Economics and Theology

Maybe it’s that John Calvin just turned five-hundred – or he would be that age, were he not quite thoroughly dead. He was born 10 July 1509 – and over the years has done a lot of damage, beyond that done by the small-government laissez-faire John Calvin Coolidge – Silent Cal, the original Ronald Reagan. Coolidge left office in March 1929, just before the crash that kicked off the great depression, and then we tried Hoover. Hoover didn’t work out either. The whole idea of not regulating much of anything and having the government do as little as possible in general, and then sitting back and watching the nation thrive and wealth explode everywhere, or at least for those who buy, sell and hold capital assets, turned out to be a rather silly notion. Things just don’t work that way. And maybe you can blame the original John Calvin.

Think about the legacy of John Calvin. Calvin is at the center of Max Weber’s The Protestant Ethic and the Spirit of Capitalism – Calvin’s teachings made capitalism possible, or at least made it seem quite nice and morally good. Rational pursuit of economic gain and worldly activities are fine – getting all the goodies, money and power, is a sign of God’s grace, as it must be that He approves of you. Could God make it any more obvious? Wealth has positive spiritual and moral meaning. That’s the Protestant Work Ethic. And you can see that is one small step away from the notion of American Exceptionalism, the idea that because we came out on top we’re God’s chosen, and He is implicitly telling everyone we got it right, and everyone else ought to be like us and do what we say. Why else would God favor us above all nations?

So when the Cold War ended and we were left as the sole remaining superpower in the world, you got Francis Fukuyama writing about The End of History – it was over, and, as it should be, our system was the only one that mattered, in the end. To tie up the loose ends, mainly eliminating those who didn’t believe Calvin had it right, you got the neoconservatives and their Project for the New American Century – we would impose God’s will, which seemed to be our political and economic system, around the world. It is what we should do, what God wants – and very Calvinistic. Bush, with all his talk of such things, wasn’t so much a born-again evangelical as much as he was a traditional Calvinist.

And it wasn’t new – our thirtieth president’s parents gave him first and middle names, John Calvin, without any sly irony. And such thinking about worldly success being a sign of God’s grace has been going on since Ben Franklin invented Poor Richard, that earnest fellow with all those aphorisms about working hard and saving your pennies and getting rich, couched as the only moral thing to do. Franklin bought the whole Calvin thing. We all did. Calvin is America.

And there’s the political historian George Bancroft – Calvin’s theology made representative democracy and the American system of government possible. While the German historian Leopold von Ranke says “Calvin was virtually the founder of America,” Bancroft says, “He who will not honor the memory and respect the influence of Calvin knows but little of the origin of American liberty.” There’s more here if you want to follow his reasoning.

But here we are once again, at the end of eight years of small-government laissez-faire neo-Coolidge management of the nation – and a giant crash – discussing what to do next, but discussing it in theological terms with a bunch of Calvinists. And not much good can come when macroeconomic theory and Reformation theology bump up against each other. The only comfort might be that we’ve been here before, many a time, and it’s familiar ground.

Maybe, like many, you had a chat with your conservative friends over the Fourth of July weekend about what this country is coming to. You heard once again about moral hazard – bailing out those who might lose their homes, providing government-guaranteed healthcare, and offering welfare and unemployment insurance of any kind, encourages sloth – and you caught a whiff of John Calvin in there. What is moral is shown by success, and is the result of hard work and wise asset management, and thus any sort of social safety net is flaunting God will, although they didn’t say that directly. They didn’t have to – that has always been implicit. The whole Obama stimulus program seems to be immoral somehow – it destroys the work ethic. And you heard that some people, and some companies, and some large banks, should fail – sure, there’d be a lot of pain, but God takes care of those who do the right thing, and lets everyone else die, as they should. Actually you may have been told that thirty to forty million Americans may have to die in the streets, homeless and starved – as they should. But maybe you don’t have these same friends. It was, however, an interesting conversation.

It’s even more interesting when you have such a conversation with a conservative Catholic. The Catholic Church had no end of issues with the Reformation in general and John Calvin in particular, but most of that has been worked out or forgotten. No one is selling indulgences anymore, after all. What’s left is the whole Catholic thing about charity and respect for the poor. And of course the current pope is no fan of free-market capitalism – “Pope Benedict XVI, on the eve of a global economic summit, lashed out at modern capitalism for being shortsighted and short on ethics.”

Maybe he’s still mad at John Calvin. For conservative Catholic Americans this presents a bit of a problem – the church says your good deeds matter, but we’ve come to think that our personal possessions and private bank balance are the true outward signs of an inward and spiritual grace, as they say. Perhaps American Catholics smile sadly and decide that the pope, even if infallible, may be a bit naive about this one thing. But then he wouldn’t be infallible, would he? It seems that Calvin fellow really was a troublemaker.

But, theology aside, there are practical matters. Immoral and ungodly as it may be, is the stimulus program working? Daniel Gross, the economics star for Newsweek and Slate, says it’s too early to tell:

Perhaps the biggest mistake stimulus proponents made was to suggest that this recession would (and could) end quickly. Modern America is not equipped – financially, socially, or psychologically – to deal with long recessions. We don’t have the safety net or the savings to cope with a protracted downturn. And fortunately, we haven’t had to. The last two recessions, which ended in 2001 and 1992, respectively, lasted only eight months each. But recessions brought on by financial crises are always deeper and more long-lasting than other recessions, as economists Ken Rogoff and Carmen Reinhardt show in this paper. By February 2009, when the stimulus package was passed, the recession was already the longest in 28 years; now it’s the longest contraction since the Great Depression.

