The moral challenge of the economic crisis

My colleague Mark Mitchell, a government professor at Patrick Henry College and currently a visiting scholar at Princeton, has written a penetrating and morally challenging essay on the economic crisis and the bailout. Read it at the website of the Center for a Just Society. It’s entitled “Ten Questions and a Modest Proposal.” Here are the ten questions. Follow the link for the modest proposal:

1. Is it a fundamental problem when a corporation becomes so big that its failure threatens to bring down the national economy? Could it be that scale matters? Can institutions become so large that their potential harm outweighs their actual (or occasional) good? If yes, then are there measures that could help ensure that economic power is decentralized and therefore less dangerous?

2. The bailout was ostensibly necessary to protect our “American way of life.” That such a reason was offered without justification indicates that our way of life is an axiom that must be assumed but never questioned. But is it too much to consider, if only for a moment, that perhaps our way of life is precisely the problem? Of course, a way of life is a complex thing, but insofar as the “American way of life” consists in living beyond our means, it is unsustainable. To the extent that consumer credit is at an all-time high and personal savings is at an all-time low, the “American way of life” is irresponsible.

3. Public debt mirrors private debt. Both publicly and privately, we have become a nation that demands immediate gratification. Is such a national disposition healthy? Psychologists tell us that adults are capable of delaying their gratification. If so, then publicly and privately we are, according to this measurement, behaving like a nation of children.

4. The best part of the American tradition is characterized by a can-do attitude and a willingness to face the consequences of our decisions. Consider, then, the fact that in many states home loans are, by law, non-recourse. This means that if a borrower cannot afford to make the payment, he can simply walk away from the deal. The property returns to the lender, and its value may or may not cover the outstanding debt. In essence, the bank runs the risk and the borrower runs away. If such laws were eliminated, borrowers would take care not to borrow more than they can afford. Does the fact that it is legal to walk away from a home mortgage make doing so morally right? Is a system based on no-risk credit and legal irresponsibility fundamentally flawed?

5. In our private lives, we expect that our “standard of living” will be higher than that of our parents, and our children will enjoy a higher standard than us. But is that expectation warranted? Do we need a higher standard of living than our parents? Exactly how high is high enough? When will we be able to say “my standard of living is just fine”? When a society finds itself animated by a fundamental desire for more stuff, the analogy to the nursery is hard to miss.

6. We are told that the catalyst for the current economic troubles is the housing market. Consider the following: in the 1950’s the average house had one bathroom and was something under one-thousand square feet. Today, the market standard is one bathroom for every bedroom and the average square footage has more than doubled. Ironically, the size of families declined precipitously during those same decades so that the average square footage per person has risen dramatically. How big is big enough? Would the current crisis be as acute if the houses we bought were more modest?

7. For years, Republicans championed tax reduction while Democrats emphasized government programs. Both sides won the debate. Today, the presidential candidates from both parties argue about whose plan will reduce taxes the most. At the same time, both candidates promise far more government programs than they can afford. The American people want both lower taxes and increased government spending. We want it all now and we want to defer the payment until later (preferably after we are safely dead). How’s that for family values?

8. Many of us have parents or grandparents who lived through the great depression (and a few among us remember it). My grandmother raised a family during those lean years and the frugal habits she acquired by necessity stayed with her the rest of her life. She saved and mended and lived well within her means. She was grateful to have a margin between her income and her expenses and thought it was wise to live modestly. What would our grandmothers say to us now as we struggle to maintain our “American way of life”?

9. Lord Acton’s hoary saying is pertinent: “power tends to corrupt.” If so, then we should make efforts to decentralize power. Such a sensibility is behind the separation of powers written into the fabric of the U.S. Constitution. We should be concerned, then, when big corporations get into bed with big government. The off-spring will be ugly and, we can rest assured, it will be big. This bailout represents a stunning consolidation of corporate and government power. Of course, we are promised that the government will regulate the corporations, but the conflict of interest is glaring. Could it be that the problem is not de-regulation but regulations that favor big corporations over small businesses?

10. In Greek drama hubris plays a key role. This is the fatal pride that brings down even the greatest of men. Is hubris at the heart of this crisis? Hubris is the failure to acknowledge limits. It is the failure to live within the bounds proper to human beings. Ultimately, it is a failure of virtue. When we delay payments rather than our gratification, we reveal our ill-formed character. When our demands for more things are limited only by our insatiable imaginations, vice is running the show. When our leaders tell us that they can solve any crisis if only we grant them more power, hubris has taken center stage.

