Clear vs. Muddled Economic Thinking

Back in 1991, Pope John Paul II released the encyclical ‘Centesimus Annus‘. It condemned socialism, warned of the potential pitfalls of democracy and the welfare state and condemned the warfare state no uncertain terms. It represents quite a remarkable statement on social relations. Rarely has a leader of the Catholic Church embraced the ideas of classical liberalism so unreservedly.

 

PopeJohnPaulIIPope John Paul II waves at his flock …

Photo via nowitaly.com

 

Pope Francis waves to crowds as he arrives to his inauguration mass on 19 March 2013. … and so does Pope Francis.

Photo via catholicvirtue.org

 

Here are a few pertinent quotes from it:

 

“Continuing our reflections, and referring also to what has been said in the Encyclicals Laborem exercens and Sollicitudo rei socialis, we have to add that the fundamental error of socialism is anthropological in nature. Socialism considers the individual person simply as an element, a molecule within the social organism, so that the good of the individual is completely subordinated to the functioning of the socio-economic mechanism. Socialism likewise maintains that the good of the individual can be realized without reference to his free choice, to the unique and exclusive responsibility which he exercises in the face of good or evil. Man is thus reduced to a series of social relationships, and the concept of the person as the autonomous subject of moral decision disappears, the very subject whose decisions build the social order. From this mistaken conception of the person there arise both a distortion of law, which defines the sphere of the exercise of freedom, and an opposition to private property. A person who is deprived of something he can call “his own”, and of the possibility of earning a living through his own initiative, comes to depend on the social machine and on those who control it. This makes it much more difficult for him to recognize his dignity as a person, and hinders progress towards the building up of an authentic human community.”

[…]

I myself, on the occasion of the recent tragic war in the Persian Gulf, repeated the cry: “Never again war!”. No, never again war, which destroys the lives of innocent people, teaches how to kill, throws into upheaval even the lives of those who do the killing and leaves behind a trail of resentment and hatred, thus making it all the more difficult to find a just solution of the very problems which provoked the war.”

[…]

Not only is it wrong from the ethical point of view to disregard human nature, which is made for freedom, but in practice it is impossible to do so. Where society is so organized as to reduce arbitrarily or even suppress the sphere in which freedom is legitimately exercised, the result is that the life of society becomes progressively disorganized and goes into decline.”

 

(emphasis added)

There is nothing in the above we would quibble with. In fact, the entire encyclical is well worth reading. Naturally, John Paul’s views were strongly influenced by his past as a church leader in formerly communist Poland. He had seen and experienced the evils of full-scale socialism first hand. Even so, it is remarkable how clear-headed his views about the market economy were. Such views about economics and freedom have not always been expressed with similar clarity by the Catholic Church. In fact, as Mises has pointed out in his sociological analysis of socialism, the stance of church leaders on economic issues was often anything but defensible.

Contrast the quotes from John Paul’s encyclical with the most widely quoted passage from the first apostolic exhortation, Evangelii Gaudium, released by Pope Francis:

 

“[…] 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.

 

(emphasis added)

It is actually an exaggeration to call the new pope a ‘socialist’ (we confess to having occasionally stooped to doing so as well). He is by all accounts someone who is genuinely moved by the plight of the poor.

Also, he is certainly not wrong in principle to criticize the current financial and economic system, as he does in the exhortation. However, his economic thinking is nevertheless muddled; for instance, what he calls the ‘free market’ is not really an unhampered free market system, far from it actually. As Gary North has pointed out, his trust in politicians to right the alleged wrongs of the market is just as misguided:

 

“Unfortunately, Pope Francis’s evident compassion for the poor is overwhelmed by his confusion about freedom expressed in markets. Economic liberty has done more to elevate the living standards of the general population than any other form of social organization in history. At the same time, it improves justice and expands inclusiveness. In addition, it is the only system which does not trust in the goodness of those with power. Conclusions drawn from such mistaken premises demonstrate why good intentions are not enough, if we are to judge from results.

