Opinion

Edward Hadas

The pope takes on economics’ pro-rich bias

By Edward Hadas
December 4, 2013

The leading theories of economics and finance are usually produced for the rich. Pope Francis deserves praise for suggesting an economics for the poor.

The typical criteria of economic success – such as efficient pricing, fully competitive markets and rapid GDP growth – sound uncaring. And they often are. One problem is that most of the leading theories have an implicit pro-rich bias. For example, the Capital Asset Pricing Model, a basic tool in finance, assumes that the rich investors who can afford to take big bets deserve extra-large rewards when things go well. Or consider how most governments’ economic policy aims first and foremost at GDP growth, basically ignoring the uncomfortable truth that the already rich typically take a disproportionate share of additional production.

By contrast, pro-poor concepts receive almost no attention. Mainstream thinkers rarely say that the rich people who have gained from the economy have an obligation of solidarity with the poor who have lost out. Most of them have never heard of the idea (common in Catholic circles) that private property comes with a “social mortgage”, a debt to the society which makes that property valuable.

I am not accusing the academics, or Wall Street for that matter, of intentional callousness. There are no plots to defend the ruling classes or to ignore suffering. Many economists have used the theories to justify anti-poverty programs. Still, standard economics has a pro-rich bias. I felt it acutely last month at a financial firm’s presentation of its latest investment thinking. A speaker explained that many of the firm’s billionaire clients thought emerging markets would underperform, so they were shifting funds out of them.

In other words, these very rich people were trying to become a little bit richer by taking money away from poor people.

There was no concern for the economic effects of these portfolio adjustments, and no sense that billionaires should have something better to do with their wealth. No one seemed to think twice about the ethical incongruity of it all.

Francis wasn’t there. Had he been in the audience, he could have read aloud from his recent essay: “The Pope loves everyone, rich and poor alike, but he is obliged in the name of Christ to remind all that the rich must help, respect and promote the poor. I exhort you to generous solidarity…”

The pope’s pro-poor bias leads him to some exaggerations in that document. It is not fair to say that the entirety of economic activity is governed by “the laws of competition and the survival of the fittest”. Governments and charities follow other laws in both rich and poor countries. And the gap separating the majority from “the prosperity enjoyed by those happy few” is not actually “growing exponentially”. On the contrary, measured by the provision of basic economic goods, the gap has narrowed substantially.

But Francis is a preacher, not a statistician. The former archbishop of Buenos Aires was well known for spending time in the slums. The billionaires, the richest of the rich, can fact-check; the poor should be allowed poetic truths. And alongside the noble words – I particularly like the “globalization of indifference” – Francis offers some fairly specific recommendations of how to reorient real world economic activity to be pro-poor.

Finance is an obvious target. He argues against the toleration of speculation, the merciless pursuit of debt repayment and the unhealthy hunger for profits. He is basically right: money and credit should unify society and promote the common economic good. Too often these days they divide and diminish.

Now to business people, and their purpose. In tackling strategy, chief executives often start by asking: why does this company exist? Francis has a wise answer. He says executives should “see themselves challenged by a greater meaning in life”, a calling which comes with a material purpose, “to increase the goods of this world and to make them more accessible to all.” That ultimate stakeholder approach is quite a contrast with the rather pro-rich current tenets of management theory, for example that businesses should maximize shareholder value.

Then there are politicians. “I beg the Lord to grant us more politicians who are genuinely disturbed by the state of society, the people, the lives of the poor!” It is perhaps significant that Francis asks for divine help with this cause. He may think mere human action will just produce more leaders whose main concern about the poor is how they vote.

Economists can lead the way, even without fully following the papal injunction to end their blind trust in the invisible hand of the market. Francis provides a quite realistic agenda: policies geared to a better distribution of income, the creation of sources of employment and an “integral promotion” of the poor. A good start would be to root out any old ideas which amount to an integral promotion of the rich.

Comments
21 comments so far | RSS Comments RSS

It gets back to this notion of ‘creating wealth.’ We hear that a lot, as if it’s a given. It’s what wealthy people have done. They just…. created it.

