Ryan Avent took Greg Mankiw to task for his criticism of the Pope’s statement on economics. The fact that two economists with relatively similar policy views on “free markets” (both are neoliberals, neither favor laissez-faire) had such diametrically opposed reactions made me want to examine the document first hand. My initial reaction is that:
1. Greg Mankiw is basically right.
2. The Pope would be almost as contemptuous of Avent’s policy views as he is of Mankiw’s policy views.
It’s actually difficult to make sense of the Pope’s statement, as he seems unaware of what’s going on in the world around him. Thus we are forced to guess what the Pope would think if he understood the actual impact of free markets. Let’s start here:
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. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. Debt and the accumulation of interest also make it difficult for countries to realize the potential of their own economies and keep citizens from enjoying their real purchasing power. To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.
The first sentence seems a bit odd, given that global inequality has been declining in recent years. So let’s assume that the Pope is thinking about the fact that inequality within countries has been rising (and put aside the question of why the Pope would take a nationalist perspective and not a global perspective.) The second sentence also makes no sense from a global inequality perspective, as inequality is falling precisely because non-market regimes such as Maoism and the Indian “license raj” are declining in importance. So once again we need to take a national perspective for this to make sense. The third sentence makes little sense, taken literally. A tiny number of dogmatic libertarians (mostly in America) oppose any form of control by the state, but have no policy influence. So once again let’s cut the Pope some slack and assume he’s engaged in poetical license. Maybe he’s also going after neoliberals who favor a state that spends 35% of GDP (as in the US, Switzerland, and Australia) not the 45% of GDP more common in Western Europe.
When I studied all 32 developed countries (before the crisis) I found Greece to have the least market-oriented policies, and of course Greece also has notoriously anti-market attitudes, and high levels of corruption. Now read the central part of the paragraph again, focusing on the burdens of debt and the problems of corruption. Pretty hard not to think about Greece, isn’t it? So what does this have to do with free markets?
The Pope’s entire statement might make a bit more sense if applied to the developing world. Certainly the suffering in that area is much greater, as is the social exclusion and savage inequalities. But there is one fundamental problem in applying the statement to the developing world, those countries tend to be much less market-oriented than the countries of the developed world. Instead, they are often ruled by oligarchs that have their foot on the throats of the poor, and who favor non-market regimes precisely because barriers to competition make them rich. Nobody “deifies” free markets in the Congo or Afghanistan.
If the Pope is talking about the developed world he has things exactly backwards; the problems he worries about tend to be the most severe in the least market-oriented the countries. And here I am being charitable, as he seems to have little or no knowledge of the actual policies failures that have created many of today’s problems. You might argue that this is as it should be, as you wouldn’t expect a religious leader like the Pope to get into the nitty-gritty of how the euro system led to high unemployment, for instance. OK, but then even the Pope’s supporters must squirm a bit when they see him try to take a stab at positive economics:
The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person!
And I thought it was because the US had failed to adopt the Canadian regulatory model. I apologize to my Catholic readers for the snark, but if you are going to speak out on important public policy problems, you really need to have some understanding of what caused them (or else hire some experts who do understand.)
Ryan Avent criticized Greg Mankiw for ignoring the term ‘inevitably’ in the following sentence:
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.
But when I read the following sentence I was completely mystified by the term ‘never’:
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.
Never? Trickle-down didn’t work in Switzerland? It didn’t work in Singapore? And don’t say those are not examples of “laissez-faire” and that the Pope is attacking laissez-faire. I find much of the Pope’s statement to be mystifying. I can’t tell if he is excusing violence and discouraging education aimed at making people less violent, or not. I can’t tell if he thinks things were much better in the good old days (as he seems to imply.) But if there is one thing that is crystal clear it is that the Pope is talking about the real world. And that means he is talking about countries when the government runs 20%, 30%, 40%, or 50% of the economy, not the (non-existent) system called “laissez-faire.”
So I ask you again, have free market regimes never succeeded in empowering the poor? This is why I claim the Pope is just as opposed to Ryan Avent’s economics as he is to Greg Mankiw’s. Try to read the document and think about actual examples of various policy regimes. How about his own country—Argentina? Isn’t the problem there a lack of free markets? That’s obvious to me, but I doubt the Pope would agree.
I could go on and on, as every single paragraph is full of disturbing claims and assertions. But I’ve gone on long enough. So let me instead recommend that you read the first 50 pages or so of Deirdre McCloskey’s “Bourgeois Virtues.” McCloskey is just as opposed to those who “deify” the market as the Pope. But McCloskey also understands that free market economic regimes do lead to greater “justice.” The Pope does not. Either he supports a statist economic system, or (like McCloskey) he supports free markets plus social insurance, in which case his entire economic statement is a complete mess. Here’s my favorite quote from McCloskey:
“I don’t care how one defines capitalism, as long as it’s not defined as evil incarnate.”
McCloskey would not like the way the Pope has defined “capitalism” in his statement on economics.