Markets, morals, and moralizing

Here's an interesting and provocative op-ed, by "Spengler" (Asia Times), about Pope Benedict's expressed views, over the last 25 years, on morality and economics:

Here is what then Cardinal Ratzinger said about it more than 20 years ago:

It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse. An economic policy that is ordered not only to the good of the group - indeed, not only to the common good of a determinate state - but to the common good of the family of man demands a maximum of ethical discipline and thus a maximum of religious strength.

What caused the laws of the market to collapse in 2008? In another location (see The monster and the sausages, Asia Times Online, May 20, 2008), I argued that the bulge of workers in the US and Europe approaching retirement age is the ultimate cause of the financial crisis. Too much capital chased too few investment opportunities, and the financial industry met the demand by selling sow's ears with the credit rating of silk purposes.

Underlying the crisis is the Western world's repudiation of life, through a hedonism that puts consumption or "self-realization" ahead of child-rearing. The developed world is shifting from a demographic profile in which the very young (children four years and under) outnumbered the elderly (65 and older), to a profile with 10 times as many retirees as children aged four or younger. Economics simply never has had to confront a situation in which the next generation simply failed turn up. . . .

The future pope made two parallel points: first, that morality cannot be effective without competent economics, and secondly, that economics cannot dispense with morality by trusting to the supposedly automatic workings of the marketplace:

A morality that believes itself able to dispense with the technical knowledge of economic laws is not morality but moralizing. As such it is the antithesis of morality. A scientific approach that believes itself capable of managing without an ethos misunderstands the reality of man. Therefore it is not scientific. Today we need a maximum of specialized economic understanding, but also a maximum of ethos so that specialized economic understanding may enter the service of the right goals. Only in this way will its knowledge be both politically practicable and socially tolerable.

A clearer way to make these distinctions, perhaps, is to observe that the market mechanism has a negative but not a positive function. The market cannot decide what innovations or practices are beneficial to society. It can only punish incompetence and inefficiency. "Creative destruction", in the famous phrase of the Austrian economist Joseph Schumpeter, refers to Goethe's Mephistopheles, who tries to do evil but ends up doing good instead. Without the devilish work of destruction that kills off incompetence, established monopolies would choke off innovation.

Nothing in the market mechanism, however, can distinguish between pornography and art, medicine and recreational drugs, development and suburban sprawl, or, for that matter, family formation and addictive consumption.