But really wealth is more like water. It’s a finite resource. You can amass it, but it does take from some other pool. It’s not always wrong to amass it, people SHOULD be rewarded for innovation and planning. But it is important not to pat yourself on the back to hard for ‘creating it.’

Posted by AlkalineState | Report as abusive
 

Thank you again Mr. Hadas. I hope your sphere of influence continues to grow. I think the Pope would like that.

Posted by tmc | Report as abusive
 

I could care less how rich the rich get, as long as they pay enough taxes to keep governments from going broke in the countries where they make their money. You can’t have only the middle class and poor people suffering while the rich sacrifice very little, living like royalty. That is immoral.

Posted by Discovery451 | Report as abusive
 

I could care less how rich the rich get, as long as they pay enough taxes to keep governments from going broke in the countries where they make their money. You can’t have only the middle class and poor people suffering while the rich sacrifice very little, living like royalty. That is immoral.

Posted by Discovery451 | Report as abusive
 

Hmmm…There’s also another certain religion that uses the tactic of vilifying authority figures and wealth, to try and distract the public from it’s own inadequacies.

Is anybody really surprised? This is the age of whining. Don’t have something you think you deserve? Don’t work harder to get it… just whine about it and blame somebody else.

There was an article a few months back, about how these college kids were outraged at the fact that they were having to work boring, mid to low income jobs. Since when was finishing college some sort of guarantee you would instantly be handed a 6 figure job?

So instead of just trying harder, they whine about it and demand the government do something. It’s all the big evil corporations and rich people’s fault. Of course… If they could pull it off, these kids would be rich themselves. But since they can’t pull it off, then all rich people are bad guys.

Yes, all business is considered bad now. If you’re a business person, you must be evil. If you make a good living, you must have bombed babies, kicked homeless people and polluted the environment to do it. So is it a shock that the new ‘hip’ Pope is now jumping on this bandwagon? Not really. I’m sure he doesn’t have any agenda… I’m sure it’s not an attempt to win back young people, after the years of corruption in the church. Nah.

Posted by dd606 | Report as abusive
 

“In other words, these very rich people were trying to become a little bit richer by taking money away from poor people.”

That’s the absurdity of left thinking. If the “big bad corporations” put money (buy, start businesses, mine etc) in poor countries, then the left say they are taking advantage of the poor. If they don’t then they are “taking money away from the poor” … what exactly do you want???

Posted by nuffsaid99 | Report as abusive
 

It is the height of irony to see the Roman Catholic Church launch into a critique of the well-to-do, given the Church’s history. Hadad might profit from a program of study of that history. But as matters stand, his article is pure unadulterated twaddle. Reuters can do better, surely.

Posted by highlandlad | Report as abusive
 

dd606, if wealth is the result of hard work and intelligence…. what is Paris Hilton?

And If whining is the domain the poor…. what do Rush Limbaugh and Rupert Murdoch do every day? Are they poor?

Your assessment needs re-calibration.

Posted by AlkalineState | Report as abusive
 

Highlandlad writes: “It is the height of irony to see the Roman Catholic Church launch into a critique of the well-to-do, given the Church’s history…”

Well, people and institutions can change. For example, we talk a lot in America about ‘freedom.’ But what we actually did, in our history, was enslave black people, shoot the Indians and confine the survivors to reservations, incarcerate law-abiding U.S. citizens in prison camps because of their ‘Jap eyes.” People can change. We are stuck with our history, but not IN our history.

Posted by AlkalineState | Report as abusive
 

Alkaline, of course wealth can be created. The world is amazingly more wealthy today than 100 years ago, and if you go back a thousand years not even one person in 10,000 would have had the health, security, and opportunities the 2 billion middle class of the world has today. Economies are human things, not made of gold or oil. Wealth has been built on generations of improvements to our lives and environments.
The problem is when we lose track of which way is up. The illusion that wealth is finite leads to people taking from others and holding it selfishly, this is not going to create wealth, that is true. But money, as capital, is also a tool basic to creating wealth. Rich people on the whole are more able to do that than poor ones, and it is not so much that we do not need rich people as that we need the rich to use their wealth as the tool it should be for the common good. Create things. Loan to those who can. Buy good stuff from those who have created. Enable others. Trust in the future.
Money is a form of trust. On the US dollar it tells you that, money is a promise. We create wealth by creating trust and promising to improve the future.

