If the worldwide credit crisis has you feeling a bit disoriented, do what good pilots do – keep your eye on the horizon. First of all, the Panic of 2008 is a crisis of trust. In this case, how did some of the smartest people in the world make such bad decisions? Restoring trust is therefore at the center of a solution, which requires a “big-think” picture that keeps our eye on the horizon. Otherwise, we’re flying blind.
To clear our heads, John Fletcher Moulton proposed a horizon over ninety years ago. A noted English judge, Lord Moulton divided a society into three domains. At one end are laws that must be obeyed. It’s the have to part of life. At the other end is free choice, where we do what we want to. Both ends have some merit, but between these two is “the domain of obedience to the unenforceable,” Moulton said.1 It’s where we do what we ought to, extending to “all cases of doing right where there is no one to make you do it but yourself.” With Moulton’s big picture, the horizon becomes clear: the wider the middle domain, the healthier the society.
Of course, life is never as simple as it first appears to be. Moulton cautioned that the two ends, law and free choice, have outsized appetites. They relentlessly encroach on the moral middle, shrinking the domain of doing what we ought to. Endlessly eating into the moral middle is why we’re in this crisis of trust.
The encroachment of free choice began with the 1998 collapse of hedge fund Long-Term Capital Management, according to David M. Smick, author of The World is Curved. Global banks tightened the regulations on hedge funds but loosened them on their own trading desks, freeing bankers from the economic consequences of risk. By creating off-balance-sheet vehicles such as mortgage-backed securities, “the new bankers engaged in risk dispersion, thinking they had discovered ‘riskless risks.'”2 It’s like the Pill that promised all the sex you want by freeing us from the biological consequences of copulation. Yet there’s no evidence that sex is better today than before. In fact, some would say that we lost sight of the horizon and shrunk the moral middle.
Back on the ranch, free choice meant that some capitalists got greedy. So Congress swung the pendulum toward law and enacted Sarbanes-Oxley. Well-meaning but heavy-handed reforms drove capital away from New York, making London the world’s financial center. But that didn’t make for more virtuous business. In fact, some would say that these regulations are like chastity belts, introduced in the 19th century as a protection from promiscuity. Yet there’s no evidence today that promiscuity is less pronounced than 100 years ago.
You don’t need a degree in economics to know that the old campaign slogan got it wrong – it’s not the economy, stupid. It’s about expanding the moral middle and doing virtuous business. In 2006, the World Bank issued a study called “Where is the Wealth of the Nations?” The study noted that the U.S. enjoys an enormous lead over the rest of the world because of our “intangible wealth.” This “involves intangible assets such as property rights, an honest and efficient judicial system backed by rule of law, a workable government, and human capital,” writes Smick.3 But what investments yielded these intangible assets? Michael Novak says they came from Judaism and Christianity and “with the Bibles that were carried in our grandparents’ steamship trunks.”4
This is where our current crisis could be good news. David Smick believes that the policy world needs a “big-think” financial doctrine.5 That’s because the world isn’t flat – it’s curved, he says. There are twists and turns in the financial world, making it impossible to see over the horizon. Exactly. We need to keep our eye on the horizon.
Yet this is where our current crisis could be bad news. Have you ever heard a thoughtful and credible sermon that roots property rights, an honest judicial system backed by rule of law, a workable government, and human capital in faith? Surveys indicate that 94% of Americans believe in God. Do you think that 94% of the academics and economists developing a “big-think” financial doctrine will give religion a seat at the table? Uh, I doubt it. It’s more likely that 94% of the leaders assembled do believe in God, but don’t see a credible connection between economic systems and faith. Who’s to blame for that?
That’s a rhetorical question. A century ago, J. Gresham Machen warned, “We may preach with the fervor of a reformer and yet succeed only in winning a straggler here and there, if we permit the whole collective thought of the nation or of the world to be controlled by ideas which, by the relentless force of logic, prevent Christianity from being regarded as anything more than a harmless delusion.”6 The sad truth, the dirty lowdown, is that Christianity is currently viewed as a harmless delusion by many academics and economists. Rome wasn’t built in a day and this problem won’t be fixed overnight. So how do faith communities begin to earn a place at the table? I’d suggest seeing a broader horizon – a “four chapter” gospel that connects faith to such things as property rights and our judicial system. I’d also suggest more resources expended on changing institutions with substantive contributions as well as saving individuals. What do you suggest, so that we’re not written off as a harmless delusion?
1 Excerpts from a speech given by Dr. John Silber to the graduating class of Boston University, on May 21, 1995.
2 David M. Smick, The World is Curved (New York, NY: Portfolio, 2008), pp. 243-247.
3 Smick, World, p. 85
4 Michael Novak, “North Atlantic Community, European Community: Divergent paths and common values in Old Europe and the United States,” a speech delivered for the F.A. Hayek Foundation in Bratislava, Slovakia on July 3, 2003.
5 Smick, World, p. 263.
6 J. Gresham Machen, Education, Christianity, and the State (Dallas, TX: Trinity Foundation, 1987), p. 51.