The fact that the Pope picked “trickle-down” economic theories to attack was revealing, because no economist ever promoted such a thing. It was a term, like “tax cuts for the rich,” invented by big government opponents of market freedom to deliberately misrepresent it.

Trickle-down is a defamatory characterization of “supply side” economics which misdirects attention away from the primary means by which all gain from market freedom. Its core confusion is in assuming that reducing the disincentives faced by heavily-taxed high earners, leaving them more take-home pay, only benefits them, except for what trickles down to others when they spend it.

The reality is that when people, however rich or poor, advance their interests through voluntary arrangements, they benefit those they deal with. This is done by providing opportunities others find better than their alternatives, and those improved opportunities increase others’ real wealth. As George Reisman succinctly put it:

“Under capitalism, not only is one man’s gain not another man’s loss, insofar as it comes out of an increase in overall, total production … one man’s gain is positively other men’s gain … Indeed, under capitalism, competition proceeds to raise the standard of living of the average wage earner above that of even the very wealthiest people in the world a few generations earlier.”

Or, as Arthur Seldon put it, “capitalism is the instrument which people in all societies … use to escape from want and enrich one another by exchange.”

 

As North remarks further, Pope Francis evidently confuses the free market with the state-capitalistic caricature that has been erected in its place. What the pope deems a ‘market failure’ is in reality a government failure:

 

“When the rich get richer by rigging the political process, that is objectionable, but it is not a market failure. It is a government failure, imposed by undermining the benefits competitive markets provide for all participants.

And the solution is to get the government out of the theft business (as capitalism would require), not to first enable favorites to garner ill-gotten gains from restricting competition, then use government’s abuses as an excuse to more heavily tax (and thus discourage) those who actually benefit others.

It is true that the crony capitalism we see all around us, which is far closer to fascism than capitalism, is unjust. Pope Francis is right to criticize such injustice. But private property, the basis of capitalism, prevents rather than enables the “dog eat dog” “survival of the fittest” competition that capitalism’s attackers accuse it of.

In contrast, private property prevents the physical invasion of a person’s life, their liberty, or their property without their consent. By preventing such invasions, private property is an irreplaceable defense against aggression by the strong against the weak. No one is allowed to be a predator by violating others’ rights. Property rights negate the rule of “might makes right,” which prevails in the absence of such rights.

 

(emphasis added)

As noted above, it is actually too simplistic to call Pope Francis a ‘socialist’ as a number of observers have done. We have little doubt that he is moved by a genuine concern for the poor and a desire to fight injustice. He surely means well and the critique he voices in the exhortation is in many ways justified, but it misses its target by attacking a straw man. Capitalism – even in its less than perfect current form – has once again lifted hundreds of millions out of abject poverty over the past few decades. Instead of condemning the free market, one should demand more of it if one’s goal is to lift up the poor.

 

Addendum: A Smattering of Woo?

It has turned out that Pope Francis is extremely conservative in one area though: he firmly believes in the literal devil, and the Church’s small department of exorcism is apparently making a strong comeback of late.

 

“Largely under the radar, theologians and Vatican insiders say, Francis has not only dwelled far more on Satan in sermons and speeches than his recent predecessors have, but also sought to rekindle the Devil’s image as a supernatural entity with the forces­ of evil at his beck and call.”

[…]

“Pope Francis never stops talking about the Devil; it’s constant,” said one senior bishop in Vatican City who spoke on the condition of anonymity in order to speak freely. “Had Pope Benedict done this, the media would have clobbered him.”

Yet, as with so many of his actions, Francis may simply be correctly reading the winds of the Catholic Church.

Although it is difficult to measure, Vatican officials talk about a resurgence of mystical rites in the church, including exorcism — or the alleged act of evicting demons from a living host. Cardinals in Milan; Turin, Italy; and Madrid, for instance, recently moved to expand the number of exorcists in their dioceses to cope with what they have categorized as surging demand.

