There is a tide in the affairs of men
Which taken a the flood leads on to  fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea we are now afloat,
And we must take the current when it serves,
Or loose our ventures. (Julius Caesar, IV, iii)

If you are even a little bewildered about all the economic regulatory changes coming out of Washington these days, here is a seminal work that goes a long way towards making sense out of today’s headlines.  It also touches on a topic that is core to the Biblical worldview of work long espoused here at InsideWork®.

Arthur Brooks is the President of the American Enterprise Institute, a Washington D.C. based think tank dedicated to the ideals of entrepreneurship, private markets, limited government and individual liberty and responsibility.  In his new book, The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America’s Future,  Mr. Brooks clearly lays out the stark and momentous sea change that is engulfing the United States.  It is a culture war over the values of free enterprise that have defined the nation for two hundred years.  Nothing less is at stake, argues Brooks, than America’s future as a unique and distinctive beacon of free enterprise, innovation and individual liberty in the world.

Brooks provides a compelling narrative on how “the land of opportunity” has gotten so far down the path to becoming just another government-controlled society.  He starts with a depiction of the U.S. as a 70 – 30 nation.  That is, 70% of Americans embrace the ideals of entrepreneurship, free markets, low taxes, smaller government (not no government), individual liberty, and personal responsibility; while a 30% minority hold to the idea that America would be better off without entrepreneurship at the core of its economic system.  Instead, their guiding vision is one of equality of income achieved through massive income re-distribution schemes (taxation) orchestrated by a large, intrusive government, which operates as an agent for “fairness” in society.

At the moment the 30% minority is at the helm in national policy matters and is making great strides to remake America in their own image.  How this minority has accomplished as much as it has, Brooks argues, is by being more adroit at spinning the tale:  they have a better narrative, a more convincing story to tell the voting public.

Does the U.S. have a housing and mortgage crisis? The fault lies with greedy Wall Street investment bankers, says the leaders of the 30%, and the government can and should fix the matter by more regulation and government control, plus a trillion dollar bailout program.

Does the U.S. have high unemployment? The government is the solution, by spending its way out of this recession in the form of more billions in economic stimulus programs.

Is the U.S. automobile industry on its knees? A multi-billion dollar federal bail-out will preserve American jobs, and is therefore a political imperative.

While the budget deficit numbers are incomprehensibly high, the Obama-led 30% minority argues that the 2008 elections reflected a huge shift in American popular sentiment away from a culture of entrepreneurship and in favor of government control.  To all the clamors of the conservatives, the liberals give a single answer:  “We won the election.”  Brooks argues that the 2008 election was not so much a shift in political sentiment, but rather a result of one factor alone:  the state of the U.S. economy.  As the economy melted down, so also did the McCain presidential hopes.  As the conservatives have been unable to articulate their vision for the country, the 30% minority has won control of both houses and the executive branch.

The 30% narrative about the financial crisis consists of five key claims (each disputed by Brooks):

• Government was not the cause of the crisis  (It was.)
• Government understands and knows how to fix it (It doesn’t.)
• Main street Americans were just victims of the crisis (They exploited it.)
• Massive government spending is the only way to fix it (Stagflation to follow.)
• The middle class will not have to pay for such deficit spending (Right!)

One by one, Brooks explodes each of these myths, laying bare the flawed assumptions and manipulative vocabulary used to implement the 30% minority’s agenda.

At the heart of the housing crisis, he points out, was an administration trying to social engineer more equality:  everyone should be able to afford a home.  So they directed the two federal home mortgage-buying entities (Fannie Mae And Freddie Mac) to lower their credit standards.  The result was that within 7 years both agencies went bust and needed federal bailouts on a scale unprecedented in U.S. history.  This was at ground zero of the financial catastrophe.  The contagion became global, taking down numerous. banking and investment banking firms along the way.  But at its core, the problem was the government itself.

Each of the other five claims is repudiated in turn, with example after example.

Brooks offers, by way of antidote, a set of principles – a credo – by which to guide personal and national policy debate back to level ground:

• The purpose of free enterprise is human flourishing, not materialism
• Fairness means equality of opportunity, not equality of income
• Government policy should stimulate prosperity, not treat poverty
• America can and should be a gift to the world in its political and economic views
• What matters most is principle, not political power

Obviously, the conservatives in the U.S. have hailed the book as a major contribution on their side.  But his book rises above partisan rock-throwing.  Big spending Republicans and big spending Democrats alike are indicted.  The tendency of big business to get into bed with greedy politicians does not escape his critical notice.  And the fault of the “forgotten man” in the streets in all this – borrowing money they knew they could never pay back to buy wildly overpriced homes on speculation – is not overlooked or excused either.

What Brooks calls for is a return to principle.  And what principles would he advocate?  This is where his narrative becomes less historical and more biblical:  a return to a view of work that creates true happiness.  He argues out that Americans respect work, enjoy the sense of purpose and fulfillment that comes with accomplishing excellent work, that (unlike their European counterparts) they view work as an important part of their sense of meaning, even arguing that people quickly become disenchanted with new-found wealth unless it is accompanied by a sense of having created it for themselves.  Wealth, in and of itself, says Brooks, does not lead to happiness.

