April 2010

One of Mahatmas Gandhi’s seven deadly sins was “wealth without work.”  I keep coming back to that phrase in thinking about the financial crisis that sent our economy into a deep recession and whose consequences will still be felt for some time to come.

In the last 60 years our economy has moved from a predominantly manufacturing economy to a service economy and now finally to a financial economy.  It has changed the way to make lots of money. Kevin Phillips in his book, Wealth and Democracy, noted that the movement of a great economy from manufacturing to service to financial sector dominance has been a 500-year pattern in western democracies.  The next step in the pattern is economic decline.

The work of manufacturing produces something of value.  A car, a house, a television set, when those are completed they are worth something for some time to come.  This changes with the service sector.  After I’ve eaten a great meal at a restaurant, I’m not left with anything of material value.  An HVAC company might maintain the value of my furnace with their service, but they haven’t produced new value.  With the financial sector this takes another turn.  Here money is supposed to make money.  However, lending money isn’t “work.”  Nothing has been produced or serviced.  It provides necessary capital for someone else to “work.”

One part of the financial crisis best exemplifies our recent folly.  At least when we buy some shares of Microsoft, or when the bank uses our deposits to make a mortgage loan, we are investing in someone’s “work.”  A house is built and bought.  Software is manufactured.  The toxic mortgage-backed derivatives were simply investments in investments – trying to make money off other loans.  It’s like investing in raffle tickets for a car instead of going to the dealer and buying the car yourself.  Financial services provide a necessary task in a capitalist economy.  But when our great ideas for making money turn out to be financial schemes rather than inventions and innovations, we are in trouble as a nation.  

A healthy national economy keeps producing value instead of making wealth off of someone else’s work.  Gandhi was right.  “Wealth without work” is a deadly sin.  Right now, it’s killing us.

 

February 2010

President Obama has unveiled his budget for 2011.  The numbers are astonishing – a $1.27 trillion deficit.  For the short term, this kind of spending is necessary to keep the fragile economy going.  If the government doesn’t spend like this now the economy would go back into recession.  Of course we can’t keep spending like this.  The numbers have gotten so bad, however, that there are no easy solutions.

First of all, the President only has discretion over 37% of the budget.  Federal laws regulating Social Security, Medicaid, Medicare, Food Stamps, Interest payments and a few other items will account for $2.45 trillion.  None of that money can be touched unless Congress changes laws.  Expected revenues for 2011 are only $2.57.  Meaning that before the President even gets to the part of the budget he can manage, we’re almost already in deficit spending.

Here’s another angle to look at it.  If you took away every dollar for education, if you cut out all the money for national parks and NASA, highway road construction and air transportation, federal prisons, prosecutors and law enforcement, if you spent nothing on the environment and nothing for disaster relief and FEMA, if you cut out all rental assistance and housing for the poor, took away all the money spent on food stamps, stopped paying all unemployment claims and gave away nothing in “welfare” programs for the poor, even if you cut all these things out – every single dollar and penny – we would still have a deficit.

I know that sounds unbelievable.  But it’s true.  Go to the New York Times site on the budget, or the Concord Coalition.  Or if you have plenty of space on your computer, download the President’s budget from the OMB website.  We can’t “cut” enough to balance the budget, unless we are willing to cut defense, Social Security, Medicare & Medicaid.  To balance the budget it’s going to take more taxes and then painful cuts.

Jesus once told a parable about a man who began building a tower before counting the cost and walked away with a half-built tower and the laughingstock of his village.  The Soviets went bankrupt trying to keep up with our defense spending.  Now, we’re doing the same thing to ourselves.  I’m sure Al Qaeda is having a good laugh.  We’ve been living beyond our means for a generation.  Sometime soon, we’re going to have to pay the cost.

 

February 2009

      The current downturn in the economy has now been fully sanctioned as a recession – some economists are saying that it began as early as the first quarter of 2008. We are hearing dire forecasts for this entire year. Whether the worst forecasts prove true or not (remember these same economists never even saw this coming, so I wouldn’t take too seriously their forecasts this time), it will take us awhile to climb out of this hole.

      All of this begs the question: where is God in all of this? Should we pray to God asking for prosperity to return?

