Is the Economic Crisis a Sin for Society?

One issue on which President Obama and Pope Benedict XVI agree is that people of faith are supposed to stand for economic justice. This idea is as old as the biblical command to "let justice roll down like a river, and righteousness an ever-flowing stream" (Amos 5:24).

The movement for social Christianity arose in England, France, Germany, the U.S., and elsewhere in the late 19th century. It espoused a vision of economic democracy that is as compelling and relevant today as it was a century ago. Called "the Social Gospel" in America, it was fundamentally a response to the clash between a rising corporate capitalism and a burgeoning labor movement. The Social Gospel proclaimed that if there was such a thing as social structure, salvation had to take account of it.

The movement had many faults, beginning with its timid approach to racial justice and its optimistic idealism. But it had a huge impact on American Christianity and society. It created the ecumenical movement and the field of social ethics. It was mostly a Protestant phenomenon, but it had a Roman Catholic stream led by John A. Ryan that invoked the papal encyclical Rerum Novarum (1891); Pope Benedict's Caritas in Veritate belongs to this social-ethics tradition. The Social Gospel movement created most of the still-existing denominational peace and justice ministries. Its black-church stream was the wellspring of the civil-rights movement.

The founders of American social Christianity were sharply critical of capitalism for stoking and feeding upon selfishness, greed, and inequality. One of its leaders, Walter Rauschenbusch, protested that capitalism overdeveloped the selfish instinct in virtually all Americans. Most Social Gospel leaders favored cooperatives or mixtures of worker and community ownership, rejecting state socialism. Some made exceptions for "natural monopolies" such as the railroads and electric companies. Some supported guild-socialist or state-socialist schemes. All sought to build economic structures that put a brake on the domination of privileged classes. The Social Gospel stressed that those who control the terms, amounts, and direction of credit play a huge role in determining the kind of society that everyone else lives in. Thus they advocated democratizing the process of investment.

Today we are getting a dramatic demonstration that the Social Gospelers were right about the social ravages of greed and the necessity of holding back the power of economic elites. From 1980 to 2008, only stubborn types held out for economic justice and regulating the financial sector. The market always knew best, trickle-down economics prevailed, and social justice was off the table politically. Adam Smith's invisible hand was said to dispense general well-being—never mind that his conclusions depended on sound information, which was impossible to attain after Wall Street fell in love with derivatives and securitizations. For nearly 30 years the religion of the market ruled U.S. politics and looked past the embarrassments of Enron and WorldCom, in which the heedless pursuit of self-interest led to something quite contrary to societal well-being.

No more. In October 2008 a Republican administration in its final days took up government bailouts like it was 1933. Today we are dealing with an even more profound crisis of capitalism than the one that gave birth to social Christianity. There are limits to economic growth. The earth's ecosystem cannot sustain an American-level lifestyle for more than one sixth of the world's population. And the financial class is more interconnected and entrenched than ever.

MIT economist Simon Johnson was skeptical about the power of economic oligarchies in Western democracies—until he served as chief economist of the International Monetary Fund and got a close look at the symbiotic relationships between economic elites and their governments. Now he says that America's finance industry has effectively captured its government. In the U.S. the two career tracks of government and high finance are melded together, which is problematic when the oligarchy screws up and the economy implodes.

There are significant differences between the South Korean and Indonesian crashes of 1997, the Malaysian crash of 1998, Japan's lost decade, the recurrent crashes in Russia and Argentina, and our current meltdown. But they have in common the most important thing: a financial oligarchy that rigged the game in its favor, built an empire on debt, overreached in good times, and brought the house down on everybody. When the house collapses, elites do what they always do: they take care of their own. To get a different result, a nation has to take control of the problem and break the grip of the oligarchy. Otherwise you muddle along in a lost decade of your own, further entrenching the oligarchy.

Johnson's analysis is compelling on the latter point, which grimly explains why the U.S.'s economic-recovery plan has focused on bailing out Wall Street. But his prescription is straight out of the IMF playbook: find a bottom, clear out the clutter, get the fiscal and monetary houses in order, and shake up crony capitalism. There is always going to be an oligarchy, he says, so the best we can do is to shake it up from time to time. To this end he recommends new antitrust laws, though he cannot say what they would look like.

If we take the existing system for granted, Johnson's prescription is about the best we can do. If we democratize economic power and the process of investment—expanding the cooperative sector, investing in full employment and green technology, strengthening social market sectors that serve the needs of communities, and creating public banks—we get better choices. People work harder and more efficiently when they have a stake in their company. Economic development that does not harm the earth's environment requires dramatically expanded cooperative and public-bank sectors.

If we can spend trillions of taxpayer dollars creating "bad banks" or "aggregator banks" to save capitalism from itself, we ought to be able to create publicly owned good banks to do good things. Public banks could finance startups in green technology that are currently languishing and provide financing for cooperatives that traditional banks spurn. They could be financed by an economic-stimulus package, or by claiming the good assets of banks seized by the government, or both.

There are alternatives to a system that stokes and celebrates greed and consumption to the point of self-destruction. The Social Gospelers said we must believe that to be saved. Certainly we must believe it to get something better.