He points out that at the heart of things, and despite their rhetoric of fairness, equality, and social conscience, the 30% minority is actually very materialistic in its world view.  They believe that equality of incomes will produce happiness, in other words, that money alone can satisfy.  Brooks argues – from study after study – that happiness for man is a matter of earned happiness – successful accomplishments, and that money (after a basic modicum of needs are met) is merely a kind of score-keeper rather than a true source of human happiness.  It is the 70% advocates of entrepreneurship that recognize the dignity of work and individual satisfaction that comes with controlling our own work lives.

In this last insight, Brooks aligns himself exactly with the Biblical view of work.  After the creation narrative describes God as skillful worker putting together the world, God calls man into being in His own image (as a worker), giving him work to do organizing, categorizing, managing God’s creation:

“Then God said, ‘Let U.S. make man in our own image, in our likeness, and let them rule over the fish of the sea and the birds of the air, over the livestock, over all the earth, and over all the creatures that move on the earth.’  (Gen 1: 26-27, The New International Version)

Work, seen is this biblical light, is inherent in human nature and was meant to be a source of great personal satisfaction and fulfillment.  (The subject of a biblical view of work is much broader than can be treated here.  Please see the Scriptural Roots of Commerce, particularly Module 5, the Meaning of Work, on our website.)

The battle of these two visions for the future of America is enjoined.  The outcome is very much in doubt.  Brooks has defined the stakes and provided a primer – in clear logic and example – of how to proceed if America’s core economic system is to be privately led or state controlled.

The time to act, Brooks call, is now, before the tide changes and the ideal that was at the heart of the U.S. economic and social venture is swept away with the flood of fear and materialism that the 30% minority is playing to.

Phillip Purcell, former chief executive at Morgan Stanley, now head of Continental Investors, offers up The Five Lessons Bankers Must Relearn (Financial Times commentary, 10 August, 2008).

It is difficult to find fault with Mr. Purcell’s five lessons from from the current financial meltdown

1. it’s about profits, not revenues
2. executive compensation should be based on long term profits
3. leverage is a two edged sword
4. diversification of income & assets is a must
5. risk management must be maintained as a culture in financial institutions

However, Purcell’s analysis does not mention two fundamental drivers that I believe are core issues behind the current crisis.

The Conflation of Banks with Investment Banks.

This blurring of the line between two very different financial cultures is the state of the industry in the US, but it has not always been so. In fact, the bank failures of the 1929 crash were largely a result of banks being allowed to trade in securities, as well as making margin loans to client investors guaranteed by securities — the traditional domain of investment banks. Following the 1929 crash, the Glass-Steagall Act prohibited US banks from trading in securities. For the better part of half a century Glass-Steagall acted to preserve a conservative risk-averse culture within the national banks. The formula for bank profitability was leverage against a high quality loan portfolio (20:1 debt to equity was considered normal for sound banks). The US government (i.e. the taxpayer) provided the ultimate security for the banks, via the FDIC.

The more risky activity of underwriting and making a market in securities was left to the investment banking houses. These institutions enjoyed greater profits in good times, and suffered greater losses (including massive layoffs) in bad times. As a result, they were inherently less credit worthy, and much less securely leveraged than banks. When investment banks failed, it did not directly affect the average American’s bank accounts, and there was no liability to the taxpayer. The investment banking houses were, in a sense, expendable.

But the US Congress repealed the Glass-Steagall Act in 1999, allowing the activities of banks and investment banks to merge again — including actual mergers and acquisitions. In most cases, the results destroyed shareholder value (for example, the Nations Bank + Bank of America merger resulted in the destruction of shareholder value equal to the entire net worth of Bank of America before the merger), and over-leveraged the balance sheets of the resultant institutions. Over-leveraged, that is, for the quality of the assets in the portfolio. The dominant corporate culture in most of the newly formed companies was the investment banking culture, not the conservative, credit quality conscious bank culture.

As a nation we forgot the lessons of 1929. Eliminating Glass-Steagall introduced a fatal flaw to the financial industry. As Mr. Purcell notes: “…leverage works not just on the upside but on the downside as well. Excessive debt can turbo-charge profits during a boom, but can result in crippling losses when the bubbles burst.” When the next major credit downturn came — as an unanticipated consequence of high-flying new financial products engineered by investment bankers — the originators of these products failed and threatened to take down the entire US banking system with them. The investment- banking-houses-turned-banks were no longer expendable, and this time the Fed could not let them fail. The result: the greatest taxpayer financed US government bailouts in history.

The Responsibility of the Credit Rating Agencies.

Much of the blame for the current mess can be laid at the doorsteps of Moody’s, Standard & Poors and Fitch, the three major credit rating agencies. The conflict of interest is not unlike that which existed between the major accounting firms and their clients circa 2000. The conflicts in the accounting industry stemmed from the fact that the Big Six (once known as the Big Eight and, more recently, the Big Four) accounting firms made most of their money not by auditing, but by consulting engagements — including figuring out how to engineer financial products (“Special Purpose Vehicles” designed to address specific needs) that escaped detection and fair reporting by their own auditing teams. In the same way, the rating agencies are paid large fees for developing ratings on the credit strength of the clients that pay those fees. How this conflict of interest has been allowed to persist for decades is its own scandal.