      In the ancient tale of the Exodus, we are told that when Moses went up Mt. Sinai to meet God’s Spirit and to receive the Ten Commandments he was gone for a long time. (Deuteronomy 9 says he was gone 40 days and 40 nights.) With all the thunder and lightening happening in the cloud cover around the mountain, the Hebrew people weren’t sure what had happened to Moses and wondered if he was ever coming back. They decided they had better do something. So under Aaron’s leadership they gathered up quantities of gold and made a golden statue to worship. That’s an interesting set of actions – if God doesn’t answer you the way you want, you can always put all your energy into wealth and prosperity.

      For the past thirty years our nation has championed a supply-side economic system that has been very lucrative for the top 2-3% of wage earners. But working class wages have been stagnant (adjusted for inflation) for thirty years and the poor are worse off. The God of the Bible wouldn’t be pleased with those results, so it would be useless to ask this God for a return to those days. Maybe a golden calf might listen, but the God who heard the cries of the Hebrew slaves won’t be helping out.

      When the Israelites moved into the Promised Land, God told them that their prosperity would be tied to their covenant with God – a set of promises that included a pledge to care for the widow, the orphan, the immigrant, and the poor, a commitment to pay honest wages for an honest day’s work, and to guarantee that the rich will not cheat and bribe the poor.

      God may be more interested in us straightening out our economic values than in returning our prosperity. Of course recession always forces us to prioritize. That might the blessing in disguise in all of this.

 

November 2008

      The current financial and economic crisis makes me think of the old story of Joseph interpreting Pharaoh’s dreams. He tells the Egyptian ruler that his dreams have foreseen seven years of plenty to be followed by seven years of famine. In the dreams, the years of famine swallow the years of plenty. This is the fear that many have been worrying about recently – that the current financial crisis and the gloomy economic forecasts will wipe away retirement savings, college funds, and to put it bluntly our “way of living.”

      This 3,000 year old story says the way you keep bad economic times from destroying everything you made in good economic times is to save. Twenty percent was the word from Joseph. [Genesis 41:25-36] Even today, saving 20% and giving 10% is a smart way to manage the years of plenty. That may sound like a lot today, though I believe pre-credit card generations will recognize its wisdom. 

      Saving 20% and giving 10% forces you to do two very important things. First, it causes you to live well beneath your means. This means you have to really work to identify your needs from your wants, which causes you to delay gratification – nearly always a good thing. If you are only living on 70% of your income, when a crisis comes your lifestyle is already prepared. If you are spending nearly 100% of your income during the good times, however, there’s no room for economic downturn, a health crisis or job layoffs.

      Second, giving 10% frees your heart and soul in good times and bad. Generous people are the happiest people around. The person who cultivates generosity remembers there are others worse off and counts her blessings. The person who practices giving rarely feels trapped by bills or the lack of possessions because that’s not the focus of his life.

      If you are spending nearly everything you make, saving 20% and giving 10% may sound like a dream. Don’t beat yourself up. Start from where you are and each year work at being more thrifty and more generous. If you saved 3% and gave 1% this year, work towards 4% and 2% next. If you make $40,000, that’s basically saving $1 more a day and giving $1 more a day. The change from your pocket will cover a chunk of that.

      This financial crisis and economic downturn may be painful for awhile, but it may also get us out of some bad spending habits. If that happens we’ll come out better in the long run.

 

October 2008

      Does the Bible know anything about economic policy?

      That’s a legitimate question for American Christians who look to the Bible as authoritative in matters of faith and life and who are facing tough economic times for the near future. Does the Bible give us any guidance for these days?

      Well, no and yes – which means there’s no clear answer. Sorry.

      Nothing like our democratic capitalistic economy existed in biblical times. So, there is nothing that Jesus said, or Moses, or King David, or Paul that would directly address economic policy, particularly for this financial crisis.

      There are, however, images and principles that we might use for guidance in how we think about economic policy. Economic justice for the poor is a dominant theme in both Old and New Testaments. Questioning the rich about gaining their wealth at the expense of the poor, or without concern for the poor is a related matter. Conversely, the poor are instructed not to worry so much about possessions – what they will eat, what they will wear. Joseph’s interpretation of Pharaoh’s dream explained that during good economic times you should save and prepare for difficult times ahead. The folk wisdom of Proverbs warns against going into debt. These are just a few snapshots.

