THE CRISIS AND THE KINGDOM

E Philip DavisPenge Baptist Church and

National Institute of Economic and Social Research

•Why economics is relevant to Christians – link to Proverbs – Jurgen Moltmann “the neglect of economics is a wound in the side of the church”

•The positive (how things are) and normative (how they ought to be)•Economics basis of human motivation self interest – not community, relationships (positive) or justice, ethics (normative)•Economics is a good diagnostic tool but weak in terms of morality – indeed self defeatingly so

The notion of humanity

•Biblical theology also positive and normative, e.g. in terms of the fall and dominance of self interest…but also scope for better choices (the holy)•Broader and more rounded view of human motivation – community and relationships•Stresses free choice but also responsibility, strong focus on justice•Christians need to take a stand on economic issues

•2007-9 events typical of crises in the past – credit boom, asset price bubble, risk taking, financial innovations poorly understood•Economics highlights damage to the economy from bank failure•Sees crisis as due to incentives, linked to safety net, too big to fail, “moral hazard” giving rise to disaster myopia (“this time it’s different”)

The financial sector

•Suggests people will only act in a trustworthy way if it’s worth it for them•Acknowledges integrity and prudence needed to run banks, unable to provide a motivation for them, or to explain irrationality of bankers•Scripture addresses underlying issues, for example fall corrupted human relationships, also seen in competition among bankers, pride, desire to avoid responsibility.

•Bible full of examples of irrationality, such as wooden idols in Isaiah…•…and also celebrates virtues such as honesty, putting others interests first (Philippians 2)•Jesus accepts trade of finance but not its intrusion into relationships with God, money becoming an idol, enticing to pride, selfishness and greed

•Ways forward should include focus of regulation on rewarding virtues (honesty, prudence, courage, justice) and not just enforcing values (list of rules to circumvent or ignore)•Virtues depend on character, character learnt by example (Stephen Green HSBC) – Christians needed in City•Not to treat banks as autonomous agencies – idolatry and avoidance of responsibility•Reconsider size of banks and role of relationships in finance

•Households not obliged to accept offers of debt•Economics recognises myopia of individuals – current cohort especially “profligate”•Long run damage from inadequate saving•Short run risk of default/ financial stress•Economics can’t explain cause of irrationality

Household debt

•Biblically, issue is wealth and consumption became more core to life than relationships with others and God•Irrationality of a generation that disowns its creator is unsurprising•Warnings about debt as form of slavery (Nehemiah 5) and parallel to sin (Lord’s prayer)•Provision for writing off debt in Bible only for poor who were obliged to borrow to survive

•Those entering contracts voluntarily and able to repay should do so “The wicked borrow and do not repay” Psalm 37 – but also lenders should show restraint in lending, willing extend terms•Wider obligation for Christians to care for needy, including victims of their own folly•Ways forward should accept credit essential to households welfare, especially mortgage but needs to be linked to law of love (Calvin) – lower loan to value to protect borrowers

•Justice suggests greater taxation of housing needed to enable low income to afford•Consumer credit needs greater regulation – cap on interest rates, credit card maxima linked to income, or restrictions on advertising for consumer credit •Church needs to promote “save first” mentality, Proverbs 24:27 “Finish your outdoor work and get your fields ready; after that, build your house.”

•Christians need to consider whether been absorbed by consumer society•… and show mercy to poor (CAP)

•Economic distinction of cyclical and structural deficits – latter major cause of current difficulties•Bible says we should support state (Romans 13) and latter should help the poor•But no support for long term rising debt (Deuteronomy 15:6) – also because burdens future generations, visiting sins of fathers on children

Public debt

•Governments running structural deficits mislead people about long run sustainability of debt also, by boosting growth•Student debt conditions people to consider indebtedness to be normal, weakens resistance to credit cards etc.•Government was right to rescue banks, but also is right to reduce deficit

•Has to warn public when economic conditions resemble previous crises (“peace when there is no peace”)•Like banks, government must not be treated as autonomous, that is idolatry – we must understand issues and hold individual MPs and ministers responsible

•Wrong to just blame the bankers – households and government also sought to maximise personal utility in the pursuit of self interest, showing greed, selfishness and impatience which was ultimately counter productive – and harmed innocent•Particular concern for coming generation – student debt, public debt, priced out of housing

Summary

•Need for virtues to be promoted and relationship element of banking re-established•Tempering of pressure for ever more consumption•Governments to recognise benefits of balancing budget over cycle•Recognise issues of idolatry and resulting structural injustice – and take responsibility for it ourselves

•Do not allow economic thinking, focused on wealth, consumption and power, to drown out the proclamation of the Kingdom of God, the law of love for God and neighbour and responsible stewardship of resources•Church is called to broadcast the biblical approach energetically

• The dominance of economics as the ruling paradigm of society needs to be challenged, and the impact of its amoral approach on the way we live, counteracted.• Stewardship of resources, mutually beneficial relationships, and foresight need to be restored at the heart of the economy and society, to replace the greed, selfishness, and impatience exhibited in the crisis.

Broad Recommendations

• Everyone must consider why we treat the government and its policies as something sacrosanct, rather than the responsibility of us all; and why bankers sought to avoid personal responsibility for the fate of their institutions, again by viewing them as unchallengeable entities.• The scope of personal indebtedness must be limited through government regulation as well as improved bank behavior and individual restraint.

• Governments have a responsibility to warn of the consequences of a credit and housing boom, and act to defuse such booms.• The degree to which the tax system, and other aspects of government policy, promote indebtedness must be counteracted.

Recommendations to Government

• Notably in the UK, the government needs to consider how house prices can be reduced relative to incomes, given the injustice current levels present to those excluded from the market.• The size and influence of the financial sector vis-à-vis the wider economy, and its vulnerability to crisis, should be reduced.

• Fiscal policy must avoid “structural” deficits persisting over the cycle, which may boost growth but potentially mislead the population about sustainable levels of expenditure and debt.

• To accept tighter regulation but also to realize it is not sufficient to generate a stable banking system; values must be adhered to and virtues encouraged both among employees and top managers.• Responsibility must be taken by lenders for financial distress incurred through imprudent extension of consumer credit.

Recommendations to Banks and Business

• The centrality of relationships must be re-established in lending and other financial transactions.• Experienced staff should be retained in banks to provide stability and “institutional memory” of past crises.

• That Christians be encouraged to engage in the financial sector and pursue careers in business and banking.• The church should urge the merits of an alternative culture to unbridled debt and consumerism.

Recommendations to the Church

• The church should offer debt counseling, relief of poverty generated by debt, and financial education, including promotion of a “save first” approach to purchase of durables, property and also to retirement.

• Is there a way that existing burdens of household debt can be reduced; is a “Jubilee” with widespread debt forgiveness feasible or desirable?•Are non-credit forms of housing finance superior to interest-based ones?

Areas for further consideration

•Study of the lending practices of Continental European countries where credit is less freely available and saving more common than in the US and UK.•Consideration of the impact on future generations of recent fiscal policy, and subsequent burden of public debt and pensions, as well as the level of house prices and the burden of student debt.

•“The Crisis and The Kingdom” by E Philip Davis published by Wipf and Stock, copies available today!