Catholic economics 101: Charles Clark on capitalism, government spending, and alleviating poverty

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When the rich get richer and the poor struggle to stay afloat, someone has to step in and level the playing field. And according to economist Charles Clark, no one is better equipped to do that than the government, which by providing goods like education and health care can give everyone a fighting chance. Doing so not only helps the poor, Clark argues, but it benefits all of society, because “sick and stupid is not a good economic policy,” he says.

Clark, a professor of economics and senior fellow at the Vincentian Center for Church and Society at St. John’s University in New York, looks at economic policy through the lens of Catholic social teaching. During a recent visit to the University of Notre Dame in South Bend, Indiana, Clark sat down with the U.S. Catholic editors for a wide-ranging interview on issues facing our modern economy. In this web-exclusive addition to the print interview, published in our July 2013 issue, Clark discusses successful efforts to reduce inequality and the Catholic view of a capitalist market.

What drives inequality in an economy?

I would say mostly it is public policy. You look at the countries in Europe that had either very little increases in inequality in recent years or that have stayed the same—or some have actually become more equal—and it's because they have high social protections, they support workers, they have high unionization rates, and they don't let finance run everything. If you look at the countries that have had massive increases in the inequality like the United States, like Canada, like Great Britain, like Ireland, basically the places where people speak English, they went the Margaret Thatcher/Ronald Reagan way. They have just cut out the supports for workers and basically took off the reins off of finance (Canada being an exception on financial deregulation). Much of our increase in inequality is a transfer from the bottom 90 percent to the top .01 percent, CEOs and Wall Street, and not because they have made the economy more productive but instead because they could use their political influence to change the rules to benefit themselves. This is wealth capture and not wealth creation.

Can you give some examples of countries that have reduced their inequality? How have they achieved that?

There are basic income movements all over Europe and Latin America. Brazil has been very successful with its Bolsa Familia program, which gives cash transfers to families as long as the children attend school and receive medical care. It has cut poverty rates in half in some areas. Mexico has a similar system. And many African countries are starting such systems. These cash transfer programs work at helping the poor rather than regulating and controlling the poor. They are also very pro-small business, as it helps families start businesses.

Social welfare agencies need to exist, and their purpose should be to determine, "How do we help people get out of poverty?" First, promote full employment and healthy job market. But outside of recessions, many poor people have problems that we can help them with. Often its health concerns, sometimes mental health, and less often it is things like drinking or drugs. People need help. Everyone needs help at some point, when we are young and old. But the poor don't have the money and means themselves and we should definitely give them that.

Why should the government help people with things like education or health care? What impact does that have on an economy?

Both education and healthcare are what we call “public goods” in economics, meaning that it is inefficient to provide them through private markets only, that if we want to provide them to all citizens—and we should—then we have to do it at least partly through governments.

If we allow only private, for-profit providers, then we can be sure that many, if not most, people will be excluded. Thus we will have a lot more sick people and a lot less educated and skilled workers. Sick and stupid is not a good economic policy to promote economic growth. People are always the most important input in an economy, and health and education is our most important investment in these inputs. The countries that have good health outcomes have universal access. Health care is not something that is easily managed in a competitive market environment because the rational person will never pay for health insurance until they're sick, and by then it's too late.

With education, you have to educate everyone so that they can participate. If you leave it up to the market only the rich will be educated and the rest will be their servants. You have countries that do that because the rich want to have servants. You do that by keeping the poor down and uneducated.

Everyone benefits by raising the average education level, and by allowing all to reach their potential. Any system that keeps large numbers down in poverty is inefficient. It is like major league baseball before Jackie Robinson; not all the best baseball players were being allowed to play, so the overall level of playing was lower. If people are being excluded, everyone is poorer for it.

How would you respond to the argument that we should be reducing government spending, not increasing it?

When you cut spending you'll lose more in tax revenue than you'll gain from spending cuts. You look at all the countries that have taken austerity in Europe, their deficits are bigger and they have high unemployment. Through austerity you keep on crashing the economy and permanently make it a depression economy.

The level of government spending should be based on the need for the programs the people want, to reflect the democratic will of the people. There is no economic evidence to support the argument that we need to cut government spending, and there’s a mountain of evidence that austerity hurts.

If the government keeps spending, won’t we eventually go broke?

The U.S. government can never go broke, it can never not be able to pay its bills. It pays its bills in its own currency, so as long as people are willing to sell things to the government, it will always have enough money.

Politically the government might decide not to pay its bills but it is not an economic constraint. And it is not by printing money, as it’s all done through keystrokes. Most people think we have a physical money supply and most people’s understanding of our monetary system, including most in Congress, is actually what we had in the 18th century. Ron Paul might want to go back to a gold standard, but that is not the world we live in. Anyone who says that the federal government is like a household, that its spending should be limited by its revenue (tax collections) does not understand our economic system. This includes the president. I prefer economic policy based on what exists.