      Roosevelt’s New Deal was built out of the idea that the engine that drives the American economy is the working class. From tax policy to entitlement programs to government run work programs the object was to fertilize the working class and grow the economy from the grass roots up. With the ‘70’s “stagflation” this idea began to be severely questioned.

      Ronald Reagan ran on the idea that the engine that drives the American economy is the investment class. Nearly three decades later we still talk about “trickle-down economics.” Tax cuts, deregulation and limited government have been its sound bites. The object was to empower the rich so that they would invest in America’s economy and raise the standard of living for all. We are reaching a point where this idea is being severely questioned.

      Reagan’s economic ideas have just about run their course, as did Roosevelt’s New Deal. The question is: What’s next? It seems the perfect time for Christians to bring up biblical images to provide not just practical fodder for economic solutions, but to raise moral implications as well.

 

October 2008

      I could hardly believe my ears. I was listening to NPR replay a portion of the Congressional hearing on the proposed $700 billion Wall Street bailout. Democratic and Republican Senators were proposing a CEO compensation cap as a part of the bailout.  Given the fact the bailout total equals roughly $2,300 for every man, woman and child in the country, taxpayers will want this money to correct the financial problem not line the pockets of failed Wall Street executives with cash. 

      In response Treasury Secretary Henry Paulson actually said, “If we design it so that it is punitive institutions aren’t going to participate.” In other words he was saying that if CEOs couldn’t keep making their tens and hundreds of millions of dollars a year, they wouldn’t let us bail them out! I was livid!

      If Paulson’s statement is true either the problem isn’t as cataclysmic as we are being told, or the CEOs care more about themselves than about their companies or the nation – or both. Jay Bookman, for the Atlanta Journal Constitution Editorial Board, wrote, “If you think about it, that’s a pretty incredible statement. The Treasury secretary – himself the former chairman and CEO of Goldman Sachs – is admitting that to preserve their exorbitant pay packages, corporate CEOs might bar their companies from participating in the bailout, even if doing so would endanger their companies’ continued existence and the nation as a whole.”

      Jesus once portrayed a rich man who only thought of himself when it came to his riches. “God said to him, ‘You fool!’” [Luke 12:20] Jesus didn’t call him evil or a sinner, just a fool. If the CEOs of our troubled financial companies aren’t willing to sacrifice at all for the good of our nation in order to clean up the mess they made, then they are fools. And we’d be bigger ones to comply.

      Senators McCain and Obama very smartly called for CEO caps as a condition of the bailout. McCain added that the cap should be tagged to the salary of the US President. 

      “The love of money is a root of all kinds of evil.” [I Timothy 6:10] $700 billion is lots of money to love. Get ready for a rough ride, friends. For that kind of money they’ll be lots of evil and foolishness.

 

August 2008

      I’ve been thinking about Adam and Eve lately. In that ancient tale the first humans get caught breaking God’s one household rule. When asked, “Have you eaten from the tree of which I commanded you not to eat?” they were quick with excuses. 

      “The woman whom you gave to be with me, she gave me [the] fruit…,” is Adam’s defense. Then Eve followed suit, “The serpent [that you created] tricked me….”  The first couple was quicker at abdicating any personal responsibility than they were at eating the forbidden fruit. The one constant between the two is that they suggested it was God’s fault.

      In these days of economic fallout from the mortgage crisis I wonder what happened to personal responsibility. It has seemed to have been abdicated all the way up the food chain – from the people taking out loans who didn’t understand what they were getting into, and the mortgage lenders who were more concerned with personal bonuses than their company’s fiscal risk, to the risk managers taking in six figure salaries who simply weren’t doing their jobs and the equally well paid bankers at Freddie Mac and Fannie Mae who were asleep at the wheel. And Congress’ bailouts only perpetuate the problem.

      This isn’t the case of just a few bad apples spoiling the bunch. This was a nation-wide breakdown of a moral ethic. Everyone, of course, believes in personal responsibility. I have never met a person who honestly advised personal irresponsibility. But this is not something that can be learned intellectually. It must be practiced experientially – beginning with childhood. 