The knee-jerk government response to the post-Enron accountancy failures was

1. Dissolve the most immediately culpable Big Six firm (Anderson)
2. Take the auditing function away from the Financial Accounting Standards Board and place it back directly into the hands of the Securities and Exchange Commission.

The FASB, along with its system of industry-self regulation, was deemed to have failed the public interest. After much ado, FASB was able to head off the threat to their charter and retain the auditing function, albeit with staggering new levels of complexity (Sarbanes-Oxley) and cost. Another credit reporting failure like Enron could in fact change the landscape of the industry, turning the audit function from its present high-prestige professional status into another modest-paying government bureaucracy like the IRS.

This credit crisis is in no small measure attributable to the credit rating agencies failing to properly assess the risk inherent in the various complex Collateralized Debt Obligation type instruments, and the entire system of underwriting, origination, warehousing and placement that sprung up in the late 1990s and early 2000s. So far the agencies have received only modest chastisement for their complicity in the debacle.

I would not be surprised to see new regulations aimed at the industry in the form of:

1. Separating banking from investment banking again
2. Closer government control of the investment rating process.

In the long run, risk and return go hand in hand. As Harry Markowitz pointed out with his securities market line, the two exist in tandem. Risk-adjusted-return is a kind of standard currency for financial managers — and has been for some years. Those who would hype the return promises and try to obfuscate the true underlying risks are, in a sense, no different from the charlatans of old who shaved coins and traded in false weights & measures. But today, the schemes are infinitely more complex and difficult to detect.

Happily, a new class of money manager is emerging today who is less obsessed with short term returns than with risk/returns. Some have become masters of the new investment paradigm, driving down risk in their portfolios rather than reaching for the last basis point of yield possible. Hopefully, this new brand of money manager will stand as a skilled craftsman, delivering value year in and year out by nothing more or less than honest and diligent assessment of the risk-return characteristics of each new investment opportunity. A greater adherence to this paradigm in our recent past would have saved us all a great deal of harm. Embracing it now can do us a lot of good in the immediate future.

One morning my second week in the program, the commandant rushed into the classroom and called me out: “Mr. Finch, there has been a terrible mistake! You are not supposed to be here. I have a priority message from San Juan ordering you to report there immediately. You are on a plane this afternoon. Your training is ended; pack your gear and ship out!”

It was all so dramatic. 24 hours later I reported for my first professional assignment, all spit & polish, excited about the urgent assignment waiting for me.

I was dumbstruck to find that no one even knew I was coming. Then truth began to emerge. It was the personnel officer who, unbeknownst to anyone (including the skipper), had me yanked out of Port Safety School. A junior officer billet was coming open in the Port Safety Office and he wanted it for himself. He saw his chances fading if a new reporting ensign (me) had already been to Port Safety School. So he took the initiative and got me pulled out.

He assigned me to work under him for a few weeks while I learned the job, then transferred himself to the choice billet. I was left as principal caretaker for 250 cantankerous men at 10 duty stations around the islands. He was entirely up front about the stunt he pulled. “That’s how the game is played. Go find and groom your own replacement. Get an ensign out of the next OCS class. Fight for yourself. Chop, chop, chop!”

I could see the man’s logic, but somehow sticking it to the next guy just wasn’t “me.” I decided I would try not retaliating. I waded into the job and tried to make the best of it.

Personnel officer was the toughest, most thankless job I have ever had—a relentless grind of 16-hour days, plus a 24-hour duty shift every 4-5 days; “supervising” a bunch of senior petty officers who knew 10 times as much as I did about the job; my desk the repository for any job no one else wanted; every decision second-guessed by more senior officers. Monday morning staff meetings were known as “harpoon sessions.” Guess who stopped the most harpoons with his chest…

The place was not so much dysfunctional as near chaotic, despite the high ideals and leadership principles espoused within the service and the highly evolved administrative and operational system by which it ran.

The Captain, bucking for admiral, demanded perfection from everybody (ergo the “harpoon sessions”). The first XO, nearing retirement, was absent most days (flying his seaplane around the tropic isles). The base EO, a sad and lonely alcoholic, had been passed over for promotion. And the successor CO—covering his own rear—tagged the new base Ops officer with a poor fitness report for irregularities that occurred before he had even reported into the unit. The place was remorselessly Darwinian. McHale’s Navy with teeth.

To be honest, I made mistakes—some of them pretty embarrassing to my superiors. Most of my errors combined ignorance of how the organization was supposed to work with well-meaning attempts to accommodate someone with a problem. And, okay, some of my mistakes were just plain dumb.

I learned I reallydidn’t like getting chewed out—the avoidance of which became a primary motivation for doing my job. This was a long way from the dream I had when I enrolled at Officer Candidate School…

I struggled to figure out an effective philosophy of management that served the unit without completely compromising my ideals. I could see the usefulness of a chain of command, giving and following lawful orders as given, etc. But I was a lot closer in age and spirit to the young enlisted men who were at the bottom of the pecking order with no right of redress. I experimented with “being nice,” staying after hours to conduct performance reviews and career counseling when men came off shift. The chief petty officers said I was nuts for putting myself out that way. “Let them come in on their off-duty hours, not yours. You outrank them.” I had to admit being nice didn’t do much for me. It just meant everybody with a gripe came to me because I would listen.

