A Christian Perspective of the Current Economic Crisis

By Clark, Charles M. A. | American Economist, Spring 2009 | Go to article overview

A Christian Perspective of the Current Economic Crisis


Clark, Charles M. A., American Economist


As the Financial Meltdown of 2007-8 turns into a global economic crisis which will most likely be measured in years rather than months, it is imperative that we look beyond the symptoms (frozen credit, failing banks, rising home foreclosures, business bankruptcies, millions of lost jobs and falling commodity prices) and get to the root causes. The economic crisis, like the bubbles (housing, commodity, stocks) that preceded it, is the direct result of an increasingly unbalanced economy which has its roots in unbalanced lives. This would not surprise anyone who takes a Christian perspective on economic issues, for the current crisis clearly demonstrates that an economy based on social injustice and motive by greed and avarice is not sustainable.

While the Christian tradition does not offer an economic model or an economic theory, it does present a set of principles which are necessary for a "just economy" and it is clear from these principles that we have been following the wrong path. These principles are designed to help Christian's follow Jesus in their economic lives, that is, they apply Christian ethics to economic issues. However, these principles also inform non-Christians, as they are also grounded in the natural law, the moral code that is based on the nature of the human person and what it necessary to promote authentic human development. As we will see, these principles highlight issues that are central to the current economic crisis.

The purpose of this article is to bring the values of the Gospel to the discussion on the causes of the economic crisis, especially as they have been articulated by the Catholic social thought tradition. My suggestion that our understanding of economics can benefit from moral theology is certainly out of the mainstream of the economics profession (Clark 2008a). I want to make clear from the beginning that I am not suggesting that theology can or should replace economic theory. Nor am I, or the Church for that matter, suggesting that the Bible or the Church offers an economic blue print on how to manage a modern economy, or what public policies should be implemented. As John Paul II stated: "The church has no models to present; models that are real and truly effective can only arise within the framework of different historical situations, through the efforts of all those who responsibility confront concrete problems in all their social, economic, political and cultural aspects, as these interact with one another" (CA 43). Instead, Catholic social thought is "an application of the word of God to people's lives and the life of society, as well as to the earthly realities connected to them, offering 'principles of reflection,' 'criteria of judgment,' and 'directives for action'" (SRS 8).

This paper will follow the method laid out by John Paul II. First we will review the economic forces behind the financial meltdown and economic crisis. Here we will see that this crash was the natural result of the inherent imbalances in capitalist economies. In the second section we will present "principles of reflection," the basic principles of a just economy as developed in the Catholic social thought tradition. In the third section we will use these principles as "criteria of judgment" to evaluate the factors which caused the great imbalance in the economy. The final section will present some "directives for action" on how to promote a more just economy.

THE ECONOMICS BEHIND THE FINANCIAL MELTDOWN

The outlines of the financial meltdown are now becoming clear. After 9/11 the Federal Reserve Bank lowered interest rates to historic lows, which caused money managers to look for higher returns elsewhere, while maintaining low levels of risk. To meet this new demand, Wall Street came out with new financial instruments, especially the securitization of U.S. mortgages. U.S. Mortgages seemed ideal due to their historically low foreclosure rates and the fact that since the Great Depression housing prices have never fallen nationally, although regional housing markets have declined. …

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