Mr. Obama and Pope Francis: who would’ve thought they’d agree on economics? Or do they?

Posted on December 8, 2013 by


Pope Francis recently released his Apostolic Exhortation, Evangelii Gaudium, which condemns “unfettered capitalism, “(as labeled by the press).  Pope Francis seemingly condemns something that never has been, nor does anyone seriously call for:  a laissez faire market devoid of morals or any constraining laws.  Indeed, the rule of law and morality are necessary for healthy functioning markets, since the foundation of markets (private property and the freedom to exchange) requires trust and enforcement of contracts.  An extended quote will fairly represent his views, and I will emphasize a portion for further discussion as we compare to President Obama.

53. Just as the commandment “Thou shalt not kill” sets a clear limit in order to safeguard the value of human life, today we also have to say “thou shalt not” to an economy of exclusion and inequality. Such an economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.  Human beings are themselves considered consumer goods to be used and then discarded. We have created a “throw away” culture which is now spreading. It is no longer simply about exploitation and oppression, but something new. Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society’s underside or its fringes or its disenfranchised – they are no longer even a part of it. The excluded are not the “exploited” but the outcast, the “leftovers”.

54. 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. Meanwhile, the excluded are still waiting. To sustain a lifestyle which excludes others, or to sustain enthusiasm for that selfish ideal, a globalization of indifference has developed. Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people’s pain, and feeling a need to help them, as though all this were someone else’s responsibility and not our own. The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase. In the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.

56. 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.

Meanwhile, Mr. Obama gave a speech which Ezra Klein calls “The best speech Obama has given on the economy.”  Mr. Obama has some similar nuggets (emphasis added):

But we know that people’s frustrations run deeper than these most recent political battles.  Their frustration is rooted in their own daily battles — to make ends meet, to pay for college, buy a home, save for retirement.  It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them.  And it’s rooted in the fear that their kids won’t be better off than they were.  They may not follow the constant back-and-forth in Washington or all the policy details, but they experience in a very personal way the relentless, decades-long trend that I want to spend some time talking about today.  And that is a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.  I believe this is the defining challenge of our time:  Making sure our economy works for every working American. 

….But starting in the late ‘70s, this social compact began to unravel….As values of community broke down, and competitive pressure increased, businesses lobbied Washington to weaken unions and the value of the minimum wage.  As a trickle-down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither.

So we see both Mr. Obama and Pope Francis lamenting rising inequality, and blaming economic ideologies for leading to this result.  In many respects, I cannot disagree with Pope Francis:  after all, his knowledge of market economics is the corrupt crony capitalism that is always at work in Argentina (and indeed, in much of Latin America’s past).  In crony capitalism, it is those that are politically connected that find their business interests rise.  Indeed, Hernando De Soto (author of Mystery of Capital) has found that political “insiders” can navigate the regulatory requirements to start a new business in the matter of days, while it might take “outsiders” months and years.  In a crony capitalist model, exclusion is common for those outside what De Soto calls the “bell jar.”  The fruits of this type inequality and exclusion are evident in many 3rd world countries where cronyism is rampant; consider this picture from Sao Paulo:

Images like this can be found in many of the countries that Pope Francis has visited; indeed, he is/was known for his frequent visits to the slums of Buenos Aires.  One mistake is to consider these outcomes the result of free market capitalism; show me the free market capitalism of the Peronistas from Argentina–I can’t seem to find it.  A second more general mistake is to compare the situation of the poor today to the rich of today; a more apt comparison is how living standards of the poorest in society have changed over time due to the fruits of more free (notice not unfettered) markets.  Pope Francis chides those that have a “naïve trust in the goodness of those wielding economic power,”  yet I think he misses the mark.  For those of us who support more free markets, it is not due to our trust in the goodness of those wielding economic power, but due to our understanding of human nature:  we trust that people will generally act in their own self interest (note that self-interest can be broadly viewed to include altruism).  It is the appeal to their own self-interest, as Adam Smith has famously shown, that causes them to want to serve others.  The more “unfettered” a market is, the more competitive it is, and self-interest tends to drive mutually beneficial exchanges where both parties to the transaction share in the gains.  The more “fettered” a market becomes, the less competitive they become and we see monopoly privilege enable one side to gather the lion’s share of mutually beneficial exchange.  It’s important to remember Arthur Brooks comment that crony capitalism depends on statism.  When we think about “market failure,” we need to always question whether there is a “political failure” enabling it.  To be sure, the poor need inclusion, but I would suggest less government and not more is the answer. (EDIT:  this last sentence needs some modification; in the cases where property rights are not defined as Hernando De Soto’s work shows, the government could be very beneficial; otherwise the comment holds). The last bolded comment of the Pope (that there are free market ideologies which call for no role for the state) is simply misapplied.  To be sure, there are intellectual cases for anarchism, but this is not the ruling ideology or even a significant ideology in economic thought.  Some columnists interpret the Pope less literally, as does Peggy Noonan, yet I think it fair to take him at his words–and his words betray a lack of understanding of economics, despite his correct condemnation of materialism (which most of us Bereans would agree with).

Yet what about Mr. Obama? I am harsher in my view of Mr. Obama’s comments, because some of the claims are patently false.  Spending on social investments on education, infrastructure has been allowed to wither?  Really?!  He has numerous staff that could simply look at the data–this is simply not true by what almost any reasonable person would mean by “withering.”  As CafeHayek’s Russ Roberts points out, a tripling in real terms of education spending is not withering.   Further, he is well aware that the United States tax code is more progressive than most of Europe (his gold standard) and has become increasingly so in the timeframe Mr. Obama laments.  While we can sympathize with Pope Francis’s comments given his personal story, Mr. Obama is asserting empirical facts which are not true.  If he realized the facts were exactly opposite what he claims, would he change his position?  I doubt it.  Further, Pope Francis is making these comments in a much broader statement about values in a fallen world; while he may be wrong in the use of his terms, he is correctly identifying problems and challenging us to do better.  Mr. Obama, however, is making his speech with the single purpose of indicting our current system, to justify his view that an expansion of government is essential.  His view of the solution?

But we’ve also seen how government action time and again can make an enormous difference in increasing opportunity and bolstering ladders into the middle class.  Investments in education, laws establishing collective bargaining, and a minimum wage — these all contributed to rising standards of living for massive numbers of Americans.

While the two speeches use similar words, I think there is an entirely different context between the two.  Let us also not forget that Pope John Paul II came to a better understanding of markets by reading Michael Novak’s The Spirit of Democratic Capitalism; there is hope (and prayer) for Pope Francis yet.   And let us remember, it is only free markets that have lifted millions from abject poverty–the solution is not less freedom, but more.

For a more informed analysis of Pope Francis paper, I encourage watching the following video from Father Scirico of the Acton Institute