      There is no better teacher in life than experiencing the consequences of your actions. We love the rewards of success. But parents are loath to allow their darling children to experience the consequences of failure. Except for the extremely rare traumatic failure, children need to experience the brunt of their actions. Without it they do not develop the moral compass of responsibility.

      When parents find the lost shoes, or rush forgotten homework to class, or use their own money make amends for what is broken, or do for their children whatever the children can and should do for themselves they delay their child’s development of personal responsibility. 

      Let your child fall and get herself back up. And if enough of us do it, we may save our nation from another crisis thirty years from now.

 

March 2005

      This week Congress is moving to pass a bill that would further tighten bankruptcy laws, making it easier for credit card companies to collect money from bankrupt individuals. It is similar to a bill that President Clinton vetoed a few years ago and nearly identical to one that was proposed last year. Its advocates don’t give up.

      Bankruptcy rates have more than doubled over the last 20 years. I’ll give the advocates their due – bankruptcy rates should be cut. Bankruptcy damages families, robs business profits and burdens the economy. 

      There’s a far more simple way to cut down bankruptcies in our country. But you won’t see credit lenders pushing this idea. The federal government should cap credit card rates, reinstate usury laws and apply them to mortgage loans. Within a short time you’d see bankruptcies decrease.

      You see, it’s no coincidence that bankruptcy rates began edging up soon after banking deregulation around 1980. Instantly, credit was highly profitable. That’s why credit card applications arrive in your mailbox two and three times a day. That’s why thousands of companies have expanded to include “financial services.” The credit business is so profitable that GM makes more money off its financial lending “side” business than it does making cars! Revolving debt has increased an amazing ten-fold in the last 20 years!!

      If the government would recap rates, loans would be less profitable and guess what? Financial institutions would stop making bad loans and people who have no business getting a huge mortgage or a high credit limit wouldn’t be able to get one. They would have to scrimp and save a bit longer and that would be a good thing. (By the way, home ownership has only increased 3% during these 20 years of “easier” credit.) The current bill rewards credit companies for making bad loans and allows them to, metaphorically, take the shirt off the backs of middle class families who’ve hit bottom.

      So, why should we care? (Other than as a warning to stay away from debt.) Well, the Bible speaks strongly against usury. It rebukes those who take a “cloak” or shirt off the back of the poor as a pledge until they pay off a loan. It warns of coming judgment for a nation that redistributes its wealth from the poor to the rich. If the bill lands on the President’s desk, I hope he’ll read that part of the Bible and veto it in the name of moral values.

 

February 2005

      One of the truly ironic things about life in America these days is that marketing and finance techniques are far more sophisticated than they have ever been and we are raising youngsters to know less about the fundamentals of money than their grandparents knew when they came out of high school.

      Our young people are bombarded with marketing messages telling them to spend, spend, spend and more insidiously telling them that their self-worth is determined by those products. The costs of college education continue to increase even as the importance of that education in today’s economy grows. As soon as a teenager gets a job or goes to college, credit card companies start offering them debt in the thousands of dollars. The number one reason for divorce in what were once happily married young people is money!

      Understanding and handling money is a Christian issue. Jesus talks about money and possessions more than any subject except for heaven.

      One of the more intriguing stories in the Old Testament is the rise of Joseph from a slave to the Egyptian king’s right hand man. [Genesis 37-50]  Along the way he interprets a dream for the king, which warns the king that seven prosperous years are coming to be followed by seven years of famine. Of course the king’s dream was everyone’s dream and everyone’s reality.

      In the course of living we will have prosperous times and hard times. Make no mistake, they will come. The question is, will we use the prosperous times to prepare for the hard times. Joseph instructed Pharaoh to “take one-fifth of the produce of the land of Egypt during the seven plenteous years… that food shall be a reserve for the land against the seven years of famine.” [Gen. 41:34-36]  That’s pretty good advice even today.

      The secret to financial security is simple. Spend less than you make; give 10% and save 10-20% of what you make. (Notice Joseph advised 20%.) Of course this means you don’t carryover credit on plastic cards and you live in a house smaller than what the mortgage company will lend you. (Hey, do you want to have money in the bank or just look like you do!)