On the other hand, when I lost my temper and chewed out a particularly obnoxious goof-off, it brought him and everybody else to attention right quick. So that “worked” but it still didn’t feel right. Sometimes I drove off the base in the evening, leaned out the window of my car and just screamed (at those palm trees gently swaying in the tropic breeze).

One day, I stumbled on a passage in the Bible that put my struggle in perspective. It talked about two opposing philosophies by which to live, one of them peaceable and gentle, the other ruthless and turbulent. It brought home what I was experiencing on a daily basis:

Who is wise and understanding among you? Let him show it by his good life, by deeds done in the humility that comes from wisdom. But if you harbor bitter envy and selfish ambition in your hearts, do not boast about it or deny the truth. Such “wisdom” does not come down from heaven but is earthly, unspiritual, of the devil. For where you have envy and selfish ambition, there you find disorder and every evil practice.

But the wisdom that comes from heaven is first of all pure; then peace-loving, considerate, submissive, full of mercy and good fruit, impartial and sincere. Peacemakers who sow in peace raise a harvest of righteousness. — James 3:13-18

This passage was a revelation to me. It confirmed that there really are two diametrically opposed approaches to dealing with people and that one of them is decidedly preferable for someone trying to operate from a biblical worldview.

This insight did not solve anything, but it was reassuring to find out the tension between these two styles has gone on for at least a couple of millennia. However painful the struggle, at least I was in good company in my quest to do the right thing. I found courage in that realization.

Within two years I left San Juan. You won’t be surprised if I say the in-depth administrative and people skills I acquired there proved to be the most useful lifetime skills I could have hoped for. It’s nothing I would want to repeat mind you, but I can’t overstate the value of the lessons learned. On top of which I managed to get out and enjoy the Caribbean and even carved out time to attend Port Safety School—all without victimizing the next guy.

My friend Stephen strikes me as the consummate professional educator. It is his passion and, for a long time, it was his day job.

After ten years of youthful wandering in search of answers to life’s great philosophical mysteries, like so many children of the sixties Stephen somehow managed to become a Christian. He headed off to seminary for a bit, then earned his degree and settled into the role of public school educator. Over the course of a dozen years Stephen rose to the level of assistant principal in a big city school. Then, feeling a need to give back to society (as if a life dedicated to educating school children weren’t enough), he accepted an offer to become the principal of a private school in one of that city’s sprawling socioeconomic ghettos.

Administrators and faculty were supposed to live in the area so they could relate to their students (think 90% single parent homes, 49% below the federal poverty line with per capita income less than $6,700, drive-by shootings, gangs, all of it…). Stephen got a special dispensation to live a few miles away in a slightly nicer neighborhood, but he and his family experienced many of the privations of living and working in a highly segregated, economically crushed environment – not the least of which was a major cut in salary and benefits when he left public education. All this was okay, though, because it was supposed to be a short stint – two years, tops.

Stephen did a superb job for the school, raising classroom achievement, managing cultural differences, overcoming educational handicaps, coaching faculty and staff on personal & family issues – being a leader. He was the “daddy” figure for a lot more than his own family. It was challenging in every way, but worth it. And then Stephen’s two years were up and the school couldn’t find a replacement. Stephen stayed one more year, and another.

He burned out some time around the 10-year mark—heart murmur; high blood pressure, occasional blackouts. Not good. The doctors ordered a change, the school found an interim principal, and Stephen bowed out.

For some months after that, I saw him occasionally at Sunday worship services lying low, recuperating. Little by little he got involved with activities around the the church and started to become his old cheerful self. He took a nice job as president of a quasi-missionary educational enterprise and worked to help them improve their curriculum, raise money, build staff expertise and market their product. At the end of five years or so, Stephen left on good terms and began looking for the next thing.

The next week we met for one of our occasional breakfasts and our conversation was all about some new opportunities Stephen was considering. He had been approached by the leading publisher in his field to become their regional representative to public schools. The publisher made him a substantial offer, including an impressive benefits package, plus a liberal bonus arrangement. He knew everybody in the territory; he would be selling quality materials that were reordered on a regular basis. With one child attending a private college (financed entirely by student loans), and another just three years from high school graduation, it looked like an opportunity to repair the badly eroded family balance sheet.

Meanwhile—because when it rains it pours—Stephen was approached about becoming executive pastor at the church—a modestly salaried administrative position. After talking about the pros and cons of the two offers, it seemed like a no-brainer to me.

A week later I caught up with Stephen at church and asked if he had made a decision. He had: Stephen passed on the publishing deal and was in line for the executive pastor slot at the church. The senior pastor used the “D” word on him—Destiny. He said he was comfortable with the decision, feeling it was more in line with his life’s calling. It was a done deal.

I wanted to be happy for him, but I walked away wondering. Why was it more in line with his spiritual destiny to accept a job running the business affairs of a church than placing high quality educational material into public school systems? If anything in our society is badly broken, it’s surely education. And Stephen’s family certainly could have used the extra money.

