City Creek and the Choices of Thrift

by Nate Oman • April 2, 2012 • 193 Comments

Jana Riess, a person for whose intelligence and good will I have a great deal of respect, has an article up criticizing the new City Creek mall that that Church has financed in Salt Lake City. You ought to go read Jana’s article. To massively over simplify her point, the mall represents a basic moral failure because the church invested $1.5 billion in the project. This money could have been spent on the poor and rather than a glitzy palace to consumerism. There is a simple and powerful logic to Jana’s claim, but I think that by failing to work through the actual economic trade offs involved in the project, her argument misses the points of moral and practical judgment, thereby obscuring the nature of the choice that Church leaders made with this project.

The most fundamental question is whether the Church should save a portion of its revenue. Despite the price tag, from the Church’s point of view the Mall is less a piece of flashing spending, than consequence of the choices that the Church’s commitment to institutional thrift impose upon it. The Church does not spend the totality of its revenues each year. Rather, it always takes a portion of revenues and sets them aside. My understanding is that this policy was put in place in the 1970s by President N. Eldon Tanner, who was tasked with solving the financial mess that was created by the rapid expansion of spending during the McKay administration, especially after the death of J. Reuben Clark, who was the leading voice for thrift and restraint in Church finances.

As a result of this policy of thrift and institutional restraint, the Church necessarily builds up a massive pool of cash. If it is not spent, this cash must be parked someplace and the amounts we are talking about mean that it cannot really be parked in a bank account. The result is that the Church invests this money. The Church is funding the Mall out a holding company for its investment. From the point of view of the Church’s balance sheet this is not an expense. Rather, it is a form of saving against future expenses.

One might disagree with the notion that the Church should save a portion of its revenues. It could spend all of these revenues in their entirety each year. Given that spending could be used to defray suffering in Haiti, as Jana suggests, it is important to realize that saving by definition will limit the amount of resources devoted to the poor – and everything else that the Church supports. I am willing to entertain that this might be the right thing to do. My wife has done humanitarian work in Haiti, and the suffering there and elsewhere is appalling. Given such suffering, a policy of institutional thrift on the Church’s part may be open to criticism. But framing the issue in terms of saving children in Haiti versus an expensive shopping mall misses the issue. The real question is whether there should be saving at all. Once one opts for savings, however, that saving will necessarily be invested in some profit making activity.

What the Mall reveals, however, is that with regard to its saving the Church does not actually behave as a profit maximizing institution. What a profit maximizing institution would do is turn its savings over in their entirety to a portfolio manager at JP Morgan or the like and let them seek out the highest rate of return on those savings. This, however, is not what the Church has done. Rather, in effect it feels a sense of obligation for Salt Lake City and wants to improve the city. It does this by taking money from its investment portfolio and putting it in an asset — a shopping mall — with a higher level of risk and a lower level of return than it would normally obtain. In other words, the shopping mall investment doesn’t actually look like profit maximizing behavior to me. In economic terms, I think it is safe to assume that the opportunity costs of the investment in the Mall are higher than the expected return on that investment.

Given that this is the choice the Church is making, I think that the there are two major questions. First, does the Church owe a special obligation to Salt Lake City. For example, I might argue that the Church has a general obligation to help humanity but no special obligation to Salt Lake. If this is what I believed, then Church ought to invest its savings in the assets that will generate the maximum return and then spend that money based on some criterion generated by its universal obligation to humanity. (Or alternatively, one could simply not save and spend all revenue based on the universal criterion.) The Church leadership clearly feels a sense of obligation to Salt Lake City, but the Mall actually reveals that it is a rather weak sense of obligation. The $1.5 billion price tag of the Church’s investment is not the right measure. Rather, the measure is the foregone marginal profit of placing the saving elsewhere, say an investment account at Goldman Sachs. Hence, the Mall indicates some sense of local obligation but not a strong or overwhelming sense of local obligation.

The second question is whether the Mall will actually be effective in revitalizing Salt Lake City. On this, I am not sure. I don’t care for malls and the kind of glitzy consumerism Jana describes is distasteful to me. On the other hand, I realize that my sense of what is or is not tasteful is probably not a great guide to what works effectively at boosting the local economy or encouraging urban renewal. I am not especially sanguine about the shopping mall business model or the kind of high-end, mixed-use developments that have been done at City Creek, but I also have to confess that I am not an expert when it comes to real estate development and urban renewal strategy. I think that you can make perfectly good arguments about that this project is a bad idea, but it seems to me that these are ultimately questions of practical judgment, i.e. what will be most effective, not moral judgment.

Jana’s ultimate conclusion is that the Mall is a moral failure. On this I disagree. As I see it, at each point the Church was faced with a question of good judgment rather than the stark moral choice that Jana sees between malls and starving children. Should the Church save a portion of its revenues? Should the Church put a portion of its revenues in a sub-optimal investment because of a special duty to the community where it’s headquarters is located? Will the Mall be effective in promoting urban renewal? Thrift, local obligation, and urban renewal strategy. These are matters on which people can disagree. They are matters on which people can be wrong. Errors about such matters, however, do not strike me as moral failures.

A final point: Jana invokes the prophet Amos in her article. She is trying to get the kind of simple moral clarity that he demonstrated. This, I think, is admirable, and I think that she is absolutely correct in invoking Amos in thinking about our moral obligations to the poor. On the other hand, Amos – and other ancient prophets – are not, in themselves, very good templates for thinking about modern investment decisions. This is because the underlying economic infrastructure in the ancient worlds that they discuss was strikingly different than those that exist in the modern world. The kind of complex investment decisions that the Church faces simply did not exist in Amos’s world. In particular, the institutions that mediate between saving and investment in a modern economy were created at the end of the seventeenth century. This means that saving and spending have different social effects in the ancient world than do in the modern world. This doesn’t mean that the concerns expressed by Amos aren’t just as relevant today as they were when he expressed them. It does mean, however, that understanding the meaning and application of those norms requires a more nuanced understanding of investment than can be provided by reading the scriptures.