The Wall Street Journal reported on October 2nd, in an article entitled “St. Paul’s Halts Legal Bid to Evict Activists’ Camp”:
Shaken by criticism of its handling of anticapitalist protesters on its doorstep, St. Paul’s Cathedral said it is suspending legal action to have the Occupy London camp evicted.
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The bishop of London [Dr. Richard Chartres], meanwhile, invited the former chairman of UBS Europe and Lazard International, Ken Costa, to lead a new group of financial-services and church leaders aimed at ‘reconnecting the financial with the ethical’ …
The cathedral has significance as a symbol of the Church of England. St. Paul’s website explains it “is London’s cathedral and embodies the spiritual life and heritage of the British people.” The occupiers in London and in the U.S., too, have symbolic significance as protesters against capitalism.
The cathedral is indulging an irrational and incoherent mob. Contrary to the view of Dr. Chartres and Mr. Costa, the U.K.’s real problem is not with capitalism, but rather central banking, crony capitalism, socialism, and diminished economic freedom.
By surrendering to the mob, the cathedral is reinforcing economic misconceptions, and helping draw attention away from the real villains—governments and their central banks. The cathedral’s response is consistent with the misguided views of both the Church of England and the Vatican, and encourages politicians to make things worse.
Mr. Costa’s Confusion
Dr. Chartres’s reliance on Mr. Costa is misplaced. Mr. Costa’s October 28th piece in the Financial Times, “Why the City should heed the discordant voices of St Paul’s,” refers to the “deep-seated global concern about the way the free market operates.” This erroneously assumes there is a free market. The reality is that freedom is exactly what markets need, and exactly what is missing.
Over-Crediting the Occupiers
Mr. Costa also tries too hard to credit to the protesters. In his article, he writes:
Of itself, [the protest] would be of little consequence. But its significance is that it taps into a much wider source of discontent. Astonishing as it may be, according to a recent poll, more than two-thirds of ordinary Americans support the Occupy Wall Street demonstration.
However, the linked Financial Times article of October 27 actually says that “[t]wo-thirds of New York City voters said they agreed with protesters’ views.” (Emphasis added in both quotations.)
New York City is a socialist city in a socialist state. The Mercatus Center ranks New York State as the least free in the country. What do Americans in general really think of the protesters? Rasmussen Reports noted on October 24:
The Occupy Wall Street protesters have been compared by some with the Tea Party protests that erupted more than two years ago in reaction to Washington’s big government spending plans. Americans are evenly divided in their opinions of those currently protesting against Wall Street but tend to see their own views as more in line with those of the Tea Party.
Americans’ view of one of the specific issues is also revealing, since it clashes with the entitlement mindset of the protesters. On October 25, Rasmussen observed, “One of the loudest demands by the Occupy Wall Street protesters is for forgiveness of the nearly $1 trillion worth of student loans, but Americans strongly oppose forgiving that debt.”
Accepting False Premises
Regardless of the specific level of popular support for protestors, leaders should reject their false premises. Mr. Costa does not:
We will only win the debate if we take seriously the need to reconnect the robust desire for profit and financial incentives that is core to the free market economy with the moral values that are its foundation. The price of economic freedom is moral vigilance.
Yes, it is good for companies to act morally. This has nothing to do, though, with the recession that has led to the protests. Central banks’ mismanagement of the money supply and governments’ reckless policies caused a bubble in housing. Central banks and governments have prolonged the recession by inhibiting the necessary post-bubble adjustments–including by effecting bailouts—and by creating uncertainty. Governments also have failed to make the necessary cuts in spending, taxes, and regulation.
The way to foster “moral values” in business is to free the market. This forces firms to satisfy customers and maintain good reputations, rather than relying on government protection and largesse. The bailouts of financial firms in the U.S. and U.K allowed them to avoid the consequences of their poor leadership and faulty judgment, and set another precedent for imposing private losses on the public.
It is also important to focus on the matter of the morality of government. Government acts through force or the threat of force. When government exceeds its limited, legitimate role of securing life, liberty, and property, it acts immorally. When it engages in legal plunder, as by bailing out banks, this is immoral. The real price of economic freedom is vigilance to restrain government.
