Markets and Morality

Shepherds of the flock produce woolly thinking


Energy and Environment
Monetary Policy
It is always disappointing when Bishops follow the mob rather than trying to lead their flock. The Archbishop of York joined in the name calling yesterday. Today, in the Spectator, the Archbishop of Canterbury suggested that the financial sector cannot continue to escape scrutiny and regulation to the degree it has got used to. He ought to read the FSA’s Prudential Sourcebook and other regulatory guides.

Of course, it is so easy to say these things. Everybody is saying them. But should we not expect our Archbishops to stand back, reflect and comment on those areas where they can really bring their expertise to bear? It would be reasonable, for example, for the Archbishops to call for morality and honesty in financial dealings. They could also call for self restraint on behalf of those who wish to consume beyond their means – indeed the Archbishop of York did say this to be fair. But they should also recognise that identifying immorality and high-handed dealing in the financial system gets us nowhere in terms of deciding whether we should regulate more. And their blanket condemnation of short selling is bizarre. Why do the Archbishops assume that man is imperfectible when acting within financial markets but not examine the implications of that assumption when proposing to give more power to regulators? Whether this omission is a failure of logic, theology or economics is a moot point – probably it is a failure of all three. But, the Archbishops only need to look at some of the developments in the current crisis to see the importance of this point. The current crisis almost certainly has its underlying cause in the loose monetary policy followed by government-owned institutions. Furthermore, we have the most heavily regulated financial system in our history and many of the paper instruments that are created are designed specifically to avoid the over-regulation of particular parts of that system. And the regulators have hardly covered themselves with glory when they have intervened. The FSA, despite literally thousands of pages of regulations, seemed to ignore illiquidity risks in a major bank. Indeed, one of its regulations specifically appeared to prevent the Bank of England from extending lender of last resort facilities to a bank with liquidity difficulties without the Bank informing the whole market and thus causing a run!

The Archbishops should call for moral restraint, prudence and reflection but the only way that their statements can be justified is if we assume away the problem of the imperfectibility of man – in which case we would never have had a problem in the first place. Their statements might have been expected from an atheist rationalist in the French Revolution but they are not appropriate from twenty-first century Christian leaders.

Philip Booth is the editor of Catholic Social Teaching and the Market Economy

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.