Richard A. Epstein says both the Bishop of Rome and the Oracle of Omaha are dead wrong on economic policy:
Denouncing those who put ‘profits before people’ may stir the masses, but it is a wickedly deformed foundation for social policy. Profits, like losses, do not exist in the abstract. Corporations, as such, do not experience gains or losses. Those gains and losses are passed on to real people, like shareholders, consumers, workers, and suppliers. It is possible to imagine a world without profits. Yet the disappearance of profits means that investors will be unable to realize a return on either their capital or labor. Structure a system that puts people before profits, and both capital and labor will dry up. The scarcity of private investment capital will force the public sector to first raise and allocate capital and labor, though it has no idea how these resources should be deployed to help the people, writ large. A set of ill-conceived public investments will not provide useful goods and services for consumers (who are, after all, people), nor will it provide sustainable wages for workers (who are also people). Poor investment decisions will lead to a massive constriction in social output that harms all people equally.
The proper response to these difficulties is to treat profits as an accurate measure of the cost of capital, rewarded to those individuals and firms who supply some desirable mix of goods, services, and jobs that people, acting individually and not collectively, want for themselves. The genius of Adam Smith, whose musings on the invisible hand are too often derided, was to realize that private markets (supported, to be sure, by suitable public infrastructure) will do better than a command and control system in satisfying the individual’s wants and needs.
(Via: Justin Taylor)
August 23rd, 2011 | 11:46 am
He has a point, but only a partial one. Man does not live on profits alone, so if we only value profit in the marketplace, we will be hungry in other areas.
August 23rd, 2011 | 11:53 am
Please note the three-card monty Epstein employs to change the question.
August 23rd, 2011 | 12:04 pm
It’s focusing only on profit that’s the issue, not profit per se. And not only is it a social problem, it’s a business-management one:
http://www.forbes.com/sites/stevedenning/2011/08/17/why-amazon-cant-make-a-kindle-in-the-usa/
August 23rd, 2011 | 12:26 pm
Uhhh….the Pope doesn’t own Dairy Queen. Just sayin’.
August 23rd, 2011 | 12:26 pm
A weakness of this argument is the careful use of adjectives, false dichotomies, and subtle exaggeration. For instance, “the scarcity of private investment capital”. Scarcity of capital — indeed, of any good — occurs regardless of policy, scarcity being a fact of life. “Putting people before profits” is characterized not as forbidding extravagant profits and (thus) returns to investors, but as mandating marginal or no profits. Likewise, the argument about “ill-conceived public investments” is meant to remind the reader of the stimulus packages in 2009 and 2010, which I agree were ill-conceived, but public investments need not be ill-conceived, and many provide a great deal of useful goods and services to consumers as well as sustainable wages to workers, such as an interstate highway system.
I’m reasonably sure that both the Pope and Warren Buffett don’t mean this. It’s a straw man argument.
August 23rd, 2011 | 12:28 pm
Seriously, why can’t these guys come up with good ideas… like building a libertarian utopia on the sea.
August 23rd, 2011 | 3:01 pm
It seems very wrong to me for the author to conflate the Pope’s comments, which (at least those cited in the article) are very general and a truism. The good of man (humankind), the Common Good if you will, IS primary, before the question of profit. That doesn’t rule out the role of profit in contributing to the Common Good, at least not to the extent of the Pope’s comments cited in the article.
Unfortunately, the tendency for spiritual leaders to make very specific, and misguided, statements about economic issues is very real. See the USCCB’s (US bishops’) lobbying for socialized medicine as a particularly repugnant example. However, the Pope was speaking of at a more general, philosophical level, and what he said (at least what was in the article) was in itself true and unremarkable.
On the other hand, Buffett gave very specific and misguided suggestions for a solution which is no solution at all. He knows better, or should. Perhaps he was engaging a bit of reverse psychology, saying tax the rich more, just to get that false solution off the table by exposing the futility of it. If that’s his aim, at least it’s a reasonable goal. But it’s a fool’s errand. A demagogue like Obama will continue to caterwaul about needing to tax the rich no matter what the facts are. The truth is not in him.
