A Moral Audit of Economic Turmoil

Teresa Ghilarducci

Pope Benedict XVI issued Caritas in Veritate (“Charity in Truth”), his 28,000-word encyclical on economic justice and the meaning of charity, in the midst of the greatest recession since the Great Depression.The timing of the encyclical was not incidental. 

Papal encyclicals are often produced during economic crisis, for good reason: they are moral audits of the current economic order. They deliver dissents against economic and financial policies and actions when they fail to serve the social good.

In the last two years, the world’s most powerful governments have used massive deficit spending and unusually aggressive monetary policies to staunch an economy in freefall. Even so, more than 10 percent of working Americans couldn’t find a job, and over half of those who do work are either under- or unemployed.

Economic recessions are a severe blow to economic justice. Recessions mean industrial output that is lost forever. Families break up, children’s education is short-changed, retirement dreams and savings are shattered. Recession is a signal that a society has failed people. This particular recession has been especially punishing for men, who are fac- ing a historic era of downward mobility. The average American male is doing worse than his father and grandfather in terms of median wage adjusted for inflation, age, and education. Such a scale of down- ward generational mobility of men is unprecedented in an advanced market economy. More than 73 per- cent of those who have lost their jobs in the U.S. in the last two years are men.

Economies of Salvation

With a backdrop of the human toll exacted by financial downturn, papal encyclicals are unabashed, unapologetic engagements of the Church with economics and public policy. Pope Benedict’s Caritas

in Veritate continues in that tradition, an effort to bring Church social teaching to bear on economic behavior, challenging the ruthlesly secular logic of markets. The pope insists we cannot compartmentalize our moral life, our financial life, and our life as citizens. Caritas argues that we must pay attention to financial crisis, question the criteria that triggered it, and bring in other moral standards that can challenge, humanize, and improve business-as-usual.

Church advocacy for social change, preference for the poor, and labor solidarity has been remarkably consistent since the first modern economic 

The pope insists we cannot compartmentalize our moral life, our financial life, and our life as citizens. 

encyclical, Pope Leo XIII’s Rerum Novarum (“The Rights and Duties of Capital and Labor”) in 1891. Pope Pius XI’s Quadragesimo Anno (“After Forty Years,” a reference to his predecessor’s encyclical), published in 1931 during the Great Depression, warned against the trend of dangerous concentrations of wealth. Pope Paul VI’s Populorum Progressio (“On the Development of Peoples”), released in 1967, grappled with post-war economic changes, including the intensified marginalization of the poor. Benedict XVI insists moral reasoning and Christian ideals of justice and love must be reckoned with as the shaken world reassesses its economic assumptions in the wake of the financial debacle. 

Church social teaching says public policy must be judged by how it advances the dignity of workers and improves the lives of the poor. A proposal or policy that does not consider or advance the poor or others in marginalized groups is immoral and must be criticized and opposed. Encyclicals assume that the work of economic justice must extend beyond individual religious giving and charity; those admirable works are not enough to confront the structural problems of the economy or alleviate the suffering of the unemployed and homeless. The advocacy work of Catholic bishops and Catholic Charities, the activism of lobbying groups and cooperative initiatives with other denominations in support of social spending or progressive tax policy – these are all components for addressing large-scale problems and solutions. A person of the gospel cannot do moral work concerning economic justice solely at the household level.

Many Roads to Prosperity

The encyclicals advance the principles of solidarity and subsidarity. Solidarity is best thought of as empathy, not paternalistic sympathy, with others. Our interests as citizens should align with the interests of the poor as if they were our own interests, so that there’s a feeling of connection, not superiority, to the marginalized.

Subsidarity is a concept much more familiar to Europeans than Americans. The idea is that public policy decisions affecting people’s lives should be made at the smallest, most local unit of legislative or community decision-making as possible, so that the weakest voices are heard. A centralized authority should step in to perform a task only if the smaller, more local unit cannot.