The U.S. Treasury bond is the asset upon which every other asset is measured and based on. Every portfolio, everything. And the value of treasuries, of the U.S. dollar, is based on the taxing power of the federal government. Our money has value because we pay taxes in it. Now if the government spends in deficit when we have full employment, then it will generate inflation because the government is trying to buy the same things that the private sector is trying to buy. But with the high unemployment we have today, there is no reason to worry about inflation.

Even if the government can afford to pay for these programs, should we really be relying on them to help the poor? What would Catholic teaching say about that?

The church doesn't say, certainly not in the gospels, that it's the government's role to take care of the poor. It is all of our responsibility to help the poor. But in our society today most of our collective responsibilities are carried out by our government, by those we elect to represent us. We have an individual responsibility to help the poor, and today working to create government policies that will help the poor is an important way to do this.

St John Chrysostom, one of the greatest of the church fathers, recommended that people could best help the poor by giving to the church, which was the main social welfare agency in the fourth century. Today it’s the government. Whether you like it or not, only governments have the resources to provide the level of funding on food security, education, health care, and the other main supports for the poor. This still leaves lots of room for churches and individuals as the poor, like everyone else, also need compassion, companionship, fellowship, friendship, to belong­—and this is still best done person to person.

Catholic teaching—at least from St. Augustine, which is a pretty long time—recognizes that people who live in communities with organized governments carry out many of their collective responsibilities through governments. We all have to live in communities, we need a civil order. Render unto Caesar means more than just paying your taxes.

The Catholic teaching on subsidiarity teaches that institutions should be the size that promotes the most participation and achieves what the institutions needs to do. Often this means the smaller institutions are better. It is best to have parents raise their children, as usually no one will love them as much. Yet if the parent cannot take care of their children, or are harming their children, it is the government’s role to first help the smaller institutions, in this case the parents, to carry out their responsibility and if that cannot work, to take over the function of the institution. Thus institutions should be as small as possible but as big as necessary.

In a modern capitalist society that means an active government in regulating business and providing social protection for citizens. It doesn’t mean the federal government should do everything, or that it should do nothing. What people want and what works should determine the size needed.

Five hundred years ago, to say that the government should give everyone a minimum income would be ridiculous because we didn't have a commercial society in which most of our needs were met through commercial transactions. But today we do. Today you couldn't give someone 40 acres and a mule and say, "OK, I've cured your poverty problem. Go make good." No. We live in a commercial society in which the vast majority of our material needs are met through monetary transactions.

Is Catholic social teaching at odds with capitalism?

While the modern Catholic social thought tradition, which started with Leo XIII’s Rerum Novarum (On Capital and Labor), is very much a reaction to the abuses inherent in 19th-century capitalism as an economic and social system; the principles are universal and apply to all economic systems. Human dignity has to be respected, the poor and marginalized need to be protected. But Catholic social thought is not an economic system and the church does not see its role as telling countries what economic system they should have. The church has always rejected laissez-faire capitalism and its ideology of extreme individualism.

Certainly there is a conflict between the values of the gospels and the “greed is good” philosophy that dominates Wall Street. The church has always rejected the pursuit of wealth as an end in itself, that making money should be one’s highest goal. Jesus is clear about that the pursuit of riches will put one’s soul in jeopardy. If you have seen a camel and a needle, you can ask yourself “can it fit through that?" Catholics who glorify “capitalism” and wealth engage in idolatry.

Catholic teaching isn't hostile to creating material goods. Clement of Alexandria, in the second century, said "we call these things goods because they are good." They fulfill our wants and needs. We want to encourage that, but we can never look at them as the final good. Wealth is never an end in and of itself. Wealth is a means to an end. If my creating wealth is done in a way that doesn't violate other people's rights and is not at the expense of others, and especially if it contributes to the well-being of the community, then that is good.

The church is not hostile to business and to the people who run businesses. These are human activities, so they can be done in ways that respect the dignity of all people. Like police work, it is something that is necessary to promote the common good in our society but it can also be done in a way that is harmful to the common good. And like police men and women, the vast majority of businessmen and women are ethical and contribute to their communities, and it is the exception when they abuse their position.

We do have a problem when we have incentives systems and structures that encourage unethical behavior, like secret police in many countries that systematically harm the common good. I think that the financial services industry has many structures which are inherently unethical. Most of their activities are about wealth capture and not wealth creation. We can never look at making money as our final end. Our final end is always union with God, the created coming home to the creator.

This article is a web-only feature that accompanies "The economics of inequality: Why the wealth gap is bad for everyone" which appeared in the July 2013 issue of U.S. Catholic (Vol. 78, No. 7, pages 26-30).

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