Thursday, December 19, 2013

Hey Pope, Ever Think of Taking an Econ Course? Just Sayin.

What’d I tell you not two blogs ago? That growing income inequality will become increasingly the focus of the political dialogue, at the behest of those never satisfied with current large levels of income redistribution. And within a month, we have first Pope Francis railing against the income inequality supposedly created by an unfettered free market economy, and secondly Obama. Because as a Catholic I take Pope Francis seriously, and in contrast Obama has proven his utter lack of credibility on most any issue, I want to address Pope Francis’ comments here.

Wilhelm Ropke was a German economist who was tasked with re-making the West German economy in the aftermath of World War II. In his day, he was a very powerful advocate of the free market economy, and additionally he was a devout Catholic. Presumably his economic beliefs would be out of favor with Pope Francis, given the Pope’s current views, but there is a quote from Ropke that captures perfectly the sentiment I had, as a Catholic advocate of free markets, in reading the Popes comments:

…we need a combination of supreme moral sensitivity and economic knowledge. Economically ignorant moralism is as objectionable as morally callous economism.

In parts, the Pope’s comments are objections to morally callous economism, but much of it is economically ignorant moralism. The Pope has the supreme moral sensitivity, but in my humble opinion he clearly lacks the economic knowledge. As a result of this ignorance, he argues for those things that will tend to more fully entrench the morally callous economism he rightly opposes.

Consider this sentence from Pope Francis:

Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless.

What economy does this describe? If these comments were addressing political competition for the reigns of very powerful centralized government (i.e. the entire developed world), rather than competition within free markets, they would be far more accurate. The “laws” of competition and the survival of the fittest are terms used to describe competition among firms – that is, competition among entities started with capital supplied by an entrepreneur – so in the current framework, we are discussing competition among those the reflexive anti-market left regards as powerful. The competition refers to two bears going at it, not a bear fighting a bunny.

The evolutionary analogy to survival of the fittest is wrong in so far as it evokes the zero-sum competition between two animals for a fixed food supply; two competing firms compete to serve a common set of customers, and the one that serves the customers more fully is going to be more successful. You don’t win by force of might, you win by serving others – this is a fairly important distinction to be made when the subject is an economy that serves human need. Companies operating within a free market economy have no powers to compel anyone to purchase anything. The extent of their power over their customers is limited to the extent that they can offer a comparatively better product and a more attractive price. Railing against such competition is equivalent to railing against service to those the firm is trying to serve; surely the Pope does not mean to bemoan a system that puts the less efficient producer out of business. If so, he would be advocating for the rich and powerful entrepreneur over the “powerless” consumer.

Consider the company that takes more of your money than any other – is this a case of you as lamb being eaten by the lion? I pay untold amounts in mortgage interest each year, but nothing compelled me to enter into such mortgage loans, and indeed I was quite happy to get the money. Banks would seemingly fit everyone’s definition of the powerful eating the powerless, but the housing crisis consisted primarily of the powerless defaulting on their debt obligations to the banks and then carrying on with their lives none the worse for the wear; where are banks that have set up the private debtor’s prisons for the powerless who crossed them?

A successful corporation, in isolation from the state, has little power under any understanding of that word. The largest and most powerful of companies employs a miniscule fraction of the workforce, and must offer them opportunities that are more favorable to them than the millions of other potential employers. The same company has sales that are a miniscule percentage of GDP, and has no ability to compel you to purchase their products. To the extent that they make extensive profits, their re-investment decisions have a small impact on the course of the economy, but so what? They do not finance such investments out of compulsory payments from workers or customers.

Pope Francis’ antidote to a misplaced concern over a system of competition that empowers those he views as powerless is to turn to the state:

In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.

The first sentence can probably be refuted with a thousand facts, the simplest of which is to recognize that nearly every measure of health and well-being increases with national income, and that in general those economies that are characterized by more economic freedom tend to be richer. One of the largest problems among the impoverished or marginalized people within the U.S. economy is obesity! But even the United States, certainly one of the richest countries, can hardly be characterized as an unregulated free market economy. It has a highly progressive income tax system, vast social welfare income redistribution programs, a system of compulsory and tuition-free primary and secondary education, and enough regulations to make every attorney in America living high on the hog. What Chesterton said of Christianity can be said for free market economics – the problem is not that it has been tried and found wanting, the problem is that it has not been tried.