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  • I don’t think I can disagree with most of these principles. However, in the real world, the choice today is whether we’re going to be entirely or just partly socialist. Socialism is based entirely on envy, and it works badly to boot. So I’m going for the less-socialist side. If Jesus ever runs for president, I’ll vote for Him then.

  • Bryan Lindemood

    I really like this piece. Its why financial crises can actually be good things for societies. We may never really feel this crisis due to governmental management, but those who are wise will examine their hearts and make changes to their day to day lives.

    (I hope I’m one of the wise ones)

  • FW

    4. Consider, then, the fact that in many states home loans are, by law, non-recourse. a borrower can simply walk away from the deal. The property returns to the lender

    the alternative would be some form of “debtor´s prison” the kind of stuff Charles Dickens writes about. his father was imprisoned for debt. this is why bankruptcy laws are one of the areas of law that distinguish the american law from british law and are some of the very first laws our founding fathers implemented. change these laws carefully!

    5. In our private lives, we expect that our “standard of living” will be higher than that of our parents

    indeed hammer hits nail here squarely. but not only individuals. stockholders look for steady increases in revenue and growth. what is wrong with flat revenue? this means that starbucks and other stocks all become ponzi schemes. the early investors get out early and the standard business cycle becomes birth, growth, decay, death. it focuses on short term earnings. a quick buck, and not on real productivity or value. it is about harvesting earnings for insider stockholders.

    7. For years, Republicans championed tax reduction while Democrats emphasized government programs. Both sides won the debate

    no. you “conservatives” lately manage to twist this. the reality is BOTH sides favor government programs. It is how they get reelected, so the fault is all of ours. it is NO accident that the most “conservative” states are also the ones that have the most federally owned land and get the most pork. consider alaska and utah as examples, not to mention the farm states that exist on needless farm subsidies as the foundation of their economies. republicans also favor tax reduction.democrats are too cowardly to state the reality that more programs require tax increases. and republicans are the worst of both worlds because they both increase spending AND cut taxes and finance both of these with debt.

    Tell me it ain´t so Joe!!!!

    9. Could it be that the problem is not de-regulation but regulations that favor big corporations over small businesses?

    one of my heroes, milton freedman, has pointed out, accurately, that government regulatory agencies inevitably get taken over by the large corporations they are intented to regulate. the ICC was created because shorthaul railroad freight rates were far higher than longhaul rates. this was because their was no competition on short haul rr lines. the railroads eventually succeeded in having the ICC raise longhaul rates to match short haul rates! modern examples are the SEC, FDA…etc etc…..

    I am not sure that the solution is to abolish all regulatory agencies however….interesting topic eh? Regulation can be about the Rule of Law and does not necessarily mean being anti capitalism or free market. I do not agree with the proposition that the free market should be allowed to completely self regulate. Neither did adam smith by the way!

    there you have my 5 cents (inflation). But it is encouraging to see “conservatives” take a deep breath, step way back, and consider first principles. “conservatism” has largely been reactive with positions formed to be the opposites of what is opposed. Maybe from the ashes of republicanism there will be room to develop a platform based on positive, non reactive broad principles. we will know this has happened when we see ideas that do not fit neatly into the current “conservative box” and in fact gore some current conservative oxen and actually DO speak the truth to power. legalized torture and habeus corpus issues could be one example.

    focussing narrowly on overturning roe v wade as THE litmus test for being prolife is another excellent example. I do NOT see the logic of how overturning roe v wade and so pushing things back to the state level will do anything but complicate things further and make things worse. can someone explain this to me here? Is there not room for an honest debate on strategy here for those of us who think abortion IS murder?

  • i’ll agree with fw, about the home loan issue. i would hate to see “debtors Prisons.” I think it just might be smarter that the banks are a little more weary of who they loan to.

    I liked the article, though. Well written and thought provoking. Only thing is when I’m done with work today I will return to the five bedroom 4 bathroom house I live in with my wife, dog, and cat. The same house I spent two years living in by myself. That part hit home. But I am not putting the house up for sale.
    See I agree with him. The American way of life is the problem. But I probably won’t be giving it up.

  • The Jones

    FW @3

    The reason that we want to push things back to the states are two fold.

    First, the states are the ones responsible for things like this under the tenth amendment. Even though it is a HUGELY important issue, it’s just not the Federal Government’s job to get involved in things like abortion. Even flat out “everybody-agrees-that-its-murder” murder was never (until the Clinton administration, because it “hurt interstate commerce”) prosecuted by the federal government. Likewise, abortion should not be dealt with by the federal government. The first time the federal government got involved was with Roe vs. Wade, which struck down STATE laws.