Posted by Tanj | Report as abusive
 

And Alkaline, your assessment is ridiculously simplistic. Of course Paris is an idiot and Rush is a blow-hard. So, what… Your goal is to somehow change how the entire universe works? You want to eliminate every single person who has money, who you personally feel doesn’t deserve it? Instead of trying to do something that’s impossible, why not just live with it… move on, and put that energy into something to elevate your own status. Then you won’t have to care about what Paris and Rush do, nor worry about how much money they make. That’s the problem, is that too many people want the whole world to change, just for them. If a bank treats you like crap… Well, then of course, there has to be giant hearings, laws passed, protests… The very same thing could be accomplished a lot more easily, by you just going to the bank and saying… “Hi… Give me my money, I’m taking it to a bank that doesn’t treat me like crap”. Then if everybody does that, the bank starts going broke, and they’re forced to change their ways. Problem solved. But of course… That would actually take effort on the part of the public, and many people can’t be bothered with that.

Posted by dd606 | Report as abusive
 

The economists could very well come up with new and more balanced economic theories; the question is, will corrupt politicians follow this new line of thinking, or will they do what they were always doing? The world needs more trustworthy politicians, as the pope wisely prays for, but the people, most of whom are poor, must first vote for them. The ultimate question should be: How can the poor people themselves improve their economic situation?

Posted by pk47 | Report as abusive
 

“You want to eliminate every single person who has money, who you personally feel doesn’t deserve it?”

Nope. Nor do I care to kiss their arse for having it. A strong middle class is my goal. A strong middle class does not cultivate itself.

Posted by AlkalineState | Report as abusive
 

Posted by dd606 “All business is considered bad now.” Only the business that function in the shadows or take a disproportionate income from the tax payers. Those people are greedy and are in fact and in deed evil!!!

“If you’re a business person, you must be evil.” Many of the old guard are!

If you make a living in the killing fields, “you must have bombed babies, kicked homeless people and polluted the environment to do it.”

“So is it a shock that the new ‘hip’ Pope is now jumping on this bandwagon?” How is social justice a band wagon?

“Not really. I’m sure he doesn’t have any agenda… I’m sure it’s not an attempt to win back young people, after the years of corruption in the church. Nah.” I do not even understand what this was supposed to imply, please elaborate your thought further on this.

Posted by 2Borknot2B | Report as abusive
 

Rush Limbaugh twisted the words of the Pope to feed his minions more FUD (Fear, uncertainty and doubt). What a sick, sick man he has become. Fox News networks are following suit. I’m curious how the Tea Party and Republican party will react to this. The majority of them seem to be devout Christians.

Posted by tmc | Report as abusive
 

I’ll pay attention to the pope when the catholic church joins the modern world, until then it’s just another cult with a power figure that somehow speaks to and for a make believe god.

Posted by Depraved | Report as abusive
 

I am constantly suprised that at least some people don’t just look at the kind of society that God told the people of Israel to create with the law layed down in the old testament. Not because everyone would believe it, but because it seems like such a good set of laws and it really lines up with most of what I understand as decent economics over the long haul. Consider:

1.Rules which curb the burden of debt when debt has gotten to great, year of jubilee where every seven years debts are forgiven,
-The US has this in a sense with the ability to BK. After 7 years it is no longer on your record, and in a sense is truly forgiven. It allows for people to take risks without fear of imprisonment, but also requires lenders to think before they lend instead of predatory lending. We may forget how crappy debtor prisons were, but we have this law on the books and it is helpful.

