Tuesday, October 7, 2008

What Would Jesus, the Pope, and John Maynard Keynes Do?

What would Jesus do about the financial collapse? Would he come down on Wall Street flipping those tables that haven’t already been flipped? Or would he, like Pope Benedict XVI, preach Buddhist sounding nihilism - 'money vanishes, it is nothing'' - something that an innocent soul - God forbid! - could take to mean that it is all right to fill this globalization pioneer's collection baskets with words rather than those vanishing bills and checks. After all, "only God's words are a solid reality" as the pontiff preached in Rome on Monday.

When the Pope declares the world's financial systems "built on sand," he should have reminded us not even the most solid faith was enough to keep St. Peter’s Cathedral from crashing down, hence Bramante made sure that it had a firm underpinning. In Wall Street’s case, such underpinnings are called regulations, and I can’t remember having heard demands for government regulations of the financial markets from the Catholic Church who at least in American politics often have sided with the deregulators.

If we take the Pope’s statement on a personal level, there is certainly an existential truth in his paraphrasing Jesus, "he who builds only on visible and tangible things like success, career and money builds the house of his life on sand''. But one does wonder if that truth also holds in the Vatican City with all its glorious display of conspicuous wealth? I much enjoy visiting catholic churches, but there is something to say for Lutheran simplicity.

But enough of this, because it’s not really what Jesus would do or say that interests us. The real question is what John Maynard Keynes would think if he had been around to watch capitalism performing what looks like a global hara-kiri. Contrary to the classical economists, and to our neo-conservative believers, Keynes looked at the real economy, and what he saw after the Great Crash of 1929 was that the markets are not going to bring about equilibrium where all resources are optimally used. Mere humans run the markets, and humans are typically shortsighted. It takes not a village, but a government to pull a country out of a severe recession, or a depression. There is always work that needs to be done, and leaving everything up to the markets carries a political risk that no responsible government can take. Hence it intervenes, projecting its power into the future. The private sector typically does not respond well to needs that are long-term, and where the rewards are indirect and often lies years in the future. What FDR did - inspired by Keynes - was to lead the country and the economy to start working again, whether it was to build roads, dams or water systems. The government can do this and it can - and if it does it well, and for peaceful purposes - give the entire economy the jolt it needs to restart the economic engines.

When capitalism freezes up, it doesn’t mean that our private and social needs have seized to exist, but that there is a general loss of confidence among the actors in the market. There is simply too much fear and uncertainty, which means that the ball de facto has passed from the economic system to the political system.

The world, and the United States in particular, is facing a tremendous need for investments in education, health care, repairing and expanding its collapsing infrastructure, and in converting its energy system from one that exacerbates global warming to one that relies on alternative and sustainable energy and limits its dependence on foreign energy sources. The private sector cannot lead here, but if the government sets out the course, and starts the process, the private sector will soon catch up and take over. That was how the computer industry grew from serving the Department of Defense and NASA to serving the entire society, and the entire world.

The world is now shell-shocked much like after 9/11. Hopefully, the answer will not be ignorance, economic follies, chauvinism and new wars (the McCain Path), but realism, economic and ecological restructuring, fairness and global responsibility (the Obama Path).

Hans Sandberg

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