That’s a bit dismal. Our Calvinistic tough-love God’s-favored-thrive system may have left us unable to cope with what we have on our hands now.

Of course the trade numbers were much better than expected – the trade deficit almost disappeared. Someone is looking out for us, unless you listen to the noted economist Brad DeLong:

Now that we have the May trade figures, the modal forecast is (i) an economy that was flat in the second quarter relative to the first quarter, (ii) an economy that starts to grow relatively slowly in the third quarter, and (iii) an unemployment rate that keeps rising for another one and a half to two years – like it did in 1992 and 2002 – as the old-fashioned business-cycle productivity-employment pattern is broken once again. Bob Hall’s [National Bureau of Economic Research (NBER)] committee is likely to proclaim that recovery began sometime in the second quarter, but it won’t feel like a recovery to workers (as opposed to asset owners) for quite some time to come.

In short, the fact of the matter is that the recovery, such as it is, is only for those who Calvin said are God’s Chosen – the asset owners.

Of course if you watch MSNBC all day, the business channel for, by and of asset owners, you told the bad times are coming to an end, or may have already ended – there are “green shoots” of recovery everywhere in the news.

Another noted economist, Robert Reich says that is nonsense:

In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.

Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.

That’s where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.

Reich says both sides are wrong. God’s Chosen – the asset owners, the investors – are rather irrelevant. The recovery doesn’t depend on investors at all. It depends on consumers – that’s seventy percent of the US economy, and “they got really whacked.” Until they start spending again there won’t be any recovery, of any kind, in any cool shape.

But the whole system is broken now:

Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water – owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements. Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.

Reich seems to hint at a situation where people have abandoned the whole God-shows-his-grace-through-goodies thing – buy what you need, or what you can, and forget John Calvin. Reich says, in fact, we now may have a new economy that puts us in uncharted waters:

What will it look like? Nobody knows. All we know is the current economy can’t “recover” because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin.

After five hundred years of Calvin, and one more decade of creating wealth through moving paper around and diffusing and deferring responsibility for risk so it seems to disappear, no one wants to think about that.

Kevin Drum gives it a try:

For many years it’s looked as if we were getting closer and closer to an economy in which there flatly wasn’t enough unskilled work left to keep employment at normal levels. Stagnant median wages were the canary in the coal mine, with permanently higher unemployment coming in the future. But I dunno: maybe the future is now.

But he says he hopes he’s wrong. And so does John Calvin, of course – sustainable consumer demand is God at work, or something.

But we could be heading to a post-consumerism economy, where your pile of goodies has no theological implications concerning God’s opinion of you, where it just make you seem kind of stupid. At that point Calvin will really be dead.

Matthew Yglesias responds to Drum’s idea that stagnant median wages and permanently higher unemployment might be the new norm, suggesting there are ways of dealing with this:

Well for one thing, this is part of the reason why we need to improve the performance of our high schools and the affordability of our colleges. Historically, each generation of Americans has been better-educated than its predecessors, shifting the skill balance in the workforce. Over the past generation that pattern’s broken down.

But another thing here is America’s pathological reluctance to put people to work providing adequate public services. I think it’s pretty uncontroversial to say that picking up trash, cleaning streets, fixing potholes, etc. are the kind of things government should be doing. It’s also clear that if you compare the United States to other countries, it’s possible for a country to have cleaner, better-maintained streets than we have. Doing better on this score wouldn’t be brain surgery and would provide low-skill jobs. And, yes, it would cost money. But the United States of America is the wealthiest society the world has ever known. It’s a bit ridiculous that we can’t repair damaged sidewalks in a timely manner. Or, rather, given that we clearly can repair damaged sidewalks, it’s ridiculous that we don’t.

And you could really go nuts with this stuff. Smaller buses could run more frequently. Libraries could stay open longer. Playgrounds could be better-maintained. Not as “stimulus” but as a permanent decision to say “hey, we’re a rich country, we should provide public services at a reasonable level.” Instead, we’ve chosen to cut taxes for the wealthiest members of the most unequal rich country on earth.

But picking up trash, cleaning streets, fixing potholes and all the rest seem not very… spiritual. But maybe we can uncouple doing honest but mundane work in order to live modestly from all the theology. After all, all that is just guessing in the dark about what God thinks, and what He rewards, and how He rewards those who please him. Calvin might have got it wrong. Or maybe God has other matters that are more pressing.

In fact, Yglesias notes that Chris Hayes has this essay in the American Prospect on the question of whether big business cycle downturns – even major depressions – are somehow necessary, that they are “a needed corrective to past excesses.”

Yglesias calls this The Economy as Morality Play:

There’s a tendency, that’s larger on the political right but also pops up across the spectrum because it’s fairly intuitive, to basically see the ups and downs of the business cycle in moralistic terms. A huge recession is punishment for our sins, and we need to just sort of bear with it. The evidence, however, suggests that this is wrong and that downturns can happen for reasons that are all out of proportion to the severity of the harm they do.

Hey – blame John Calvin. And it may be time to let him go. But we won’t. Some habits, ones that last five hundred years, are hard to break.

But maybe this time, maybe this time…