A sentence from a New Testament letter from the apostle Paul to his protege Timothy kept coming to mind: “If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an unbeliever” (1 Timothy 5:8). I don’t mean to imply that Stephen hasn’t provided the basics for his family—I believe he has. It’s just that he gave up a lot when he left his career in public education to give back to society and I find myself wondering, How much is enough?

And is it right for the Stephen’s of the world to make decisions that are personally gratifying at the expense of their families? Is that even what happened here? I don’t know; I only suspect. I respect Stephen’s decision…I think. But would it have been any less “spiritual” to make the other choice? There’s so much mysticism and guilt and this centuries-old tradition that all work is good but some work is holy.

I don’t know, maybe this isn’t even about Stephen; maybe this is about… Nah, I’m sure it’s about Stephen.

As I watch the demise of some long established Wall Street institutions, the death spiral of the U.S. national automotive industry, the severe erosion of private home ownership (equity), the nationalization of various savings & pension plans, and the paralysis of our private banking system, I can’t help wonder where all this is taking us as a free market economy. Future economic historians may look back on this period and judge it to be a turning point in the definition of private property ownership in the U.S., which is foundational to our economy. From where I sit the U.S. government is not only exercising fiscal and monetary policy in response to a global & national crisis: it is actually re-jiggering the public-private economic compact. I believe the changes that are afoot are not a tide in the affairs of men — they are tectonic financial shifts.

I will be the first to admit I don’t know where all this is going. My sense is we are in for a substantial loss of economic & political freedom, starting with massive tax hikes, and much more government regulation. Two things are obvious: (i) our previous global regulatory framework (Bretton Woods + Basel Accord + Federal Reserve Banking + Securities Exchange Commission / FASB) failed to prevent financial meltdowns and multi-trillion dollar breaches of public trust, and (ii) government control (ownership) of the means of production around the world is growing by leaps and bounds, in every case at the urging of its constituents.

As it turns out, I am headed for some presentations to the finance ministers of a couple of countries that only a few years ago were dedicated socialist regimes. In some of these countries the concept of private property is still in the experimental stage, and they are watching the U.S. economic convulsions with keen interest. My underlying message to them was going to be that a free market/private enterprise system is a better model than a centrally planned and publicly operated economy. But I am not sure I can cite the shining example of the U.S. style private markets to support my thesis. So what do I present as a good working model?

The last century witnessed an epic struggle between two radically opposed visions of the political/economic social compact: Communism vs. Capitalism. Neither was ever fully practiced in a pure form, but for a time, each philosophy had its subscribers and practitioners, and each worked its way into control of various countries around the world, with a Cold War between them setting the agenda for world politics for half a century.

The fall of Berlin Wall in 1989 marked an historic turning point in that the Communist model — USSR’s centrally planned economy, public ownership of all property and means of production, and very little personal freedom — proved incapable of keeping up with Western Capitalism’s ability to innovate technologically (think of the moon race and all of its spinoff technologies like Velcro, integrated circuits, materials, mathematics, etc.) and produce goods and services to satisfy national households. The USSR collapse was so sudden it astonished the world. The hope in Russia was that some form of Western-style private ownership of the means of production — and prosperity — would immediately follow. Obviously, it has not turned out that way.

Now, two decades later, we may be watching a similarly astonishing collapse of Western-style capitalism. After a series of economic shocks and partial recoveries in which the private capital model was tested more severely with each round, it may now be at risk of collapse. The public response to each new problem that emerged has been greater and greater government control of the economy.

There is more at stake here than avoiding a deep recession. Over the past several hundred years the world has experimented with various ways of organizing and managing collective economic and political activity. The West’s unprecedented growth in personal prosperity and freedom (starting, say, from a very low point at the start of the industrial revolution in England and working forward) was a result of many causes. One important underlying cause was that the West produced a system that was able to harness human ingenuity through private ownership of property — the core of a capitalistic model. To be sure, there were many horrible abuses along the way — slavery, colonialism, urban crowding, social Darwinism, robber barons, pollution —but over time and with great effort and sacrifice these were corrected in significant measure and the many new positive developments in technology, markets, best business practices and a set of highly evolved labor, banking, social services regulations produced the successful economies (measured by GDP per capita, health, longevity, leisure, general education) we have in the West today.

What is really at stake is whether the fundamental changes that are now being implemented will replace the free market mechanism that has been at the core of our prosperity engine. Just as 9/11 led to unprecedented increases in the power of government to intrude in our private lives, so this financial emergency may lead to massive intrusions into commerce, with the result being a loss of real economic freedom.

Where will this lead? What will the emergent economic system look like? How much personal economic/political freedom will be granted to or sacrificed by the cives Americani in the world that follows? Where can we look for guidance on defining the emergent system?

(For the following ideas I am deeply indebted to a lecture given by the late Dr. Francis Schaeffer in the early 1970s, titled “Some Thoughts on Economics.”)

