Monday, October 24, 2011
Vatican favors a global financial authority
Today the Pontifical Council for Justice and Peace called for the establishment of a global financial authority. An excerpt:
[A] long road still needs to be travelled before arriving at the creation of a public Authority with universal jurisdiction. It would seem logical for the reform process to proceed with the United Nations as its reference because of the worldwide scope of its responsibilities, its ability to bring together the nations of the world, and the diversity of its tasks and those of its specialized Agencies. The fruit of such reforms ought to be a greater ability to adopt policies and choices that are binding because they are aimed at achieving the common good on the local, regional and world levels. Among the policies, those regarding global social justice seem most urgent: financial and monetary policies that will not damage the weakest countries; and policies aimed at achieving free and stable markets and a fair distribution of world wealth, which may also derive from unprecedented forms of global fiscal solidarity, which will be dealt with later.On the way to creating a world political Authority, questions of governance (that is, a system of merely horizontal coordination without an authority super partes cannot be separated from those of a shared government (that is, a system which in addition to horizontal coordination establishes an authority super partes) which is functional and proportionate to the gradual development of a global political society.
Is this sound and timely advice, or an example of the Vatican's moral reach exceeding its technical grasp?
https://mirrorofjustice.blogs.com/mirrorofjustice/2011/10/vatican-favors-a-global-financial-authority.html
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If it is true that The Pontifical Council for Peace and Justice has called for the establishment of a global financial authority and believes that it is logical for the reform process to proceed through The United Nations as it's reference, and it is true that The United Nations does not have a cohesiveness of belief in regards to the definition of The Common Good, it appears that The Pontifical Council for Peace and Justice supports a public authority with universal jurisdiction without a need to define The Common Good.
Posted by: Nancy D. | Oct 24, 2011 4:39:23 PM
So the question is not is this sound and timely advice but rather why does The Pontifical Council not recognize that it is God Who defines The Common Good to begin with.
Posted by: Nancy D. | Oct 24, 2011 7:03:57 PM
Rob, a friendly question: How is this different, as a matter of technical grasp, from the famous letter concerning nuclear weapons, or indeed from questions about abortion and contraception and their relationship to a variety of specific issues like international aid?
Posted by: Paul Horwitz | Oct 25, 2011 8:26:30 AM
Paul: I don't think it is, and the statement makes sense to me. Then again, I am not an expert in global financial policy. The U.S. bishops came under fire for their statement, "Economic Justice for All," for their lack of expertise. Same with nuclear weapons. If the Church is to refrain from applying broad moral principles to specific real-world problems, though, the Church is not going to have much to say today. That's why I'm uncomfortable criticizing statements like these, even if they delve a little too deeply into the specifics from time to time.
Posted by: rob vischer | Oct 25, 2011 9:00:44 AM
The Vatican's position seems to come as something of a surprise, but a review of the recent history of national finance clarifies the issues, and demonstrates the logic of the moral position.
For the last ten years or more, the United States has exploited its position atop the financial world to flood the world with depreciating dollars and with rapidly depreciating dollar-denominated securities. The crash of 2008 in particular was the result of the collapse of trillions of dollars worth of mortgage-backed bonds that had been marketed all over the world.
The other, slower but more systematic theft has been the depreciation of the dollar itself, which from its peadk in 1998 has fallen steadily. One needs look no further than the explosion of the gold market as evidence.
By taking advantage of the reserve value of the dollar we have stolen trillions of dollars from all over the world, in a short-sighted policy tantamount to the competitive devaluations that were so characteristic of the 1930s. We have practiced "beggar-thy-neighbor" finance on a grand scale.
The result is predictably to devalue not only dollars, but to devalue the utility of fiat money of all kinds, because the public comes to recognize how risky it is and how fundamentally unsound it is. The result is a flight to commodity "monies" -- eg gold and lesser metals and petroleum and natural gas deposits -- because they are not so easy to exploit and represent stores of value. While understandable, this inserts into the price dynamic of commodities a safety value which amounts to an artificial scarcity. The cure for currency manipulation is to internationalize currency itself. Very understandable and very timely.
Posted by: Joel Clarke Gibbons | Oct 25, 2011 10:33:20 AM
The only true source of wealth in the world is the productivity and creativity of people. The only real "capital" is what economists call "human capital." See, for instance, my book Dysfunctions of the Welfare State (Transaction Publishing/Rutgers UPress, 2010).
The future belongs to human capital, which unlike massive industry that built the world we know, works one citizen at a time. It is a personal capital, of the sort wielded by Steve Jobs, with the power to transform everything we do. The "winners" of the future will be the smartest, or even one might hope the wisest, who employ the greatest capital of the mind.
Posted by: Joel Clarke Gibbons | Oct 25, 2011 10:39:46 AM
Professor Vischer, since it is true that The United Nations no longer abides by their original Declaration of Human Rights because they no longer recognize that all human individuals, regardless of race or ethnicity, have been created equal in dignity while being complementary as male and female, do you believe that any document that claims The United Nations mirrors Justice, although it may be a sign of the Time we are living in, is not sound, and thus one does not need to be an expert in global financial policy to criticize this document?
Posted by: Nancy D. | Oct 25, 2011 10:46:39 AM
In addition to the IMF, which the Note discusses, there are three groups that attempt to establish international financial regulatory standards - the Basel Committee on Banking Supervision (Basel Committee), the International Association of Insurance Supervisors (IAIS), and the International Organization of Securities Commissions (IOSCO). None of these are UN organizations. They are independent international organizations. While IOSCO and IAIS contain representatives from most developed and developing countries, the Basel Committee -- the one most directly responsible for bank regulation -- has only 27 members consisting of Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. In the past, the Basel Committee's membership was even smaller (only the top 10 industrialized nations) with no developing country members.
As a result of its narrow membership, the Basel Committee's rules reflected the concerns and interests of the major financial institutions in the US and Western Europe, which were pushing for deregulation. In the 1980s and 1990s, the IMF used its structural adjustment programs with developing nations to force the adoption of the Basel rules by developing nations. It was the second capital accord issued by the Basel Committee (usually referred to as Basel II) and its adoption by the US regulatory agencies and Western Europe that led to the weakening of capital adequacy standards and contributed to the collapse of financial institutions like Lehman Brothers. For example, see Kern Alexander's article "Global Financial Standard Setting, the G10 Committees, and International Economic Law" 34 Brooklyn J. Int'l L. 861 (2009).
In light of this history, it does not seem unreasonable for the Note to call for a more representative international body than the Basel Committee (or the G20) to be the one setting global financial standards. Of course, the larger the committee, the more difficult it will be to arrive at internationally agreed upon standards. The world, however, has decided to live with larger international authorities in the areas of insurance, securities, and trade (IAIS, IOSCO, and the WTO). It is not immediately clear (at least to me) why banking should be such a different or special case than these other areas of finance and commerce.
In the near term, I agree with the other commentators that either expanding the membership of the Basel Committee to include a greater portion of the 180+ nations in the world or creating a new international financial regulatory authority seems unlikely.
Posted by: E Brown | Oct 25, 2011 5:07:52 PM