    Second, as far as pro-life principles and policies go, we basically OWN the state level. Most every good thing that has ever happened on the abortion policy issue has come from states enacting their own laws on it. Good things from the federal government either mirror state laws (partial birth abortion bans or live birth protection acts) or are things that are purely federal government issues (Hyde Amendment). Sure there’s a California here or a Massachusetts and Vermont there, but hey, I’ll take 47 and lose three. Sounds better than the current “lose all” outcome that we have with the federal government now.

    No, we will never remove ALL abortion politics out of the federal government and give it ALL back to the states. But we can give the PRIMARY responsibility back to the states, where it belongs and where pro-life policies win through elected legislatures. Sure we’re still going to have to deal with these ludicrous “Freedom of Choice Act” type federal bills, especially with an Obama presidency, and even if we do succeed in “giving it back to the states.” But just because we can’t GET RID of those, it doesn’t mean that giving it to the states is not the right thing to do.

    So, choose life: give it to the states.

  • Eric R.

    We are a nation of whiners enabled by coddlers.

    This problem has been in the works since the Federal Reserve was established and the gold standard abolished.

    Think on this… Our population is decreasing, as is the amount of farmed land in the U.S. More of our food supply is going to create inefficient, more expensive fuel, and the amount of money in circulation keeps increasing as government spending increases. The only direction that a central bank can take us is socialism because eventually, when the dollar collapses, our government will either have to bow down to them or destroy them for their treachery. Given that the government would have no money to fund anything without them, they will probably do the former.

    Yes, I am a Ron Paul fan, and I hate both major political parties. They’re just two different groups of people saying the exact same thing: “Spend more, spend more, spend more!!!”

    Pax Christi, y’all!!

  • I have to agree largely with the quote. Interestingly this dovetails nicely with the book “The Wallmart Effect” (see – which does a good job of analysing the destructivness of “more stuff, cheaply and now!!”. Although issues like the gold standard, government regulations that paved the way for the mortgage crisis etc are some of the causes, there were many earlier signs and milestones – people like Ray Krogh and Sam Walton and many others certainly helped lay the foundation for the mindest that produced the crisis, as so well put forward by Mitchell.

  • Eric R.

    As an addendum, this an excerpt of an e-mail I sent to a friend of mine…

    “This is not a time for a person to hinge his vote on the candidate’s willingness to overturn Roe v. Wade because that will never happen. Now is the time to bring fiscal policy to the fore and attack the candidates on their willingness to spend money they don’t have. Inflation will bring down our country before abortion and terrorism do, no mater what James Dobson and the rest of his Religious Right say.”

    This is the heart of all the issues facing us today, and as a nation, we are missing it because of all the ways this irresponsible spending plays itself out — an unsustainably expensive foreign policy, government programs for every little thing short of blowing our noses for us, an expensive but piss-poor public education system, etc. These things don’t need to be re-worked. They need to be rejected because they flat-out don’t work.

    And FW, I can think of two or three alternatives to debtors’ prison and bankruptcy.

    The first would be indenture. Before the Communist Revolution, my great great grandfather indentured himself in Russia to send his son over to America. Jeje (his name in the family… it means “grandfather” in Russian), in turn, sent money back to Russia to pay off his father’s debt early.

    The second alternative to prison/bankruptcy would be “PAY IN CASH STUPID!” After my great grandfather came over to America, he then proceeded to pay for both of his older brothers to move here as well. One of them made it, and we don’t know what happened to the other (but anything could have happened by then… He was older, with a family, and the revolution had started at that point). Never once did he go into debt.

    Okay, so that was more than an addendum, but I’m pretty passionate about these things, and with the way these elections have been going for the past 100 years or so, it’s coming to another boiling point, and the mess will fall to my generation to solve. But nobody wants to hear the best way to do it because it will hurt. A lot. But the longer we wait, the worse it will be.

    In the words of Paul Manz, “E’en So, Lord Jesus, Quickly Come!”

  • Don S

    I posted on a couple of threads months ago on this site some thoughts concerning our intolerance, as a people, for suffering. I was thinking, at the time, both of Christians and of Americans. Though we as Christians know that we grow the most during the trials that are visited upon us, Christians have been whining and complaining as much as everyone about the relatively tough economic times we have been experiencing for the last few months. Similarly, can you even imagine the typical modern American citizen pioneering across the plains of our great land? No, neither can I.