2.Rules governing welfare- There is the practice of gleaning mentioned in the OT where you would leave the edges of your field un harvested, this meant not maximizing profits for the land holder, but it also meant that the poor had to work for their daily grain. We do forcefully tax companies and wage earners forcing them not to maximize on their efforts, but we unfortunatley don’t do a good job of requiring effort from the recipients of welfare, which is really not good for anyone. Not good for society as less is produced from the loss of labor, not good from the people on welfare, as inactivity and unemployment is bad for your health, mental state, and self esteem. Also this leads to transgenerational unemployment.

3. There is the concept of the once a generation redistribution of capital. Every 7 year of jubilee or 49 years you have the return of land to the original family land holders. Not really possible without revolution but look at the large land reforms that occur from time to time throughout history during the middle ages and you see good things happen to their economies. I am not suggesting this today, as land is no longer our primary capital, nor would this probably happen peacably. But our current primary capital in todays economy seems to be our skills and eduacation and one could certainly fullfill this idea by providing the opportunity for all to a decent education or skill that allows one to compete in the workplace regardless of what whether your father was unsuccessful or successful. Let me also defend this idea with a couple of assumptions. By having the redistribuition not be continual like every year leveling incomes, it creates incentive for good stewardship. By having the redistribution happen once a generation it trys to dampen the “lottery of birth”. It would be expensive to provide quality education or skilled training, but it would be worth it, and it seems it might be what God would say is a good idea. That being said, I may just be foolish with my interpretations and if so may no one pay any attention to this post.

Posted by BigC32000 | Report as abusive
 

The overall point that the economic affairs of mankind need a healthy injection of morality is something even the mythical Gordon Gecko would probably agree with today – following the banking the free-for-all ending in 2008.

Posted by BidnisMan | Report as abusive
 

@dd606 – Calling people ‘whiners’ and preaching Ayn Rand means you are either (1) on top of the income distribution or (2) an uncritical thinker supporting policies that are against your interests. In either case, your views aren’t relevant to any discussion other than how to further increase the income mass concentrated at the top.

Speaking of giving people free money, I suppose you don’t have any objection to the federal reserve handing out unlimited free gambling cash to investment banks ? Because they’re part of the deserving, job-creating 1%, correct ?

Posted by brianpforbes | Report as abusive
 

As one of your rather loyal fans, I’m disappointed to see you put forth: “…at a financial firm’s presentation of its latest investment thinking…[a]…speaker explained that many of the firm’s billionaire clients thought emerging markets would underperform, so they were shifting funds out of them.

In other words, these very rich people were trying to become a little bit richer by taking money away from poor people.”

There seems to be no country in the world that does not, in some meaningful way, inflate their currency. So it is not enough that the ‘well off” figure out how to climb to the top of the economic pile. The value of earned assets is ceaselessly leaking away as precious water from a cracked jar in the desert.

Thus they MUST invest those assets in some manner somewhere, and is there an investment ANYWHERE totally without risk? To not invest as wisely as one can is to swim the race with one hand tied behind. No record can be set, no finish guaranteed, yet one can still drown!

Money is like a seed…sown in fertile ground it springs forth with abundance; sown in a desert it withers and dies. Third world hell holes that offer the world NOTHING but urine, feces and hatred are not fertile ground for more than the few dollars those wishing to make a “financial statement of social merit” can afford to lose.

It is simply untrue to accuse “very rich people” of “taking money away from poor people” when those “poor people” have neither earned nor possessed said money. They have NO tangible interest in it whatsoever.

Posted by OneOfTheSheep | Report as abusive
 

OOTS: There is an article somewhere in the news cycle today (check CNN or NBC news I forget which) that concerns findings from a recent global ignorance survey. A broad brush painting “third world hell holes” may be a bit oversimplified. The world is changing very, very quickly, as you have often observed. You should read the findings. If we keep chasing 50+ year old bogeymen with no modern relevance (communism, socialism, capitalism, none of which has ever existed as conceived), we will be outpaced sooner than ever imagined, even by those clawing their way upward from hell’s gates!

Posted by Heyoka | Report as abusive
 

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