EconTalk on the Economics of Pope Francis

Russ Roberts recently interviewed Robert Whaples on the EconTalk podcast, which I have listened to regularly for years. I was especially interested when I saw the title of this episode, The Economics of Pope Francis, both because I am a Catholic and because I generally find Roberts' discussions of religion (from his Jewish perspective) interesting and so articulate that they help me clarify my own thinking, even if my views diverge from his. 

In this episode, Roberts and Whaples, an economics professor at Wake Forest and convert to Catholicism, discuss the Pope's 2015 encyclical Laudato Si, which focuses on environmental issues and issues of markets, capitalism, and inequality more broadly. Given Roberts' strong support of free markets in most circumstances, I was pleased and impressed that he did not simply dismiss the Pope's work as anti-market, as many have. Near the end of the episode, Roberts says:

when I think about people who are hostile to capitalism, per se, I would argue that capitalism is not the problem. It's us. Capitalism is, what it's really good at, is giving us what we want--more or less...And so, if you want to change capitalism, you've got to change us. And that's--I really see that--I like the Pope doing that. I'm all for that.

I agree with Roberts' point that one place where religious leaders have an important role to play in the economy is in guiding the religious toward changing, or at least managing, their desires. Whaples discusses this too, summarizing the encyclical as being mainly about people's excessive focus on consumption:

It's mainly on the--the point we were talking about before, consuming too much. It's exhortation. He is basically saying what has been said by the Church for the last 2000 year...Look, you don't need all this stuff. It's pulling you away from the ultimate ends of your life. You are just pursuing it and not what you are meant, what you were created by God to pursue. You were created by God to pursue God, not to pursue this Mammon stuff.

Roberts and Whaples both agree that a lot of problems that are typically blamed on market capitalism could be improved if people's desires changed, and that religion can play a role in this (though they acknowledge that some non-religious people also turn away from materialism for various reasons.) Roberts' main criticism of the encyclical, however, is that: "The problem is the document has got too much other stuff there...it comes across as an institutional indictment, and much less an indictment of human frailty."

I would add, though, that just as markets reflect human wants, so do institutions, whether deliberately designed or developed and evolved more organically. So it is not totally clear to me that we can separate "indictment of human frailty" and "institutional indictment." No economic institutions are totally value-neutral, even free markets. Institutions and preferences co-evolve, and institutions can even shape preferences. And the Pope is of course the head of one of the oldest and largest institutions in the world, so it does not seem beyond his role to comment on institutions as an integral part of his exhortation to his flock.

Economic Inclusion and the Global Common Good

On July 11 and 12, Pope Francis met with a group of policymakers, economists, and other influential thinkers at a conference called “The Global Common Good: Towards a More Inclusive Economy.” The conference was sponsored by the Pontifical Council for Justice and Peace and held at the Pontifical Academy of Science in Vatican City.

Pope Francis spoke out against "anthropological reductionism" in the economy, echoing a tradition of Catholic social teaching that links economic inclusion to human dignity. The 1986 pastoral letter Economic Justice for All says:

"Every economic decision and institution must be judged in light of whether it protects or undermines the dignity of the human person...We judge any economic system by what it does for and to people and by how it permits all to participate in it. The economy should serve people, not the other way around... 

All people have a right to participate in the economic life of society. Basic justice demands that people be assured a minimum level of participation in the economy. It is wrong for a person or group to be excluded unfairly or to be unable to participate or contribute to the economy. For example, people who are both able and willing, but cannot get a job are deprived of the participation that is so vital to human development. For, it is through employment that most individuals and families meet their material needs, exercise their talents, and have an opportunity to contribute to the larger community. Such participation has special significance in our tradition because we believe that it is a means by which we join in carrying forward God's creative activity."

One participant at the conference was Muhammad Yunus, a pioneer of microcredit and microfinance and the founder of Grameen Bank in Bangladesh. Grameen Bank is called the bank of the poor because its borrowers, mostly poor and female, own 95% of the bank's equity. Yunus and the Grameen Bank jointly won the Nobel Peace Prize in 2006. Yunus has a PhD in economics from Vanderbilt and is the author of Banker to the Poor and Creating a World Without Poverty. At the conference, Yunus spoke about social business and about sharing and caring as basic human qualities.

Development economist Jeffrey Sachs also attended the conference. Sachs, author of The End of Poverty, founded the ambitious and controversial Millennium Villages Project. For a glimpse into the project from two different perspectives, I recommend Russ Roberts' interviews with Sachs and Nina Munk on the EconTalk podcast. 

Mark Carney, Governor of the Bank of England, attended the conference as well. Carney has spoken previously about economic inclusion. He gave a speech at the Conference on Inclusive Capitalism in London this May, in which he remarked:

"To maintain the balance of an inclusive social contract, it is necessary to recognise the importance of values and beliefs in economic life. Economic and political philosophers from Adam Smith (1759) to Hayek (1960) have long recognised that beliefs are part of inherited social capital, which provides the social framework for the free market. Social capital refers to the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other.

