life are all things equal.

We can tinker with interest rates until the cows walk home or find wings to fly back, the activity will be futile. The most efficient way to lift expectations of profit is to boost consumptive demand. In a time of stagnant wages and high unemployment, there is only one agency capable of this task: Government fiscal policy. Active fiscal policy to build infrastructure and encourage industry will produce jobs and increase wages. With more money in their pockets, people consume and spend more. As this escalating consumption parallels business’s profit expectations, more firms will go the bank’s window to take loans thus sparking more activity.

If we are serious about spurring the real economy, this is the answer. Summers’ prescription is a trick to lull people into accepting the luxuriant welfare now being given the investor class via monetary policy. Contrary to what Summers posited about the paucity of lending, there is significant lending occurring. It is just going to the wrong place. Too much of the new lending/borrowing is to purchase investments in the financial sector. Because returns and profits are low in the real sector, borrowed funds remain and recycle in the financial sector seeking the higher yields that sector promises.

In the end, Summers’ address is illogical folly. It is like tossing a stone through a glass window. With the window broken, flies and mosquitoes are bound to enter the room. Yet, it makes little sense to conclude that the rock produces insects. The insects are not inherently linked to the rock; their presence is a consequence of the broken window. Put another way, Summers cried the economy appears not to be flying at sufficient altitude. His is a curious remedy: dig a deeper hole. By no means am I a Catholic, but, as between the Pope and Prof. Summers, I shall follow the former on this matter and seek for the people an economy that shall not kill.

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