August 23rd, 2011 | 4:28 pm
Epstein’s “article” is practically the definition of a “hatchet job.”
I read this after it was referenced at National Review’s The Corner blog, by Andrew Stuttaford, who quoted from Epstein’s post and commented favorably on it. Epstein apparently depended on a few quotes in a National Public Radio story about the Pope’s remarks, which were made to reporters during the Q&A he had with them on the flight to Madrid.
There is, so far, no official Vatican English translation of the Q&A; but Zenit.com has an unofficial translation of the entire transcript.
http://www.zenit.org/article-33219?l=english
Here’s the question put to Benedict, and his reply:
Q: Europe and the Western world are going through a profound economic crisis, which also shows signs of a great social and moral crisis, of great uncertainty for the future, particularly painful for young people. What messages can the Church offer to give hope and encouragement to the young people of the world?
Benedict XVI: “[We see] confirmed in the present economic crisis what has already been seen in the great preceding crisis: that an ethical dimension is not something exterior to economic problems, but an interior and fundamental dimension. The economy does not function with mercantile self-regulation alone, but it has need of an ethical reason to function for man.
This can be seen in what was already said in John Paul II’s first social encyclical: Man must be at the center of the economy and the economy must not be measured according to greatest profit, but according to the good of all. It includes responsibility for the other, and it really functions well only if it functions in a human way in regard to the other, in his various dimensions: responsibility with one’s nation, and not just with oneself, responsibility with the world. Nations are not isolated, not even Europe is isolated, but they are responsible for the whole of humanity and must always think of addressing economic problems in a context of responsibility, in particular with the other parts of the world, with those who suffer, who are thirsty and hungry, and have no future.
Hence, the third dimension of this responsibility is responsibility with the future: We know that we must protect our planet, but we must protect the functioning of the service of economic work for all and think that tomorrow is also today. If the young people of today do not find prospects in their life, our today is also mistaken, it is wrong.
Therefore, the Church with her social doctrine, with her doctrine on responsibility before God, opens one to the capacity of giving up the greatest profit and seeing in realities the humanistic and religious dimension, that is, that we are made for one another and so it is also possible to open paths — as happens with the great number of volunteers who work in different parts of the world not for themselves, but for others, and thus they find the meaning of their life.
This can be achieved with an education in the great objectives, as the Church tries to do. This is essential for our future.”
As I commented in reply to Stuttaford’s post, which like Epstein’s simply reads what he wants to into a few sentences pulled out of context, the unsurprising fact that Benedict is not a libertarian doesn’t lead to the conclusion that he’s a socialist.
Benedict was talking about economies, not economics (nor capitalism nor socialism) and economies are embedded in and part of a social order; neither can be fully or properly understood isolated from morality and faith.
August 23rd, 2011 | 4:34 pm
For most people misunderstanding the Pope to such a degree would be difficult. Epstein makes it look easy.
Joe DeVet: The USCCB did not lobby for socialized medicine.
August 24th, 2011 | 2:42 am
So Pope is not merely wrong but sets forth a “wickedly wrong position”.
The sons of Adam Smith expel the question of Intention from their minds and seek to
expunge this notion from public sphere. That is why, they ever reply to the Left who are their cousins but they never reply to the Catholic thought. They deliberately or accidentally conflate the Catholic position with the Left’s.
By Adam Smith, the actors seek their own good and by the dogma of invisible hand, the seeking of private good produces public good. But this is by accident. The intention of the actor is never the public good.
But classically, the self-seeking behavior was termed immoral in itself, regardless of the public good it might or might not produce.
Sustained self-seeking is a vice in Catholic thought. It can not be corralled in economic sphere but seeks to spread out and take over more and more of a man’s personality and behavior.
There is no way to be self-seeking in cash transactions and loving otherwise.
Christians are commanded to love their neighbors and the cash transactions are not exempt. Love means seeking the good of Other, even at the cost of my good.
The question of intention is also relevant. An act is not moral it if the actor intends a private profit. By the Invisible Hand dogma
August 24th, 2011 | 3:57 pm
I agree with many of the comments above. A straw man was built, he hasn’t read the Church’s documents, or he misunderstand Her language.
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