[…]

By most accounts, the ranks of official exorcists number between 500 and 600 in a global church of more than 1 billion Catholics, with the vast majority operating in Latin America and Eastern Europe. This week, at the ninth and largest Vatican-sanctioned convention on exorcism, attendees gushed about the fresh recognition being afforded the field.”

 

(emphasis added)

The church has been very reluctant to allow exorcisms to take place in recent decades, as it has slowly but surely accepted that those once deemed ‘possessed’ are simply mentally ill. It has however not foresworn the practice altogether. We would submit that it is likely to do far more harm than good (since even a placebo effect seems unlikely to register in the case of severe mental illness). As far as we are concerned, ‘demonic possession’ is basically woo-woo. The recent rise in the demand for exorcists can probably be explained by the deteriorating social mood.

 

levitationVade retro Satanas! Possession-induced levitation, made in Hollywood. Please note: this happens only in movies.

(Photo via condenast.com / Author unknown)

 

Should you ever encounter what looks like levitation induced by demonic possession, here is a possible non-woo explanation for it.

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

3 Responses to “A Tale of Two Popes”

  • woodsbp:

    Hi there Pater. Could you possibly do me a big favour: I would like you to explain what exactly you mean by a Free Market, as I have this, possibly naive belief, that such an entity whilst possible in theory, is impossible in practice. That is: if you observed a particular market in action you would say, “That’s a Free Market!”. Thanks.

    Economists may theorize that a FM ‘should’ exist – and provide plausible political, social and economic arguments for this opinion, view, belief or whatever. And then propose appropriate policies to further that belief.

    Unfortunately, long experience has shown that humans cannot (maybe will not) establish a Free Market. So are you (and others) chasing an economic chimera? If this be so, then what would you accept as your alternative? For example: ensure folk are not being deliberately harmed – either directly or indirectly.

    And for what its worth, no economic process is either ‘good’ or ‘bad’ – except within the value frames of the mindsets of the beholders. All contemporary economic ___ isms are embedded (carried along) in the Permagrowth paradigm. And its within that paradigm that our current economic problems lie. You cannot theorize with Nature. Some dopey economic theorists appear to believe that they can. Nasty surprise awaits.

    Brian.

  • No6:

    Now we have a bubble forming in exorcists!

  • zerobs:

    John Paul II was chosen to please Catholics.

