Dear Friends of Istituto Acton,
The end of 2012 and the beginning of 2013 could hardly have been more dramatic for those of us who follow politics and economics in the United States and Italy. From the dreaded fiscal cliff negotiations between President Obama and his Republican opponents in Congress to the reemergence of Silvio Berlusconi in Italy and the Pope’s apparent condemnation of “unregulated financial capitalism,” we couldn’t have asked for any more news over the Christmas and New Year’s holidays. If you were looking for events to shake you out of your domestic torpor and get your polemical juices flowing amidst all the revelry, there was plenty of it to go around.
We’ll start with the fiscal cliff, as a last-minute deal averted a series of automatic tax increases and spending cuts that some economists warned would plunge the US into a recession. The deal entailed extending the tax cuts passed by George W. Bush for all except those earning $450,000 per year, an amount between the $250,000 initially proposed by Obama and the $1,000,000 offered by Speaker of the House of Representatives John Boehner. If no deal was reached, tax rates for all income levels would have increased to pre-Bush levels, so limiting the damage to the top earners avoided what would have been a shock to a relatively weak but slightly improving economy. Perhaps more significantly, the tax cuts for those under $450,000 were made permanent; something Bush and the Republicans themselves were not able to do in 2001 and 2003 when they held power. That’s the good news.
But that was all of it, unfortunately. Despite the supposed anxiety over the dangers of unsustainable levels of public debt, Obama showed absolutely no willingness to cut spending, as Boehner explained to the Wall Street Journal . Obama and the Democrats have interpreted their November election victory as a mandate from the American voters to leave government entitlement programs such as Medicare as they are. And the deal to extend the Bush tax cuts does not apply to payroll taxes, which are used to pay Social Security and hit lower-income earners the most. Factor that in with the new taxes coming with Obamacare, and there’s little to celebrate. Americans will be paying more in taxes in 2013 with nothing to show for it. In fact, it looks as though the debt will continue to grow with no end in sight. The Republicans have not given up the fight over government spending, however, and we’ll likely see a repeat of this battle in March. The Democrats control the White House and the Senate and still have the upper hand, which only goes to show just how important elections are in the United States. The two parties have mutually exclusive visions of how society ought to be organized and there really is little that can be done to accommodate both, as Yuval Levin perceptively notes .
This ideological contrast is nowhere to be found in Italy. We are currently in the midst of shifting allegiances between parties here ahead of elections slated for the end of February. Promises to cut taxes, to raise taxes, to add new taxes, to liberalize the tiniest parts of the economy, all come and go on an almost daily basis. No one knows what we’ll end up with but we can be pretty sure that it won’t matter because the economy is stalled. The fact that Mario Monti spent just a single year trying to reform an economy that has the world’s lowest growth rate over the last decade  tells me that political courage and economic sense are precious commodities in Rome. The most sensible voices on the scene seem to belong to the Fermare Il Declino  crowd, but it remains unlikely that any politician is willing to risk his neck siding with them. Most other Italian commentators speak solely of the “spread” between German and Italian government bonds, implying that bond markets are out to screw over Italy rather than reflect a fundamental reality about creditworthiness. To adapt Obama’s 2008 campaign slogan, hope is a poor substitute for actual political change, on both sides of the Atlantic.
There is, of course, another kind of hope, the supernatural one we heard about over Christmas from Pope Benedict. The hope of the incarnation of Jesus Christ has been with us for over 2,000 years and has inspired thousands if not millions of people to lead holy lives. This kind of hope really is the best antidote to despair and pessimism. It remains an open question just what Christian hope means in politics and economics. People who live serious Christian lives will be less willing to exploit others, including through outrageous demands for government programs, many of which limit competition rather than serve the poor and thereby lock in existing inequalities by making it more difficult for the poor to compete and prosper. Class envy of the rich and successful, as opposed to spiritual concern for their souls, is also unbecoming of Christians. But we hear very little about these forms of self-indulgence, and much more about the evils of inequality as such.
In his annual World Day of Peace message , Benedict wrote “It is alarming to see hotbeds of tension and conflict caused by growing instances of inequality between rich and poor, by the prevalence of a selfish and individualistic mindset which also finds expression in an unregulated financial capitalism” and went on to speak of terrorism and international crime, fundamentalism and fanaticism, in the same paragraph. In his annual address to the diplomatic corps accredited to the Holy See , he noted, “If the credit spread represents a source of concern, the increasing differences between those few who grow ever richer and the many who grow hopelessly poorer, should be a cause for dismay. In a word, it is a question of refusing to be resigned to a ‘spread’ in social well-being, while at the same time fighting one in the financial sector.”
Such statements may give the impression that the former Cardinal Ratzinger has gone hyper-egalitarian, if not soft-headed, on us, but I don’t think so. They do make good headlines , though. As a former official of the Pontifical Council for Justice and Peace (and one who worked especially on the annual World Day of Peace messages at the end of John Paul II’s pontificate), I can attest to the overriding spiritual and religious import of whatever the Pope has to say about politics and economics. “Justice is achieved only when people are just!” Benedict said to the diplomats, and the Church’s role in education and human formation clearly carries more weight than its calls for new economic models or regulations. In fact, the calls for new models can be better interpreted as moral exhortation rather than policy recommendation.
We need our politicians to deal with policy and our priests to help us become saints, not vice versa. We get into trouble when we confuse the temporal and spiritual dimensions of life, a confusion which has caused more than a bit of trouble in European history. It would not be a stretch to say that this is one point of separation between the United States and Europe and continues to lead to different understandings of liberty and equality. (I add this apropos our friend and colleague Sam Gregg’s new book, Becoming Europe , which I highly recommend to all.) America has inherited much from the Old Continent, but it also stakes out new ground and still has much to offer the rest of the world that isn’t European. I’ll close this letter with a spirited passage from Federalist Paper n. 11 , where Alexander Hamilton makes the case for commerce and the union of the United States under the recently-drafted Constitution:
The superiority [Europe] has long maintained has tempted her to plume herself as the Mistress of the World, and to consider the rest of mankind as created for her benefit. Men admired as profound philosophers have, in direct terms, attributed to her inhabitants a physical superiority, and have gravely asserted that all animals, and with them the human species, degenerate in America--that even dogs cease to bark after having breathed awhile in our atmosphere. Facts have too long supported these arrogant pretensions of the Europeans. It belongs to us to vindicate the honor of the human race, and to teach that assuming brother, moderation. Union will enable us to do it. Disunion will add another victim to his triumphs. Let Americans disdain to be the instruments of European greatness!
We thankfully no longer have to worry about colonial powers carving up the globe among themselves. But may 2013 serve as an occasion for America to teach Europe (and perhaps more importantly, America itself) how to deal with its fiscal problems in ways that honor the human race, i.e. without burdening future generations with even more mountains of government debt.