Interestingly the Bible itself contains a “working model” of the public-private compact as it pertains to economics. Of course it’s easy to find the many rich illustrations in the stories and parables of Jesus drawn from agriculture (farmer sowing seed, workers in a vineyard), fishing and boating (sorting fish, storms), animal husbandry (sheep and goats), building (house on the rock), baking (leavened bread), investment (the pearl of great price) and commercial travel (Good Samaritan). But the Old Testament actually lays out in some detail a set of principles on which to build a society’s economic model. The ideas are laid down in the Law, with additional insights scattered across all the other sections of the OT: Historical Books, Poetical Books and the Prophets. All the economic principles of the social compact are there, if you care to read them. Francis Schaeffer called the biblical model “capitalism with compassion.”

Time and space do not permit me to develop the ideas in depth here… perhaps we will make a copy of Dr. Schaeffer’s lecture available as a download. But we can at least sketch out a few main ideas of the biblical model for economics.

Upon ushering the nation of Israel into the Promised Land (and following one generation of war in which the preexisting Canaanite tribes were largely — but not entirely — driven out), the land was carefully surveyed and then divided and subdivided among the twelve tribes, down to the individual family level (Joshua 18).* The extended family household (oikos, in the Greek, from which we get our word economics) was the basic economic unit of the day, and land was the basic form of wealth, on which people grew crops, raised herds, extracted minerals, processed and transported goods, operated markets, lived, and worshipped God. (Land — plus labor and technology — is still the fundamental source of a country’s wealth.)

The families were to hold the land in perpetuity and as private property. To insure that the society never created a permanent class of propertyless slaves (a proletariat if you will), Israel was to celebrate a jubilee in which the land reverted to its original family owners every 50 years (See Leviticus 25: 8-10). The property could be sold or redeemed at an arms length negotiated price based on the value of the future remaining crops before the jubilee year (vs. 15) — i.e. a discounted cash flow model. So this was not collective ownership of the means of production. It was private ownership — capitalism.

This private ownership was still in force at the time of the New Testament. Notice in Acts 5:4 that Ananias owned the property to start with and had control (redemption rights) after the sale. Clearly the episode described here was not an early form of communism, as some suggest, but biblical capitalism with compassion.

If private capital in the form of land was one pillar of the biblical economic model, a second pillar was compassion. Call it love of your neighbor if you like. The principle is laid down in Leviticus 19: 9-18. Land owners in Israel were called on to not reap the corners of their fields, nor gather the gleanings. In other words, they were to deliberately leave some of the land’s abundance for the benefit of the needy and the stranger. I’m afraid the Six Sigma people would have a fit over this one. Planned inefficiency? Deliberate waste? What kind of a screwy system is this? Well, it’s not sheer capitalism, that’s for sure. It was meant to be a capitalism limited by a boundary condition: care and concern for the poor and the stranger. Notice who needed this kind of compassion: society’s weak, and those without political rights. But notice also that the care and concern were not to be achieved by laws that preempted individual property rights. There was to be justice (vs. 15) for both the poor and the great alike. Justice from the law, but compassion from the owners of private property.

The biblical foundations for an economic system are much more detailed than the two or three examples cited above. It is well worth some serious study just to understand the principles and examples included in the biblical text. There are lending & leasing laws, compassionate enforcement of loan collateral, labor relations, insurance, tort limits of liability, etc. Dr. Schaeffer’s lecture is a great place to start. My point here is to say there is a biblical outline of economic principles which, when implemented, really work.

It would take some hard thought to work through what the jubilee could mean in the modern industrial age dominated by publicly held corporations that have essentially perpetual existence. In one sense, it might work like leasehold property ownership: a right to use productive land for a specified period of time. At the personal level, the closest analogy I can think of is the estate tax in which 55% of property over a certain threshold reverts back to the government (not the original owners) at the death of a taxpayer.

As I prepare for my presentations to the finance ministers, I think about these two great principles: private ownership, which gives economic incentives and freedom in a fallen world; and compassion for the needy and the stranger, which springs from a love of the Creator who made us all.

Some of these principles have been implemented in the U.S. economic model. I think that is why the U.S. economy has been the greatest generator of wealth for the largest number of people in all of human history. Will we lose the essential elements of the biblical system we have managed to implement? And for my upcoming trips, how should we propose our host countries try to implement them? It will be interesting to see.

It is Christmastime as I record these thoughts and that draws me toward a larger picture. The book of Ruth contains a beautiful story about a young family starting out in life with high hopes, falling on hard times, meeting adversity and death, and returning to their homeland in poverty and brokenness, a poor widow surviving off gleanings left by a compassionate, wealthy land owner, a dramatic deal making scene on which great stakes hinge, all told against the backdrop of the biblical economic model of compassionate capitalism. It’s not what you would call a Hollywood style romance (Boaz was probably twice as old as Ruth), but it is perhaps something more profound than that. It is a story of faith and humility, of life lived out in the midst of a biblical economic ethic, of the redemption of a family and restoration to prosperity and happiness.

I find it poignant that our Lord chose that family as the line through he sent his Son into the world to be our Savior: Boaz to Obed to Jesse to David the King to Jesus the Messiah.

* My apologies to dispossessed nations and peoples in history, such as the Canaanites, Native Americans, the Irish, etc. History is full of examples of peoples cast out of their native lands by invading peoples, and the subsequent long standing disputes over rightful ownership. My point here is not to justify military expansionism, ethnic cleansing or genocide, but to suggest the key points of a biblical economic model.