The principle of subsidiarity must remain closely linked to the principle of solidarity and vice versa,” Benedict urges in Caritas, “since the former without the latter gives way to social privatism, while the latter without the former gives way to paternalist social assistance that is demeaning to those in need.” For those who read the gospel for guidance in their roles as workers, employers, and citizens, this sentence, from a long encyclical, is a good summary of the moral relationship between the private and public realms of action.

The encyclicals evaluate the findings and expertise of economists, who themselves have powerful visions of the proper world order based on particular models and theories about human interactions and needs. These papal “audits” of prevailing economics remind us that the discipline of economics is not a physical science but a social science working with a

set of received wisdoms and fixed beliefs. It might be more accurate to say economics has much in common with theology. Conclusions and policies that derive from economic models are not like the laws of gravity. They are not deterministic. Take the new literature on the “varieties of capitalism” (see, for instance, the 2001 book Varieties of Capitalism: The Institutional Foundations of Comparative Advantage

These papal “audits” of prevailing economics remind us that the discipline of economics is not a physical science but a social science working with a set of received wisdoms and fixed beliefs. 

edited by Peter Hall and David Soskice), suggesting that there is a diversity of market economies, each with its own set of values, rules, and paths to success. Different models of capitalism yield different patterns of distribution of resources, work out various levels of protection for the poor and produce varying relationships between labor and capital. Capitalism’s many economic decisions – regarding minimum wage laws, mandatory health insurance, union protections – are value judgments that provoke debate and draw support or rejection from the reigning political powers.

Moral Philosophy, Revisited

We can regard this latest papal encyclical as an effort to provide a moral frame for economic val- ues and action in a time of financial uncertainty and re-evaluation. Consider it a modern adjunct to economic policymaking. Economics has embraced game theory, mathematics, physics, and psychology to help advance the discipline. Moral philosophy is the oldest companion discipline. Adam Smith, a trained moral philosopher, called his Theory of Moral Sentiments (1761) a better book than his far more famous Wealth of Nations (1776).

Caritas’ moral frame makes it critical of modern-day capitalism and the institutions that were de- signed to safeguard the less powerful. Global progress, the pope laments, “remains an open question, made all the more acute and urgent by the current economic and financial crisis.” In the four decades since Pope Paul VI’s encyclical, various parts of the world still suffer deprivation, even further deterioration. Benedict blames the most recent damage done to the world economy on the loss of a moral focus in business practices and weak-kneed regulation and regulators captured by the businesses they were assigned to regulate. Because the negative effects of market deregulation hurt the disadvantaged the most, the encyclical argues for greater government engagement in regulating the economy and also a return to the ethical foundations of finance. 

The idea that the financial industry has a moral focus to return to is, I believe, not quite right, really just a papal rhetorical flourish. Regulators built in incentives for management to serve themselves at the expense of others, and it is those incentives that should be changed, not a “return” to a past morality.

Transparency of Truth

But Caritas addresses other useful reforms, identifying standards by which we assess public policy and market transactions. The first rule or standard is transparency in all activities. The pope is not alone in declaring the importance of this rule. Many civil society organizations – the United Nations, World Bank, Ford Foundation – emphasize the crucial element of transparency needed in good governance. Benedict writes: “Without truth, without trust and love for what is true, there is no social conscience and responsibility, and social action ends up serving private interests and the logic of power, resulting in social fragmentation, especially in a globalized society at difficult times like the present.”

Significantly, the new encyclical argues that charity is a principal driving force, though not the only one, behind the authentic development of every person. The pope is not describing charity as 

A person of the gospel cannot do moral work concerning economic justice solely at the household level. 

merely the gesture of a penny placed in the beggar’s hand. Benedict gives the lovely word charity a much more muscular and assertive place in the modern economic order. Certainly the pope would not preach against more hours of volunteer work in soup kitchens. More acts of kindness increase the total supply of kindness. But the encyclical rescues “charity” from meaning only sincere acts of voluntary good deeds. Since charity can also mean “love” – caritas – the pope describes charity as “an extraordinary force which leads people to opt for courageous and generous engagement in the field of justice and peace.”

