‘Idolatry of the Market’?
by Thomas E. Woods, Jr.
The document released yesterday by the Pontifical Council for Justice and Peace calling for a world economic authority and condemning the “idolatry of the market” could have been written by any number of secular think-tanks in the United States.
It is also deeply confused. On the one hand, it speaks of excessive money growth as a problem that can lead to “speculative bubbles” whose bursting can do significant damage to economies around the world. On the other, it calls for a world economic authority that will…what? Be exempt from the errors and hubris of government officials and national central banks?
We were assured that the best and the brightest were running the Fed. These were people who told us the rise in housing prices was attributable to strong fundamentals. There was no housing bubble. Alan Greenspan told people to take out adjustable-rate mortgages. Ben Bernanke said in 2006 that lending standards were sound. And so on.
Whenever rising interest rates might have discouraged crazed speculation in real estate, the Fed kept the mania going by maintaining low rates. When the market was trying to send us red lights, in other words, the Fed was turning them all green.
Had we really been engaged in “idolatry of the market,” as the Vatican document suggests, we might have listened to the market. Instead, the central authorities drowned out what the market was trying to tell us.
It’s been idolatry not of the market but of central banks, institutionalized sources of moral hazard and financial instability around the world, that has yielded us the boom-bust cycle. (The aura of infallibility and the cult of personality surrounding Fed chairmen make the language of idolatry more than mere poetic license.)
The widespread misdiagnosis of the crisis now engulfing us has led to the frequent claim that lax regulation, or deregulation, must have caused it, and that better supervision of the system can prevent future crises. This is a delusion, albeit a common one.