There were uncertain responses as the link made its way through InsideWork.

“Is this how it’s supposed to work?” Dan Wooldridge wondered. “Can’t tell if this is an old fashioned revival meeting or a car show.”

“I find it fascinating but off-putting,” Jim Hancock admitted. “It’s a form of expression that’s enough offbeat that I don’t know how to position it…”

Geoff Finch cut through our fog with a sensitive take on the event…

I feel a great deal of empathy for that pastor and his congregation caught in the final death-throes of the 50-year decline of an industry.

I don’t know what was in the heart of that pastor…fear for his congregation, a desire to calm their fears, fear of losing his congregation or his beautiful church facility following a massive layoff of many of his parishoners? Ignorance of the world of economics and global politics? A sense (dare I call it faith?) that God is in control of the decision makers in Detroit & Washington who appear to have so much control over their lives… a fear that God will not exercise his control in the direction the congregation is hoping for? Perhaps the pastor has calculated a bailout will occur, and by praying for it ahead of time he is hoping to increase people’s faith as they see this answer to prayer…perhaps increase his own stature as the one who “led his congregation” in a time of great answers to prayer…

Perhaps there is a theology behind this that premises if we believe something, God will make it so. Is that sound theology? “For where two or three of you are gathered in one place, if you agree on anything, it will be done for you”… “the assurance of things hoped for, the conviction of things not seen…”

I must confess I am confused by this expression of Christianity/materialism. I really don’t know what to make of it.

The record of Church history is not one of continuous, growing prosperity. Belief finds its expression more frequently in the call to faith for personal salvation, a life of sacrifice, humility before the Sovereign God, of giving and expecting nothing in return, of compassion for the poor and the widow, of love of the Book, and sometimes even martyrdom for the sake of our faith in Christ. The scriptures are filled from Exodus through the New Testament with scathing reproaches to materialism, and severe warnings about the perils of trying to serve God and Mammon, a call to practice compassion in the practical sphere of economics and wealth.

And yet what do you say to a people whose way of life is vanishing before them?

Can you not tell them that they will hand off to their children a standard of living that is lower than the one they themselves enjoyed, and yet the wages of a re-structured auto industry can still be livable wages, just not as affluent as the previous generation? They will have to work harder and get paid less. But does that somehow reflect anything at all about God’s approval or disapproval of them? They can still practice faith, community, service, the study & sharing of the Word, good deeds, with greater uncertainty about the future.

For a few moments I felt some anger towards the Nancy Pelosis of the world who took the stage with obvious delight in humiliating the Big Three CEO’s. She felt the need to dress them down, send them back to Detroit empty handed, summon them back to D.C. driving themselves, to beg and grovel before the long green table at congressional hearings. Speaker Pelosi did not earn the $15 or more billion dollars she was considering lending them, but she felt it was her role to grandstand as if she had, as if it were her money and her power. It was Pilate looking down at Christ all over again. Or perhaps a triumphant Caesar parading Vercingetorix through the streets of Rome as a public spectacle. Did she not understand that any authority or power she has came from far beyond her? There was not a hint in her demeanor that she was a public servant, and acting as trustee for the American people.

But I found my anger at her self-righteousness subsiding in a way. Somehow, Christ is sovereign even over Nancy Pelosi and GM’s Rick Wagoner. Perhaps the Big Three needed humiliation, and Speaker Pelosi was just God’s instrument to do this. Perhaps they needed to be paraded through the streets in ignominy. Perhaps they should be fired. Perhaps they should be made to work for no salary. Rick Wagoner deserves everything he got, you might say, for presiding over the decline of his industry over the last 10 years. A fitting end to a vanquished captain of industry. One way or another, Wagoner will retire with his multimillion dollar earnings for the last 9 years. So do I not weep for him very much.

I do feel for that pastor and his congregation, though.

Does that pastor see all that is going on? Does his congregation draw any comfort knowing that it is an epic struggle being acted out before them? That it is certainly larger than the pastor and his congregation, or Pelosi or Wagoner, or Detroit or Washington. It is global, at least, and maybe even the ushering in of the next era in history — beyond socialism & capitalism, beyond the nation-state, beyond the church & state, beyond the rights of the individual. It is not yet clear what that brave new world will look like. And perhaps that is the thing we should fear the most.

I have one teenage son still living at home.  We were having an after dinner chat last night about politics and “the system.”  My rant was that none of the current batch of politicians is even talking about Social Security any more because it’s too embarrassing!

To illustrate the problem, I pulled out my latest statement from the Social Security Administration to show him. I was shocked! It turns out I have been working steadily every year for 45 years and I am still not eligible to retire!  Okay, where did all those years go? Getting over my angst, I proceeded to explain the form.

“Each year the government has taxed me on my earnings (How consistent of them). They set a cap on how much earnings are subject to SS tax. (It seems to me there was another ominous government outfit that went by the initials “S.S”. Hmmm…) You can see here how that cap grows every year. For most of my 45 working years I have earned more than the Social Security taxable income ceiling (except for the first few years when I actually worked for the government). See here? I have earned cumulative social security wages of about $2.7 million dollars.

My son began to perk up a bit. “Where’s the money, dad?”

