Why 10% in 10% Is Enough?

My friend and colleague Dan Rhodes posted an article on the "10% Is Enough" campaign over at the "Call and Response" blog of the Faith and Leadership program at Duke Divinity School. In a few paragraphs, he offered an brief overview of the campaign and some of the reasoning behind it. One comment chastised him for not providing an adequate analysis of the economics of consumer credit, its risks, and its basic operational principles. Dan gave a good response, acknowledging that in the short piece he could not cover everything. He also added some additional historical economic factors which are necessary to keep the discussion from pretending to be merely a technical discussion of "laws of economics." I am including here some comments I added to his post.

For centuries, banks were very profitable businesses operating under usury caps. Why are banks in our day so much more inept? Not all banks in the world charge high interest rates for credit. Why are US banks so much more inept at doing business?

We know that "risk" is calculated using benchmarks and tables and actuarial information based on certain assumptions. Of course, the assumptions may include demographic data and statistical probabilities that many can agree upon.

These assumption also include an assumed "cost of doing business" that includes the irrational exuberance of contemporary stockholders wanting short-term profits, the arrogance of CEOs with 8 figure packages, and big bonuses for executives known as "talent" who helped to bring about the economic crash. Consequently, none of the big banks is willing to name a rate of interest they believe to be too high. When asked by Congress if 36 % was too high, not one bank president would answer.

Wells Fargo/Wachovia recently introduced a new "product" for its customers. They will advance money at the end of the month to help a customer get through. Down the street from the bank, the little storefront calls this a "payday loan." Wells Fargo/Wachovia offers this "service" for an annual interest rate of 120%.

So if the banks want to be forthcoming about their cost of doing business, and if they will consider outside analysis of where they are spending frivolously, then we will be in a position to discuss what rate it would take to keep credit fair for customers, profitable for banks, and safe for everyone.

Economic Recovery for All 8: Faith Perspectives, Pt 4

This entry completes the statement on the economy released on July 22, 2009, in Durham, NC. There are eight entries. For the full current list of endorsers as of this posting, see the first entry.

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

III. Faith Perspectives on Responding to the Crisis

B. Biblical, Theological, and Ethical Principles Guiding NCUP Actions and Campaigns in Response to the Economic Crisis

8. Shared economic risks and benefits

All societies become accustomed to doing things a certain way; however, there are many possibilities for organizing a flourishing economy. The predominant systems of investment and borrowing may be familiar, but that does not mean there might not be other, perhaps better, ways to invest, produce, and prosper. Rather than shifting almost all the economic risks toward the borrower, especially toward small borrowers, and the assured benefits primarily to the lender, there should be a way for risks and benefits to be shared more equitably.

Why should a family that has toiled for many years, paying bills and paying down a mortgage, be financially devastated by a change of fortune, when a financial institution prefers to write off their mortgage as a loss rather than work out a means of mutual and equitable benefit? As Paul wrote to the Corinthians, "whoever plows should plow in hope and whoever threshes should thresh in hope of a share in the crop (1 Cor. 9:10). Martin Luther wrote, "If you would have interest in my profits, you must also have an interest in my losses. . . . The owners of income, who will not put up with that, are just as pious as robbers and murderers, and wrest from the poor man his property and his living" ("A Treatise on Usury").

C. Conclusions

Too often, people imagine that the economy is a competition over scarce resources. Yet while creation is finite there is no fixed limit on the prosperity that humanity can share. Unlimited acquisition and idiosyncratic use of possessions fall off of the path to human flourishing. Such hoarding of goods is theft, and it begs for divine judgment.

Rather than hoarding, sharing our blessings sets the tone of biblical economics. We are blessed that we might bless others. All that we have comes by God’s grace, and we must be gracious toward one another.

Without standards against usury, the massive transfer of wealth from the middle class workers to a wealthy elite will continue. As long as a powerful few have freedom to do as they please concerning the consumer credit of the many, the economic system will not serve the common good. No magical hidden hand will correct economic oppression.

To get out of the current mess, we will need an economic reform which acknowledges our mutual dependence and obligations and turns aside from the way of selfish individualism and competition for status and conspicuous wealth.

What kind of an economic recovery leaves giant banks standing while the average worker’s life gets harder and harder? It is not an economic recovery when billions can bail out executive jobs but nothing can bail out the rest of the jobs. There is not justice when everyone’s tax dollars can pay off banks’ bad debts, but the average taxpaying citizens are left on their own to drown in their debts. Debt relief for millionaires and homelessness for working people—that’s not the kind of economy we believe in.

Economic justice is not merely a fantasy or impossible ideal. There are practical ways to put it into practice. Communities of faith have demonstrated these possibilities in the past and present. Justice need not be limited to small economic experiments. Making real steps toward justice is fully compatible with rational and pragmatic economics. It is time for people of faith to speak this truth to power.