from Breakingviews:

Pope’s “authentic” economics make sense

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Pope Francis is a Jesuit, a Catholic order which has traditionally, among other things, served the rich and powerful as teachers and confessors. At its best, a Jesuit education inspires the mighty to serve the lowly. The Pope’s address to the business and political leaders assembled at the World Economic Forum at Davos fits right into that tradition.

He flatters the “innovative” for “improving the lives of many people by their ingenuity and professional expertise.” Then he hits. Davosians, he says, “can further contribute by putting their skills at the service of those who are still living in dire poverty.”

In other words, if you are clever enough, and determined enough, to rise to Davos-level, you should do more to help those who cannot help themselves. It’s hard to disagree.

Almost all the delegates have a surplus of something valuable – money, knowledge or influence. Almost all of them waste that surplus, by the Pope’s standards. Francis thinks they should invest the surpluses in what the bishop of Rome calls “the life of humanity.” If they wanted to they could do much more to promote: “an inclusive approach which takes into consideration the dignity of every person and the common good.”

from Breakingviews:

Give thanks for the pope’s anti-free market views

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Wall Street bigwigs often lean economically right and socially left. In what looks like a manifesto for his papacy, Pope Francis takes the opposite stance. He might not, however, object to the relatively uncommercialized American Thanksgiving holiday. And over their turkey on Thursday, the rich might ponder a financial system that the pope says “rules rather than serves.”

Francis’ skepticism of free markets and concern about the absence of ethics in finance and economics were shared by his predecessor, Benedict XVI. But Francis’ simple style and consistent rejection of the traditional trappings of office lend his words particular weight. He rails against inequality and “the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose.” Though Francis is guided by his Christianity, no particular religion is needed to agree that pure capitalism, whatever its big-picture merits, leaves many people marginalized.

from Edward Hadas:

Morality and monetary policy

Monetary policy these days is complicated, ineffective, and quite possibly immoral. The complexity is inevitable; there is no simple way to ensure that the supply of money and credit is appropriate in a large modern economy. The ineffectiveness is evident: central bankers let that supply grow too fast before the 2008 financial crisis, and have unable to return monetary conditions to normal since then.

The moral lapses may be subtle, but I believe the lack of attention to the common good in the management of interest rates and the monetary system causes three serious problems.

 1) Dangerous freedom

Imagine a world in which anyone can use anything as a currency. This perfect monetary freedom would be a disaster. With strangers, I would only be willing to deal in gold, or some other scarce substance that could be carefully measured, because I would have no way of evaluating verbal or written promises to deal fairly. I might be able to trust members of my social group in economic transactions, but only because our monetary freedom was balanced by strong social constraints; they would be punished if they tried to cheat me.

from Edward Hadas:

Greed, justice and deception

Greed contributes to all the economic and financial woes of prosperous societies. The United States and other rich countries produce much more than is needed to support all of their people in comfort, so if desires were all truly modest, there would be few problems. Greed encourages people to decide that their own share is too small. Greed influences the popular desire for GDP growth (more, faster), financial gains (higher house prices as a human right) and total economic security (guaranteed pension, come what may). Voters’ greed encourages governments to spend more and tax less.

During the boom years, politicians and economists consistently underestimated greed’s disruptive power. While few endorsed the extremist view that greed is actually good, even fewer acted as if it were dangerous. The rhetoric changed during the crisis. It has become fashionable to add “greedy” to the description of any unpopular group - bankers, highly paid executives, rich people in general, welfare cheats.

In theory, the entry of greed into the public discourse ought to be helpful. If those subject to immoderate desire could be identified with certainty, then society might take up arms against them. While we might never win the battle, we could at least hope to shame and restrain the malefactors.

from Edward Hadas:

Economics for Christmas

The Christmas season is a particularly good time to think about the fundamental weaknesses of conventional economic theory. Frenzied shopping for gifts cannot easily be reconciled with the standard model's dour "economic man", a creature who "who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial", in the classic definition of John Stuart Mill. The joyful Christmas season is also a good period to offer praise for a line of economic thinking which draws on a much more flattering view of human nature.

