October 27, 2011
Summary of PCJP's Note on Financial Crisis
Posted by Ronald Colombo

In this post, I'll summarize the PCJP's recent Note on the financial crisis.  (No official English version is yet available; an unofficial English version can be found here.)

The Note divides the world's economy into two spheres:  the "material goods markets," and the "monetary and financial markets."  Whereas the former is limited by "natural factors and productive capacity," the latter is not so restrained.  And, according to the Note, this lack of natural restraints upon the monetary and financial markets has contributed mightily to the present crisis.  (A fair point - and an early indicator of where the Note is headed.)

Of the two markets, the Note certainly prefers the material goods market.  Indeed, later on, the Note makes clear that the world's economic and financial system ought to be "at the service of the real economy," underscoring this preference.

The Note then bemoans the "liberalist approach, unsympathetic towards public intervention in the markets" that, over the last few decades, has allowed the global monetary and financial system to run amuck.  It particularly bemoans the spillover effect that that this has had, in that the crisis in the monetary and financial markets has had "grave consequences" in some sectors of the "real economy" (that is, the market for material goods). 

The Note specifically calls out the United States by name, noting that the recent crisis "was [g]enerated in the context of the United States ... one of the most important zones for the global economy and finances.  It directly affected what is still the currently of reference for the great majority of international trade transactions."  The Note basically shames the U.S. for exporting this crisis to the world - especially to poorer nations and regions.

The Note references the growing "inequalities within and between various countries" (which is not particularly connected to the crisis, but, presumably, connected to the global financial system), and proclaims that this has "harmful consequences for world equilibium and peace."

In the middle of Note, mention is made of Pope Benedict XVI's encyclical Caritas in Veritate, observing that "Benedict XVI precisely identified the roots of a crisis that is not only economic and financial but above all moral in nature.  In fact, as the Pontiff notes, to function correctly the economy needs ethics; and not just any kind but one that is people-centered.  He goes on to denounce the role played by utilitarianism and individualism and the responsibilities of those who have adopted and promoted them as the paramters for the optimal behaviour of all economic and political agnets who operate and interact in the soecial context."  I would have very much liked have seen the Note spend some more time expounding upon these themes - themes that I myself have explored elswhere.  Unfortunately, it did not.

The Note does, however, echo Pope Benedict's criticism of "technocracy" - the "ideology" that the world's problems can all be solved via greater technical proficiency.  What the world needs instead (or at least in addition) is a recognition of "the primacy of being over having and of ethics over the economy."  We need to build a "more fraternal and just human family."

In its closing pages, the Note puts forth a series of policy suggestions - and these have grabbed headlines of late.  Unfortunately, this is also where the wheels fall off.

It starts with the call for "a world political authority" to address the global problems of peacce, security, arms control, human rights, migration, the environment, and, of course, the global economy.  This "Authority" ought to be vested with "structures and adequate, effective mechanisms equal to its mission and the expectations placed in it."

The Note then suggests the need to revisit the Bretton Woods agreement, the need for "a minimum, shared body of rules to manage the global financial market," an expansion of more nations into the G20, a central world bank, taxation on financial transactions, recapitization of banks with public funds, and segregation of "ordinary credit and Investment Banking."

The Note's drafters certainly don't suffer from a lack of ambition.

They do, however, suffer from a lack of serious engagement.  Love them or hate them, the policy prescriptions are basically rattled off, with little thought or discussion.  As such, when it comes to these prescriptions, the Note is not at all persuasive.  Indeed, it doesn't even attempt to persuade

So, if one wishes to critique the Note, there's little to actually engage with (at least when it comes to the policy prescriptions).  No new or compelling arguments are put forth explaining why its proposals ought to be followed.  It's almost as if the Note's authors believed these proposal were self-justifying.

Pretty strange in my humble opinion.  And whether one's favorably disposed to the policy suggestions or not, this is sadly a lost opportunity.  The PCJP could have made an authentic contribution to the debate.  It did not.  Instead, it merely endorsed a candidate - and attempted to dress its endorsement up as something more serious.

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