The use of the term “trickle-down” is a gratuitous prejorative of the left to decry market economies. I need not naively or otherwise “trust” the goodness of those wielding economic power in a free market system, because no single person or firm wields any discernible economic power in a free market system. With respect to my own life within such an economy, I wield that power – I am free to make decisions as to work, savings, and spending.

In economic markets, it is the firm that is relatively powerless, and the consumer that holds the power – he can vote with his feet every day. In political markets, elected officials wield far more power than voters, who have much less freedom to vote with their feet, and otherwise have infrequent opportunities to vote otherwise. It is politics that determines the dividing line between the economics sphere and the political sphere – if it determines there is no dividing line, as in say the Soviet Union, all of the power to vote with your feet – the power held by the lowliest of the low in free markets – is subsumed within the state.

It is only as the economic sphere is increasingly determined by the political sphere that economic power becomes concentrated, but it becomes concentrated via government. To take the very relevant recent example of Obamacare, a health insurance company cannot compel me to purchase health insurance in a system founded upon economic liberty; it is only with the power of the state, in a setting where economic liberty is not valued, where it becomes a law that I must purchase health insurance or otherwise face a penalty. Insurance companies do not make and enforce laws – they provide a private good. Governments make laws, and once they decide they are free to make laws regarding the purchase or supply of private goods, it is only then that we need to worry about naively trusting the goodness of those wielding economic power, because it is only then that such power becomes concentrated and meaningful.

The power to compel – a power reserved exclusively to the state – is the power that we should be concerned with. In an unregulated free market economy, no company possesses that power. But once we take our successful corporation out of the hypothetical world of free markets, and put them into an economy where the state plays a vigorous and active economic role, it should not surprise us that such companies will attempt to achieve through the unique power of government what it cannot achieve on its own – namely, the restraint of competition for the purpose of self-enrichment. It is not just companies that do this – labor unions do it as well – and in both cases it involuntarily diminishes the power of consumers, who would otherwise collectively wield the relevant economic power through their voluntary actions.

Pope Francis’ cursory dismissal of free market economies leads logically to his advocacy of the very concentration of economic power, in the hands of the state, which brings about much of the misery he seeks to curtail:

While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control.

This quote reflects a cognitive affliction of the left with respect to economics, best referred to as “Fixed Pieism.” If the economic pie were fixed, a system bent on cutting all of the slices evenly would achieve that goal quite easily. But the pie has hundreds of millions of potential bakers, and if you tell them all in advance that they will get an even slice regardless of their input, you will get a much smaller pie. In light of this, it is shocking that after the collapse of communism someone can make the claim that growing income inequality is the result of ideologies that defend free market principles? In the aftermath of the collapse of the Soviet Union, when we no longer needed to trust the propaganda of the Soviet Union with respect to their claims of economic growth and income equality, it became evident that it had neither – in a system of government and economics whose very premise was the eradication of inequality, the degree of income inequality was worse than it was in the United States. Beyond that, its lack of growth meant that if you were unfortunate enough to be at the poor end of the spectrum, you were likely worse off, and certainly no better off, than the poorest in the United States.

Who is it, then, that is placing naïve trust in the goodness of those wielding economic power? Is it me, who advocates a system that essentially removes all such power, or is it the Pope who wants to in effect create such power by placing it in the hands of the state, which he regards as “charged with the vigilance of the common good.” It may be so charged, but the understanding of the term “common good” varies across and within countries. In Iran, there may be universal agreement that the common good would have the Pope submit to Islam or be beheaded. One would hope that their vigilance in that regard comes to naught.

Consider when there is disagreement over what constitutes the common good within a given society, surely one such view will win out over the other in the political arena, which most likely results in using the power of the state to forcibly compel some of its citizens to follow a policy it disagrees with. Right now the good old U.S. of A., charged as it is with the vigilance of the common good, is making it compulsory for any Catholic employer (lay or clerical) to subsidize birth control and abortion against the dictates of his conscience. Does the Pope regard this development as one where the state is rightfully exercising its control over an ideology which defends “the absolute autonomy of the marketplace”? Whether or not the Pope thinks so, I can tell you right now Obama and the Democratic Party does. Careful what you wish for!