    It is particularly unfortunate that this crisis manifested itself during an election season. The panic regarding potential effect on the election certainly contributed to the outsized response and overheated rhetoric guaranteeing our good people the right to not be affected negatively by the stupid decisions they have made in the past, by both parties.

    Regarding Dr. Mitchell’s questions:

    1. Yes, but there are few non-coercive, non-interventionist ways to limit the size of a business entity. One problem we have in today’s world is that the overall regulatory environment is so complex that there are very high barriers to entry into the market by new entities. Big businesses LIKE complex and overbearing regulations — they keep out the “riff-raff”. If we can overhaul and streamline the regulations, we can create more competition, which works to limit the size of any one competitor.

    2. YES! Would that our leaders were mature enough to permit these corrections toward a lower-debt lifestyle to happen, and that the voters were mature enough to recognize what is really good for them.

    3. No, it is not healthy. And we are now spiraling into an era of greater and greater instability because of this excess debt. Ultimately, if the increasing debt (especially including pension fund and Social Security debt) is not addressed, no bail-outs will be possible or effective.

    4. Lenders don’t have to lend, if they don’t like non-recourse loans. Then, states would be forced to make adjustments to their laws, more in favor of lenders over borrowers. But, the real problem is clearly lenders and their lack of standards. If borrowers have to put 10% or 20% down, and are limited to loans which are no more than 35% of income, then they have a stake, and won’t walk away short of a massive real estate collapse. And, in the event of a collapse of that magnitude, there would be no effective recorse for lenders anyway.

    5. We do need a spiritual hunger in this country which more than matches our hunger for material success, to say the least.

    6. The increase in the average size of homes is a factor which is often overlooked, particularly by those who complain about the increased cost of housing in the past thirty years. Our family of five grew up in a 1300 square foot house with three bedrooms and one bath, and we did just fine. It cuts energy consumption considerably, as well. Of course, our family enjoys our present much larger home.

  • Don S

    OK, the rest of the question:

    7. We have lost our way in our reliance on government, rather than God.

    8. This goes back to my point above. The Depression affected a generation, for the better, for their entire lives. Tough times for a period of time for our generation may very well be a good thing for our character.

    9. YES! I made this point above, concerning regulations. Federal government should once again be limited to its Constitutional enumerated limited powers, with the remaining powers, via the 10th Amendment, devolving back to the states, and, better, yet, local government. We would once again have much more of a sense of local community, and more freedom from the oppression of big central government and big business, who often work together against our best interests as citizens.

    10. Yes. We, as a citizenry have failed ourselves and our God by assigning to Big Government a sense that it has limitless power to solve any problem, and, conversely, by blaming it for everything that goes wrong. We reap what we sow.

  • Bryan Lindemood

    Ron Paul does rock!

    And yes, you SHOULD repent dear brother Bror.

    You wanna trade houses with me?

  • Overall I like the piece. I would like to consider some of the issues together, though. #1 asks some good questions of whether the size of corporations is good for the nation as a whole. #4 asks about personal responsibility. We should be clear that the Progressive movement sold us both large corporations (for the sake of economies of scale) and a social safety net. The safety net is necessary in part because we’re creating these giant monstrosities of corporations that if they fail displace people who might otherwise have been doing just fine.

    I like the idea of looking at our policies and asking questions about whether they take us in a good direction or what they do to individual character. But we should remember that the tinkering that has been done in the past has had some massive results that might have put some of our grandparents’ choices out of reach. There are many areas of the country where the 1000 square foot house is not to be found. Some of these alternate choices really cannot be made just by one individual here or there.

    We also have to be clear that if we held individuals to the standards of 1910 they might not do as well as individuals did in the business environment of 1910. Do remember that in Dickens’ time, as grim as it was, companies (there were few corporations) would have been much more conservative in their decisions, as personal fortunes would have been at greater risk. I don’t think failures had golden parachutes back then! If we turn back the clock, let’s be careful to be even about it.

  • Sorry Bryan,
    I would switch with you, but I like having a garage, especially when it snows.