      Live this way you’ll end up with enough money to buy what you want – partly because of the money you’ll save and partly because such discipline curbs your wants to more manageable desires.

 

March 2004

      The popular cry for lower taxes is often based on nothing more than the intuitive belief that they are too high and our checkbook balance too low. But how do you know?

      I think gas prices are too high. And milk prices. And come to think of it, McDonald’s charges a $1.20 for 16 oz. of Coke, when I can by a 2-liter bottle at the Harris Teeter for the same price. Too high! But how do you know? In business, the price has to cover the company’s cost, plus a little more for profit. What does it mean, then, when the government runs a deficit? Is the price (taxes) too low? 

      Jesus said, “Give to Caesar what is Caesar’s and to God what is God’s.” [Matt. 22:21] Paul echoed this when he wrote that we should pay all of our taxes, for government authorities are God’s servants. [Rom. 13:6]  For the most part we like the services our taxes buy us – safe roads, stable financial markets, free education, reliable police and military protection – we just don’t like the price.

      Our tax structure has changed dramatically in the last generation. When Reagan took office the top federal income tax rate was 70%; now it’s 35%. During the same period social security taxes were raised on the middle class, which with Medicare, now sends to the U.S. Treasury 15% of wages up to nearly $90,000 – but only 3% afterwards. Capital gains and dividend income has dropped to 15% (and unlike wage income, it doesn’t pay social security taxes).

      A millionaire making half of her money off capital gains and dividends will be federally taxed at a combined rate of 25%, whereas a schoolteacher making $40,000 will be taxed at 32%! That’s right, the teacher pays more! Add state income taxes plus sales taxes, gas taxes, “sin” taxes, and property taxes all as a percentage of income, and the gap remains. An average schoolteacher can be taxed at a significantly higher rate than a selected millionaire.

      Jesus once said, “From everyone to whom much has been given, much will be required.” [Luke 12:48]  In a tax structure whereby the richest among us can pay less in taxes than the average wage earner is Jesus’ thought being followed? From another standpoint, is it good for a democracy? Shouldn’t the ones who financially benefit the most from living and working in our country pay the most? “Are taxes too high?” is a moral or ethical question as well as a political and economic one.

 

June 2000

“You will always have the poor with you,” Jesus said. [Matt. 26:11] As long as Alan Greenspan keeps trying to slow down the economy, Jesus’ prediction is safe.

Now that 4% unemployment is considered ‘full-employment’ – of course a generation ago unemployment stayed below 4% for years – Greenspan fears that our current low unemployment rate will soon drive up labor costs creating a cascading wave to high inflation. And he’s probably right. I don’t have a quarrel with Greenspan’s economics. I understand the theories and given a certain level of unpredictability because of all the variables, he’s managing our financial policy amazingly well.

My question is this: What are Christians supposed to do about the 4% of the working population that is supposed to stay unemployed so the rest of us can prosper in non-inflationary times?

We do want them to stay unemployed, don’t we? We don’t want runaway inflation. We don’t want companies to have to spend more money training unskilled workers or to spend more on labor in order to keep good workers on payroll, do we? Because if they have to spend more money training and paying the lowest-wage workers, we’ll have to pay more for our precooked hamburgers and dry cleaning and daycare workers.

A few years ago our government changed its welfare benefits – put limits on the amount of assistance persons can receive, made work or education a condition for receiving the reduced assistance still being given. It was heralded as an end to ‘welfare as we know it.’ I understand the theory behind the changes (the old program had created too much dependency) and, given a certain level of unpredictability in human nature, think the changes were worth a try.

However, if welfare policy cuts off assistance to the poorest in our society on the one hand and monetary policy cuts off jobs to the chronically unemployed on the other hand, have we ended up making the poor a sacrificial lamb so that the rest of us can keep low mortgage rates and affordable consumer products?

How will God judge us as a people, as a nation, in our response to the poor? The rest of the passage Jesus quoted said, “Open your hand to the poor and needy neighbor in your land.” [Deut. 15:11] Which hand will we open – welfare, monetary policy, or something else?