Humility, Hope and the Financial Crisis

Dr. Charles W. Calomiris, a professor at the Columbia University Graduate School of Business, has offered an interesting presentation on how we got into our current economic situation - and how biblically shaped virtues can help lead us out.

He titled a recent address at the Church of the Annunciation in New York City, "A Spiritual Response to the Financial Crisis? Making Decisions for the Really Long Run" (PDF).

Four categories of causal factors are generally agreed to have been the most important in precipitating the crisis: (1) monetary policy errors from 2002 to 2005 that promoted loose credit during the boom, (2) housing policy errors that encouraged homeowners to over‐borrow during the boom, (3) the underestimation of subprime risk by some of the largest banks and other institutional investors, and (4) the regulatory failure to identify and respond to the first three errors....[A]ll four of these causal factors have largely to do with government interventions into the economy that had bad unintended consequences for risk taking incentives, particularly with respect to mortgage lending. (emphasis in original) Note also that these errors were purposeful rather than accidental, and each had been the subject of substantial commentary prior to the onset of the current financial crisis....[C]rises are moments when circumstances force us to make important decisions. But why should our individual or collective decisions in response to financial crises have a spiritual component? How will spirituality make our decisions better?

The first and most obvious answer to these questions is an historical one. The Bible, after all, is itself largely a crisis chronicle. It might be best described as a recounting of a sequence of political, economic, and personal crises, which often coincide, and in which spiritual insights or errors prompted people to make important decisions, for better or worse, about their personal and societal futures....

What do we learn from the Bible about crisis management? And more broadly, what do we learn from the spiritual approach to crises illustrated by the Bible?...

Responding spiritually to a crisis in the right way on the inside involves reflection and prayer.... The quality of the decisions we make as individuals and as a society will depend on our capacity to learn from suffering, our humility in understanding and shaping our world, our ability to remain faithful and hopeful, and our commitment to act as true witnesses.

What are the most important lessons we should learn from the current financial crisis? I don't presume to know most of the answers to that question, especially since answers will differ across individuals and will be revealed more fully over a long period of time. Here is my list so far:

1. ....I would like to think that, like Job and his friends, we are learning some humility, too, as well as the importance of not surrendering to despair. And I would like to think that, in the process, we also are becoming less focused on what we have and more focused on who we are trying to become and what we are doing for each other.

2. I observe family members being drawn closer together these days, as they are forced to rely more on each other. I imagine that will be especially true in families where people are forced by circumstances to double up in houses. I think about grandchildren and grandparents living under the same roof, about the new dimensions added to old relationships.

3. The financial crisis offers lots of lessons for public policy... These are lessons not only about specific policy mechanisms that need fixing, but more importantly perhaps, about the need for humility by our political leaders and our economists (myself included), if we are willing to learn that lesson. The four categories of policy mistakes that I believe brought about this crisis...remind us that government grand designs often go wrong. This is a lesson we need to keep in mind as we set about fixing things, lest we do even more damage.

4. We are also reminded of the importance of coming together to address our problems.... How will we get there? The quality of our government and its actions reflects our national character, which is nothing more than the aggregation of our individual characters. It is up to us to press our political leaders to rise to the occasion, which means that first we as individuals must rise to the occasion, in ways big and small.

Dr. Calomiris received a B.A. in economics from Yale University in 1979 and a Ph.D. in economics from Stanford University in 1985. He is a member of the Task Force on Property Rights at the Hoover Institution, and co-directs the Project on Financial Deregulation at the American Enterprise Institute.

___________________________________________________________________________________

Joseph Slife is a contributing author and editor for SMI. Visit www.soundmindinvesting.com to learn more.