So what values and beliefs are the foundations of inclusive capitalism? Clearly to succeed in the global economy, dynamism is essential. To align incentives across generations, a long-term perspective is required. For markets to sustain their legitimacy, they need to be not only effective but also fair. Nowhere is that need more acute than in financial markets; finance has to be trusted. And to value others demands engaged citizens who recognise their obligations to each other. In short, there needs to be a sense of society."

Also in attendance were Jose Angel Gurria, Secretary General of the OECD; Michel Camdessus, former managing director of International Monetary Fund; Ngozi Okonjo-Iweala, Finance Minister of Nigeria; Donald Kaberuka, President of the African Development Bank; and Huguette Labelle of Transparency International. A complete list of attendants and more detailed remarks from the conference should be up at the Pontifical Council for Justice and Peace website in the next few days.  I look forward to seeing what kinds of practical proposals might have been discussed.

The Economic Exhortation of Pope Francis

I'm glad to see Pope Francis' apostolic exhortation Evangelii Guardium featured so prominently in the media. With a 224-page document and a 2000 year Church history, however, media coverage is bound to include some oversimplifications. One is the title of Emma Green's piece in the Atlantic, "The Vatican's Journey From Anti-Communism to Anti-Capitalism." While the article includes a lot of good information, it does oversimplify historical Church teaching on the economy. Green writes:

Throughout 224 pages on the future of the Church, he condemns income inequality, “the culture of prosperity,” and “a financial system which rules rather than serves.” 

Taken in the context of the last half-century of Roman Catholicism, this is a radical move. Fifty years ago, around the time of the Second Vatican Council, Church leaders quietly declared a very different economic enemy: communism. But Pope Francis’s communitarian, populist message shows just how far the Church has shifted in five decades—and how thoroughly capitalism has displaced communism as a monolithic political philosophy.

The Catechism of the Catholic Church, published in 1992, "presents Catholic doctrine within the context of the Church's history and tradition." According to the Catechism,

2425 The Church has rejected the totalitarian and atheistic ideologies associated in modem times with "communism" or "socialism." She has likewise refused to accept, in the practice of "capitalism," individualism and the absolute primacy of the law of the marketplace over human labor. Regulating the economy solely by centralized planning perverts the basis of social bonds; regulating it solely by the law of the marketplace fails social justice, for "there are many human needs which cannot be satisfied by the market. Reasonable regulation of the marketplace and economic initiatives, in keeping with a just hierarchy of values and a view to the common good, is to be commended.

The Church has a long history of rejecting both communism and capitalism in their pure forms. The Catechism elaborates on private property:

2403 The right to private property, acquired or received in a just way, does not do away with the original gift of the earth to the whole of mankind. The universal destination of goods remains primordial, even if the promotion of the common good requires respect for the right to private property and its exercise. 

2404 "In his use of things man should regard the external goods he legitimately owns not merely as exclusive to himself but common to others also, in the sense that they can benefit others as well as himself." The ownership of any property makes its holder a steward of Providence, with the task of making it fruitful and communicating its benefits to others, first of all his family. 

2405 Goods of production - material or immaterial - such as land, factories, practical or artistic skills, oblige their possessors to employ them in ways that will benefit the greatest number. Those who hold goods for use and consumption should use them with moderation, reserving the better part for guests, for the sick and the poor. 

2406 Political authority has the right and duty to regulate the legitimate exercise of the right to ownership for the sake of the common good.

The following passages concerning economic activity and profit are also quite relevant:

2423 ...Any system in which social relationships are determined entirely by economic factors is contrary to the nature of the human person and his acts. 

2424 A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable. The disordered desire for money cannot but produce perverse effects. It is one of the causes of the many conflicts which disturb the social order. 

2425 A system that "subordinates the basic rights of individuals and of groups to the collective organization of production" is contrary to human dignity. Every practice that reduces persons to nothing more than a means of profit enslaves man, leads to idolizing money, and contributes to the spread of atheism. "You cannot serve God and mammon." 

These passages from the Catechism are based on a long history of Catholic teaching on economic justice, including Encyclicals from the Popes. Quadragesimo Anno, for example, written by Pope Pius XI in 1931, responded to economic conditions and inequality following the Great Depression. More recently, Pope Benedict in Caritas in Veritate stated that "Profit is useful if it serves as a means towards an end that provides a sense both of how to produce it and how to make good use of it. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty."

I am very grateful for Pope Francis' exhortation. I do not think it represents a radical shift in Church teaching, but rather a renewed and louder cry for the teaching to be taken seriously. His cries that "The dignity of each human person and the pursuit of the common good are concerns which ought to shape all economic policies." I hope the world will listen.