“Squandered on living expenses, I am afraid. It’s too bad it costs money to live, otherwise we’d be rich.” His face fell, but I plowed ahead.

“Here it shows I have paid over $100,000 in Social Security taxes into the SS trust fund,” I continued.  (Something about trust and the SS didn’t quite sound right.)  “And that’s not counting another $100,000 paid by my various employers. In fact, for a good many of those years my “employer” was me. So I paid in double.”

“So, where did the $200,000 go?” asked honorable number one son, curiosity rising.

I explained:  “The SS “loaned” the money to the federal government until it needs it to pay me my benefits. Me and about 80 million other baby boomers.”

“So does the SS know the feds will actually pay them back in time to pay you your pension?”

“Ahh…that’s the sticky part. It seems our senators were a bit confused about that point themselves.  So they brought in their top economics guru — Chairman Greenspan — and asked him that question. You remember Greenspan – the inscrutable previous Fed chairman who coined terms like  “irrational exuberance” and “asset bubble.”  Greenspan was really good at naming bad things that were about to happen — like the “dot.com” bust of 2001, and the current sub-prime loan & housing fiasco. Greenspan knew a bad thing coming when he saw one.  That’s why they called him in.”

“And did Mr. Greenspan answer ‘No?” my son asked, idly thumbing the government textbook on his lap.

“Good guess but he actually answered ‘yes’, in a convoluted sort of way.  (He was really into convoluted-ness.)  His point (I think) was that so long as the feds can tax working people they can repay the SS loans so that the SS can pay the baby boomers their benefits.  That’s why it’s important that you get a job and become a working people.  The sooner, the better.”

“Somehow, you don’t make it sound very appetizing, Dad!  So, just how much benefits do you get, anyway?” asked my son.

“Well, the statement says something like $1600 per month, but there is this big caveat on our statements these days… something about ‘Congress has made changes to the law in the past and can do so at any time.’  And ‘Current projections show the SS can only pay for about 74% of the benefits it’s obligated to pay.’”

“Is $1600 a lot of money?” (This was the low point in the conversation for me. How can I have raised a son who doesn’t know what $1600 is worth?) (Come to think of it, maybe that’s a really good question: $1600 used to buy a car; now it buys 16 tanks of gas. Hmmm…)

“That depends on how you look at it,” says I. “If you add up all the money I have handed over to the SS, it’s around $100,000. If you add what various employers, including me, have handed over, that’s an additional $100,000. And if the SS was smart enough to invest the money over the years and earn just 3.5%, there should be about $312,000 in the pot earmarked for my retirement. And they are proposing to give me $1600 per month, assuming Congress doesn’t change its mind. That $1600 is the equivalent of earning 2% on “my” SS money for the remaining 20 years of my life. Does 2% sound like a good deal to you?”

“Well, dad, I got 4.5% on a small CD I just opened at the bank, so I guess the SS is a crummy deal. Can you take the money out of SS when you retire? You know, invest it yourself?”  Honorable son was thinking like an entrepreneur, now.  All is not lost!

“No, that’s one option they don’t give you.”

“Hmmm, well, dad, but what if you kicked the bucket early?  What happens to all that $312,000? Do sis and I get to inherit it?” (Did I detect a gleam of intent in his eye?)

“Nope, you are out of luck there, son. It goes away.”

“Goes away? What does that mean? Do you mean to tell me that the SS has taken $100,000 from you over the last 45 years, taken another $100,000 from your employers, and is now offering to pay you only 2% interest, plus they get to keep the principal if you die? What kind of a rip-off is that?”

“Well, it’s actually worse than that. If they only paid me 74% of the $1600, which is what they say they can afford, the interest rate would be negative – I would be paying them!”

“Who dreamed up this scheme, anyway?”

“FDR. Read about him in your government textbook. Some people — including grandma, who was alive back then — think he was a hero. Of course, Congress has had a lot to do with it since then, so you can’t really blame him.”

“Oh, so it’s Congress that’s running the SS?”

“Yeah, pretty much. President Bush tried to get everybody to talk about fixing the problem a couple of years ago, but the issue was so embarrassing, the current batch of politicians have stopped talking about it. They would rather talk about giving more money away in the form of free health care for everybody.”

Well, at least when they figure out what’s happening to their retirement money Congress will fix the system, won’t they, dad?”

“Actually, what Congress has done is exempt themselves (and about nine million federal employees, to make it seem not quite so obvious) from participating in the SS fund. They have a separate plan that’s much better and on a sound financial footing.”

“You’re kidding!”

“Nope!  Dead serious.”

“So what are we supposed to do? Just troop off to work to pay more taxes so you 80 million boomers can retire and get a minus 2% interest return?”

“Well, actually, running for Congress makes a lot of sense.”

“You mean so I can change the system?”

“No, that will be really hard.  I was thinking more along the lines of you joining their retirement plan. And their health care plan of course.”

“Dad?”

“Yes, son…”

“What does it cost to emigrate to Norway?”

“Right idea, wrong destination,” I said.  “We might be better off if we took a fresh look at what we mean when we pray, ‘Your kingdom come, your will be done on earth as it is in heaven.’”

His eyes narrowed just a bit and I said, “Read your book; we’ll tackle that tomorrow night.”