  • Bryan Lindemood


  • Anon

    1. There is a reason that we used to enforce the anti-trust laws.
    2. The American way of life: Micah 4:4 Every man will sit under his own vine and under his own fig tree, and no one will make them afraid, for the LORD Almighty has spoken. That is Biblical. It is eschatological, but it is not greed. Our system was made for Christians, and for Christians who owned their own homes and means of earning a living.
    3.A good amount (but not all) of present private debt is due to the economy going south (along with the jobs) leaving people borrowing for necessities against credit cards and home equity with the hope that things would improve.
    4. What real value is lost from the house, unless the house is damaged? The only thing that has changed is the paper valuation, not the real value.
    5. I think that something might be seriously wrong with a society if things did not improve from generation to generation. We are to invent, mine, lumber and grow crops. If this doesn’t result in a degree of improvement, then we are probably looking at a sign of God’s judgment (see the blessings and curses of the covenant)
    6. I think this one is false. In 1950, the date given, at least half of all Americans still lived on farms, and farm houses are much bigger than the type of housing built in cities for returning GIs and their new families. And, on the farms, there was a whole lot more room for kids to play. In town, you pretty much have to make up for at least some of that, indoors.
    7.The elephant everyone is trying to avoid looking at in the living room is the very expensive war. In order to get support for that, pork had to be given to the Democrats. Much the same thing happened throughout the Cold War. We saved the world and lost our own country in that fight.
    8. See 2. Most of the poor in the Depression still owned their own homes and had a garden, a cow and some chickens. Most of the poor today have none of those things.
    9. Could be. someone should look at those regulations.
    10. I think this underestimates the role of the Democrats including Senator Present in insisting that the banks give loans to those who could not afford the monthly payments. The goal is laudable, but merely putting off the payments into the future, and still having usary on the loans was not a wise course of action.
    10.b. Don’t forget Soros and his desire for Obama to win at any cost. He brought down the government of Great Britain a while ago by crashing their economy. Is it possible he has done the same to ours, to provide the October Surprise?

  • Anon

    fw, in fact those bankruptcy laws are part of the Biblical influence on the founders, coming from the Sabbath year and Jubilee laws.

    Repealing the federal abortion license will save untold lives. Is that not reason enough? What is the value of a human life? McCain and Obama have very different valuations for that.

    Your knowledge of farming is close to 180 degrees off.

    Break up the grain company monopolies and the control the Chicago Board of Trade has on what farmers can get for their crops, eliminate the death tax and the property tax (replacing them with sales tax) and then you can remove the farm subsidies. Food might not remain relatively (compared to other lands) cheap, though.

    The answer to Eric’s five is prayer on our part.

    Jerry Pournelle has pointed out that an economy based not upon production but upon everyone providing services to everyone else is not going to survive. It is not on a sound footing.

  • This post is so right on. Our way of life is so, so wrong. I agree with Frank on home loans because I think banks should have the responsiblility of being selective to whom they loan money. They are in a much better place to make those decision wisely then the individual borrower.
    We should have let the banks collapse. Perhaps a depression would have been good for our national soul. As it is we are simply setting the stage for a greater depression later. Eventually we will run out of tricks to hold our empire/society togeather. Then the house of cards will collapse.

  • Anon #15. You raise an interesting question about Soros. Huckabee has been raising the idea that we are the victims of economic terrorism. That someone or someones are intentionally driving the stock market down.

  • Soros also had a major hand in financing the “Rose revolution” that replaced Eduard Schevardnadze with Saakashvili, the Columbia graduate, with his Soros Foundation. Furthermore Soros might have had had a hand in the devaluation of SE Asian currencies, especially Malaysia, in the ’97 currency crisis. He certainly takes an “interest” in international politics. He withdrew from Belarus some years ago after his organisations were fine $3million for tax and currency violations. Russia & Turkmenistan has also banned some of his initiatives.

    He certainly seems to be the poster child for big money meddling in politcs, even to the event of regime change (as in Georgia – putting another spin on the Georgian-Russian crisis?).

    In France he has been put to trail for insider trading, and been found guilty – he is appealing to the European Court of Human Rights.

    I’m not convinced though that he has been behind the current crash, which seems to have its main origins in excessive greediness across the globe. One of the net results of the crisis, so far, has been the immense strengthening of the US$ against most currencies. This might mean that there will be a quicker swing around in the US economy than others, which would imply the relative strength, at a later date, of the US, compare to most others. Thus I question the long term validity/success of an economic terrorist act against the US as proposed by Huckabee.

  • Anon

    I have no idea if Soros -is- responsible, but he does have a track record, means, motive and opportunity. I also suspect, but of course cannot prove, that he might have been part of the corner on the oil market – the goal there being social engineering.

    I’m not saying that he is guilty. All there is on him is means, motive and opportunity, plus a track record of doing that sort of thing. (That is enough to convict ordinary people of just about anything.) I would consider him a suspect if I had an investigative team who could dig into it.

  • Anon

    As to the problem with the banks causes by the Democrat policies requiring the banks to make those loans; a bubble is easier to pop the bigger it is. A given individual does not need to have created the bubble to pop it.