It is in fact bizarre that, as European socialist governments are foundering, the focus would be on the alleged moral failings of the private sector. The failure of government offers the lessons to be learned.
Cathedral’s Criticism of Capitalism
Dr. Chartres, the Bishop of London, is quoted by the Journal:
The alarm bells are ringing all over the world. St. Paul’s has now heard that call … Today’s decision means that the doors are most emphatically open to engage with matters concerning not only those encamped around the cathedral but millions of others in this country and around the globe.
The cathedral is listening to the wrong bells. Amidst the din, alarm bells warn that freedom, as always, is under threat. We need to harken to these, acknowledging the need for drastic cuts in the size and scope of government.
Missing the Cause of Poverty
The Guardian explained Dr. Chartres’s views:
[H]e points out that, as a former Bishop of Stepney [a district in London’s East End], he knows a thing or two about poverty and does come out with fairly robust criticism of the recent behaviour of bankers. ‘I think back to people I knew of a previous generation in the City of London who exercised enormous restraint. There is now an atmosphere of inordinate ambition to boost the bottom line and forget the consequences.’
He deplores ‘the way in which banking became a merry-go-round of instruments which were not properly understood or properly priced – that’s obviously a moral problem’. ‘People look in a very straightforward way, which I share, at the banks which were bailed out. They bear a measure of responsibility for the state we’re in yet they don’t seem to have shared the pain.’
Dr. Chartres apparently may have witnessed poverty, but he has not learned what keeps people poor—the absence of freedom. He would serve the cause of alleviating poverty by advocating for economic freedom, which has been in decline in the U.K. His concerns over banking would best be addressed by disentangling government from banking. A free market in banking would force banks to live with the threat of failure, encouraging prudence.
Anglican and Catholic Churches’ Call for Change
The Church of England, through its leader, and the Catholic Church, through a council, have draw faulty conclusions and made poor recommendations.
Church of England
Dr. Rowan Williams, the Archbishop of Canterbury (leader of the Church of England), offered his views on the protesters in London in a Financial Times piece entitled “Time for us to challenge the idols of high finance.” He wrote:
[T]he demands of the protesters have been vague. Many people are frustrated beyond measure at what they see as the disastrous effects of global capitalism; but it isn’t easy to say what we should do differently. It is time we tried to be more specific.
Dr. Williams tacitly accepts the notion that “global capitalism” has “disastrous effects.” Capitalism entails voluntary exchanges. What is the disaster this has wrought? He does not say.
We do know the good done by capitalism. This includes the dramatic rise in living standards; the great improvement in health and lifespan; the expanded opportunities for human relationships though trade and other cooperation; the increased potential for people to work in the fields of their choosing; and the wealth that allows for environmental stewardship.
Dr. Williams goes on to praise the statement issued October 24 by the Vatican’s Pontifical Council for Justice and Peace, “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority.”
Vatican
The Vatican’s statement, unfortunately, is based on economic misconceptions and an unrealistic view of government. Its perspective clashes with what we know about the world through Austrian economics and public choice analysis.
- Faulty Diagnosis
While acknowledging the benefits of global development, the statement laments that “the distribution of wealth did not become fairer but in many cases worsened.” Wealth is created, not distributed, and what is “fair” is that people can retain the wealth they create. Countries with low incomes and little wealth are those with limited economic freedom.
The statement continues:
What has driven the world in such a problematic direction for its economy and also for peace?
First and foremost, an economic liberalism that spurns rules and controls. Economic liberalism is a theoretical system of thought, a form of ‘economic apriorism’ that purports to derive laws for how markets function from theory, these being laws of capitalistic development, while exaggerating certain aspects of markets.
First, the idea that financial firms were not subject to “rules and controls” is a myth that is attractive to those who want even more government regulation. The best discipline, though, is the market. The correct direction should be, not increased regulation, but rather deregulation of firms and the closing of central banks.
Second, the council is asserting that “economic liberalism”—meaning economic freedom–has “driven the world in [the] problematic direction” of unfair “distribution” of wealth. Query, what would be “fair”? Who decides this? Is it fair for government to use force or the threat of force to take people’s property and give it to others?