    Pope Francis was chosen to please non-Catholics. Maybe the thought was it would drum up enrollment.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Speculative Blow-Offs in Stock Markets – Part 1
      Defying Expectations Why is the stock market seemingly so utterly oblivious to the potential dangers and in some respects quite obvious fundamental problems the global economy faces? Why in particular does this happen at a time when valuations are already extremely stretched? Questions along these lines are raised increasingly often by our correspondents lately. One could be smug about it and say “it's all technical”, but there is more to it than that. It may not be rocket science, but...
  • Speculative Blow-Offs in Stock Markets – Part 2
      Blow-Off Pattern Recognition As noted in Part 1, historically, blow-patterns in stock markets share many characteristics.  One of them is a shifting monetary backdrop, which becomes more hostile just as prices begin to rise at an accelerated pace, the other is the psychological backdrop to the move, which entails growing pressure on the remaining skeptics and helps investors to rationalize their exposure to overvalued markets. In addition to this, the chart patterns of  stock indexes...
  • India: Still the Fastest Growing Large Economy?
      India’s Currency Ban - Part X It has now been four months since Narendra Modi declared about 86% of monetary value of currency illegal. Linked here is the last in my series of updates, which was written soon after the deadline to deposit the demonetized currency. Most of the banned currency was eventually deposited, making a mockery of Modi, who had claimed that unaccounted money would not reach the banks.  Perhaps 3% of the cash never reached the banks.   A cunning plan...
  • Gold Sector: Positioning and Sentiment
      A Case of Botched Timing, But... When last we wrote about the gold sector in mid February, we discussed historical patterns in the HUI following breaches of its 200-day moving average from below. Given that we expected such a breach to occur relatively soon, the post turned out to be rather ill-timed. Luckily we always advise readers that we are not exactly Nostradamus (occasionally our timing is a bit better). Below is a chart of the HUI Index depicting the action since the January...
  • They're Worried You Might Buy Bitcoin or Gold - Precious Metals Supply and Demand
      Bitcoin Mania The price of gold has been rising, but perhaps not enough to suit the hot money. Meanwhile, the price of Bitcoin has shot up even faster. From $412, one year ago, to $1290 on Friday, it has gained over 200% (and, unlike gold, we can say that Bitcoin went up — it’s a speculative asset that goes up and down with no particular limit).   Bitcoins are a lot less tangible than this picture implies, but they are getting a lot of love recently...
  • Welcome to Totalitarian America, President Trump!
      Trump vs. the Deep State If there had been any doubt that the land of the free and home of the brave is now a totalitarian society, the revelations that its Chief Executive Officer has been spied upon while campaigning for that office and during his brief tenure as president should now be allayed.   Image adapted from the cover of “Deep State #5” - depicting an assassin from the future   President Trump joins the very crowded list of opponents of the American...
  • Boosting Stock Market Returns With A Simple Trick
      Systematic Trading Based on Statistics Trading methods based on statistics represent an unusual approach for many investors. Evaluation of a security's fundamental merits is not of concern, even though it can of course be done additionally. Rather, the only important criterion consists of typical price patterns determined by statistical examination of past trends.   Fundamental considerations such as the valuation of stocks are not really relevant to the statistics-based trading...
  • The Long Run Economics of Debt Based Stimulus
      Onward vs. Upward Something both unwanted and unexpected has tormented western economies in the 21st century.  Gross domestic product (GDP) has moderated onward while government debt has spiked upward.  Orthodox economists continue to be flummoxed by what has transpired.   What happened to the miracle? The Keynesian wet dream of an unfettered fiat debt money system has been realized, and debt has been duly expanded at every opportunity.  Although the fat lady has so far only...
  • Why the 21st Century Sucks - Turtles All the Way Down
      A Truly Sucky Century BALTIMORE – What an awful century! Worst we’ve ever seen. Household incomes are down. Employment is down, with 7 million people in the U.S. of working age without jobs. Productivity growth is down. GDP growth is down – to only about 0.5% per capita last year. Even life expectancies are down. Drug overdoses are up. Suicides are up. One out of every eight children lives in a family getting food stamps. One of out every eight adults takes psychoactive drugs...
  • Searching for Truth
      Heresy or Truth? RANCHO SANTANA, NICARAGUA – In the fifth century, Christian scholars counted 88 different heresies. Arianism. Eutychianism. Nestorianism. If there was a way to “offend” God, they had a name for it. One group of “heretics” argued that there was no such thing as “original sin.” Another denied the trinity. And another claimed Jesus was not divine. Which one had the truth?   Depiction of the first Council of Ephesus in 431 AD, convened by Emperor...
  • Gold and the Fed's Looming Rate Hike in March
      Long Term Technical Backdrop Constructive After a challenging Q4 in 2016 in the context of rising bond yields and a stronger US dollar, gold seems to be getting its shine back in Q1. The technical picture is beginning to look a little more constructive and the “reflation trade”, spurred on further by expectations of higher infrastructure spending and tax cuts in the US, has thus far also benefited gold. From a technical perspective, there are indications that the low at $1045.40,...
  • Off the Beaten Path in Mesoamerica
      Greeted by Rooster There’s an endearing quality to a steadfast rooster call at the crack of dawn when overheard from a warm country farmhouse.  There’s a reassuring charm that comes with the committed gallinaceous greeting of daybreak that’s particularly suited to a rural ambiance.  The allure of a morning cock-a-doodle-doo somehow falls flat in all other settings.   Good morning everyone! Before meteorological forecasts were available on TV and smart phones, people...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com