Historically, this approach has been closely associated with the Catholic Church, but "Catholic Economics" is a misleading title, since the thinking is not denominational - for example, Justin Welby, the incoming leader of the Church of England, is a fan. It is not really religious; many atheists would reject the conventional assumption that people always and everywhere calculate their selfish advantage. In honour of the season, I will use "Christmas economics" to describe this anti-Scrooge analysis, which is based on what might be called the Christmas economic person. Unlike the simple and narrowly rational economic man, this is a complicated creature, largely motivated by the desire to be and to do good, but also prone to greed and foolishness. That combination is illogical, but it is realistic; people always show a frustrating mix of virtue and vice.

A comparison shows the advantages of Christmas economics over the standard approach. Consider the difference between the conventional idea of a market and "giving in order to acquire", a phrase used by Pope Benedict XVI in his Caritas in Veritate. Note that the economists' market is not a physical place to shop, like a supermarket. It is a conceptual place where purely self-interested economic men trade with one another until they are all as satisfied as they possibly can be, a state known as equilibrium.

from Edward Hadas:

Remembering the 1960s

Revolution was not on the agenda when the Second Vatican Council of the Catholic Church opened on Oct. 11, 1962, almost exactly 50 years ago. However, the gathering marked the start of a new era, not only for the world’s largest centrally-run religion. During the following years, the hope for a better, freer world led to everything from the sexual revolution to the Prague Spring, from African independence to the hippie culture of Woodstock. A half-century on, it seems a good time for an economist to take stock.

The economy was not the top concern of the ’60s would-be revolutionaries, but calls for a new society had two revolutionary economic implications.

First, like so many other parts of the established order, the economic “system” was to be overthrown. The target was clear enough in Eastern Europe - the Communist planned economy. Elsewhere, the economic villain was harder to pin down, although it was often assumed that “capitalism” was intrinsically evil - heartless corporations and excessive materialism in the West and post-colonial exploitation in the Third World. It was time for radical change; if not a return to some imagined pre-industrial communal paradise then at least a massive refusal to become cogs in the machine. It hardly seemed to matter then that dissidents in the East were longing for what protesters in the West were loathing.

from Edward Hadas:

Prosperity need not kill religion

Thomas Carlyle’s fulminations against the spiritual damage wrought by factories are almost two centuries old, but the sentiment is current wherever industrialisation is rampant. “The huge demon of Mechanism,” he wrote, “smokes and thunders, panting at his great task, oversetting whole multitudes of workmen ... so that the wisest no longer knows his whereabout.”

In China, today, government leaders and dissidents alike worry that, as one commentator put it, “frenzied competition for a better life [has] lobotomized the people of inherent values like common decency, compassion and feelings of fellowship”.

A century ago, Max Weber described the process as “disenchantment”. The German sociologist thought the transition from a culture of faith and farming to the narrow-minded and bureaucratic “iron cage” of modern civilisation required the destruction of a spiritual worldview. He saw a modern society made up of "specialists without spirit, sensualists without heart".

from Chrystia Freeland:

The Triumph of the Social Animal

BERLIN — Does fairness matter? As France prepares to elect a president this spring and the United States gets ready to elect a president in the autumn, that old philosopher’s chestnut is gaining tremendous real-time political relevance.

Economics, by contrast, hasn’t traditionally been much concerned with fairness. Instead, economists have based their analysis on “Homo economicus,” a model human being who is perfectly rational and perfectly guided by self-interest.

The financial crisis of 2008 made it hard to believe in a world of perfectly rational actors, even when they earn million-dollar salaries and have advanced degrees. Now, a growing body of research is challenging the second part of the definition of Homo economicus — that he is guided purely by self-interest.