Catholic social teaching has long championed the concept of subsidiarity – which holds that societal problems should be handled at the lowest capable unit of society. Resolution of such problems should start at the family unit, progressing sequentially if no resolution is possible to civic associations, parishes, local governments, state governments, and finally federal governments. Excepting the family for the moment, what you’ll notice as you progress up this list is that one’s own connection to such organizations is progressively less voluntary (i.e. civic associations are entirely voluntary, and mobility from town to town is easier than that from state to state, which is again far easier than nation to nation), and secondly that those empowered with making decisions become more and more remote from those for whom decisions are being made. (Within the family unit, obviously kids do not choose their parents, but husband and wife do, and they are far more vested in the well-being of their children to merit decisions being made by politicians who are entirely removed from the consequences of their policies.) The concept of subsidiarity suggests the obvious – that the federal government, rather than the family unit, should be responsible for providing for the national defense, and conversely that the family unit, rather than the federal government, should be responsible for providing for the well-being of aged parents.

This is the danger – when the federal government takes upon itself the functions that are best fulfilled by the more intimate and responsive “little platoons” (Edmund Burke’s phrase for the mediating institutions that form the fabric of civic life), they tend to destroy the ability of such little platoons to play that or any other role. The result is seldom as intended, and it matters not a bit if the state is motivated by beneficence. The state, being the largest and most powerful organization within the social chain, always survives the destruction of the little platoon. Once it kills off the little platoon, the problems created by the state cannot be handed back to the little platoon, and as a result those problems reinforce the case for even more state power.

Want an example? When the states of Europe decided to take on the responsibilities for the aged through forced savings on their part, it did not take long for Europeans to figure out that the same taxes are paid and the same benefits doled out no matter the number of children you have raised. In contrast to the bad old days, when having children was in part a way to invest in your own care and protection while you were young and energetic enough to raise them to be responsible to society and to you in your old age, now you knew you’d get a check just for showing up at 65. The predictable result – increased tax burdens made it harder to raise children, and less economically important to do so – so people had fewer kids. This was individually rational, but collectively crazy – there is no next generation to pay for the current retirees, and now those economies are in crisis as a result. To paraphrase Mark Steyn, the problem with socialism isn’t that eventually you run out of other people’s money, the problem is that you eventually run out of other people. But not this - that crisis will demand a state response, because it cannot be handed back to the children who were never born.

Similarly, it is a sad economic reality of life that feel good policies that intervene in free labor markets to alleviate the plight of the poor often have the very opposite effect. Earlier this year, the Pope was questioned by an unemployed worker in Italy who was lamenting the indignity of being out of work. True to the sentiment of his writings, the Pope decried the system of international capitalism as the likely culprit, but he needn’t have looked further than the laws in place in Italy to protect that man from being fired by any employer. Throughout Europe, the state imposes very hefty fees to firms who fire people. The naïve purpose is to dissuade companies from laying people off, and it no doubt has this affect once they are hired, but unfortunately that is not the only effect. The law also obviously dissuades people from hiring new workers, and is largely attributed as the reason for much higher levels of unemployment in Europe versus the United States. Net effect – the law increases the unemployment it seeks to end. It is the supposed beneficence of the state, not the cruelty of capitalism, which leads to that man’s unemployment. In theory the market stands ready to take on this social problem should the government understand the folly of its ways, but in reality such laws dampen the entrepreneurial spirit of the people, or otherwise drive it away to more hospitable economic climates. And so again a problem created by the state will lead to the demand for the state to find a solution.

We can make the same observation with the health of the Catholic Church - aside from the economic ignorance displayed in the Pope’s comments, the thing that is even more striking as a Catholic is the cover given to the legitimacy of political power, when the health of the Church is typically inversely related to the use of political power for this same reason. The state, as it turns out, is a more jealous god than God! In Communist countries, religion was rightly viewed as an obstacle to state power, and was summarily eliminated. In the Western world, as state power has grown, it has squeezed out or minimized the Church in more benign ways, many of which align with the anti-poverty concerns of the Church.