Third, regarding the idea that liberalism is a threat to peace, what is the basis for this conclusion? The fact is that economic freedom promotes peace. Religious leaders can further the cause of peace by supporting efforts to liberalize economies, while condemning governments that war monger.
- Bad Prescription
What is needed, the statement concludes, is “an authority over globalization” to serve “the universal common good.” The council concludes it has the only answer: “In a world on its way to rapid globalization, the reference to a world Authority becomes the only horizon compatible with the new realities of our time and the needs of humankind.” The council sees a rosy future:
Thanks to the principle of solidarity, a lasting and fruitful relation is built up between global civil society and a world public Authority as States, intermediate bodies, various institutions – including economic and financial ones – and citizens make their decisions with a view to the global common good, which transcends national goods.
Will the people of the world unanimously agree on what is “the global common good”? Are individuals actually equipped to “make their decisions” with this in mind? Do we not find Hayek’s “knowledge problem” an insurmountable obstacle? Does the statement not rely, in fact, on the “fatal conceit” of central planning against which Hayek warned?
The statement goes on to suggest the reforms endorsed by Dr. Williams, the Archbishop. Dr. Williams wrote, “If we want to take seriously the moral agenda of the protesters at St Paul’s, these are some of the ways in which we should be taking it forward.”
The proposals are a “Robin Hood tax” on financial transactions (to be used for “promoting global development and sustainability according to the principles of social justice and solidarity); “recapitalization of banks with public funds making the support conditional on ‘virtuous’ behaviours aimed at developing the ‘real economy’; and a separation of commercial and investment banking.
Each is a bad idea. First, consider the tax. The world needs lower taxes, not higher. Any individual jurisdiction that imposed the tax would likely experience capital flight, and smart jurisdictions would decline to agree to a global tax scheme. The authority, like any other international government organization, would squander the money on itself and special interests, while reinforcing oppressive governments.
Second, using “public funds” to recapitalize banks means taking wealth from individuals to give to banks. This really means bailing out more banks, a form of economic fascism. Further, the idea that the authority can be trusted to define “virtuous behaviors” defies history and common sense. One suspects the authority would deem virtuous the support of favorite causes of politicians, for instance, making loans for uneconomical solar and wind power energy schemes.
Third, the concept of separating commercial and investment banking is based on the fallacy that government knows better than the market what combinations of financial service providers is best. It is also based on the myth that the repeal in the U.S. of the Glass-Steagall Act caused the financial crisis. The evidence suggests, in fact, that the combination of commercial banks had a stabilizing influence.
Prime Minister Cameron’s Capitulation
Prime Minister David Cameron has endorsed the anti-capitalist views of Dr. Williams. The Guardian reported on November 2nd:
David Cameron has backed Rowan Williams’s call for responsibility from top earners, telling MPs the archbishop of Canterbury ‘speaks for the whole country’.
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Cameron said he agreed that corporate greed should be curbed, adding: ‘The archbishop speaks for the whole country when he says it is unacceptable, in a time of difficulty, [that] people at the top of our society are not showing signs of responsibility.’
Mr. Cameron apparently shares Dr. Williams’ concern regarding “still-soaring bonuses.” As to compensation, this should be a private, not a public matter. The mistake was for the government to conduct the bailouts, setting the stage for the inevitable resentment over pay. The answer is not to hector firms over pay, and pretend officers and employees will act “responsibly” by limiting their earnings. The answer is to admit that the bailouts were abuses of government power, and that government, as noted above, has to be disentangled from banking.
Mr. Cameron’s support of Dr. Williams’ views may be politically pragmatic. However, it encourages irrational envy, avoids the real issues, and conveys the message that the U.K. is not a friendly environment for business.
Conclusion
If religious and political leaders truly wish to address concerns related to the recession, they should defend capitalism and decry governments’ theft of liberty. Capitalism is moral; it entails voluntary exchange. Government, by contrast, acts through force or the threat of force, and regularly abuses its power, acting immorally. Economic freedom fosters peace and prosperity, while unbridled government encourages war and poverty.
The world needs leaders who embrace the ideals of liberty, serving as voices against the crowd. Real leaders stand up to the mob, with its prejudice and envy, and speak of great principles. The principles of freedom need to be defended.