Pondering the encyclical’s notions of justice and charity, I’ve recently gotten some clarity on the mat- ter from an unexpected source – George Orwell’s reflections on the difference between social justice and traditional charity in Charles Dickens’ well-loved tale of charity and redemption, A Christmas Carol.

Orwell is indeed an unlikely papal ally, but Pope Benedict might likely agree with the skeptical English journalist that the graceful Dickens story is a mis- guided template for social justice. In the story, the miserly, self-regarding businessman Scrooge, who badly treats the gentle, hard-working Bob Cratchit, is changed in the nick of time by ghosts who show Scrooge the light. Tiny Tim lives, and Cratchit is paid a fairer wage (it’s not clear if he gets health insurance, but Tiny Tim stays healthy somehow).

The Cratchits fall away as primary characters; Scrooge is elevated as the main character. Why? Because Scrooge is redeemed and transformed by charity.

This story echoes Western civilization’s belief that charity is good because it transforms the giver. Giving gives back; it confers status on the giver. But Orwell finds Dickens’ view of charity unsatisfactory as a response to social injustice. Charity does not help us understand or challenge the roots of poverty and injustice.

“Dickens at any rate never imagined that you can cure pimples by cutting them off,” Orwell wrote in his 1939 essay, Charles Dickens. “In every page of his work one can see a consciousness that society is wrong somewhere at the root. It is when one asks ‘Which root?’ that one begins to grasp his position. The truth is that Dickens’s criticism of society is almost exclusively moral. Hence the utter lack of any constructive suggestion anywhere in his work.”

Orwell, who died in 1950, might well have applauded the arguments in Caritas, which calls for a more ambitious sort of kindness, one that does not rely on “good-deed” charitable giving but on actions committed to raising the living standards of the world’s embattled workers and their families.

Every economic downturn is an opportunity for people to demand that growth be redefined in terms of sustainability and human need. As policy makers struggle to make sense of financial disaster, Benedict’s encyclical carries on the tradition of moral audit of the economy, a call to engage universal truth, social justice, and human solidarity. 

Teresa Ghilarducci is a professor of economics and policy analysis at The New School For Social Research in New York. For 25 years she taught economics at the University of Notre Dame. She is the author of When I’m Sixty-four: The Plot Against Pensions and the Plan to Save Them (Princeton University Press, 2008). 

The Truth and Economic Consequences: Exerpts from Pope Benedict XVI’s Encyclical

“In and of itself, the market is not, and must not become, 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. Admittedly, the market can be a negative force, not because it is so by nature, but because a certain ideology can make it so. It must be remembered that the market does not exist in the pure state. It is shaped by the cultural configurations which define it and give it direction.”

“The Church’s social doctrine has always maintained that justice must be applied to every phase of economic activity, because this is always concerned with man and his needs. Locating resources, financing, production, consumption, and all the other phases in the economic cycle inevitably have moral implications. Thus every economic decision has a moral consequence.”

“A humanism which excludes God is an inhuman humanism. Only a humanism open to the Absolute can guide us in the promotion and building of forms of social and civic life – structures, institutions, culture and ethos – without exposing us to the risk of becoming ensnared by the fashions of the moment.”

“Profit is useful if it serves as a means towards an end that provides a sense both of how to produce it and how to make good use of it. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks de- stroying wealth and creating poverty.”

“The Church does not have technical solutions to offer and does not claim ‘to interfere in any way in the politics of States.’ She does, how- ever, have a mission of truth to accomplish, in every time and circumstance, for a society that is attuned to man, to his dignity, to his vocation. Without truth, it is easy to fall into an empiricist and skeptical view of life, incapable of rising to the level of praxis because of a lack of interest in grasping the values – sometimes even the meanings – with which to judge and direct it. fidelity to man requires fidelity to the truth, which alone is the guarantee of freedom (see John 8:32) …”

Source: www.vatican.va