To give but one example in the United States, all children can go to secondary and primary school tuition-free, which is not to say that they can go to school cost-free. The fees are paid through property and income taxes, the payment of which limits the income available for Catholic parents to instead pay a cost of $5k to send their children to a Catholic school. A Catholic family is on the hook for the school taxes whether or not it attends the public school, and the majority choose to attend the public school at zero marginal cost.

The states could have established a tuition-free system of education that could have offered vouchers of equivalent value to be spent at a school of your choice. Such vouchers would have been more than adequate to cover Catholic school tuition, as it in general spends a much lower amount per pupil as compared to public schools. Insisting upon public provision, rather than simply seeking public financing, empowers the state to decide what educational content is in the best interest of its subjects, at the direct cost of the citizens. On its face, it is a benevolent policy, but it empowers government at the expense of the powerless.

Consider, then, what effect this simple policy of exclusion has upon the influence of the Catholic Church. Aside from the obvious benefits of educating the next generation of Catholics in the faith, having vibrant Catholic schools would also increase the participation of parents in parish life. The state, as I said, is a jealous god, and we are the poorer for it.

Finally, consider the family and its role in protecting children. The Pope understands that there is a crisis here:

The family is experiencing a profound cultural crisis, as are all communities and social bonds. In the case of the family, the weakening of these bonds is particularly serious because the family is the fundamental cell of society, where we learn to live with others despite our differences and to belong to one another; it is also the place where parents pass on the faith to their children.

But he doesn’t seem to understand the role the state has played in this crisis. While not the sole source of the crisis (I would put the sexual revolution in there as a co-equal cause), welfare policies implemented by the states have helped leave families in tatters, with single mothers choosing the certainty of the state’s check over the uncertainty of the father’s work ethic.

The Pope is right to be concerned with what Ropke called morally callous economism, which Ropke defined as “the incorrigible mania of making the means the end, of thinking only of bread and never of those other things of which the Gospel speaks.” Ropke shared the concerns of the Pope in creating a human-centered economy, railing against the tendency of economism to “allow material gain to obscure the danger that we may forfeit liberty, variety, and justice and that the concentration of power may grow, and it is also economism to forget that people do not live by cheaper vacuum cleaners alone but by other and higher things which may wither in the shadow of giant industries and monopolies.”

If the culture is already pre-disposed to think only of bread and circuses, then free markets may lead to the further encouragement of that materialistic focus. In so doing, a free market economy may also take us further down the road to ignoring other values – even those of us who never set out to focus only on material objects might end up that way with the constant bludgeoning of advertisements we expose ourselves to. However, the danger inherent to excesses of consumerism are not best addressed by the state. In fact, they are best addressed by those little platoons – the family, the local community, the civic associations such as parishes, etc. that create true community – that is, all of the institutions whose survival is in jeopardy if the state becomes more powerful.

The Pope rightly laments the “lack of real concern for human beings” which leads to the reduction of man to “one of his needs alone: consumption.” I’ve written before about how the right to abortion reduces human life to a consumption choice: if motherhood is a choice that can be rejected on the basis of inconvenience to the lifestyle of said mother, it is not unlike the choice to buy a Coach bag or a Fendi purse. In such an environment, it is hard for me to understand in what way unfettered capitalism can lead to a more bluntly consumer culture. (I know others like to define the beginning of life in such a way that they can reject this conception, but the Pope certainly is not in that group.)

Here, then, would be one example where the state could surely step in and save the day. But don’t hold your breath – in the U.S., the most overtly religious nation in the Western world, not only is abortion considered a right, it is heavily subsidized. The Church, through its ministry and its appeal to conscience, has been and hopefully will continue to be the largest brake on such excesses of free markets. Unless, of course, it embraces the power of the state at its own expense. And then what it will get is the subsidization of anti-Christian “art” and free condoms, but no jobs for the poor.

Sign up for my Notify List and get email when I update!

powered by