The Vatican Should Try to Save Souls, not Ruin Economies

A couple of months ago, after reading an excellent column in the semi-official newspaper of the Vatican, I joked that we should send Obama to Rome for an economics lesson.

I now completely retract that statement. There may be some economically astute people who write for L’Osservatore Romano, but they are offset by the economic illiterates at the Vatican’s Justice and Peace department.

Here are some excerpts from Reuters about the spectacularly misguided thinking from this division of the Catholic Church. For all intents and purposes, they want to double down on the cross-subsidization policies that have undermined markets and crippled the global economy.

The Vatican called on Monday for the establishment of a “global public authority” and a “central world bank” to rule over financial institutions that have become outdated and often ineffective in dealing fairly with crises. The document from the Vatican’s Justice and Peace department should please the “Occupy Wall Street” demonstrators and similar movements around the world who have protested against the economic downturn. “Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority,” was at times very specific, calling, for example, for taxation measures on financial transactions. …It condemned what it called “the idolatry of the market” as well as a “neo-liberal thinking” that it said looked exclusively at technical solutions to economic problems. “In fact, the crisis has revealed behaviours like selfishness, collective greed and hoarding of goods on a great scale,” it said, adding that world economics needed an “ethic of solidarity” among rich and poor nations. …It called for the establishment of “a supranational authority” with worldwide scope and “universal jurisdiction” to guide economic policies and decisions.

Wow. So many bad ideas in so few words.

Let’s look at the three main proposals and translate what they actually mean.

1. A “global public authority” is bureaucrat-speak for a world government. We’re already dealing with statist schemes like the OECD’s “Multilateral Convention” that will morph into an International Tax Organization. A supra-national government would be even worse since it would have power to wreck all sectors of the economy. These proposals are driven by the left’s desire for bureaucratization, harmonization, and centralization.

2. A “Central World Bank” is bureaucrat-speak for a Federal Reserve on steroids. But it would be even worse than that. In the current system, at least investors have the ability to dump dollars and euros and shift to currencies that are better managed, such as the Swiss Franc. A supra-national Fed, by contrast, will give the political elite more power to pursue bad monetary policy.

3. The notion of “taxation measures on financial transactions” is bureaucrat-speak for the Tobin Tax, which is a great scam for politicians since they would get to tax every transaction we make. If you think it is a good idea to put sand in the gears of the economy, sign up for this scheme. This idea is so bad that even the Obama Administration is opposed to it.

Last but not least, I’m flabbergasted by the report’s comments on the “idolatry of the market.”

What planet have these people been living on?

Do they blame the market for the financial crisis, when the mess was the result of the Federal Reserve, Fannie Mae, Freddie Mac, and government-created moral hazard? Do they blame the market for the sovereign-debt crisis, when the mess is the result of over-spending governments?

Read Full Post »

Let’s Send Obama to the Vatican for an Economics Lesson

I’m normally disappointed when religious figures comment on economics, particularly since they often turn the individual call to charity into a blank check for government-coerced redistribution. This runs contrary to individual choice, free will, and morality.

So I’m delighted that Ettore Gotti Tedeschi, writing for  L’Osservatore Romano, the quasi-official newspaper of the Vatican,  persuasively explains how higher taxes simply encourage a downward spiral of more spending, more debt, and economic despair. Here’s the key segment from his column.

…taxation in all its forms only permits further growth in public spending… During a prolonged crisis, inheritance taxes, new forms of taxation or similar alternatives reduce or wipe out resources for investments, discouraging the trust of investors, penalizing the cost of the public debt and the possibilities of its renewal at its expiration. In this context, imposing taxes on property and on income is equivalent to a suicidal anti-subsidiarity of the state to the citizen. Those who legally possess assets, on which they have paid the proper taxes, have contributed to creating wealth and, thanks precisely to these assets, continue to produce them with investments and consumption. Further forms of taxation would not be synonymous with solidarity but only with greater public spending and, perhaps, a higher debt and more widespread poverty. High taxes penalize saving, generate distrust in the ability to stimulate recovery, hit families and prevent the formation of new ones, as well as creating uncertainty and precariousness in employment. In short, they lay the foundations for another phase of unsustainable development.

What makes the editorial so remarkable is that Mr. Tedeschi not only understands economics – as illustrated by his discussion of how higher tax rates discourage productive behavior, but his grasp of real-world politics. He recognizes that higher taxes will simply lead to higher spending.

But maybe that’s an easier lesson for honest Europeans to grasp. For the past several decades, they have seen politicians – over and over again – play the bait-and-switch game of raising taxes, supposedly to reduce red ink, only to have the money used to expand already bloated public sectors.

The value-added tax, not surprisingly, has played a key role in Europe’s fiscal nightmare.

Forty years ago, southern European nations had medium-sized governments and large deficits and northern European nations had medium-sized governments and small deficits.

Today, southern European nations have had large-sized governments and large deficits and northern European nations have had large-sized governments and small deficits.

The only big change is that all these nations now have VATs and the burden of government spending is much higher. But the deficits generally have stayed the same, consistent with the political culture of the respective regions.

In other words, Milton Friedman was correct many years ago when he warned that, “In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with.”

And Mr. Tedeschi is correct today with a similar observation.

Read Full Post »